Canadian Home Sales Fall 3.9% in September as They Continue to Slow
The Canadian Real Estate Association (CREA) says the country’s housing market continued to slow in September — a stark contrast from the flurried pace of sales the fall usually delivers. The association said that September sales were down 3.9% compared with August, a slight increase in the current sales slowdown that began with the Bank of Canada’s first interest rate hike in March. Compared with 2021, home sales in September were down 32.2% and about 12% below the pre-pandemic 10-year average for the month.
Sherry Cooper, chief economist at Dominion Lending Centres, considered the numbers to be a sign of a housing correction, but noted it’s been an “unusual” correction because it’s “orderly” and “non-chaotic.” She wrote in a note that, “[h]ome sales have slowed, but so have new listings, so the price declines are more muted than we might have expected.”
“We’ve seen little distressed selling, as most would-be sellers have lots of home equity and low mortgage rates — not anxious to buy new properties immediately. Moreover, with rents surging, most potential downsizers aren’t keen to make that trade-off,” Cooper added.
The national slowdown CREA reported comes almost two weeks after real estate boards in many major cities, including Toronto and Vancouver, reported drops in sales and far fewer new listings than they expected for what is usually one of the busiest times of year. Instead of the frenzy, they found few bidding wars and many sellers discouraged from listing their properties because they feared they wouldn’t fetch as much money as their neighbours did at the start of the year, when the market was moving at a torrid pace.
Robert Kavcic, a senior economist with BMO Capital Markets, said the conditions are causing a “standoff in the market.”
“Buyers can’t qualify for, or afford, early-year prices, and probably don’t want to catch falling knives anyway (how quickly the sentiment turned),” he wrote in a note to investors. “But, sellers are able to hold out for better market conditions or, in the case of investors, put units on the rental market. In other words, the market is just not clearing right now — hence the lack of transaction volumes.”
He noted that while the market balance is soft, there is no forced selling or dumping of properties, and added that he still sees the country’s new listings as “very well-behaved” because the number of newly listed homes was down 0.8% on a month-over-month basis in September. On a year-over-year basis, new listings were down 1.5%.
“Listings fell for the third straight month, indicating that a softening economy and higher interest rates have yet to force a meaningful increase in supply,” said James Orlando, a director and senior economist with TD Economics, in a note to investors. “If anything, soft price conditions are keeping potential sellers on the sidelines.”
The actual national average home price was $640,479 in September, down 6.6% compared with the same month in 2021. CREA said excluding the Greater Vancouver and Greater Toronto Area, two of Canada’s most active and expensive housing markets, cuts more than $117,000 from the national average price. On a seasonally adjusted basis, the national average home price totalled $650,172, a 1.2% drop from August.
With the Bank of Canada expected to hike its policy rate even more, Orlando expected additional price pressure and forecast a 22% decline in average home prices between the start of 2022 and 2023.
Meanwhile, Kavcic said, “With mortgage rates across the spectrum set to push above 5% as the Bank of Canada tightens further, this downward price discovery is probably going to persist well into next year, and anyone holding out for better market conditions is going to need a stroke of luck.”
CMHC’s Deputy Chief Economist Predicts Housing Prices to Drop 15% by End of Second Quarter 2023
Canada Mortgage and Housing Corp. is predicting housing prices will continue to drop in 2023, but is warning the fall will do little for affordability.
Patrick Perrier, the housing agency’s deputy chief economist, said in a report that he expects the national average home price to fall 15% from $770,812 – the peak seen in the first quarter of 2022 – by the end of the second quarter of 2023.
On an annual basis, he sees prices growing 2.6% in 2022 compared with 21.3% in 2021 and then, declining 6.3% in 2023 and rising 2.1% in 2024. Mr. Perrier attributed the moves to housing demand slowing as interest rates rise.
Despite the price decline, Mr. Perrier believes housing affordability will not improve because any benefits that can be reaped from lower prices will be offset by higher interest rates and combined with an increasingly competitive rental market. “Those who are current renters that were planning to purchase a house, they won’t be able to do it, so they’ll stay in the rental market,” Mr. Perrier said in an interview. “And unfortunately, we might see others that are currently owners that, because of deterioration in their employment and income conditions, might have to sell and go on the rental market.”
Thus, Mr. Perrier said less demand and pressure in the ownership market will transfer to more demand and pressure in the rental market. To make the housing markets for affordable, he feels more supply is needed and it needs to come quicker to keep pace with demand and take pressure off pricing.
Mr. Perrier sees the lack of affordability occurring as the country heads into a recession by the end of 2022, but added that the downturn will not be as severe as the last and a recovery will begin in the second half of 2023.
In a separate report, Royal LePage lowered its home price expectations. It sees prices in the fourth quarter decreasing compared with the same quarter of 2021 and erasing the gains made at the start of 2022. The real estate brokerage’s new outlook is based on a survey that predicted the aggregate price of a home in Canada in the final three months of 2022 will drop 0.5% compared with the fourth quarter of 2021. That’s down from a July forecast that predicted prices in the fourth quarter to be up 5.0% on a year-over-year basis.
Because home prices follow sales volume trends, Royal LePage chief executive officer Phil Soper expects to see further softening in the final months of the year. “September did not bring the typical seasonal lift in the number of homes trading hands in this country, a clear indication that our housing market continues to adjust to higher borrowing costs,” Mr. Soper said in a statement. “Our revised outlook has national prices at just below where we ended 2021, erasing the gains made in the first quarter of 2022.”
Surging Rents Have Canadian Condo Owners Rethinking Their Plans to Sell
Surging rents are draining inventory from Canada’s resale condominium markets as would-be sellers opt to lease out their units long-term instead, a new report suggests. Condominium sales were down in the first eight months of 2022 in four key markets — Greater Vancouver/Fraser Valley, Greater Toronto Area, Ottawa and Nova Scotia — according RE/MAX Canada’s 2022 Canadian Condominium Report, which was released Oct. 12. Calgary and Edmonton bucked the trend, reporting double-digit sales gains.
Meanwhile, monthly rents have been surging. Average rent in the Greater Toronto Area, for example, rose 21% on a year-over-year basis in August, a recent rent report by Rentals.ca and Bullpen Research & Consulting found.
“The affordability factor is the key issue in today’s housing market,” said Christopher Alexander, president of RE/MAX Canada. “Rising interest rates have slowly eroded purchasing power and, despite lower housing values and cooling market conditions, buying a house is more challenging now than ever before.”
That means the cost of renting is now comparable to carrying a mortgage — and sellers are capitalizing on the trend by holding onto their properties and becoming landlords. “They are getting great returns on their investment if they decide to rent their unit instead of selling. Rents have gone up 25%, pretty much, across the board,” Alexander said. “So if you can cover all your expenses through rental income, and you can refinance to buy something else, you’re in really good shape.”
Jamie Johnson, a broker who owns RE/MAX Condos Plus, said he has encountered numerous would-be sellers who have pulled their listings and asked to advertise their condos as rentals instead. “For every condo listing for sale, we’re seeing about six listings for rent or lease,” he said.
Despite the rental effect, urban market condos increased their share of total sales as buyers opted for cheaper options and market activity slowed overall. In Toronto, for example, the bulk of condominium apartment sales now hover in the $500,000–$700,000 range, down from $600,000–$800,000 earlier in the year.
Compared to year-to-date levels one year ago, condominiums now represent more than 54% of total residential sales in Greater Vancouver, 36.3% in the Greater Toronto Area, 32% in the Fraser Valley, just over 25% in Edmonton and Ottawa, and almost 20% in Calgary. Nova Scotia was the only market to register a decline in condominium market share.
“Buyers should be cautioned that the current slowdown in sales activity is likely not indicative of a crash,” says Elton Ash, executive vice- president, RE/MAX Canada. “Prices for condominium product have remained stable or risen in most major urban centres year-to-date. Conditions are balanced overall and, as such, buyers and sellers with realistic expectations should be able to achieve reasonable objectives.”
Average prices rose by up to 26% year over year, the report found. In the GTA, prices jumped 15.7% to $796,457 in 2022 from $688,137 in 2021.
Source: Financial Post
Canada Needs More Homes. the Problem? Finding People to Build Them
Canada does not have the labour capacity to build the 3.5 million new homes that would be needed to achieve housing affordability by 2030 and Ontario is likely to see more new households formed than houses built in that time, according to a sobering new report from the Canada Mortgage and Housing Corporation (CMHC).
CMHC had set the 3.5-million target figure in a report in June, but follow-up research found that there will only be enough labour to increase the number of starts in four major provinces — Ontario, Québec, BC and Alberta — by 30% to 50%. While Alberta could meet its needs under such a scenario, the other large provinces would fall well short. “Ontario, Québec and B.C. will have to double the number of starts that they can produce under best-case scenarios,” to meet the target, the report found.
Dana Senagama, CMHC economist and author of the report said the agency knew Ontario and B.C. were facing challenges, but was surprised by the severity. If current rates of new construction continue, the CMHC said the country’s housing stock is expected to increase by just 2.3 million units by 2030, reaching close to 19 million units total.
BuildForce Canada, a construction sector industry group, projects these market challenges could persist through the forecast period due to a strong residential construction market and a growing pipeline of major projects that is not expected to slow until 2026. Demographic trends will also be a factor, BuildForce executive director Bill Ferreira said in an interview.
“The latest census data points to the fact that 20% of Canada’s population is between the ages of 50 and 64,” Bill Ferreira said. “And only 16% are under 50. So when we start looking and projecting out over the next 15 years, we know more people will be leaving the labour force to retire than coming into the labour force.”
CMHC based their measure of capacity on how much the labour force could produce at current wage and skill levels. The agency then used the share of residential construction workers in the population and the minimum number of workers required for a housing unit under construction to come up with estimated labour capacity.
According to Ferreira, the federal government has introduced a number of new incentives to try and encourage skilled trade businesses to support trades workers with training. “The reality is that this is probably the most challenging yet certainly the most supportive environment that the construction industry has seen for probably the past 20 years.”
Labour is tough to find. In the second quarter, employers were recruiting for about 90,000 roles in construction, more than double what was sought before the pandemic, according to Statistics Canada. Despite those opportunities, job growth is modest. Employment in construction has risen by fewer than 20,000 people (1.3%) over the past three years, lagging the overall pace of job creation. Statistics Canada also said self-employment in construction had fallen by 52,000 people (12%) over that span.
Still, Ontario, the only province where projections show more new households than housing starts through to 2030, has the biggest skill shortage. While other provinces might benefit from expanding the labour pool, in Ontario “the gaps are too large,” the CMHC report found.
The report concluded that building “up” in the form of apartments and converting existing structures into residential units were possible avenues to close the gap, as were programs to bring in more immigrants with construction-related skills and better pay for such workers.
Kevin Lee, chief executive of the Canadian Home Builders’ Association, said prefabricated construction was another possible solution. “Whether we call it prefabricated construction or factory-built construction, the idea is that you’re building either modules or panels in a factory that can then be shipped on site,” Lee said.
This method of building has been popularized by the “tiny home” trend, but Lee says that it is possible to build a typical detached home and multi-family buildings this way as well. The challenge is the overhead costs. “Because of the overhead costs related to having a factory, it can be a little bit more difficult to sustain. But because of the labour shortage we’re facing now, it’s going to make more and more sense to invest in this way of building,” he said.
TD Expects Steeper Home Price Drop in Early 2023 Than Initial Forecast
TD Economics has revised its housing forecast to account for even steeper price declines in early 2023 and then slower growth for the remainder of the year. The report from the bank’s economist Rishi Sondhi foresees average national home price growth dropping by 11.2% in 2023, but increasing by 6.1% in 2024.
Sondhi says Canadian average home prices will recoup only a portion of their pandemic-era gains as personal incomes continue growing and bond yields begin declining in 2023.
His report adds annual average sales growth will fall 16% in 2023, but rebound with a 19.1% climb in 2024. He says sales will bottom out at about 20% below their pre-pandemic levels in the early part of 2023 and attributes the shift to higher borrowing costs that will further erode affordability.
Sondhi’s report is based on data from the Canadian Real Estate Association, which said the country ended 2021 with an average national price of $669,364 and 719,047 sales.
Source: The Star
Housing Starts Will Fall Below 2030 Supply Targets in Ontario, Quebec and British Columbia
Canada Mortgage and Housing Corp. says even under best-case scenarios, housing starts will fall well below the affordable housing supply targets it has set for Ontario, B.C. and Quebec to reach by 2030.
In those three provinces and Alberta there will only be enough labour capacity over the next eight years to increase the number of housing starts by between 30% and 50% under best-case scenarios, the federal housing agency said in a new report. “We didn’t think the challenges were this acute. We thought that there was more capacity in order to achieve these goals,” said Dana Senagama, a senior specialist in market insights at CMHC and one of the report’s authors. “These provinces are going to have problems, but how much they will have… is what was more surprising.”
Senagama’s report concluded Ontario, Quebec and B.C. will have to double the number of starts that they can produce under best-case scenarios to help reach CMHC’s national affordability target of 3.5 million more homes built by 2030. Alberta shouldn’t have as much trouble increasing housing supply, even under maximum capacity conditions, because it has fewer supply and price pressures and steady population growth.
CMHC describes a best-case scenario as a market where there is the highest percentage of people in the population working in residential construction and the lowest number of construction workers per unit being built in the last 25 years.
But best-case scenarios can also have downfalls, it pointed out. If construction workers are stretching to meet demand and new staff don’t join their ranks, backlogs can form. Labour capacity problems will be worst in Ontario, where the population and price pressures are highest, but Quebec and B.C. will also not have the workforce needed, CMHC said. It found the number of workers per residential unit under construction has been decreasing in Ontario, Quebec and B.C., leaving each worker with more tasks to complete.
To maximize resources, CMHC suggested focusing on building apartments. “Labour is able to get more things done within the same building, so it’s easier to move equipment and cranes as opposed to in those big, low rise subdivisions, where it appears … that more workers are needed to move between one house to another,” said Senagama. “That suggests to us that there’s more capacity in building up, but the problem with high-density construction is where do we find that right product mix that’s suitable for home homeowners or homebuyers?”
Barry Fenton, president and chief executive of Lanterra Developments, liked this suggestion because it aligns with the kinds of projects he notices the industry wants to work on. “The trades themselves would prefer to be managing a larger group of people and be involved in one project than having to build low-rise or mid-rise housing,” he said.
CMHC also recommended focusing on more home conversions because it’s more costly to turn existing buildings into residential units, but can be a quick way to optimize current labour capabilities. To boost the number of workers, it suggested more education and incentives to get people between the ages of 15 and 24 to work in construction, fair compensation for those in the sector and more targeted immigration programs that could bring in people willing to join the industry.
Fenton doesn’t necessarily think immigration is the answer, but feels the government could do more to encourage people to return to the workforce after COVID-19 shutdowns in 2020 and 2021. “It’s very hard to get people to work sometimes because they got used to staying at home and a lot of people got subsidized by government agencies,” he said, referencing pandemic relief the government rolled out to Canadians.
He thinks any labour shortages will ease and are second to other issues like housing affordability and the difficulty of balancing inventory with consumer wants. “With the whole issue of supply and demand, I think there’s going to be a continued pressure component over the next many years.”
Source: The Star
Building Permits, August 2022
The total value of building permits in Canada increased 11.9% in August to $12.5 billion. Both the residential sector (+12.0% to $8.4 billion) and non-residential sector (+11.8% to $4.0 billion) saw strong gains, with Ontario causing much of the increase. On a constant dollar basis (2012=100), the total value of building permits increased 10.0% to $7.5 billion.
Multi-family component pushes residential sector to record high
Residential permits in August increased 12.0% to $8.4 billion nationally. Gains in Ontario offset losses posted in seven provinces.
Construction intentions in the single-family homes component edged up 0.4%. The value of building permits in the multi-family component sharply increased by 22.2%, largely due to Ontario (+85.3%). A $480 million permit for a luxury skyscraper in Toronto along with several other permits for apartments resulted in the largest recorded monthly value for the province.
Ontario drives non-residential sector
The total permit value of the non-residential sector increased 11.8% to $4.0 billion in August.
The value of building permits in the industrial component rebounded with an increase of 18.1%. Saskatchewan sharply increased by 77.7% with three permits over $5 million. Nova Scotia also had a notable increase with a variety of smaller permits.
Institutional permit values sharply increased by 39.1%, mainly due to Ontario (+224.2%). Permits for a new school in Hamilton and a new building for the George Brown college in Toronto were behind much of the increase.
Construction intentions in the commercial component decreased 1.4%, largely due to Alberta and Saskatchewan. Conversely, Manitoba saw notable growth in August due to a $50 million permit for an office building in Winnipeg.
Source: Statistics Canada