Canada Will See Weakest Level of Homes Sales This Year Since 2001

A new report from TD Economics predicts Canada will see the weakest level of home sales since 2001 this year. The housing market outlook from economist Rishi Sondhi attributes the prediction to the poorest affordability level since the late 80s and early 90s. Sondhi is forecasting that home sales will reach their bottom sometime in early 2023, after declining 20% from peak to trough.

He says steep annual average price declines are expected in most of the Atlantic provinces, Ontario and B.C. in 2023, while lesser drops will materialize across the Prairies and in Newfoundland and Labrador.

The Canadian Real Estate Association said in December that the actual national average home price was $632,802 in November, a 12% decline from November 2021. November home sales totalled 30,135, a 39% drop from a year prior.

Source: Globe and Mail
Source: The Star

Why There’s More Trouble Ahead for Real Estate in 2023

Analysts and experts are offering a mostly sober forecast for the 2023 housing market. There are glimmers of optimism that buying and selling could resume in the second half of the coming year. But there are also those who believe the worst is yet to come.

Independent economist Will Dunning says the Bank of Canada has long held that it takes six months before you even start to see the impact of interest rate hikes on the economy. The central bank’s key lending rate in March was 0.5%. It rose to 4.25% in the most recent hike in December.

The start of 2023 will look especially dire, warned Royal LePage CEO Phil Soper. First quarter sales and prices will be compared year-over-year to a period that includes the 2022 market peak in February. But the Royal LePage 2023 forecast in December wasn’t entirely grim. It predicted another 1% hit to home prices by the end of 2023. 

But this is a different kind of correction, said Soper. Nine months after home sales began to fall, prices are relatively stable. A lack of listings is actually supporting price levels, said the Toronto Regional Real Estate Board in its November statistical release.

What makes this correction different than the one in 2009, Soper said, is that employment numbers are still high and mortgage delinquency rates are low — 0.07% in Ontario, according to the Canada Mortgage and Housing Corp. website.

Soper said there are risk mitigation factors at play in this correction that didn’t exist in 2009, including tighter lending from financial institutions leading into the downturn. Lenders “could tell there was going to be a boomerang impact from the frenetic market of 2021,” he said. The second major factor is the stress test that forces borrowers to qualify for mortgages above the rates their banks actually charge.

Dunning warns that the Bank of Canada has signalled employment is too high for its inflation-fighting rates to work optimally in cooling inflation. Job losses come when employers start shedding staff to meet a lighter demand for products and services, he said. He reckons that, as household budgets tighten to cope with high housing costs, that will impact the retail, wholesale, manufacturing and financial sectors.

RBC assistant chief economist Robert Hogue is more optimistic. He says the bank expects a modest rise of 1.5 to 2 points in the unemployment rate, making it a relatively mild economic downturn in the postwar context. The real estate market should find its bottom this spring as long as interest rates have peaked and RBC believes they have, he said.

Because it still has a significant affordability challenge, prices in the GTA could yet have a ways to fall, he said. “Prices have to continue to come down to restore some of the affordability … and so the Toronto area might be halfway through, somewhere around there,” said Hogue.

Toronto realtor Cailey Heaps, CEO of the Heaps Estrin Team, specializes in some of Toronto’s desirable central neighbourhoods, which haven’t been as impacted by the downturn as some suburban areas. Heaps expects activity, particularly in the central core, to pick up in mid-January and then “a pretty good run” until mid-May when the market will likely take a seasonal break before a strong fall.

Shaun Hildebrand, the president of development market research firm Urbanation, said new condo launches were down 49% annually in the second half of 2022, 30% below the 10-year average. About 10,000 new units that were expected to launch in 2022 did not come to market and he expects 2023 will be similar with developers waiting for the resale market to improve from what is a 20-year low in sales.

Investors, said Hildebrand, are mostly standing on the sidelines looking for discounts on pre-construction projects but those are scarce. One factor in favour of investors is the GTA’s rent growth, said Hildebrand. The cost of renting a condo was about $2,800 a month in November, 15% above pre-pandemic levels. But relief may be in sight for tenants, who are struggling with inflation. About 31,000 condos and 8,000 purpose-built apartments will be completed and inject new supply into the market in 2023 helping to moderate prices, he said.

The head of the GTA home builders association said developers are standing back and watching two aspects of the market — whether those who bought pre-construction units are able to close on those homes given higher interest rates and declining values. They are also waiting for a sign from the central bank that the interest rate hikes are done.

David Wilkes, CEO of the Building and Land Development Association (BILD), said there haven’t been issues with people closing on their contracted homes yet. “We are expecting a lot of those purchases that were made during the pandemic will close in the second, third and fourth quarter. And there can be no doubt that interest rate environment is different than it was in the pandemic, and we’re anticipating challenges around that,” he said.

Even though pre-construction and new construction sales have slowed along with resale homes, prices have continued to rise on that side of the market. Those prices are expected to maintain into the new year and potentially continue to escalate, he said.

Source: The Star

Canada Building Permits Rebound in November

The total value of building permits in Canada jumped 14.1% in November to $11.0 billion, rebounding after two consecutive monthly losses. On a constant dollar basis (2012=100), the total value of building permits went up 12.3% to $6.5 billion.

Multi-unit dwelling component drives residential sector growth

The value of residential permits increased 13.7% to $7.1 billion nationally in November.

The value of building permits in the multi-family dwelling component was up 19.0%. Ontario contributed to much of the growth with 21 permits for new condominiums and apartments valued at over $10 million. The total number of planned dwelling units in Ontario grew 60% month over month, returning to historical averages reported over the last three years.

The single-family dwelling component advanced 7.1% following four consecutive monthly declines. Gains were posted in seven provinces. Despite the increase in value, the number of dwelling units posted its sixth consecutive monthly decrease.

Ontario pushes up non-residential sector

The total permit value of the non-residential sector rose 14.9% to $3.9 billion in November.

The value of permits in the institutional component strongly increased (+40.6%). Much of the gain was because of a new courthouse planned for development in Toronto valued at just over $500 million. This project helped offset losses posted in six provinces.

The value of building permits in the industrial component showed a strong progression (+32.4%) following significant gains the previous month. Ontario led the way with a $425 million permit for a manufacturing plant in Toronto.

Construction intentions in the commercial component edged down 0.6%, mostly because of losses posted in British Columbia.

Source: Market Watch
Source: Statistics Canada

Toronto December Home Sales Down 48% From Last Year as Fall From 2021 Record Continues

The Greater Toronto Area capped off a tumultuous year with its ninth straight month of declining home prices and almost half the sales seen in 2021. The Toronto Regional Real Estate Board categorized the reduced activity that closed out 2022 as a “marked adjustment” away from 2021’s record housing market, while economists expected the shift to persist into 2023.

“There is no end in sight for the housing correction,” Sal Guatieri, a senior economist with BMO Capital Markets, said in a note to investors. He and the real estate board attributed the slump, which began in the spring of 2022, to Bank of Canada interest rate hikes that further hampered housing affordability and prodded many buyers and sellers into sitting on the market’s sidelines.

The country’s interest rate was repeatedly hiked through 2022 and now sits at 4.25% — the highest it’s been since January 2008. The hikes, which spur mortgage rate increases, have weighed on buying power and forced many to rethink their housing decisions.

Home sales in the final month of 2022 totalled 3,117 sales, down 48.2% compared with December 2021, when the market moved at a torrid pace as COVID-19 scuttled holiday plans. December’s sales figure was a 31% drop from November 2022 and contributed to the market’s 75,140 sales across the entire year — a 38.2% fall compared with the 2021 record of 121,639. December’s new listings totalled 4,074, down 21.3% compared with 5,177 in December 2021.

The fall in sales and new listings is a reflection of patterns that emerged in the second half of 2022, when buyers begun awaiting further price declines, while sellers held off listing properties unless they had to move because they wanted the sizzling sums their predecessors nabbed in 2021.

December’s average selling price of $1,051,216 was down by 9.2% compared with the December 2021 average of $1,157,837, TRREB said. The composite benchmark was down 8.9% on a year-over-year basis in December.

Prices have dropped 19% since March, when the declines began, and economists feel they still have further to fall. “With interest rates expected to stay high and the economy to slip into a shallow downturn, prices look to remain under pressure for most of this year,” said Gautieri.

BMO’s forecast predicts by the time the current economic cycle is complete, national home prices will have slid by between 20% and 25% from their peak. They have already dropped 10% from their high and there’s another 10% to 15% to go.

The Canadian Real Estate Association said last month that the actual national average home price was $632,802 in November, a 12% decline from December 2021.

Yet in Toronto, the year still ended with an average selling price of $1,189,850, up 8.6% compared with $1,095,333 in 2021. TRREB said this growth was based on a strong start to the year, which eventually gave way to moderation in the spring and onward.

Many of the patterns playing out in Canadian resale markets are being reflected in the pre-construction sector too, said Mariana Milborne. The chief operating officer of the Milborne Group, a Toronto-based pre-construction sales and consulting firm, has found pre-construction sales are down by 50% to 60%, but there are still some buyers out there.

For example, a Burlington development with 142 units sold out in a matter of days and in late October, another project with two locations consisting of 226 mid-rise and detached homes and townhouses was 70% sold in a month.

Looking ahead, she sees further rate hikes that will put a damper on the market. “I think that the first two quarters are still going to be a little bit slower and a little bit choppy.”

Source: The Star
Source: Financial Post
Source: Globe and Mail

Calgary’s December Home Sales Down 31% From Last Year

The Calgary Real Estate Board says home sales in the region ended 2022 on a record high even though December sales fell 31% compared to 2021. 

The Albertan board says it capped the year with 29,672 sales, including 1,204 in December. The December sales were not enough to offset gains made earlier in 2022, when homes changed hands at a faster pace.

However, the month was marked with higher prices. The board found the median home price rose 5% from December 2021 to $451,250, while the average price was up 4% to $495,231 and the benchmark price climbed 8% to $518,800.

Meanwhile, December’s new listings amounted to 1,031, a 16% drop from 2021.

The board’s chief economist Ann-Marie Lurie says the region’s inventory sat at 2,214 units available, making it the lowest level of inventory reported for December in more than a decade. “Housing market conditions have changed significantly throughout the year, as sales activity slowed following steep rate gains throughout the later part of the year,” she said, in a news release.

“However, Calgary continues to report activity that is better than levels seen before the pandemic and higher than long-term trends for the city. At the same time, we have faced persistently low inventory levels, which have prevented a more significant adjustment in home prices this year.”

Source: The Star

Vancouver’s December Home Sales Down 52% From Year Ago

Greater Vancouver ended 2022 with another month of prospective homebuyers taking a “wait and see” approach, which the region’s real estate board said pushed down sales by 52% and prices 3% from 2021.

“People were just waiting, waiting, waiting,” said Tirajeh Mazaheri, a Coldwell Banker Prestige Realty agent in Vancouver. “On the buying side and the selling side, we noticed a lot less people have been motivated either to list or to purchase a property.”

She attributes much of the sluggish pace to a rapid succession of hikes to the country’s interest rate, which sits at 4.25%. The increases, which also spark mortgage rate hikes, have weighed on buying power, even as home prices have been on a steady descent. The result is potential buyers sitting on the sidelines awaiting further price declines and reluctant sellers holding off listing properties unless they have to move because they want the sizzling sums their predecessors scored in 2021.

These sentiments are borne out in figures released by the Greater Vancouver Real Estate Board, which revealed that December’s sales totalled 1,295. That’s about 20% lower than they were in November and 38% below the 10-year December sales average. The figures contribute to the 28,903 sales made over 2022, 34% lower than 2021’s total and 7% below 2020’s.

The board attributed the decreases to the market experiencing “a year of caution” fueled by rising borrowing costs and an ongoing battle with inflation. “Closing out 2022, the data shows that the Bank of Canada’s decisions to increase the policy rate at seven of the eight interest rate announcement dates in 2022 has translated into downward pressure on home sale activity and, to a lesser extent, home prices in Metro Vancouver,” Andrew Lis, the board’s director of economics and data analytics, in a news release.

His board’s data showed the market’s composite benchmark price now sits at $1,114,300, a 3% decrease from December 2021 and a 1.5% decrease, when compared with November 2022. “Because right now the prices have come down a very fair bit, people are thinking ‘OK, I’ll see a loss on my property of let’s say $200,000, but on the flip side, if I upgraded my property, I’ll get a discount of $500,000,” said Mazaheri.

She describes the people still in the market as either desperate to sell or buy or “cash ready.” Others are pressing their luck with low-ball offers. “If it hits, it hits and if it doesn’t, then at least they tried, but a lot of them are hitting because a lot of sellers are scared the market is going to go down further,” Mazaheri said.

Starting offers have typically been low because sellers and buyers are both trying to decipher how serious the other is about a deal given the market, added Tim Hill, a regional sales advisor for Re/Max. Some sellers are keen to take what they can get now because they fear further price declines. “If you’re selling in today’s market, you have to be realistic about what you’re doing,” said Hill.

Those who skipped a December transaction will have a handful of new policy changes to contend with. The federal government implemented a two-year ban keeping foreign buyers and commercial enterprises from buying Canadian real estate on Jan. 1.

At the start of 2023, British Columbia also became the first province to require a three-day cooling-off period for buyers following the signing of an agreement to purchase a home. The policy is meant to give buyers more time to arrange financing or home inspections, which were rushed earlier in 2022, when the market was still hot. Mazaheri expects the policy won’t have much impact yet “because the power is in the buyers’ hands” already since sales are down so significantly.

Source: The Star

Record Number of Condos to Flood Toronto Market in 2023

A record number of new condo units will be completed in Toronto in 2023, just as skyrocketing mortgage rates make it harder for investors to close on their properties. Nearly 32,000 condos will hit the city and surrounding suburbs, according to data from condo research firm Urbanation Inc. That surpasses the previous high in 2020, when 22,473 units were completed.

The raft of units are coming on the market after jumps in interest rates have ramped up borrowing costs and led to a drop in real estate sales and home prices. Now, many buyers are having problems qualifying for a mortgage, with five-year interest rates topping 5%. As well, lenders are appraising units at lower prices, meaning that the buyer has to come up with extra funds to make up the difference between the smaller mortgage for a unit, based on the lower appraised price, and what the buyer agreed to pay.

Preconstruction condos, which have not yet been built, are mostly bought by investors who plan to rent their units and/or profit from a resale. To secure a preconstruction condo, a 20% down payment is required. After the condo has been built, the buyer is required to pay the remaining 80%.

“Investors could be looking to exit before they have to close on the unit and they may face difficulties qualifying for a mortgage given what’s happening with interest rates,” Urbanation president Shaun Hildebrand said.

This has led to an uptick in buyers trying to get out of their newly built condos by selling the right to buy their new unit, also known as an assignment sale. “A lot of people are assigning because they can’t qualify for a mortgage nowadays,” said Brigitte Obregon, a broker with Re/Max Ultimate Realty who has sold preconstruction condos since 2009.

Higher mortgage payments have also made it less profitable for investors to own condos. The average condo ownership cost in Toronto was $3,506 a month as of the third quarter of 2022, according to Urbanation. In comparison, the average monthly rent in the region was $2,733, which left the condo owner paying an average of $773 out of pocket every month. That is up from an average shortfall of $235 a month in the third quarter of 2021, $196 in 2020 and $17 in 2019, according to Urbanation.

Preconstruction condo sales in Toronto had been on the rise for years, driven by demand from investors and developers. But since home prices started to fall in 2022, it has become somewhat cheaper to buy an already built condo on the resale market.

The average rate for a preconstruction condo was $1,427 a square foot as of the third quarter of 2022, according to Urbanation. In comparison, the average price for a condo on the resale market was $891 a square foot.

“People are saying ‘Okay, now it seems like I can get the better deals on the resale market, or the preconstruction assignment market,’” said Vicky Huang, chief executive of Bay Street Group, a real estate brokerage that works with Chinese buyers in the resale and preconstruction housing market.

The typical price of a home across Canada is down 10% from peak prices in February, 2022. In the preconstruction market, investors are not seeing the value of their properties grow as quickly as it has in the past. That is expected to further contribute to the slowdown in preconstruction sales in 2023.

Activity had already dropped significantly, and by the third quarter of 2022, preconstruction sales hit their lowest level since the 2008-09 global financial crisis. Dozens of projects had no sales during the quarter, according to Urbanation.

Source: Globe and Mail

Canadian Home Sales Fell 3.3% in November, CTRA Reports

The Canadian Real Estate Association says seasonally adjusted home sales were down 3.3% on a month-over-month basis in November. The association said that the move lower more than erased the gain seen in October and resumed the overall trend lower for the year.

CREA said about 60% of all local markets saw lower sales in November, led by Greater Vancouver and the Fraser Valley, Edmonton, the Greater Toronto Area and Montreal. Actual home sales in November 2022 were down 38.9% compared with November 2021.

TD Bank economist Rishi Sondhi said demand continues to decline under the weight of rising interest rates. “Weaker sales activity should push prices even lower in the near-term. However, our forecast calls for average prices to only partially retrace their pre-pandemic gain when they eventually bottom,” Sondhi wrote in a report. “An unanticipated surge in resale supply would undermine this view, but so far the rate at which new listings are hitting the market has been subdued.”

The number of newly listed homes fell 1.3% on a month-over-month basis in November. CREA said the sales-to-new listings ratio was 49.9% in November compared with 50.9% in October.

The actual national average home price was $632,802 in November, down 12% from the same month in 2021. Home sales and prices have fallen this year as rising interest rates have increased the cost of borrowing for Canadians.

“There were no big surprises in the November housing numbers, with the data showing the same trends of lower sales and moderating prices we’ve been seeing for a number of months now,” said Jill Oudil, Chair of CREA. “That said, while the interest rate situation facing buyers is unlikely to improve over the first half of 2023, it is more likely to remain the same. However, it may also be the first spring market in a number of years where buyers have a shot at not being out-competed for properties that catch their eye,” continued Oudil.

Source: Globe and Mail
Source: The Star
Source: Financial Post
Source: CREA

Annual Pace of Housing Starts in Canada Edged Down in November, CMHC Says

Canada Mortgage and Housing Corp. says the annual pace of housing starts in November edged down 0.2% compared with October. The national housing agency says the seasonally adjusted annual rate of housing starts in November was 264,159 units, down from 264,581 in October.

The result came as the annual pace of urban starts was flat at 242,644 units as multi-unit urban starts rose 2% to 190,415, but single-detached urban starts fell 7% to 52,229.

The annual pace of starts in Toronto and Vancouver rose, but Montreal saw a drop. Rural starts were estimated at a seasonally adjusted annual rate of 21,515.

The six-month moving average of the monthly seasonally adjusted annual rates of housing starts was 274,361 in November, down from 277,044 in October. 

“Both the Monthly SAAR and the six-month trend were flat in November. Among Toronto, Montreal and Vancouver, both Toronto and Vancouver posted increases in total SAAR housing starts in November, with Toronto up 20% and Vancouver up 8%. Montreal was the laggard, with a 62% decrease in multi-unit activity which brought the overall level of housing starts in Canada down to similar levels observed in October. Despite this, housing starts activity remains elevated in Canada in 2022,” said Bob Dugan, CMHC’s chief economist. 

Source: Globe and Mail
Source: The Star
Source: CMHC