Canadian Home Sales in January Drop to Lowest Level for Month Since 2009
Home sales in Canada posted their worst start to the year since 2009 as January sales fell 37.1% compared with the start of 2022 and prices continued to fall, the Canadian Real Estate Association said. Home sales for the month amounted to 20,931 and came as the January sales also fell 3% compared with December.
The move lower to start the year gave back the small gains made in December and CREA said it signals a lack of clarity around whether the market has hit or is nearing the bottom. “Hope springs eternal that housing activity may be close to a bottom, but we suspect that the market is still digesting the incredibly aggressive rate hikes of the past year,” Douglas Porter, BMO Capital Markets’ chief economist, said in a note to investors.
Porter is looking for further price softness nationally in the months ahead because in the seven past housing corrections in Canada, it took three years on average for prices to hit the bottom and he adds we are just one year from the peak of last February.
The actual average price in January sat at $612,204, an 18.3% dip from $749,437 during the same month last year, CREA said. On a seasonally adjusted basis, the average price in January was $620,605, down 1.8% from December.
The Bank of Canada has raised its key interest rate eight consecutive times since March 2022, driving mortgage rates higher. However, when carrying out the most recent rate hike, Bank of Canada governor Tiff Macklem said the bank will pause and assess the impact of higher rates on the economy and inflation.
Higher rates have weighed on the housing market with sellers not keen to list homes that will fetch far less than their neighbours’ did months ago and buyers deterred from making purchases because their borrowing costs are now steep, even as home prices slide.
Porter’s forecast predicts that by the time the current economic cycle is complete, home prices will have fallen by between 20% and 25% from their peak. They had already dropped 10% by early January. “While the Bank of Canada may be done hiking rates (emphasis on ‘may,’ as the market is now giving high odds to one more move), we suspect that prices have not fully adjusted to the … rate hikes over the past year,” he said.
In P.E.I., the average home price was down 10.2% on a month-over-month basis, while they slid 3% in Ontario, 2.9% in Alberta and 2.6% in B.C.
In taking stock of the declines, TD Economics’ Rishi Sondhi said in a note to investors that “markets had a lot to contend with last month.” Along with the interest rate hikes, he pointed to the implementation of a foreign buyers’ ban and an anti-flipping tax. “As such, falling sales and prices last month are not much of a surprise,” he said.
Porter agreed. “On the sales front, the ongoing weakness was well flagged by preliminary results from the major cities, and it simply extended a trend of heavy-duty declines from unusually strong activity during the pandemic,” he said.
Earlier in February, the Quebec Professional Association of Real Estate Brokers said Montreal’s January home sales fell to a level not seen since 2009 as the market slowdown continued.
The Real Estate Board of Greater Vancouver found January home sales were more than halved from the year before and down 21% from December.
“Moving forward, housing activity could bottom sometime in the first half of this year, supported by a solid job market, robust population growth and the likelihood that yields grind lower,” Sondhi said. “Moreover, the level of new listings remains low, offering no signal (yet) that forced selling is meaningfully pushing up supply.”
The number of newly listed homes was up 3.3% on a month-over-month basis in January, CREA said. It noted that despite the increase, nationally, new listings remained historically low with new supply in January, the lowest level for that month since 2000. With new listings up and sales down in January, CREA said sales-to-new listings eased back to 50.7%.
Source: Globe and Mail
Source: The Star
Source: CREA
Annual Pace of Housing Starts in Canada Fell 13% in January
Canada Mortgage and Housing Corp. says the annual pace of housing starts fell 13% in January. The national housing agency says the seasonally adjusted annual rate of housing starts for the first month of the year was 215,365 units compared with 248,296 in December.
The result came as the annual rate of urban starts fell 16% to 191,491 in January. The annual rate of multi-unit urban starts dropped 20% to 146,267 for the month, while the pace of starts for single-detached urban homes rose three per cent to 45,224 units. The annual pace of rural starts was estimated at 23,874.
The six-month moving average of the monthly seasonally adjusted annual rate was 259,412 in January, down 4% from 269,781 in December. “Both the Monthly SAAR and the six-month trend of housing starts declined nationally in the first month of 2023, with SAAR of housing starts hitting its lowest level since September 2020. Among Toronto, Montreal and Vancouver, Montreal was the only market with increases in total SAAR housing starts in January, up 36%. Toronto declined 52% while Vancouver declined 14%, which contributed to the overall monthly decline in SAAR housing starts for Canada,” said Aled ab Iorwerth, CMHC’s deputy chief economist.
Source: Globe and Mail
Source: The Star
Source: CMHC
Canada Needs to Boost Home Building by 50% to Keep Up With Immigration
Canada must build a record number of new homes to keep up with the pace of immigration, a new report says. Nationally, new homebuilding needs to increase by at least 50% through 2024 — or around 100,000 more housing starts on average annually in 2023 and next year — leading to the highest level of housing starts in history, according to a report released by Desjardins Securities. The country is set to break ground on around 210,000 housing units this year, it added.
“There will be more demand for housing in Canada,” said Randall Bartlett, senior director of Canadian economics at Desjardins. “And if we respond how we have done historically, we won’t be able to meet that demand.”
The federal government has set a target of admitting 465,000 new immigrants in 2023 and plans to bring in 1.45 million in the next three years. While the government in part is playing catch-up after limiting immigration levels during the pandemic, addressing labour shortages in manufacturing, health care and construction is also top of mind.
The rapid increase in new builds is also needed due to the lag between when new home construction begins and when those homes are listed for sale, the report added. To boost supply, the federal government must put greater incentives in place for municipalities to build — Canada has some of the least dense cities in the world, Bartlett said. “We really need to focus on density and building within cities,” he said. “The model of urban sprawl and building on suburbs has been an issue because we run into major infrastructure trouble due to the long commutes people have to take.”
The federal government can expedite the process to build on federal lands, Bartlett added. The same can be said for provincial land, but it can’t come at the expense of the environment, he said.
The problem with the Ontario government’s Bill 23, the More Homes Built Faster Act, is the lack of clarity on where the houses will be built, if there will be affordable housing, and how much of the Greenbelt will be paved over, experts say.
The Housing Accelerator Fund is a good example of how the federal government can incentivize municipalities to build more, Barlett said. With grants from the federal and provincial governments along with local rezoning to increase density near transit, more housing can be built in urban centres quicker.
The federal government should focus more on innovation, said Benjamin Tal, CIBC Capital Markets deputy chief economist. “The government needs to fund and invest in startups that use 3D printing and use different building materials to accelerate the way we build,” he said. “We are building the way we did 50 years ago. There needs to be innovation.”
In addition, removal of government red tape is a top priority to address housing shortages and treat it as an emergency, Tal said. “We have to wake up here, this is a major crisis.”
The report doesn’t address the fact that most newcomers initially rent, which impacts what type of housing gets built, said Ricardo Tranjan, senior researcher at the Canadian Centre for Policy Alternatives. Creating affordable rentals that are purpose-built — where the owner of the property is in it for the long-haul, unlike condo investors — is central when building more housing, he said.
A recent report from GTA builders and landlords concluded that the Toronto region needs to double the number of rental buildings over the next decade, to 300,000 units, to accommodate demand, or risk more people abandoning the GTA. In Toronto, condo rents increased by 17% in 2022 and the number of condos renting for less than $2,000 a month has dropped by 87% in the last three years.
In the 1960s and 1970s the federal government funded a large supply of rental housing and provincial governments took advantage of the funding to build more affordable and social housing, Tranjan said. “That’s the magnitude of investment and level of resolve we need from the federal and provincial government,” he said.
While Bartlett acknowledged the positive housing boom in the 1960s and 1970s, he emphasized it was servicing a smaller population growth, which isn’t comparable to current levels. “If we don’t densify cities and prices continue to go up because our policymakers are unwilling to increase density, we could find ourselves in a place where Canadians continue to be priced out,” he said.
Source: Globe and Mail
Source: The Star
New Report Predicts Canadian Home Prices Could Drop by 30% — or More
Canadian home prices still have further to fall in 2023 as the real estate market takes a nosedive in the wake of the pandemic. The national home price decline is only halfway through its total drop — already down 14% since the February 2022 peak — and will drop another 16% by the middle of 2023, according to a recent report from Oxford Economics.
When home prices bottom out prices will have dropped 30% in total — and in the worst case scenario prices could see a 48% decline. “We see a moderate downturn being possible, with defaults and insolvencies rising a little, but not drastically,” said Tony Stillo, director of Canada Economics at Oxford Economics.
There are various scenarios which dictate how the housing market will fare in 2023. If global supply chains improve and inflation eases, home prices could fall by 27% from the peak to the bottom, which is the best case scenario, the report said.
A strong labour market could also accelerate a faster economic recovery and restore investor confidence into the market, Stillo added. “We have seen a downturn in real estate with construction and consumers pulling back, but if we continue with this job growth that will temper the (housing) decline,” he said.
In the worst-case scenario, if there’s a recession and a surge in defaults and insolvencies, the housing price could fall as much at 48%. This is quite severe and highly unlikely,” Stillo said, which is why he’s forecasted the total price decline will be closer to 30%.
While job numbers are looking positive, the housing sector is leading the economy into a recession, he added.
The Bank of Canada’s interest rate hikes over the past year were used to temper inflation and the unsustainable 50% home price gain made over the first two years of the pandemic. “Raising interest rates was one of the main ways to bring down home prices because the housing sector is rate sensitive,” Stillo said. “The rapid increasing of interest rates and souring of buyer sentiment caused the housing market to tip and start to correct.”
The real estate market accounts for a staggering 14% of Canada’s economic growth. If it falters there is a sizeable impact on the broader economy. The Bank of Canada noted that the impact on homeowners weighed on its decision to pause further hikes.
Residential investment shrunk by 13% since March 2022, and will fall another 19% by the third quarter of 2023, the Oxford Economics report said.
Price declines will vary at a local level with Toronto trailing behind the national average just shy of 30%. Hamilton is seen dropping a whopping 34% and Kitchener-Cambridge-Waterloo by 33.6%. Those regions saw some of the quickest price gains, which is why they’re having the hardest falls, he said. A 30% drop is considered by some economists to be a housing crash.
But other economists predict more moderate price declines. Nationally, RBC’s forecast is a 14% decline from the peak.
Toronto is inching closer to the finish line with prices predicted to bottom out by late spring or midsummer, said Robert Hogue, senior economist, Royal Bank of Canada. “We think the price correction has a little longer to run,” he said in a recent report.
Home prices have dropped for 11 consecutive months but have so far reversed less than a third of their 57% price gain in the first two years of the pandemic, he said.
“Once the bottom is reached the next big question is what happens after?” he said. “We predict it will remain flat for a period of time and don’t think it will bounce back right away.” By the middle of the year, Hogue says the market will have adjusted to a higher interest rate environment.
Even with the drastic fall in prices, Toronto’s home prices are likely to remain above pre-pandemic levels. “Prices won’t be below pre-pandemic levels, due to strong immigration and limited supply,” Stillo said. “This correction seems massive in a normal time, but if you do it on the back of a 50% rise during the pandemic it’s a necessary correction to restore a more balanced valuation of the market.”
Source: The Star
