CMHC Reports Annual Pace of Housing Starts in Canada Slowed in March
Construction of new homes picked up in several of Canada’s major cities in 2022, said the Canada Mortgage and Housing Corp. (CMHC), but the agency foresees a slowdown as interest rates weigh on building costs. Growth in residential construction was mixed across six key areas the CMHC studied in 2022, but the bulk saw more shovels hit the ground, the national housing agency said in its annual housing supply report.
Housing starts — a measure of when construction on homes begins and a key indicator of how Canada is addressing housing supply gaps — increased in Toronto, Calgary, Edmonton and Ottawa, CMHC said. In Toronto alone, housing starts rose 7.7% in 2022 to reach their highest level since 2012, as strong presales spurred higher condominium apartment construction.
Residential construction set a new record in Ottawa as the city further densified. CMHC found 2022 was the first time in more than 20 years that apartment starts accounted for more than 50% of total housing starts in the city.
However, housing starts remained unchanged in Vancouver and decreased in Montreal.
“In some centres, seasonally adjusted housing starts began moving lower at the end of 2022 and early 2023,“ said Francis Cortellino, senior specialist for housing market analysis at CMHC. “The higher interest rate environment will likely slow construction activity in more centres in 2023.”
Yet demand for housing remains high. Even with the COVID-19 pandemic triggering more construction, inventories of new and unabsorbed homes — homes that are done being built but not yet sold — are currently at historic lows. CMHC warned that might make it harder for people to access housing.
The housing supply report was released the same day as CMHC published monthly housing start numbers that showed the annual pace of housing starts in March fell 11% compared with February. The seasonally adjusted annual rate of housing starts in March came in at 213,865 units, down from 240,927 in February.
Meanwhile, the annual rate of urban starts in the month fell 12% with 192,545 units. The annual rate of multi-unit urban starts fell 11% to 151,769 for March, while the pace of single-detached urban starts fell 16% to 40,776.
The annual rate of rural starts was estimated at 21,320 units for the month.
The six-month moving average of the monthly seasonally adjusted annual rate was 240,669 in March, down 6% from 254,658 in February.
Source: The Star
Source: Globe and Mail
Source: Financial Post
Source: CMHC
Canadian Home Sales Continue to Rise in March as Markets Tighten
Statistics released April 14th by the Canadian Real Estate Association (CREA) show national home sales were up on a month-over-month basis in March 2023.
Home sales recorded over Canadian MLS® Systems posted a 1.4% increase from February to March 2023. The small rise built on an increase of the same size in February, marking the first back-to-back monthly gains in more than a year. A standout in March was a big bounce in sales in B.C.’s Fraser Valley
The actual (not seasonally adjusted) number of transactions in March 2023 came in 34.4% below a historically strong March 2022. The March 2023 sales figure was comparable to what was seen for that month in 2018 and 2019. It was also the smallest year-over-year decline since last September.
“The 2023 spring housing market is getting going after a tough 2022, and the green shoots continued to pile up in March,” said Shaun Cathcart, CREA’s senior economist. “Sales are trending up, markets have tightened considerably, the Bank of Canada is on hold, and the MLS® Home Price Index is stabilizing across the country. That said, the supply issue is still with us. New listings are at 20-year lows.”
The number of newly listed homes dropped a further 5.8% on a month-over-month basis in March. New supply is currently at a 20-year low. The monthly decline from February to March was led by a majority of major Canadian Census Metropolitan Areas (CMAs).
With new listings falling considerably and sales moving higher once again in March, the sales-to-new listings ratio jumped up to 63.5%, the tightest market in a year. The long-term average for this measure is 55.1%.
There were 3.9 months of inventory on a national basis at the end of March 2023, down from 4.1 months at the end of February and the lowest level since October 2022. It’s also now more than a full month below its long-term average.
Source: CREA
Source: Globe and Mail
CREA Updates Resale Housing Market Forecast
The Canadian Real Estate Association expects the average price of a home to end the year 4.8% lower than 2022, but says prices will rise by roughly the same amount in 2024. The association’s prediction amounts to an average price of $670,389 this year and $702,214 next year, when prices are expected to increase by 4.7%. The board also foresees home sales falling 1.1% to 492,674 in 2023 and then rising 13.9% to 561,090 in 2024.
“As the spring market heats up and it looks as though some buyers are coming off the sidelines, it’s important to remember that the intense market conditions of recent years have not gone anywhere, they’ve just been on pause,” said Jill Oudil, CREA’s chair, in a press release.
The market Canadians are re-entering has seen months of falling sales, lower listings and dampened buyer sentiment as eight successive interest rate hikes weighed on the cost of borrowing. But in recent months, the rate has been held twice in a row, prompting some to eye purchases once more, while prices are still low.
CREA also found the average home price was $686,371 in March, down 13.7% from 2022. Excluding the Greater Toronto and Greater Vancouver Areas, which tend to be the country’s hottest markets, from the calculation cuts more than $136,000 from the national average price.
On a seasonally-adjusted basis, the average home price ticked up 2% from February to $648,088. CREA also said the average price was up almost $75,000 from its January 2023 level.
Source: CREA
Source: The Star
Source: Financial Post
Statscan – Investment in Building Construction, February 2023
Investment in building construction went up 1.0% to $20.6 billion in February, with all components posting gains. The residential sector rose 1.1% to $15.0 billion, while the non-residential sector was up 0.8% to $5.6 billion. On a constant dollar basis (2012=100), investment in building construction increased 0.2% to $11.9 billion.
Single-family home construction in Nova Scotia helps drive residential investment
Investment in residential building construction advanced 1.1% to $15.0 billion in February, with single-family home investment (+1.3%; +$102.8 million) contributing the most to the growth. Most notably, Nova Scotia recorded its largest monthly dollar increase for the single-family component (+19.9%; +$47.5 million) since March 2013.
Multi-unit construction increased 0.8% to $6.9 billion, mostly driven by Ontario (+7.6%). On the other hand, Quebec continued to contract, with its ninth consecutive decline since reaching its peak in May 2022.
Non-residential construction investment increases for ninth straight month
Investment in non-residential construction increased 0.8% to $5.6 billion in February, with Ontario leading the gains in every component.
Industrial construction investment rose 1.1% to $1.1 billion in February and was up 23.1% year over year. This was the 15th consecutive monthly increase. The steady increase was largely driven by the mining and agriculture subcomponent, up 61.1% from December 2021 to February 2023 on an unadjusted basis.
Commercial construction investment was relatively stable in February, up 0.5% to $3.1 billion. Both Ontario and Manitoba continued to climb for the sixth consecutive month.
Institutional construction investment was up 1.0% to $1.4 billion in February. The construction start of an educational building in Kelowna, British Columbia helped contribute to the overall growth in the month. Conversely, Newfoundland and Labrador posted its 16th consecutive monthly drop in February, leading to its lowest recorded value since June 2018.
Source: Statistics Canada
Interest in Backyard Homes Grows Amid Soaring Real Estate Costs and a Shortage of Housing
In November, 2018, Chauncey Birch was scoping out a fixer-upper in Toronto’s Cabbagetown neighbourhood to buy, renovate and then rent out. He came across an outdated four-bed, three-bath duplex sitting on a lot that was 63 metres deep. But it wasn’t until he spoke with the architect who would oversee its renovation that Mr. Birch realized he could also build a laneway suite.
He chose to build a three-bed, three-bath home with a basement and carport in the hopes of appealing to a family as future tenants. “I saw the ability to add that much space – in essence, a small home on an existing property,” says Mr. Birch, who expressed an interest in the smart densification of cities and reuse of existing land.
Mr. Birch is one of a growing number of property owners in Canada that are building secondary homes in their backyards. These structures go by many names, depending on the city where they’re located: granny flat, laneway home, backyard suite or accessory dwelling units.
The City of Toronto passed a bylaw in the summer of 2018 making it easier for laneway suites to be built. And in Edmonton, where they’re known as garden suites, similar bylaws were passed in 2017.
Travis Fong is a co-founder of YEGarden Suites, a non-profit organization that helps inform Edmonton homeowners about building a backyard suite. Mr. Fong, who conducts workshops and webinars and does consultations, says that interest has risen steadily since the organization started in 2017. In 2019, 70 garden suite permits were issued in Edmonton. That number increased to 92 in 2020 and 124 in 2021.
“People who are looking to build for rental make up about half of the suites that are built,” Mr. Fong explains. “The other half are being built for an aging parent, or it could be a child who they want to keep close. We’ve had a lot of families with children with physical or mental disabilities. They can maintain their independence, but they do need extra support.”
Mr. Fong says that the construction process, and financing of the new builds, are common hurdles for those looking at adding garden suites. “They can be a pretty expensive development,” explains Mr. Fong, who estimates the cost of construction in Edmonton ranges from $200,000 to $400,000. In Calgary, that price can reach $600,000 or more.
And in Toronto, laneway projects start around $400,000 and can cost upward of $700,000, which is what Mr. Birch spent building his three-level suite. The laneway build added 20% to the loan that Mr. Birch sought out from a private lender. He’s now renting out the laneway unit for $5,500 a month, but his motivations for the build aren’t strictly about the income.
“The rent from the laneway suite has been beneficial, but not a windfall,” he says. But Mr. Birch believes that he’ll see greater benefit once he’s ready to sell the property.
Linda Hayes, a chartered accountant based in Edmonton and Belize, constructed her first garden suite on an investment property in 2017. She’s since built five of them in the city.
All of Ms. Hayes’s garden suites were built as part of brand-new home projects, so she was able to secure a regular mortgage to fund the construction of both structures. “You can also use the equity in your current home to pay for it through a HELOC,” she says, referring to a home equity line of credit. Another option for those buying homes to build a laneway suite is securing a “purchase plus improvement” mortgage to borrow the cost of renovations, in addition to the price of the existing home.
Backyard-suite builders should also keep in mind that adding a garden suite adds value to your property and therefore increases your taxes. However, property taxes and some other costs can be offset by tax deductions that landlords can claim against rental income.
New federal tax credits for 2023 also provide relief for some garden-home builders housing family members. The Multigenerational Home Renovation Tax Credit provides a 15% refundable tax credit to assist with renovation costs up to $50,000 for a secondary unit with a private entrance, kitchen and bathroom. “But to be eligible, the resident of the unit must be a family member who is a senior or an adult with a disability,” Ms. Hayes explains.
She also points to the GST/HST New Residential Rental Property Rebate, which refunds part of the GST paid on a laneway housing project. “The rules on this are complex, so it’s best to work with an accountant,” Ms. Hayes says.
Source: Globe and Mail
The End of the Housing Correction? A Revised Forecast Sees Rising Prices.
Real estate firm Royal LePage moved its 2023 forecast ‘dramatically’ upward — to a 7.5% price increase by the end of the fourth quarter.
Royal LePage revised its annual price forecast dramatically upward as buyers flock to an undersupplied spring housing market and Canada’s central bank continues its pause on rate rises. In December, the real estate company was predicting a 2% decline in the average GTA home price this year. But its 2023 Market Survey Forecast, anticipates a 7.5% year-over-year increase in the fourth quarter as competition for homes escalates.
CEO Phil Soper called it a “pretty dramatic” change and left room for the possibility that prices could climb further still. In the last two weeks of March, he said, “it became pretty obvious that the correction was over and that the market was starting to expand again with both volume and prices on the rise,” he said.
If the new forecast is correct, it means the average Toronto area home would end out the year at $1.15 million, compared to $1.07 million, last year’s fourth quarter average.
It puts the GTA ahead of the company’s revised national forecast of a 4.5% rise to $791,170 — up from the 1% decline it had anticipated in December, which would have seen the average Canadian home price fall to $765,171 in 2023.
The Home Price Survey came a day after the Bank of Canada announced it would continue holding its key lending rate at 4.5%, although the central bank’s announcement warned that the hold won’t last if inflation doesn’t continue to fall.
Soper credited the resilience of the housing market to the big banks and Canada Mortgage and Housing Corp., which have helped customers stay in their homes despite eight rate rises between March 2022 and January. He said employment has also remained strong through a period in which higher interest rates would normally have made it tougher for businesses to retain staff.
A surge in first-time homebuyers is exacerbating the shortage of new listings on the market because those are the buyers who don’t have another property to list, said Soper, citing a similar trend after the 2009 economic crisis.
It’s psychology driving the market, he said. Potential move-up buyers — consumers who have a property to sell so they can purchase another — are still sitting tight, holding on to 1.5% mortgages that in many cases are completely portable.
“Homes are cheaper now so even though they might be selling their house for less, it won’t impact their mortgage dramatically so they should be free to transact. But they’ve decided that they just can’t because their mortgage is so valuable.”
RBC recently released January research from an online Leger panel of 2,756 Canadians that showed 31% of respondents nationally and in Ontario, were optimistic about 2023’s housing market. 40% said they expected to pay less for a home than they would have a year ago, and 31% said there was a short window for purchasing at a lower price. At the same time, 75% were worried about a recession.
Although home sales dropped 54% in the first quarter of 2023 from the record highs of that period in 2022, there were 54% more transactions between Jan. and Feb. and 44% more between Feb. and March compared to 2022, said Royal LePage. Although there is competition for well-priced homes in desirable areas of the GTA, there is no return of the early pandemic’s fevered bidding of hundreds of thousands of dollars over asking prices. Appointments for showings have also risen, indicating buyers are actively searching for homes.
Source: The Star
Source: Financial Post
