Building Permits, May 2023
The total monthly value of building permits in Canada increased 10.5% in May to $10.5 billion. On a constant dollar basis (2012=100), the total value of building permits increased 10.0% to $6.2 billion.
Ontario bolsters growth in residential construction intentions
The total monthly value of residential permits rose 8.5% to $6.8 billion in May, with Ontario contributing to 45.8% of Canada’s residential permit values.
Ontario increased 16.3% month over month to $3.1 billion, led by multi-dwelling permits issued in urban areas. New Brunswick (+27.2% or +$22.2 million) had the highest provincial growth rate, while Quebec (+10.8% or +$102.3 million), Alberta (+4.7% or +$34.5 million) and British Columbia (+3.7% or +$50.3 million) observed more modest gains.
Across Canada, permits for 3,800 new residential units were issued for single-family homes in May, compared with permits for 17,700 new dwellings in multi-unit buildings.
Commercial projects push non-residential permits up
The total monthly value of non-residential permits rose 14.2% to $3.7 billion in May. Commercial permits surged (+45.8% or +$703.4 million), more than offsetting monthly losses in the institutional component (-23.3% or -$251.3 million).
Despite overall monthly gains, the value of non-residential construction intentions in May was down 11.2% year over year.
Source: Statistics Canada
Canada’s Housing Market Is Hot Again — Expect It to Stay That Way
The slowdown in the Canadian housing market that marked much of 2022 appears over as prices and sales increase, and that strength is likely to continue, clipping affordability even more, according to economists at Desjardins Group.
A spike in home sales and prices across Canada, brought on in part by the Bank of Canada’s pause in interest rate hikes earlier in 2023 along with a lack of listings, is no fluke, said Desjardins economists Randall Bartlett and Hélène Bégin in their residential real estate outlook headlined, “For better and for worse, Canada’s housing market is back.” The economists said strength in prices and sales will have “staying power,” which will ultimately dent affordability even more. But the Bank of Canada can’t be blamed for this round of strength. Instead, a number of other factors are at play, including strong population growth, a resilient labour market and continued flush household savings accounts, built up during the pandemic, the economists said.
For one thing, immigration to Canada is growing, and newcomers to the country are flooding into the housing market. But it’s not only immigrants driving demand, and non-permanent residents, the numbers of which have also surged, are searching for places to live, too. That’s spilled into the rental market, causing rents to spike. Then, as home prices fell in 2022 and rents rose, more people found it made financial sense to invest their money in buying a home instead of renting.
A strong labour market is also helping to ignite housing further. Increases to wages and job security mean people are building more wealth, and buying homes with their money. At the same time, the jobs market shows no sign of slowing down in a meaningful way, the economists said, amid continued high vacancies and a low unemployment rate all while the country welcomes an influx of immigrants. That will help keep the housing market humming along. Meanwhile, wealth gains are also coming from massive amounts of savings built up over the pandemic. Of course, it’s high income earners who still have much of these savings. They’re also more likely to deploy that money into the housing market, helping keep the rebound going.
There’s another major factor contributing to high prices: supply. Housing starts have been higher than usual, but that won’t last, Desjardins said. What’s more, the housing that’s being built isn’t what buyers really want. Most starts are condos and they are shrinking in size even as detached homes, which carry the heftiest price tag, grow bigger and bigger. The result is a “missing middle” in supply, according to the Canada Mortgage and Housing Corp. If homebuyers can’t find the types of houses they’re seeking, that will send home prices heading even higher, as competition grows for a limited number of properties. “Despite ambitious policy announcements to the contrary, there is little meaningful relief in sight from any level of government,” the report said.
Still, higher interest rates might cool the market, at least a little. The Bank of Canada raised interest rates another 25 basis points in a surprise hike in June, bringing the key policy rate to 4.75%. Desjardins expects the central bank will hike by another 25 basis points at least once more, with an increase coming as early as July. That might work to keep some people on the sidelines, helping to dampen price increases and sales. The economists also caution that the full effect of interest rate hikes has yet to be felt by people with fixed-payment variable-rate mortgages, whose banks have been adding any extra interest owed to the mortgage principal instead of requiring higher payments now, thereby extending amortization periods and kicking “housing and economic pain down the road.”
It won’t be enough to take the steam out of the market completely, however. “Despite higher interest rates, housing demand is expected to remain strong for the foreseeable future,” the report said.
All those factors are playing out differently in housing markets across Canada, with some areas feeling the effects more than others. For example, British Columbia and Ontario have experienced a spike in prices and sales amid an influx of immigrants. That’s pushed younger homebuyers from those provinces to other markets in search of affordability, and Alberta, along with the Prairies and Atlantic provinces, have benefited from the migration. But now that’s causing those regions’ home prices to creep higher. As far as Quebec goes, it’s not experienced much migration, but a lack of housing starts is eating into supply, threatening affordability, the economists said. That trend is also occurring across the country and is expected to impact affordability for years to come — and not for the better.
Source: Financial Post
‘Prepare for the Worst’: Mortgage Costs Have Already Soared by 30% — And Could Continue to Increase
Homeowners faced steep hikes in mortgage payments at renewal in June as interest costs spiked nearly 30% year-over-year and was the single biggest contributor to inflation. According to Statistics Canada’s latest consumer price index mortgage interest costs rose 29.9% as more Canadians dealt with renewals. And things could worsen over the next few years if interest rates remain elevated as some two-thirds of Canadian mortgages come up for renewal, according to the Bank of Canada.
“While variable rate mortgage holders will feel the effects of the rate hikes first, fixed-rate holders will still be squeezed by rising rates at renewal,” says Victor Tran, Ratesdotca mortgage and real estate expert. “Fixed-rate mortgage holders need to start preparing now for higher rates at renewal, as the increase in payments could be a significant dollar amount depending on the size of the mortgage.”
Homeowners facing renewal this year already feel the financial squeeze. Homeowners with a five-year fixed-rate mortgage, for example, who bought a $1-million home in June 2018 and paid a 20% down payment at a rate of 3.44%, had a monthly payment of $3,968. After five years, they’re renewing at a fixed-rate of 5.64% which drives their payment to $4,772 — an increase of $804, or around 20%, Tran said.
Brokers warn that homeowners looking to renew their mortgage in 2025 or 2026 face an even greater hit on their monthly payments of between 20% and 40% more than they currently pay. According to the Bank of Canada, the average increase in fixed-rate mortgage payments at renewal will be greatest in 2025 and 2026, from 20% to 25%.
And for variable-rate fixed-payment mortgages — where the monthly payments remain the same but the interest adjusts — homeowners will need to increase their payments by about 40% to maintain their original amortization schedule.
“Everyone will be paying a higher amount and people need to be proactive about paying much more on their monthly payments,” Tran said. “Often times people are reactive, but these higher rates at renewal are inevitable. The interest rates that we saw in the pandemic of 1.5% won’t come back again. We won’t be seeing interest rates below 2%, maybe even 3%, any time soon.”
The most vulnerable group are first-time homebuyers who rushed into the market to take advantage of the low interest rates during the pandemic, said Toronto realtor Cailey Heaps, CEO of the Heaps Estrin Team. Often, these homebuyers don’t have as much capital and will feel the financial pinch more than established homeowners, she added.
Also, “move up home buyers,” — those who moved into a larger home earlier than they should have to take advantage of low interest rates — will be tightening their purse strings. “These homeowners maybe jumped the gun with the lower rates,” she said. “They probably wouldn’t have made the purchase.”
Ralph Fox, broker and founder of Fox Marin Associates, said he’s seeing investors with secondary properties take pause with their investments as their mortgages come up for renewal. “Anecdotally, there seems to be an uptick of condos listed as tenanted, instead of vacant,” he said. “It shows investors are trying to sell properties on the market without the commitment of having it empty which indicates that some are wanting to get rid of their additional property.”
So far, brokers haven’t encountered panic sales or homeowners who are unable to pay their mortgage at renewal. But as the cost of living for housing, utilities, and groceries continue to climb, experts say now is the time to be “fiscally responsible.”
“It’s important to prepare for the worst case,” said Tran. “For those facing renewal in the next year or two, you know that rates will be higher. You don’t want to be in a position where you default on your mortgage. No one wants that to happen.”
Source: The Star
Homebuilding Costs in Canada Soar 51% As Population Surges
Surging construction costs in Canada are putting new pressure on home prices, worsening a severe affordability crunch, according to the nation’s largest lender. A gauge of residential construction prices has risen 51% since the first quarter of 2020, outpacing the 13% gain for the consumer price index, Royal Bank of Canada economists said in a report.
“The cost of building a home in Canada — or any structure for that matter — has never been higher,” the economists said in the report, citing “dramatic jumps” in concrete and structural steel prices since the start of the pandemic along with soaring lumber prices in 2021 and early 2022. The increase in building costs comes as Canada grapples with high home prices and rents, an immigration-driven population boom, and shortages of workers and raw materials — all of which are adding to homebuying challenges.
The elevated costs have contributed to a decline in new home construction in the past two quarters. That’s a problem because population growth is accelerating.
Labour costs have soared during a period of high job vacancy rates within the building industry, according to RBC economists. Wage growth in construction was 9.4% last year, more than double the pace of other industries, they said.
“Inflation could be tamed by increasing the supply of skilled workers,” the report’s co-author, Rachel Battaglia, said in an interview. She suggested Canada lean on a federal government program designed to attract skilled immigrants to ease the construction industry’s labor shortages.
Extreme weather has also hurt availability of critical building materials, driving up prices. Heavy rains, flooding and wildfires have constrained lumber supply while temporary shutdowns of cement plants in Ontario, BC and Alberta have hindered production, according to the economists.
“In the near-term, a lull in homebuilding and the resolution of production issues at cement plants are likely to ease pressures to some degree,” the report said. “We expect housing starts to dip 10% this year across Canada, which should temporarily soften demand for materials.”
Such relief may be short-lived. “Significantly ramping up homebuilding over the medium to longer term will keep costs elevated,” the economists said.
Unable to Downsize, More Seniors Are Living in Larger Homes with Empty Bedrooms
A growing number of Canadian couples and singles live in homes with vacant bedrooms, a phenomenon that is coming to light as local governments across the country grapple with acute housing needs. The percentage of singles and couples who live in homes that have a minimum of three bedrooms increased to 29% in Canada in 2021, according to an analysis by The Globe and Mail of census numbers for that year. That compares with 26% in 2006, according to the corresponding census.
The numbers suggest a growing proportion of people are living in homes that are larger than they require rather than downsizing. The trend is driven by an aging population, the lack of suitable housing for seniors and the high cost of smaller housing alternatives, experts say.
“It does speak to the underuse of housing. The question is what do you do about it and what can you do about it,” said Aled ab Iorwerth, deputy chief economist with Canada Mortgage and Housing Corp., the federal housing agency. “The concern is maybe the people with all these spare bedrooms would like to move somewhere in their community but there is nowhere more suitable for them to live in,” he said.
Small cities in Alberta, Ontario and Atlantic Canada had the greatest share of couples and singles who lived in a home with a minimum of three bedrooms in the 2021 census. St. John’s and Lethbridge, Alta., were the highest at 37%. Even in big cities such as Toronto and Montreal, where smaller detached houses and semi-detached homes account for a larger proportion of the housing stock, the share of empty bedrooms rose over the past 15 years.
The only cities where the proportion of houses with unused bedrooms decreased or remained steady was in British Columbia, where Abbotsford declined by 1%, and Kelowna, Vancouver and Victoria remained the same over the past 15 years.
Policy experts and large city mayors are not suggesting that seniors should rent out their rooms en masse to better use the extra space. But cities are looking at ways to build more densely on residential land that is zoned for single-family homes, in an attempt to create duplexes, triplexes and other low-rise multiresidential housing options for seniors and other buyers.
The rise of empty bedrooms is not a new trend, but it has come into sharp relief with the spike in home prices and rental rates. The typical home price across the country is above $750,000. And the average rent increased 10% over the past year to more than $2,000 a month in May, according to Rentals.ca. In Toronto, the monthly rate climbed by 21% over the past year to just over $2,500, according to Rentals.ca.
But creating more housing is not as simple as cranking out hundreds of new homes. There are not enough workers to build the housing units that are already under construction. Construction costs are rising, and many of the new homes being built are small condo units that are not desirable for many residents.
Another problem is that many cities’ residential areas only allow single detached homes. For example, in Toronto, 70% of its residential land had been zoned for low-rise houses until May of this year. A game-changing new law now allows up to four units to be built on a single-family plot of land.
In 2022, Statistics Canada issued a study with similar findings: Senior-led households, with residents aged 55 to 74, were more likely to live in a home with empty bedrooms.
Aaron Gorski, a census housing analyst with Statscan, said the agency embarked on the study to explore how the use of existing housing stock could be used to alleviate housing shortages. “It’s difficult to build new housing. So, if there is another aspect that can be looked into that would help provide policy makers or others with some new ideas to help provide some better housing solutions,” he said.
Toronto realtor Lisa Bednarski, who works with seniors, said many of them have the equity in their homes to downsize and make a purchase, but they are deterred by the dearth of appropriate housing available. The options are condos with pricey monthly condo fees, retirement homes or long-term care homes, which have a bad name after the COVID-19 pandemic exposed some of their squalid living conditions. “I’ve been told by many seniors that none of these options are attractive,” Ms. Bednarski said, adding that most want to stay in their neighbourhood, shop at the same grocery store and stay near their community.
CMHC’s Mr. ab Iorwerth expects the unused bedroom trend to grow. “It will accelerate with an aging population, particularly if there is no significant change in zoning those areas to allow higher density,” he said. “I don’t think we’ve reached the peak of elderly living alone, since we still have a lot of the baby boomers aging ahead of us,” he said.
Source: Globe and Mail