Housing Market Faces ‘Bumpy’ Road amid High Interest Rates

The Bank of Canada’s latest interest rate hikes appear to have put the brakes on the housing market rebound in many cities and the road ahead for further recovery is expected to be rocky, say economists at the Royal Bank of Canada.

Recent data released in major real estate markets show housing activity slowed between June and July after the Bank of Canada raised interest rates a ninth and tenth time, according to RBC’s latest state of housing report. The central bank’s key policy rate is now at five per cent, a level not seen since 2001.

Home sales in June and July fell in Vancouver, Toronto and Ottawa, and prices also lost momentum, RBC said. However, housing markets in the Prairies defied the interest-rate induced slowdown seen in Ontario and British Columbia. Sales gained in Alberta and Saskatchewan in July, with Calgary, Edmonton, Regina and Saskatoon, all firmly in sellers’ market territory.

Meanwhile, RBC said more listings helped ease supply constraints in many markets, part of a trend that has extended for months. As a result, Ontario and B.C.’s housing markets have grown more balanced after a spring squeeze.

If that trend continues, price increases should keep slowing down, especially in Toronto, the economists said. A cooling economy, combined with the high cost of living are also expected to keep a lid on sales and price gains in major housing markets.

“Signs of cooling activity in some of Canada’s largest markets are consistent with our view that the spring rebound was premature and will taper off further amid high interest rates, ongoing affordability issues and a looming recession,” Robert Hogue and Rachel Battaglia said in the report. “We think the path ahead is more likely to be slow and bumpy, with the recovery gaining momentum when interest rates come down — a 2024 story.”

Still, the story is a bit different in Calgary. Continued migration from people moving provinces in search of more affordable conditions, combined with increased immigration, have juiced sales and lifted prices. Sales in July rose 3% from June, and were up more than 15% for the same time last year. The benchmark price of a home has risen 5.7% year over year, “one of the fastest paces in the country,” RBC said. That strength shows no signs of dying down.

“In the absence of further rate hikes this year, we think strong economic momentum, and, importantly, explosive population growth will continue to support a brisk pace of activity through the remainder of this year,” the authors said of Calgary’s housing market.

Source: Financial Post

Value of Residential Building Permits Decline in June

The number of residential building permits issued in June ticked up slightly from May, but the overall value fell 1.8% to $6.9 billion, a dip that comes after several months of steady growth in the construction sector.

The data, released Aug. 9 by Statistics Canada, showed the value decline was largely driven by Ontario, which experienced a significant drop of 11.4%, or $358.1 million. The decline was noteworthy given the province had exhibited strong growth in May, primarily due to the initiation of large multi-unit projects.

Saskatchewan and New Brunswick also experienced large declines of 51.4% ($58.5 million) and 20.5% ($20.7 million), respectively. These provinces faced challenges that impacted their housing permit activity, contributing to the overall decrease in the national figures.

On a more optimistic note, the report highlighted that despite these declines, there were gains in the remaining seven provinces. This suggests the slowdown is not uniform across the country.

“Across Canada, permits for 22,000 new dwellings were issued in June,” the release said. This figure surpasses the permit count from May by a margin of 500 additional permits.”

Source: Financial Post
Source: Statistics Canada

‘Torrid” Housing Market Rebound to Boost Growth in Ontario and B.C.

Growth rates in Ontario and British Columbia will be materially higher this year following “torrid” housing market rebounds in early 2023, but the boost will likely just delay a downturn, say Desjardins Group economists. “While these developments help the 2023 growth arithmetic, they don’t rule out a downturn altogether — they just delay it until 2024,” principal economists Marc Desormeaux and Hélène Bégin said in their provincial outlook report.

The economists said home sales bounced back in most provinces following an initial pause in the Bank of Canada’s interest rate hiking cycle early in 2023. The robust gains in Ontario and B.C., however, were striking, as households in those two provinces are more stretched by affordability pressures and household debt levels. “As we approach 2024, housing‑exposed provinces should see the more significant slowdowns we’ve long been expecting,” they said.

The largest housing markets in both Ontario and B.C. retreated in June after the central bank resumed raising interest rates. But the economists expect the dampening effect of higher borrowing costs to hit all regions in coming months.

Amid the projected economic slowdown, Canada’s oil‑producing regions should fare the best, said Desormeaux and Bégin, as Alberta and Saskatchewan benefit from solid commodity prices and production gains.

Skyrocketing population growth and acute labour shortages have also supported economic expansion in all provinces so far in 2023,  which the economists describe as “the proverbial rising tide lifting all provincial growth boats.”

Source: Financial Post

Feds Should Use Policy Tools to Help Build More Homes

Rising interest rates hamper pre-construction sales that help finance building new homes, says Dave Wilkes, president and CEO of the Building Industry and Land Development Association (BILD), the voice of the homebuilding, land development and professional renovation industry in the GTA. 

The Bank of Canada hiked interest rates again in July, just days before Statistics Canada reported that the inflation rate fell to 2.8% in June. Given the sensitivity of the housing sector to adjustments in interest rates, the Bank’s hawkish stance is not only going to increase housing costs, a significant inflationary pressure in itself, but also hamper the addition of new housing supply. The federal government should use the tools at its disposal to help counteract these forces.

Most parts of Canada face critical housing supply and affordability challenges, and the GTA is among those most severely affected. While prices have cooled and supply increased somewhat since the peak of the market in 2022, federal policies are continuing to drive housing demand, even as the Bank of Canada’s monetary policies make it more difficult to meet that demand. Canada’s immigration policy seeks to expand the population by 1.5 million people in the next three years. Newcomers are important to the economic and social well-being of Canada, and the homebuilding industry welcomes the task of building the communities where they can live, work and play.

However, rising interest rates hamper the pre-construction sales that help finance the building of new homes, particularly in the highrise and multi-family sectors. Thus, raising interest rates moves buyers to the sidelines, delays the addition of much-needed supply to the market and exacerbates Canada’s housing supply and affordability crisis.

The federal government has several tools at its disposal to help spur the addition of housing supply and improve affordability. These include waiving or deferring HST on purpose-built rental housing, indexing the price thresholds for the GST/HST new housing rebate (a government pledge left unfulfilled since 1991), and helping municipalities and provinces fund housing-supportive infrastructure.

While driving inflation down to the Bank of Canada’s target rate benefits all Canadians, putting off the vital task of adding more housing supply benefits no one. The federal government should act now to ensure monetary policy does not prevent us from building the homes Canadians need.

Source: The Star