Canadian Home Sales Fall Back in August
The national housing market slowed in August with sales and prices tumbling between July and August as the Bank of Canada’s latest interest rate hike rattled buyers. The Canadian Real Estate Association (CREA) revealed that seasonally adjusted sales totalled 38,345 in August, down 4.1% from July. The actual number of sales amounted to 40,257, up 5.3% from 2022.
The market’s softening could be a welcome sign for buyers, who watched housing costs soar through much of the COVID-19 pandemic only to be handed a quick succession of interest rate hikes as prices began to fall. The Bank of Canada dealt prospective buyers another blow in July, making August the first full month in the new interest rate environment.
However, CREA chair Larry Cerqua saw some stability returning to the market, despite sales being pulled lower in August by declines in Greater Vancouver and the Fraser Valley in B.C., Montreal, Ottawa, Hamilton and Burlington, Ont., as well as London and St. Thomas, Ont.
“With sales slowing and new listings returning to more normal levels, demand and supply are continuing to come into better balance” he said in a press release. “This is giving buyers more time and more choice.”
Cerqua’s observations were based on new listings hitting 69,438, a 5.5% rise from the prior August. The seasonally adjusted number fell for the fifth consecutive month, reaching 68,276, up less than 1% from July.
The listing flow is much stronger than that seen earlier in the year and is now even tracking in line with pre-COVID norms, said Robert Kavcic, a senior economist with BMO Capital Markets. “After a dearth of new listings earlier this year  helped lift prices off the floor, supply is now coming to market at a rate in-line with historical norms again,” he said in a note to investors. “That, combined with sluggish sales, continues to soften the market balance in a meaningful way.”
The seasonally adjusted average price of a home in August fell 2.3% from July to $674,184, while the actual price was up 2.1% from a year earlier to $650,140.
Though housing affordability remains a “significant problem,” recent data for the second quarter shows an uptick in first-time purchases, said Sherry Cooper, chief economist with Dominion Lending Centres.
CREA noted that regional differences are also re-emerging. Price growth has remained solid in Quebec and the East Coast, followed by British Columbia and the Prairies, it said. “Ontario is now a mixed bag, still with some of the bigger increases but also some of the bigger declines.”
Cooper sees the Bank of Canada backing off on rate hikes and supply gradually returning, helping housing activity pick up in the coming months. “Year-over-year home prices will rise owing to base effects, as lower prices were posted in the fall and winter of last year, making the year-over-year comparisons more favourable,” she said in a note to investors. “We don’t want to see a burst of activity because that could cause the central bank to rethink its rate pause.”
CMHC Reports Annual Pace of Housing Starts Down 1% In August
Canada Mortgage and Housing Corp. says the annual pace of housing starts in Canada edged down 1% in August compared with July. The national housing agency says the seasonally adjusted annual rate of housing starts in August came in at 252,787 units compared with 255,232 in July.
The decrease came as the rate of urban housing starts fell 1% to 233,075 units in August. The pace of multi-unit urban starts decreased 1% to 191,250, while the rate of single-detached urban starts rose 2% to 41,825. The annual rate of rural starts was estimated at 19,712.
The six-month moving average of the overall monthly seasonally adjusted annual rate of housing starts was 244,507 units in August, up 0.8% from 242,552 in July. “While both the SAAR and trend in housing starts were flat relative to the previous month, total housing starts are under pressure in 2023, except in Ontario and British Columbia. The one bright spot in Canada has been multi-unit starts which have helped offset significant declines recorded in single-detached starts in all provinces this year. Market intelligence suggests multi-unit projects started during the busy summer months were likely financed a few months prior, so the full effect of higher interest rates on construction activity remains to be seen,” said Bob Dugan, CMHC’s Chief Economist.
Building Permits, July 2023
The total monthly value of building permits in Canada declined 1.5% in July to $11.7 billion despite a monthly gain of 5.4% in the residential sector. On a constant dollar basis (2012=100), the total value of building permits was down 3.5% to $6.7 billion.
Residential permit values up with third consecutive increase in single-family buildings
The total monthly value of residential permits increased 5.4% to $7.4 billion in July. Ontario (+23.9% to $3.5 billion) contributed the most to the rise in value of both single-family and multi-family dwelling permits.
Across Canada, July marked the third consecutive monthly increase in single-family home permits, up 7.6% to $2.8 billion. This prolonged uptick followed a year of trending decline in construction intentions for single-family homes from May 2022 to April 2023.
Overall, multi-family dwellings construction intentions led the residential gains in Ontario, Manitoba, Nova Scotia, Saskatchewan, New Brunswick and Prince Edward Island, the six provinces that posted growth in residential permit values in July.
Across Canada, permits for 22,300 new dwellings were issued in July. This amounts to a cumulative total of 150,400 new intended units in 2023, 10.9% less than the 168,800 new intended units from permits issued from January to July 2022.
Non-residential construction intentions down across all components
The total monthly value of non-residential permits declined 11.5% to $4.3 billion in July, following some exceptionally high valued hospital permits issued in June. As a result, the institutional component was down 19.7% to $1.3 billion in July.
Construction intentions in the commercial component were also down (-10.8% to $1.9 billion) in July, while the industrial component posted more modest declines (-1.0% to $1.1 billion).
Source: Statistics Canada
Ontario Housing Starts Are at a 30-Year High, but Here’s Why No One’s Popping Champagne
Ontario has seen the most housing starts in the last two and half years than it has in the last 30 years, but there’s no reason to celebrate, critics say.
On Sept. 4, Premier Doug Ford wrote on X, formerly known as Twitter: “As Ontario grows, our government is on a mission to build at least 1.5 million homes. After decades of inaction, we’re seeing real results: 2022 and 2021 had the most housing starts in 30 years. Our work won’t stop.”
According to Canadian Mortgage and Housing Corp. (CMHC) data, total housing starts in Ontario for 2021 and 2022 were 92,284 and 91,885 respectively, the highest since at least 1990. So far in 2023, there were 44,000 housing starts in the first and second quarters, slightly above 40,100 during the same period in 2022
Still, those numbers are far behind the province’s 150,000 yearly target to reach 1.5 million new homes in a decade. And while the first half of 2023 is above 2022 levels, experts warn the rest of the year will take a hit with construction on new projects declining as the industry faces an acute labour shortage and high interest rates.
The growth in housing starts seen in the last two years is mainly a reflection of the previous strength in housing demand caused by the sharp reduction in interest rates during the pandemic, Shaun Hildebrand, president of research firm Urbanation, told the Star. Because interest rates have risen dramatically from March 2022 until now, taking the Bank of Canada’s overnight lending rate from 0.25% to 5%, it’s much more expensive for developers and investors to borrow money and finance projects.
“This will begin to slow construction starts in the coming months (there is a time lag between new home sales and construction starts),” said Hildebrand. “Condos are the single biggest category of housing construction in the province, and new condo launch activity and sales have been very slow this year.”
According to Urbanation, new condo sales were down 35% annually in the second quarter of 2023 and new condo prices declined for the first time in 10 years. “The GTA’s 12-month running total for new condo sales has dropped to its lowest level since 2009. This will soon begin to impact construction and eventually cause serious supply shortages in a few years, the extent of which will depend on how long the current slowdown in presale activity persists,” Hildebrand said in an August report.
In August, a Desjardins report noted that in the second half of 2023, there will be a more significant slowdown in new starts as the construction industry faces acute labour shortages, mixed with high borrowing and material costs and expectations of softening economic activity — deterring developers and investors.
It’s important to note that even with Ontario’s robust multi-unit construction, many of the units being built are investment properties that are more expensive on a per-square foot basis, said Marc Desormeaux, principal economist at Desjardins. “The so-called ‘missing middle’ remains largely absent from new home construction,” he said, referring to multi-unit homes such as duplexes, midrise apartments and purpose-built rentals, which offer more affordable options than single-family homes.
To build more affordable units, the government needs provide low cost loans and remove HST on purpose-built rentals to encourage more of these types of new builds, said Mike Moffatt, assistant professor Western University’s Ivey Business School. “There needs to be a wartime-like effort to get near the number of 150,000 new builds every year,” he said. “That number is needed at a minimum to house a rapidly growing population. It’s an aggressive target and it is a necessary one. But we’re moving in the wrong direction and need some pretty substantial changes in policy.”
In February 2022, the provincial government laid out a Housing Affordability Task Force report, outlining ways to speed up housing construction and improve affordability, which included densification in urban centres by building more mid- to highrise buildings, transforming single-family homes into multiple units, and building more transit-oriented communities. “Many of the recommendations in Ford’s own task force haven’t been implemented,” Moffatt said. Importantly, he said, the report noted there is enough land to build on to meet these targets and that environmentally sensitive areas must be protected.
“Building on the Greenbelt goes against his government’s own recommendations to achieve the 1.5 million target,” he said. “There are many other ways to build the housing we need, we have enough land to do it.”
Source: The Star
Canada’s Housing Supply Gap Has Shrunk Slightly, but Remains at about 3.5 Million Units
Canada needs an additional 3.45 million homes by the end of the decade to bring housing costs down as the population increases, according to a new report from the federal housing agency. Canada Mortgage and Housing Corporation (CMHC) released an update to its Supply Gaps Estimate (SGE) report from June 2022, which estimated how much additional housing supply is required to restore affordability to 2004 levels by 2030.
This year’s forecast is slightly lower than 2022′s prediction that an additional 3.5 million home are needed after CMHC cut the number needed in Ontario to take into account fewer households expected in the country’s most populated province. At the same time, the agency said the supply gap has widened in B.C. and Quebec over its previous outlook due to weaker supply in the western province and an increase in the number of households in the latter.
The 3.45 million new units across the country would be in addition to the 1.68 million that are expected to be built by 2030 if the pace of construction remains the same. That would amount to a total of 5.2-million new housing units and comes as the federal government has faced increased criticism for ramping up immigration targets without an apparent consideration for housing needs.
If the country continues to admit record levels of about 500,000 new permanent residents per year until the end of the decade, CMHC predicts an additional 4 million new housing units will be needed instead of 3.45 million. “The higher population and larger pool of income it brings increase demand for housing,” said the report authored by CMHC’s deputy chief economist Aled Ab Iorwerth.
The typical home price across the country topped $700,000 as of July. And even though home prices have declined since the Bank of Canada started hiking interest rates in March 2022, values are still 40% higher than 2019, prior to the start of the pandemic. As well, the nation’s apartment vacancy rate is just below 2% and the average asking rental price for a one-bedroom unit is above $2,000 per month.
The housing agency uses the years 2003 and 2004 for its benchmark on affordability because it was a time when the economy was stable and housing costs were relatively low. During that period, the average household spent about 35% of its disposable income on shelter. That has since increased to nearly 50% nationally and nearly 60% in Ontario and in B.C., according to CMHC’s previous report.
On September 13, the housing agency said that 1.48-million additional units are needed in Ontario, down 20% from 1.85-million in 2022’s forecast. In Quebec, the supply gap was 860,000 units, up nearly 40% from the agency’s previous prediction. In B.C., the number was 610,000, an increase of 9% over 2022.
The three provinces are home to the country’s major economic hubs of Toronto, Montreal and Vancouver, which are at risk of losing people as housing costs soar. “The cost of living there is just becoming too high,” said Mr. Ab Iorwerth in an interview. He said if housing does not become more affordable, people would leave those cities.
“What I’m envisaging is just a downward grind in their population growth and consequently their economics, living standards,” he said. “These are drivers of Canada’s economic growth. This will be putting downward pressure both on these cities’ economic growth but also on Canada’s.”
The typical home price in the Toronto region was $1,161,200 in July, according to the latest data from the Canadian Real Estate Association. In the Vancouver region, it was $1,210,700 and in the Montreal area it was $520,000.
CMHC has long said that more housing is needed to help address affordability, and most private sector economists and the real estate industry agree with that assessment. Mr. Ab Iorwerth said the pace of construction needed to increase.
For the country to get to 5.2-million new units by 2030, the rate of building would need to more than double from current levels. New home construction has already slowed due to the rise in material and labour costs. In Toronto, the most populated city in the country, demand for preconstruction condos has been waning due to the high costs.
Poll Finds a Lot of Canadians Want to Sell Their Homes within 3 Years
Most Canadian homeowners are not looking to sell in the next three years, but if all those who are planning to sell follow through, there could be a historic number of properties hitting the market, according to a new report by personal finance company NerdWallet Inc. The study, which interviewed 1,099 Canadian adults, 749 of them homeowners, found that 20% are planning to sell their primary residence within the next three years. Another 41% would like to sell more than five years from now and 31% are not interested in selling at all.
The study used Statistics Canada data on Canada’s current population and home ownership rate to estimate the number of homes that could be listed in the next three years if 20% of homeowners were to sell and found that it would result in approximately 5.4 million new listings — an average of 1.8 million per year — between 2024 and 2026. The report notes that the greatest number of listings Canada has seen in the past decade was in 2015, when just over one million homes were listed for sale.
But the likelihood that all would follow through is extremely low, report author Clary Jarvis wrote, in part because of the various obstacles homeowners face when deciding to sell. The biggest obstacles preventing homeowners from selling their primary residence in the next three years are the stress of moving (22%), higher mortgage rates potentially affecting homebuyers’ budgets (17%) and having to buy a new home when mortgage rates are high (17%).
Homeowners who plan to sell share the same top concerns: the stress of moving (41%) and higher mortgage rates potentially affecting homebuyers’ budgets (37%), followed by the possibility of having to sell their home for less than they believe it is worth (27%). Some of those worries, such as those related to high mortgage rates and lower home prices, could eventually diminish if interest rates drop or home sales rise. But the stress of moving, finding a good real estate agent and disruptions caused by major life events will always be challenges.
Canadians also seem keener than usual to sell other kinds of properties, when compared with recent averages, Jarvis wrote. The study found that 9% of homeowners are looking to sell a vacation home and 12% are planning to sell an investment property within the next three years.
“Anything that prevents homeowners from listing their properties is going to put more pressure on buyers,” Shannon Terrell, personal finance expert at NerdWallet Canada, said in a press release. “But when you’re buying a home, you have to focus on what you can control — your down payment, debt levels and credit score — and be as ready as you can when the right property finally hits the market.”
Rising incomes and a slower housing market helped Canada’s households modestly repair their balance sheets in the second quarter, even as economic growth stalled. Combined, rising incomes and slower debt accumulation drove households’ ratio of credit market debt to income down to 180.5% from 184.2% in the previous quarter. That’s the biggest decrease in that measure in more than a year.
Source: Financial Post