National Home Sales Slowed Further in November as High Rates Continue to Spook Buyers
Home sales, prices and listings fell in November from October as many potential buyers and sellers hunkered down to wait for signs of relief on interest rates, the Canadian Real Estate Association said. Sales fell 0.9% compared with November 2022, and fell by the same amount on a seasonally adjusted basis compared with October.
New listings dropped 1.8% in November compared with a month earlier, the second month of declining listings after a 2.2% drop in October that marked the first pullback since March.
The drop in new listings shows sellers are increasingly holding off until 2024, despite a surprising number of whom entered the market in early fall, CREA senior economist Shaun Cathcart said in a release. “Not getting offers they were willing to accept, it’s looking like many of them are also now resigned to hunker down until .”
Average home prices dipped 0.3% from October, or 1.1% based on the MLS home price index, while the index showed a 0.6% increase from 2022 to come in at $735,500.
The actual national average price of a home sold in November was $646,134, up 2% from November 2022.
Cathcart said owners holding back on listing was probably wise. “It’s probably a good move given that recent expectations around interest rate cuts suggest it might be a somewhat more active spring market than we thought.”
The Bank of Canada has held rates unchanged over three rounds of decisions, but has said it could still raise rates even as forecasters expect the next move would be a cut. The U.S. Federal Reserve kept its rate unchanged in December, but signaled that it expects to make three quarter-point cuts to their benchmark rate in 2024.
Mortgage rates declined in November, but it hasn’t been enough to boost the market, TD economist Rishi Sondhi said in a note. “Even with rates falling last month, they were still at elevated levels, which was enough to weigh down housing sales,” he said.
Overall home sales are 18% below their pre-pandemic level, with outsized declines this past month from Manitoba, B.C., and Quebec while Ontario saw notable sales growth, Sondhi said.
Despite Ontario gains, conditions in the province still favour sellers and, like in B.C., could lead to price discounts in the months ahead, he said. “Notably, markets are much tighter elsewhere in the country, which should lead to relatively strong price growth moving forward.”
While sales are well below historic norms, inventory also remains subdued at 4.2 months of inventory, below the long-term average of almost five months, noted Dominion Lending Centres chief economist Sherry Cooper.
She said in a note that while it will likely be several months before the Bank of Canada cuts rates, market-driven interest rates have fallen sharply and fixed mortgage rates have also come down but more moderately. She said she expects the overnight rate to come down by 1% by the end 2024. “Housing activity will strengthen in 2024 and 2025, although the economy will be burdened by a substantial rise in monthly mortgage payments as many renewals or refinancings rise, peaking in 2026.”
Royal LePage also expects rate cuts to fuel a rebound in the market, predicting in its 2024 outlook that the national aggregate home price will rise 5.5% year-over-year in the fourth quarter of 2024.
CREA chair Larry Cerqua said that overall, the market look to be stabilizing into balanced territory with a soft-landing increasingly in sight. “I wouldn’t expect anything too headline-grabbing from the resale housing market for the next few months.”
Pace of Housing Starts in Canada Down 22% in November
The annual pace of housing starts in Canada fell 22% in November as work began on fewer multi-unit projects, Canada Mortgage and Housing Corp. said. The agency said the monthly seasonally adjusted annual rate of housing starts in November came in at 212,624 units, down from 272,264 in October.
The drop came as the annual pace of urban starts fell 23% to 195,363 units, with the rate of multi-unit urban starts down 27% at 151,297. Single-detached urban starts fell 7% to 44,066 units.
“The notable drop in the rate of housing starts in November, particularly in the multi-unit space, should not come as a major surprise and reflects tighter economic conditions impacting construction timelines,” CMHC deputy chief economist Kevin Hughes said in statement. “As the more difficult borrowing conditions and labour shortages now seem to be showing in the starts numbers, we can expect to see continued slower starts rates in the coming months.”
The rate of starts in Montreal was down 30%, while Toronto and Vancouver both saw a drop of 39%, driven by significantly lower multi-unit starts. The annual pace of rural starts for November was an estimated 17,261.
The six-month moving average of the monthly seasonally adjusted annual rate of housing starts in November was 257,777, up 0.7% from 255,876 in October.
TD Bank economist Rishi Sondhi said the data was consistent with the bank’s view that housing starts will trend lower moving forward, as past weakness in home sales flow through to new supply.
“However, we’re anticipating some bounceback took place in December, consistent with rising permit issuance in recent months,” Sondhi wrote in a report. He noted that government actions such as eliminating the GST on purpose-built rentals coupled with population growth will likely keep the level of starts elevated through 2024, even with the anticipated downtrend.
Retrofits and Conversions, Not New Buildings, Needed for Sustainable Future
From greenhouse gas emissions to labour productivity and economic growth, many of Canada’s most pressing problems could be addressed through infrastructure already in place, stakeholders say. What’s missing, said panelists at a recent summit in Ottawa, held by the Canadian Urban Institute (CUI), is the collaboration between stakeholders and all levels of government required to make it happen.
“Unless we start with action on the ground, right now, we’re going to miss all the targets we’ve pledged towards sustainability and climate change,” said Ursula Eicker, professor of building, civil and environmental engineering at Concordia University and holder of the Canada Excellence Research Chair in Smart, Sustainable and Resilient Communities and Cities. Prof. Eicker was also among numerous contributors to CUI’s first State of Canada’s Cities report, in which she wrote: “The vast majority of the buildings we will need by 2050 are already built. The challenge is that they need to be converted to efficient, zero-emission standards while maintaining the comfort and safety of people facing emerging climate change disasters like flooding, fire, sea-level rise, drought and heat waves. We need an approach to construction that transforms low-performing buildings into low-carbon buildings without disrupting their use.”
Along with developers and financiers, architects, engineers, academic researchers, city officials and policy makers all hold an integral role in changing business models and adopting a new way forward. Prof. Eicker pointed out that the structural features of real estate have not significantly innovated in almost half a century, while current regulations and incentives do not support transformative retrofits.
Meanwhile, skyrocketing interest rates paired with higher construction costs are affecting affordability and putting new projects at risk.
“Land is complicated. Building on it is complicated, and so is getting approval,” said panelist Stéphan Déry, president and chief executive officer of Canada Lands Company. “It takes anywhere from four to seven years to dispose of a federal asset. Then you have to get a concept plan approved by the city that could take up to six years, and then you need time for rezoning and permitting.”
Mr. Déry said they currently hold more than 1,000 acres of development land across the country, in addition to now-empty downtown office buildings as tenants have shifted to remote and hybrid work. “So how can we work with governments to ease the conversion of some of these buildings? That’s where I think the collaboration is so important, not just in ways of thinking, but also the desire to move fast, especially in the middle of the crisis that we live in,” he said.
In addition to the affordable housing crisis, Canada is currently facing “huge” economic challenges, said Scott Stirrett, founder and CEO of Venture for Canada. “Our labour productivity has declined in 12 out of the last 13 quarters, while OECD (Organization for Economic Co-operation and Development) is predicting Canada will be the lowest-performing advanced economy in the next four decades,” he said. To expand the economy in ways that will enhance labour productivity, Mr. Stirrett said investing in cities is essential to attract companies offering high-paying, quality jobs.
The future is also dependent on the capacity of towns and cities to adapt constantly to citizens’ ever-changing needs, said Charles-Albert Ramsay, economics instructor at Dawson College and Kiuna Institution, a First Nations college in Odanak, Que. He urged city stakeholders to identify, catalogue and publicize their stock of old, underused and adaptive buildings. “Ensure that community groups, businesses or government agencies that need space and could act as an anchor tenant are engaged as a means of financing the renovations needed to get the space going,” he wrote in State of Canada’s Cities.
Mr. Ramsay also called for the conversion of legacy industrial buildings to affordable maker spaces, where small and medium-sized businesses can supply goods and services at manageable prices – from making furniture for homes to welding fences for local schools. “Policies and legal changes that support these approaches will ensure that as our cities age, they will continue to actively contribute to our collective well-being,” he added.
Creativity will also play a vital role in problem-solving in the real estate sector, said panelist Ana Bailão, head of affordable housing and public affairs for development company and major Canadian office landlord Dream Unlimited Corp. Dream is the first real estate company in Canada to receive funds from the Canada Infrastructure Bank (CIB) as part of the Commercial Building Retrofits Initiative. The CIB’s $136.6-million investment will fund Dream’s decarbonization initiative in 19 building retrofits across Ontario and Saskatchewan, with a long-term net-zero goal by 2035.
“We need to look at how we can leverage each other’s participation in this ecosystem,” Ms. Bailão said. “These are the innovative solutions we need to tackle the challenges of the day, the climate changes and the affordability issues we’re all dealing with.”
Source: Globe and Mail
Record Population Growth Risks Aggravating Canada’s Housing Headaches
Canada’s record population growth in the third quarter of 2023 brings its housing crisis into the spotlight once again, with economists urging governments to boost spending to accommodate all the new arrivals. The country added 430,635 people from July to October, Statistics Canada said on Dec. 19, with the 1.1% boost to the population being the highest quarterly growth rate since the second quarter of 1957.
Overall, more than one million people were added during the first nine months of 2023, which is higher than any other full-year period since 1867. “The population numbers once again reinforce the need to boost the housing supply and bolster infrastructure spending,” Desjardins economist Marc Desormeaux said in a Dec. 19 note. He added that until Canada improves its “long-run underperformance on productivity,” the country is “at risk of further declines in gross domestic product per capita (and our standard of living).”
Canada depends on immigrants to boost its economy and to replace its aging population. But the country is now battling inflation and a housing crisis, so economists and think tanks have urged the federal government to provide more clarity on how it plans to accommodate hundreds of thousands more newcomers.
Bank of Canada deputy governor Toni Gravelle highlighted the issue in a speech on Dec. 7, when he said the recent increase in immigration is adding pressure to Canada’s existing housing supply crisis, though he said it did not have a significant impact on inflation overall.
The federal government has made several initiatives to increase housing supply in recent months; however, BMO Capital Markets senior economist Robert Kavcic believes it will be difficult to match the quick rise in population. “In no version of reality can housing supply respond to an almost overnight tripling in the run rate of new bodies,” he said in a Dec. 20 note. “At 2.5 people per household, we’d need more than 170,000 new units every three months at this rate of population growth … right now, the industry is working all-out to complete 220,000 in a full year.”
Canada recently decided to plateau its long-term immigration targets, a change from the original plan to increase the target each year. It aims to bring in 465,000 permanent residents in 2023, but that target will gradually increase to 500,000 by 2025, where it will remain for 2026. In the third quarter, Canada added 107,972 permanent residents, which took the overall tally for the year to 371,299 — about 80% of its 2023 goal.
Aside from housing, the rise in immigration affects inflation, something the Bank of Canada has been trying to curb for several months through interest rate increments.
“The headcount surge is boosting demand for goods and services and risks further inflaming price pressures,” Desormeaux said. “Yet, over time, it should also help to increase the supply of available workers, thereby reducing labour market tightness and mitigating the risk of wage-push inflation.”
The economist doesn’t expect the growing population to affect future Bank of Canada decisions. He predicts the bank will hold its interest rate steady in January and start cutting by mid-2024.
Bank of Nova Scotia analyst Rebekah Young expects population growth to “land somewhere closer to 1.2 million” by the end of 2023 with much of the increase coming from non-permanent streams, including international students and temporary foreign workers.
The number of non-permanent residents in Canada increased to about 2.5 million from about 2.1 million between July and October, representing a net increase of about 312,800 people, the largest quarterly increase since 1971, which is when data on non-permanent residents became available.
Source: Financial Post
Only 26% of Canadians Could Afford a Single-Family Home Right Now
A greater share of Canadians are barred from home ownership as affordability hits near-worst levels for most markets amid soaring prices and interest rates, according to a recent RBC report. The significant loss of affordability during the pandemic has shrunk the pool of homebuyers in Canada, said Robert Hogue, RBC economist and report author. In 2019, close to 60% of all households could afford to own at least a condo apartment based on their income. That share has plummeted to 45% in 2023. And just 26% can afford a single-family home, down from 40% four years ago.
“The impact on affordability has been amplified by soaring interest rates and home prices, resulting in much larger mortgage payments,” he said, “meaning a much higher household income is needed to carry those costs. These soaring costs have reduced the number of people who can afford a property.”
Ontario and B.C. had the highest incomes needed to afford a home, the report said. Using RBC’s housing affordability measures, which calculates how much of a household’s pre-tax income is needed to cover home ownership costs such as mortgage, utilities, and property tax, Toronto’s affordability measure rose to 84% (meaning it takes 84% of a Toronto median household income to cover housing costs) and Vancouver’s reached 102%. Housing is considered affordable when 30% or less of a household’s income is used to cover housing costs.
While home prices in Toronto have fallen by almost 20% since the February 2022 peak, home prices remain elevated compared to pre-pandemic levels. The average price of a home in November was $1.08 million compared to $843,600 in the same month in 2019, according to the Toronto Regional Real Estate Board.
“The Toronto market has not been affordable for a long time,” Hogue said. “You need to be on a much higher end of the income scale to even enter the market.”
With fewer people able to buy condos, which are seen as starter homes for many as they’re cheaper than single-family homes, more pressure will be placed on the rental market, said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives. The affordability of home ownership affects the rental market for two reasons, he said. Renters won’t be financially able to move out of the market, increasing rental demand; and landlords facing costly mortgage increases will off-load the expenses to renters.
The good news is that housing affordability’s recent rapid deterioration has likely run its course, said Hogue, as home prices drift lower or stabilize in most markets, household income grows at a solid pace, and there’s clear indication from the Bank of Canada that rate cuts are coming in 2024. “Nonetheless, there’s a very long way to go before affordability is meaningfully restored,” Hogue said in his report. “Buyers in many of Canada’s large markets will contend with extremely difficult conditions for some time. We expect home resale activity to stay especially quiet in Ontario and British Columbia until interest rates fall materially. And then, the recovery that will follow is likely to be gradual at first.”
In Toronto, it’s unlikely home ownership will be affordable, but there are ways to ensure the city can create more varied housing stock, Hogue said, especially for renters. Building more purpose-built rental and subsidized housing is necessary to boost affordable supply. Removing GST from new rental construction has also been seen as a positive step to incentivize more rental new-builds from developers, he added.
“There is a lot of potential to make things more affordable, especially on the rental side,” said Hogue. “But Toronto is not unique. Like most major global cities, it has affordability issues. While we have a long way to go in terms of supply, there is a lot that can be done to give people more affordable options.”
Source: The Star
Condo Builder Plans to Build Rental-Only Detached Houses in Ontario
After being vilified for its plans to buy $1-billion worth of houses in Ontario to rent them out, Core Development Group Ltd. says it now also wants to build new rental houses from scratch. It has been two years since Core’s founder and chief executive officer, Corey Hawtin, told The Globe and Mail that the company would buy hundreds of detached houses in mid-sized Southern Ontario cities. The plan was to add basement units and turn the houses into rentals.
Mr. Hawtin did not anticipate the ensuing wave of outcry. The news added fuel to the debate over the role of real estate investors, and whether properties should be considered assets or homes.
Since then, high mortgage rates have made it much harder for individual buyers to afford their own homes. Mr. Hawtin says he now sees a chance to build not apartment buildings, but rather single-family homes that are purpose-built for rental, to fill what he characterizes as an unmet need for detached housing in the rental market. The company is under contract on two sites, one in Kingston and one in London. Each location has the necessary permits for up to 250 single-family homes, according to Mr. Hawtin.
Mr. Hawtin founded Core in 2013. The company has since completed five condo buildings and four rental-only apartment buildings in the Toronto region. He expanded into buying detached houses in 2021 after realizing there were no large companies in Canada that specialized in renting out that type of property. The country’s apartment rental vacancy rate has been around 3 per cent since the early 2000s.
Core now owns 550 single-family homes in Kingston, Peterborough, St. Catharines, Sudbury, Sault Ste. Marie and Timmins. The company initially aimed to own $1-billion worth of single-family rental properties, amounting to about 4,000 low-rise units, in medium-sized Ontario cities by 2026. Mr. Hawtin said he now expects that Core will need longer to reach that goal.
Large-scale single-family-home rental operations started in the U.S. after the country’s housing bubble burst in 2007. Private equity giant Blackstone and Canadian institutional investor Tricon Residential were some of the deep-pocketed players that bought thousands of houses at fire-sale prices after the housing crash. Institutional investors, which invest on behalf of others, now own entire U.S. neighbourhoods and make money on the rental income, similar to apartment building owners.
In Canada, institutional investors that run rental home businesses own apartment buildings. Likewise, when developers build rental-specific housing in this country, the properties are typically apartment buildings with hundreds of units. This requires much less land than neighbourhoods with hundreds of single-family homes.
Institutional investors in the U.S. have now in some cases shifted away from buying already-built homes, and branched out into constructing neighbourhoods of detached houses that are designed specifically to be single-family rentals.
Mr. Hawtin wants to do the same in Canada. “There’s an opportunity to bring on that new stock of rentals at scale,” he said.
If Core follows through on its plans to build single-family rentals, it would be benefiting from a downturn in new home building. Some developers have had to postpone or even sell projects because they have been unable to handle higher borrowing and construction costs. “The low-rise developers are not able to sell those homes. So we think there’s an opportunity to bring that sort of scale, scale up the business in that market,” Mr. Hawtin said.
But the plan to build rental-only detached houses depends on Ottawa’s latest new-home-construction initiative: a waiver of the 5-per-cent federal goods and services tax on new multi-unit rental-specific buildings.
To be eligible for the waiver, a development must have a minimum of four units per property. Martin Bégin, a spokesperson for the federal Finance Department, said the waiver would not apply to single-family homes. “This approach will help encourage incremental densification,” he said.
But Mr. Hawtin said the legislation is ambiguous, and that he believes the tax break could apply to four detached houses built on the same plot of land.
If Core does not buy the land in Kingston and London, Mr. Hawtin said, he will continue with his plan to buy detached houses and turn them into rentals. He said there is a lack of awareness of the shortage of single-family rentals in Canada.
Source: Globe and Mail
Toronto Just Saw the Worst Year for Home Sales in 23 Years
Toronto-area real estate sales hit a 23-year low as the market took a significant hit last year from high interest rates and a slowing economy. The total number of home sales reached 65,982 in 2023, according to data from the Toronto Regional Real Estate Board (TRREB), the lowest sales recorded since 2000 — around when Toronto’s population was two-thirds its current size.
Even during the 2008 financial crisis, homes sales hit 74,500. By comparison, home sales reached a record 121,700 during the 2021 pandemic-era real estate frenzy when buyers jumped into the market taking advantage of historically low interest rates.
The number of GTA home sales in 2023 represent a 12% dip compared to 2022, the report said.
“We hit a record number of sales in 2021 and  we came in shy of 66,000. It really illustrates the impact that higher borrowing costs have had since March 2022,” said TRREB chief market analyst Jason Mercer. “There is a real affordability challenge and make no mistake many want to purchase a home whether they’ve lived here their whole life or moved here recently. But the higher interest rate environment has been a real road block.”
Despite an uptick of new listings during the spring and summer, the number of new listings also declined by 6.6% year-over-year in December. The surge of new listings earlier in the year stemmed from renewed activity in the spring when the Bank of Canada indicated a rate hike pause, Mercer said.
“When the market picks up, that’s when people want to put their home up for sale,” he added. “There was also the potential of rate cuts coming at the end of 2023, which never came to pass.” Instead, the Bank of Canada resumed two more rate hikes in June and July, dampening sales activity into the fall.
“Not only did interest rates jump higher, hurting affordability further, but there was also a psychological hit,” Mercer said. “People are really taking a wait-and-see attitude until the Bank of Canada signals or begins cutting rates.”
The average selling price for all home types in 2023 was $1,126,604, representing a 5.4% decline compared to 2022. In 2000, the last time sales numbers were this low, the average price of a home was $243,000.
On a seasonally adjusted monthly basis, the average selling price edged up by almost $3,000 in December compared to November, amounting to an average selling price of $1,084,692 for December 2023.
The average price for detached, semi-detached and townhomes all increased year-over-year by 2.5%, 1.7% and 5.5%, respectively, while condos saw a 3.1% decrease. It’s been a challenging year for the condo market, which is largely driven by investors, many of whom are over-leveraged and have been selling their units at discounted prices.
While overall demand for housing remained buoyed by record immigration in 2023, the report said, more of this demand was pointed at the rental market.
“In the condo market, which offers a lot of rental supply, or purpose-built rental there have been extremely tight conditions, low vacancies and competition creating a strong upward pressure on prices,” Mercer said. “If we continue to see record population growth at record pace there will be continued pressure unless more supply comes to market.”
There is some relief on the horizon. Economists forecast that the Bank of Canada could begin to cut rates by April, allowing for renewed buyer interest. It could revive the market come spring, Mercer said.
Already bond yields are trending down resulting in declining interest rates on five-year fixed mortgages, he said, which points toward the expectation that the Bank of Canada will cut rates in the first half of 2024. “Would-be homebuyers need rates to come down by a certain amount in order for them to enter the market,” Mercer said. “They’re still waiting to see what happens, so market activity really depends on when the bank will cut rates and by how much.”
Source: The Star