TD Raised Its Housing Sales and Price Forecasts. Here’s How It Sees the Real Estate Market Unfolding over the Next Year
The Globe and Mail recently spoke with TD economist Rishi Sondhi, who will also be speaking at the CHPTA Conference on November 21st, to gain insights on the Canadian housing market. The forecast has home sales picking up in the fourth quarter of this year, with enough stimulus in the system through lower rates to start generating sales increases. However, sales levels are not expected to return to where they were before the pandemic struck before 2025.
The Canadian housing market is expected to experience a boost in 2025 due to falling interest rates, the Bank of Canada’s overnight lending rate reduction, and recent changes to mortgage rules.
The Bank of Canada has reduced its overnight lending rate by 75 basis points this year, with further rate cuts expected. Inflation has fallen to the Bank of Canada’s 2-percent target in August, and the U.S. Federal Reserve’s recent rate cut of 50 basis points could match this rate cut if economic conditions worsen.
TD Economics has updated its economic forecasts, predicting a strong housing market next year. The bank is forecasting 200 basis points of cuts, bringing the overnight rate down to 2.25 per cent from the current 4.25 per cent. Annual average existing home prices are forecasted to rise between 3.6% and 7.5% across the 10 provinces, with the strongest growth expected for the Prairie provinces and the greatest improvement seen in Ontario.
The Prairie provinces could have some outperformance in 2025, with Calgary being a standout due to its hot market. Alberta has supportive factors, including affordability, economic outperformance, and robust population growth. The federal government has been announcing changes to slow the rate of intake of new homebuyers.
Source: Globe and Mail
Mortgage Rule Changes Will Help Spark Demand, but Supply Is ‘Core’ Issue
Canadians will be able to get mortgage insurance for pricier homes and first-time buyers will be able to stretch out their payments longer under changes to federal policy. The changes, which take effect Dec. 15, represent the first significant relaxation of the country’s mortgage rules after more than a decade of increasingly tougher requirements, including shorter amortization periods and the mortgage stress test.
Under the new rules, the price cap for insured mortgages will be $1.5-million, up from $1-million. First-time homebuyers will be allowed to take out an insured mortgage with a 30-year amortization for all types of homes. More buyers will be allowed to take out an insured mortgage with a 30-year amortization on a pre-construction home.
This is seen as an attempt by the Trudeau government to win over young voters who have been priced out of home ownership by high prices and higher interest rates. They build on Ottawa’s decision earlier this year to allow first-time buyers to take out a 30-year amortization on pre-construction homes and were announced after more than a year of slow real estate sales.
The affordability crisis has been seized upon by Conservative Leader Pierre Poilievre and his party to attack the government over its handling of the housing file ahead of an expected election in the coming year. The typical price of a home is more than $700,000. Raising the mortgage-insurance threshold to $1.5-million means more buyers will be able to enter the more expensive markets with a smaller down payment.
The real estate industry applauded the changes announced Monday and agreed with Ottawa’s reasoning that it would make home ownership more attainable and affordable.
While Ottawa’s changes to mortgage rules could potentially boost demand among potential homebuyers, the supply challenges are likely to persist in Canada’s real estate sector despite lofty goals to build new housing.
Source: The Star
Source: Globe and Mail
Source: Globe and Mail
Condo Survey Shows Big Disconnect Between Supply and Demand
The 2024 Canadian Multi-Residential Satisfaction Study (CMRS) by simplydbs revealed that 62% of surveyed Toronto residents would prefer living in buildings with larger suites, even if it meant fewer shared amenities. This shift in buyer preferences could help inform real estate planning and development in a time of mounting housing pressures.
The preference for larger living spaces aligns with findings from a separate survey conducted by Devron Developments, which found that 47% of Greater Toronto Area residents now view condos as a viable long-term housing option. However, the Toronto condo market remains flooded with smaller units, underscoring a persistent disconnect between supply and demand.
The CMRS study also reveals demographic trends, with younger residents between the ages of 19 and 24 more likely to prioritize amenities over space. Income levels also play a significant role in shaping preferences, with residents earning less than $30,000 per year more inclined to favour amenities, while those with higher incomes generally prefer more space.
Source: Financial Post
National Housing Market in ‘Holding Pattern’ as Buyers Patient for Lower Rates
The Canadian Real Estate Association reported a 2.1% decrease in home sales in August compared to the same month last year, as the market remained “stuck in a holding pattern” despite decreasing borrowing costs. National home sales edged up 1.3% from July on a seasonally adjusted basis. The association’s chair, James Mabey, noted that the first week of April, May, June, and September typically sees a burst of new supply that can jolt the market.
The Bank of Canada announced its third consecutive cut to its key interest rate during the first week of September, which could help lure buyers off the sidelines. Economic forecasts suggest that the central bank will likely continue cutting its key lending rate by a quarter-percentage point until July, 2025, bringing it down to around 2.5 per cent by that time.
Shelter remains the largest component driving inflation, and the Bank of Canada will be closely watching whether the three recent interest rate cuts result in a significant increase in home prices. Desjardins economist Kari Norman remains confident that the Bank of Canada will reduce its policy rate again in October, followed by another in December, and six more in 2025.
The national average sale price for August amounted to $649,100, a 0.1% increase compared to a year earlier. The federal government announced changes to mortgage rules to help more Canadians purchase their first home. As of December, the price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5-million from $1-million. The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home or anyone buying a newly built home.
Source: Globe and Mail
Source: The Star
Source: CREA
Annual Pace of Housing Starts in Canada Down 22% in August
Canada Mortgage and Housing Corp. reported a 22% slowdown in the annual pace of housing starts in August compared to July. The seasonally adjusted annual rate of housing starts was 217,405 units, down from 279,804 the previous month.
The annual pace of urban starts fell 24% to 199,478 units, while the annual pace of multi-unit urban projects dropped 29% to 154,290 units. Single-detached urban starts rose 3% to 45,188 units. Rural starts were estimated at 17,927 units. The six-month moving average of the seasonally adjusted annual rate of housing starts was 248,480 units in August.
“Growth in actual year-to-date housing starts has been driven by both higher multi-unit and single-detached units in Alberta, Quebec and the Atlantic provinces. By contrast, year-to-date starts in Ontario and British Columbia have decreased across all housing types. As the housing shortage continues, higher levels of construction are needed to restore affordability in Canada’s urban centres.” said Bob Dugan, CMHC’s Chief Economist.
Source: Globe and Mail
Source: The Star
Source: CMHC
Building Permits, July 2024
In July, the total value of building permits in Canada rose 22.1% to $12.4 billion, a rebound from two consecutive monthly declines. Both the residential and non-residential sectors expanded in July. The multi-unit component saw the largest increase, with the total monthly value of permits increasing 16.7% to $7.6 billion. The multi-unit component’s value increased substantially to $5.0 billion, its second-highest monthly level on record after an all-time high of $5.9 billion in April.
In Ontario, the non-residential sector permits rose 31.8% to $4.8 billion in July, driven by gains in the industrial component. The large monthly gains in Ontario’s industrial component pushed the value to a record-high level of $678.3 million in July, supported by construction intentions for the expansion of a tire manufacturing plant in Greater Napanee and broad-based growth throughout the province.
In British Columbia, the non-residential sector increased 99.2% to $869.1 million in July, with large gains in the industrial, institutional, and commercial components. The total value of building permits in July was up 22.9% compared with the previous month and 3.4% year over year.
Overall, the growth in the residential and non-residential sectors in July was driven by the multi-unit component, with the total value of permits rising significantly.
Source: Statistics Canada
