Canadian Home Sales Fall for Third Month as Buyers Look Past Covid-19
Canada’s scorching hot housing market is starting to cool, as burned-out buyers shift their focus from getting more space to getting back to normal after COVID-19, and the fear of missing out fades into a prevailing sense of “wait and see.” Home sales in Canada fell for the third consecutive month in June and sit 25% below March’s peak, though they still touched a monthly record, data showed. The average selling price fell to $679,000, down 5.3% from the March apex. However, when compared with a year ago, sales in June rose 13.6% to set a new record for the month.
“People are focusing their minds on different things. They want to go to the beach, they want to enjoy the summer, they’re just not as focused on real estate these days,” said Jeremy Cossette, an agent in Regina.
Home prices surged across Canada amid the COVID-19 pandemic as lockdowns prompted people to seek out more living space and record-low interest rates fuelled a buying frenzy. At the peak, home prices were up more than 40% year-over-year on average, and desperate buyers were offering hundreds of thousands of dollars more than the asking price just to get a toehold in the market.
A few months later, high vaccination rates have allowed Canadian cities to reopen. Consumer spending on restaurants, hotels and clothing jumped in June, according to the RBC COVID Consumer Spending Tracker, and travel spending is shooting up.
That shift in priorities may have would-be home buyers reconsidering how much they want to spend and even where they want to live, Bank of Canada Governor Tiff Macklem said. “Now that we can go back to a restaurant, do you still want a bigger kitchen? We’ll see,” Mr. Macklem said, while explaining that the central bank is seeing signs of moderation in the market.
In Calgary, long-time agent Lowell Martens said the lull may be more about buyers sensing there is less competition and just taking some time off to “see what happens in the fall.” While the pause has cooled things down, it does not feel like previous collapses, he said, with activity still strong in certain segments. “I think it will be a softer landing than we’ve had in the past.”
In Toronto, often Canada’s hottest housing market, June sales were well below March’s peak, but still strong relative to previous years as a drop in new listings kept conditions tight, according to agent and market analyst John Pasalis.
Inventory on the market continued to climb to about 2.3 months worth of housing stock, up from the record low 1.8 months in March, according to the real estate board’s report. But even with the loosening of supply, the market remains historically tight. The long-term average for the national sales-to-new listings ratio is 54.6%, while historically five months worth of inventory has been the norm for the market, the data show.
“It’s a long road to get back to normal, and for many housing markets the main issue is that supply shortages are as acute as ever,” Shaun Cathcart, CREA’s senior economist, said in the press release. “While the frenzy and emotion of earlier in the pandemic seem to have dissipated for now, the key ingredients of a seller’s market are all still in place.”
Canada’s Annual Pace of Housing Starts Slowed in June, CMHC Says
Canada Mortgage and Housing Corp. says the annual pace of housing starts slowed in June. The national housing agency says the seasonally adjusted annual rate of housing starts fell 1.5% to 282,070 units in June compared with 286,296 in May.
The annual pace of urban starts fell 1.8% in June to 251,190 as the pace of starts for apartments, condos and other types of multiple-unit housing projects rose 0.6% to 191,085. Starts of single-detached urban homes fell 8.5% to 60,105.
CMHC estimated rural starts at a seasonally adjusted annual rate of 30,880 units. The six-month moving average of the monthly seasonally adjusted annual rate of housing starts was 293,567 in June, up from 284,837 in May.
“The six-month trend in housing starts remained elevated in June, despite recent moderation in single-detached starts from the highs recorded in the first quarter of 2021,” said Bob Dugan, CMHC’s chief economist. “In June, lower single-detached SAAR starts offset a slight increase in multi-family SAAR starts in Canada’s urban areas, leading to a decline in overall SAAR starts for the month. However, the level of activity remains elevated by historical standards, both on a trend and monthly SAAR basis. The markets of Vancouver, Toronto and Montreal registered particularly strong growth in total SAAR starts in June, driven by the multi-family segment.”
Canadian Home Prices Up 16% in June for Largest 12-Month Gain on Record
Canadian home prices increased in June to mark the largest 12-month gain on record as prices climbed in all 11 markets, says the Teranet National Bank composite price index. The index was up 16% from June 2020, beating the 14.2% rise of June 2017 that preceded the introduction of macroprudential measures designed to restrain home prices.
Prices were up 10% or more in an unprecedented 90% of 32 urban markets and up 30% or more in 42% of these markets. Halifax led with prices climbing 30.8% over the past year, followed by Hamilton (28%), Ottawa-Gatineau (25.8%), Montreal (19.4%) and Victoria (18.5%). Toronto trailed the countrywide average at 15.9%.
The index rose 2.7% from May for the 20th consecutive monthly increase. It was the second-largest monthly gain on record since the index started in 1999, trailing only the 2.8% monthly increase recorded in May. It was also the first monthly deceleration since January, a cooling that coincides with a slowing of growth in sales of existing homes sales, which fell in June for a third straight month.
Cooler Housing Market Won’t Hurt Canada’s Recovery: CIBC
Canada’s hot housing market is showing early signs of a slowdown that may soften the industry’s contribution to the economy — but not enough to be a major concern, according to one bank economist. “Now that Canadians are leaving their homes more often, demand for housing is cooling off after a period of historic strength,” Canadian Imperial Bank of Commerce economist Royce Mendes said in a report on July 23. “As a result, we do expect this component of GDP to come back down to earth.”
Potential moderation of the housing boom might not hurt the economy as much as people think because home prices aren’t factored into residential investment and employment in the sector isn’t likely to take a hit, Mendes said. Business investment — a key component of GDP that lagged during the pandemic — is likely to pick up in the near term as confidence from vaccine reopenings continues to improve, he said.
The pandemic has changed the forces of economic activity in Canada, with residential investment making up a greater share of output than business investment for the first time last year in records dating back to the 1960s. Residential investment accounted for about 10% of total output at the end of the first quarter of 2021, eclipsing business investment’s share of 7.5% of output.
COVID-19 lockdowns prompted an exodus of Canadians from apartments and condos in city centres to homes with more space, typically further from urban areas. Low interest rates, combined with demand for larger living spaces, boosted prices and sales. With those subsiding from elevated levels, economists and policymakers have expressed concern around the financial and economic implications of a potential plunge in the market. Increased activity in the resale housing market didn’t translate into a wave of newly minted real estate agents and support staff, Mendes said.
Financial stability concerns
“So, while the cooling in market activity will dent the incomes of agents and the profits of brokers, it probably won’t meaningfully delay a return to full employment,” he said. Mendes said there’s not much to fret about from a macroeconomic standpoint, however a sharp collapse in prices is still a financial stability concern — particularly for those homeowners who take on higher debt to buy property.
As the housing market cools and price growth slows, consumers will have more money to use on goods and services unrelated to real estate, Mendes said. Also, as vaccine rollouts continue, businesses will become more confident in the sustainability of the recovery and therefore more willing to make major investments in machinery and equipment, among other things. Canada’s vaccination rate has already surpassed that of the U.S., with more than 53% of its total population fully vaccinated.
“The reopening that is underway also seems to be coinciding with a slowdown in other components of residential investment,” Mendes wrote. “But, by that same token, companies not doing business in the housing market might also feel more confident making investments rather than stockpiling cash, given that vaccinations have reduced the likelihood of another round of harsh shutdowns.”
Source: Financial Post