CREA Reports May Home Sales Down 22% Since Last Year, 9% From April
Canada’s housing market continued to cool in May with the country’s real estate association finding home sales dropped by nearly 22% since last year and almost 9% between April and May.
The Canadian Real Estate Association (CREA) said Wednesday that on a year-over-year and non-seasonally adjusted basis, sales amounted to 53,720, a fall from 68,598 in May 2021. Seasonally adjusted sales for the month totalled 42,649, down from 46,644 in April.
“Ultimately this has been expected and forecast for some time — a slowdown to more normal levels of sales activity and a flattening out of prices,” said Shaun Cathcart, CREA’s senior economist, in a release. “What is surprising is how fast we got here.“
The moderation came after the country rang in the new year with soaring prices and a torrid pace of sales that prompted provinces and the federal government to eye a suite of cooling measures. Ontario, for example, increased a tax on non-resident homebuyers to 20% from 15% in March and broadened the policy to the entire province instead of just the Greater Golden Horseshoe.
But even more impactful than the patchwork of policies has been rising interest and mortgage rates, which economists attribute much of the cooling to. “Canadians widely expected home prices to keep rising, which pulled in investors and multiple-property buyers, while also causing many households to stretch in fear of missing out,” said Robert Kavcic, BMO Capital Markets senior economist Robert Kavcic. “But, beginning with the (Bank of Canada)’s first nudge in interest rates, those market expectations began crumbling.”
Realtors now notice prospective buyers negotiating more than they were able to in previous months, while sellers are still coming to terms with how the market has shifted and some are even holding back on listing their homes.
As a result, CREA found May’s sales resembled the levels of activity seen in the second half of 2019, before the COVID-19 pandemic began, but noted sales decreases were steeper in April. May sales were down in three-quarters of all local markets, led by regions like the Lower Mainland in British Columbia, Calgary, Edmonton, the Greater Toronto Area (GTA) and Ottawa.
The association now expects 568,288 properties to change hands this year, a 14.7% decline from the 2021 record but still the second-highest annual figure ever. It predicted sales will edge back a further 2.8% to 552,403 homes in 2023.
However, there will be little relief in prices. CREA forecast the national average home price will rise by 10.8% on an annual basis to $762,386 in 2022 and expects the largest gains to come from the Maritime provinces, Ontario and Quebec. Then, the national average home will rise by another 3.1% to $786,282 in 2023.
The average seasonally adjusted price in May sat at $700,438, down nearly 4% from $728,171 in April. The average non-seasonally adjusted price was $711,316, up roughly 3% from $687,595 the year before.
Rishi Sondhi, an economist with TD Economics, interpreted the figures to mean activity is “retrenching especially hard” in the GTA, where investors have played a large role in the past year. “It’s also likely the case that some GTA buyers purchased their homes before selling their old ones (thinking the market would remain hot) and are now being forced to accept lower prices to complete their transactions,” Sondhi wrote, in a note to investors. “We would, however, expect this dynamic to run its course in relatively short order.”
New listings climbed 4.5% on a seasonally adjusted basis from 70,971 in April to 74,145 in May, as Montreal saw an increase in new supply. On a non-seasonally adjusted basis, new listings totalled 100,643 in May, up more than 6% from 94,704 in May 2021.
CMHC Reports Canada’s Housing Starts Up 8% in May From April
Canada Mortgage and Housing Corp. says the annual pace of housing starts in May was up 8% compared with April. The national housing agency says the seasonally adjusted annual rate of housing starts in May rose to 287,257 units compared with 265,734 in April.
The increase came as the pace of urban starts rose 8% to 264,162 units in May. The annual rate of urban starts of apartments, condos and other types of multi-unit housing projects gained 13% to come in at 201,193 units for the month, while the pace of single-detached urban starts fell 4% to 62,969 units. Rural starts were estimated at a seasonally adjusted annual rate of 23,095 units.
The six-month moving average of the monthly seasonally adjusted annual rates of housing starts was 254,727 units in May, down from 257,833 in April.
“On a trend and monthly SAAR basis, the level of housing starts activity in Canada is historically high, staying well above 200,000 units since 2020 and despite the lower trend, the monthly SAAR was higher from April to May,” said Bob Dugan, CMHC’s Chief Economist. “The increase in monthly SAAR housing starts in Canada’s urban areas was driven by higher multi-unit starts in May. Among Vancouver, Toronto and Montreal, Vancouver was the only market to post a decrease in total SAAR starts, which was driven by lower multi-unit and single-detached starts.”
Nearly 1 in 4 Homeowners Would Have to Sell Their Home if Interest Rates Rise More
According to a new survey by Manulife Bank, 23% of homeowners with mortgages believe they may be forced to sell if interest rates increase further. The report, which surveyed 2,001 Canadians between the ages of 20 and 69 with household income of more than $40,000, also found that 18% of individuals with a mortgage already feel they can no longer afford the home they own, citing rising interest rates, inflation, or the overall cost of living.
“There’s definitely concern in the marketplace,” said Lysa Fitzgerald, vice-president of sales at Manulife Bank. “Canadians are feeling not as in control as they’d like to be, and perhaps some don’t really have a strong sense of what an increase in interest rates and inflation mean to their specific budget and cash flow.”
The survey also found Canadians’ debt load is increasing, with 50% of respondents claiming their spending is now outpacing their income, up from 35% a year ago. “This large statistical increase that is observed relative to previous waves is likely attributable, in no small part, to rising interest rates and inflation,” the report reads.
Earlier in June, the Bank of Canada raised its target for the overnight rate to 1.5%, an increase of half a percentage point. This came after a similar half-point hike in April. Experts expect additional increases to the overnight rate in 2022.
While the Bank of Canada does not set mortgage rates, variable-rate mortgages and home equity lines of credit are closely pegged to the bank’s overnight rate (fixed-rate mortgages are typically tied with the bond market).
Ian Calvert, vice-president and principal at HighView Financial Group, said a combination of low interest rates along with the increase in home values over the past few years encouraged a lot of debt among Canadians. Calvert said it will be challenging for some Canadians to service this amount of debt. “Those low rates will not last forever, as they were artificially low to stabilize and support the economy during the global pandemic,” he said.
Simeon Papailias, a real estate agent and co-founder of REC Canada, said about eight in 10 home buyers he has dealt with over the past two years have taken advantage of the low interest rates and signed a variable-rate mortgage. However, he said more clients are now inquiring about locking in fixed-rate mortgages, especially as interest rates continue to increase.
Papailias does not expect the higher mortgage rates will affect the majority of Canadians in terms of their ability to pay off their mortgage. “Our banking system is extremely conservative,” he said. “We are nowhere near what these homeowners were stress-tested against when their mortgages were approved.”
Mary Sialtsis, a mortgage broker with Concierge Mortgage Group, said Canadians’ perceptions may not be matching reality. In 2017, an average five-year fixed mortgage rate was around 2.89%, Sialtsis said, noting if you had a $500,000 mortgage, you were paying about $2,338 a month. Now, with rates at about 4.5%, you can expect to pay about $2,688 for a 20-year amortization. “It’s not that much higher,” she said, “because when you started five years ago, you owed $500,000 whereas now you only owe $426,000, so the mortgage payment is being calculated on a lower base.”
Janet Gray, a financial planner with Money Coaches Canada, said though mortgages rates have increased, they are still reasonable. Don’t panic, she said. Instead create a plan for how to deal with increasing mortgage rates.
“For some people, there’s no reason to stress but they feel that they should because everyone else is,” she said. “Know yourself, know your rules, know your situation and know what your outcomes could be.”
Study Finds Non-Homeowners Are Pessimistic About Buying Homes Despite Cooling Prices
A new study conducted by Chartered Professional Accountants of Canada (CPA Canada) finds that Canadians who don’t own homes think home ownership remains far out of reach despite prices cooling slightly across the country. CPA Canada says half of non-homeowners surveyed believe it’s unlikely they ever will buy a home, 21% think it’s very likely while 29% view it as somewhat likely.
The study finds nearly 90% of respondents view rising interest rates as the greatest hurdle to getting into the housing market. 84% of respondents cite down-payment affordability as another significant challenge, followed by taxes and mortgage payments at 81% and income stability at 69%.
CPA Canada says that 60% of homeowners find that affording necessary renovations is challenging, 40% say its hard to keep up with mortgage payments and taxes, while 35% struggle to pay utilities.
The study comes as the Bank of Canada raises its key interest rate half a percentage point, which is expected to put further pressure on Canadians with variable rate mortgages and keep prospective buyers on the sidelines.
Source: The Star
Housing Affordability Suffers Worst Decline Since 1994
It’s getting harder and harder for Canadians to afford a home amid rising mortgage rates and elevated house prices, according to a report from the National Bank of Canada. Housing affordability deteriorated across Canada by 4.9 points in the first quarter of 2022, marking the fifth-straight quarterly fall, National Bank said in its latest affordability monitor. That marks the “worst decline for housing affordability in a generation,” or 27 years ago, the bank said.
“For the first time since 1994, it would take more than 50% of income for a representative household to service the mortgage on a representative home in Canada’s main urban centres,” authors Matthieu Arsenal, Kyle Dahms and Alexandra Ducharme said in the report. Affordability fell in all 10 markets National Bank tracks. Victoria, B.C., suffered the biggest decline, followed by Toronto, Vancouver, Hamilton, Ont., Ottawa-Gatineau, Montreal, Winnipeg, Calgary, Quebec City and Edmonton.
National Bank measures housing affordability by looking at averages in home prices, mortgage rates and household income and then calculating mortgage payments based on a percentage of income. On average, in the first three months of this year, home prices rose 5.1% and mortgage rates rose 46 basis points, it said. But the average household income only rose 0.8%. That pushed the mortgage payment as a percentage of income, or MPPI, 4.9 points higher, compared to 2.2 points higher in the last quarter of 2021.
Housing affordability has been declining steadily, the bank said, and over the past 12 months, has slumped at a rate not seen in 40 years. That comes as high home prices collide with rising interest rates, which have pushed mortgage rates up to levels not seen in years.
Buyers have begun to pull back from the market as interest rates rise. The average price of a home decreased in April to $746,000 from $796,000 in March, according to the Canadian Real Estate Association. Sales have also started to fall, decreasing 2.6% in April from March and 25.7% from last year, CREA said. National Bank expects the market will continue cooling as the central bank keeps hiking rates.
Here’s how the 10 real estate markets National Bank tracks stack up in terms of affordability:
- Average home price: $1,109,009, up 7% since Q4 of 2021
- Average down payment: $221,802
- Months to save for down payment: 356
- Mortgage payment as percentage of income: 80%, up 8.5% from the last quarter
- Average home price: $1,231,944, up 7.2% since Q4 of 2021
- Average down payment: $246,389
- Months to save for down payment: 336
- Mortgage payment as percentage of income: 75.6%, up 8.1% from the last quarter
- Average home price: $1,331,177, up 5% since Q4 of 2021
- Average down payment: $266,235
- Months to save for down payment: 362.6
- Mortgage payment as percentage of income: 81.4%, up 7% from the last quarter
- Average home price: $920,929, up 7.9% since Q4 of 2021
- Average down payment: $67,093
- Months to save for down payment: 88.6
- Mortgage payment as percentage of income: 54.6%, up 6.2% from the last quarter
- Average home price: $624,754, up 3.9% since Q4 of 2021
- Average down payment: $37,475
- Months to save for down payment: 51.6
- Mortgage payment as percentage of income: 38.6%, up 3.1% from the last quarter
- Average home price: $504,523, up 3.3% since Q4 of 2021
- Average down payment: $25,452
- Months to save for down payment: 42.5
- Mortgage payment as percentage of income: 37.8%, up 2.7% from the last quarter
- Average home price: $391,337, up 3.9% since Q4 of 2021
- Average down payment: $19,567
- Months to save for down payment: 28.4
- Mortgage payment as percentage of income: 26.7%, up 2.1% from the last quarter
- Average home price: $462,154, up 1.7% since Q4 of 2021
- Average down payment: $23,108
- Months to save for down payment: 31
- Mortgage payment as percentage of income: 27.9%, up 1.8% from the last quarter
- Average home price: $342,762, up 2.5% since Q4 of 2021
- Average down payment: $17,138
- Months to save for down payment: 27.7
- Mortgage payment as percentage of income: 24.8%, up 1.6% from the last quarter
- Average home price: $413,729, up 1.1% since Q4 of 2021
- Average down payment: $37,475
- Months to save for down payment: 51.6
- Mortgage payment as percentage of income: 25.5%, up 1.5% from the last quarter
Source: Financial Post
Toronto Home Prices Could Fall 20%
One of the biggest real estate developers in Toronto says home prices in the city could drop as much as 20%. Longer-term, though, sustained demand from immigration will prevent larger declines that could destabilize the market more broadly.
“Will there be a dip in prices? Yes,” Mitchell Cohen, the chief executive officer of Daniels Corp., said in an interview. “Is it 50%? No. Is it 10% to 20%? Probably. I don’t see a catastrophic bursting of this balloon that we’ve been living in because Toronto, the Greater Toronto Area, for Canada is a very important economic centre. People will continue to come to Toronto, want to live in Toronto. And the units that we are building will be filled.”
Cohen’s projections are in line with some economists who say Canadian home values will give back some of the 50% gain they saw through the course of the pandemic. That correction may already be underway, with the country’s benchmark home price posting its first annual decline in two years in May. Markets like Toronto, which had previously seen the biggest gains, have led the way down.
Cohen said the people most likely to get into trouble will be investors who bought units to flip, or whose mortgage payments are higher than what they can expect to collect in rent, as interest rates rise. While investors came to account for about a fifth of the market in Canada through 2021, any units they’re forced to sell will ultimately find buyers or renters, amid record immigration levels, he said.
Source: Financial Post