A construction surge is needed to restore housing affordability in Montreal, says broker Royal LePage.
Housing affordability in Montreal has deteriorated since the start of the COVID-19 pandemic, a new report shows.
Residential real-estate prices in the Greater Montreal area soared 30.6 per cent between the fourth quarters of 2019 and 2023, broker Royal LePage says in its Price Survey and Market Forecast, released Monday.
Although the median price of a single-family detached Montreal-area home dropped 2.5 per cent in the last three months of the year, it nevertheless rose 4.7 per cent from 2022’s final quarter to reach $629,700, Royal LePage data show. Fourth-quarter condominium prices rose 1.1 per cent year-over-year to $450,200.
As a result, many Montrealers are suffering from “buyer fatigue, even discouragement,” he added. “People often say that the housing market is doing well — but for who, exactly? For the person who owns real estate, or for the one who wants to buy?”
Multiple increases in the Bank of Canada’s benchmark interest rate during the past 22 months have put a damper on real-estate activity in Montreal and elsewhere by pushing borrowing costs higher.
And because many five-year mortgage holders are facing renewals, the toll will only get heavier. A December study by the Bank of Canada found that without any income growth, the median borrower may need to dedicate up to four per cent more of their pre-tax income to interest payments by the end of 2027.
Some 30,171 residential properties in Greater Montreal were listed for sale last month, industry data show. While that’s almost double the December 2022 total, the number remains 47 per cent below the average of the past decade, Royal LePage says.
Quebec may need to build as many as 1.1 million housing units by 2030 to restore affordability in the residential market, the Canadian Mortgage and Housing Corporation estimated in a report published in September. The figures are based on population growth scenarios and residential construction projections.
Unfortunately, construction in the province isn’t keeping pace with residential demand. Housing starts in Montreal plunged 58 per cent during the first half of 2023 to 5,927 units, the lowest level in 26 years, CMHC data show.
Prospective homebuyers could get some relief in 2024 if interest rates start heading down. Many economists are now predicting that the Bank of Canada will keep its benchmark interest rate at five per cent in the first half of the year before starting to make cuts in the last six months.
Even so, St-Pierre cautions, lower interest rates alone won’t fix the affordability issue.
“In the long term, we are really going to need to solve the problem of housing inventory,” he said. “Lower rates are not going to make housing more affordable. The problem of affordability will only be solved through strong measures to increase the housing stock in Quebec and Canada. Without this, I don’t see how housing prices could drop significantly.”
Aggregate home prices in Greater Montreal are projected to climb five per cent year-over-year by the fourth quarter to $595,140, Royal LePage says in its updated 2024 forecast. The firm calculates aggregate prices by using a weighted average of the median values of all housing types collected. The numbers include both resale and newly built house prices.
