Real eState

Canada bet big on real estate. Now, it's an economic drag – The Globe and Mail

Published

3 years ago

September 6, 2021

Harry Miller

Rock-bottom interest rates played a part in people spending big on new properties while stuck at home in the pandemic.

Graeme Roy/The Canadian Press

Over decades, real estate has become an increasingly big slice of the economy, taking the mantle of Canada’s largest industry in the 2008-2009 recession as low rates fuelled a lengthy boom period. The pandemic put that trend on steroids.

Before the COVID-19 health crisis, residential investment routinely amounted to 7 per cent of nominal gross domestic product. More recently, that’s surged to more than 10 per cent – or roughly double the equivalent rate in the United States. Stuck at home in the pandemic, people spent big on new properties and renovations, with help from rock-bottom interest rates that were critical to the crisis response.

In a sense, the exuberance for real estate was a bright spot in the darkest days of the pandemic recession, a slight offset to devastation in other parts of the economy. Now, things are shifting. As housing activity cools, the industry has become a drag on an economy that increasingly relies on it.

That was apparent last Tuesday, when Canada posted a shock economic contraction for the second quarter. The key driver was sluggish exports, but housing also had a negative impact. Residential investment fell 3.3 per cent, or at a 12.4-per-cent annualized rate. And further drops are likely coming, given that sales are continuing to ebb in major markets across the country.

The rental housing market is heating up again – a worrying sign for affordability

The price of new housing is climbing at a torrid pace

Residential investment “is now such a large slice of GDP … that it’s likely to act as a drag for some time,” Sal Guatieri, senior economist at Bank of Montreal, said in a note to clients. “Towering nearly 21 per cent above late 2019 levels, the sector is poised to contract in the year ahead as sales moderate in response to fading affordability and as activity corrects from the stratosphere.”

Residential investment is comprised of three areas: ownership transfer costs, new construction and renovations. Transfer costs include such things as real estate commissions and land transfer taxes, and it was this area that entirely drove home investment lower in the second quarter.

New construction and renovations actually managed to increase. At 4.3 per cent of nominal GDP, construction is roughly double its level in the late 1990s, but short of peaks in the mid-1970s. That’s presumably an area in which people would like to see continued growth, owing to housing shortages.

Where there’s scope for a decline is renovations, said Stephen Brown, senior Canada economist at Capital Economics. The pandemic is rife with stories of people rebuilding their decks with pricey lumber, or investing in better home offices. Now, some people are returning to workplaces and spending on activities that were off-limits in lockdowns. “Maybe spending on renovations is going to decline as spending on services picks up,” Mr. Brown said.

Beyond the GDP numbers, the price of homes has accelerated greatly in the pandemic, making it tougher to break into the ranks of homeowners. The national average sale price of $662,000 in July was up 16 per cent from a year ago. For housing skeptics, the national obsession with real estate is a sign of misplaced priorities; that resources could be better allocated to things that enhance our productivity and living standards.

Instead, Canadians have doubled down on mortgage debt in the pandemic, bolstering age-old concerns over the financial health of consumers. In Tuesday’s GDP report, Statistics Canada noted that households added $84.2-billion in mortgages over the first half of 2021, versus $62.3-billion in the second half of 2020. In June, mortgage debt accelerated at the quickest annual pace since 2008.

Housing troubles were a topic of conversation on Royal Bank of Canada’s earnings call in late August. Chief executive Dave McKay said he worried about the bank’s ability to recruit workers with home prices so lofty in major markets. But his concerns ran deeper than that.

“Where I do worry … is the more cash flow that consumers are putting into housing stock, the less is available to drive the economy,” he said. “I think all policy-makers are worried partly … about long-term economic drag from that much cash flow going into servicing housing.”

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Real eState

Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

Published

1 week ago

November 6, 2024

Anne Joseph

TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

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Real eState

Homelessness: Tiny home village to open next week in Halifax suburb

Published

3 weeks ago

October 24, 2024

Anne Joseph

HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

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Real eState

Here are some facts about British Columbia’s housing market

Published

4 weeks ago

October 17, 2024

Anne Joseph

Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

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