A year ago, housing affordability dominated national conversations as the Canadian real estate market exploded in growth, across major urban centres and rural communities alike.
For the last couple of months, it seems like this discussion has shifted, with affordability taking a back seat given recent moderation in the market following the unprecedented “COVID boom.”
The average price for a home in Canada was sold for about $630,000 in July, recent data from the Canadian Real Estate Association (CREA) confirm. This is down five per cent from the same time a year ago. When the red-hot markets of Toronto and Vancouver are removed from the equation, the typical price for a residential property falls to roughly $525,000.
Despite the last several months of falling Canadian real estate prices and rising interest rates, why are prices not returning to pre-pandemic levels? Be it a single-family house or a condominium, residential prices remain elevated following their meteoric surge.
Is a Lack of Supply Still Keeping Prices High in the Canadian Real Estate Market?
According to CREA, residential property sales tumbled by 5.3 per cent month-over-month in July. This represented the fifth straight monthly decline, with transactions down in three-quarters of all local markets.
With demand and home sales means more supply is coming on stream, or existing inventory is sitting on the market longer. However, that increase in offset by demand from several months ago persists.
“July saw a continuation of the trends we’ve been watching unfold for a few months now; sales winding down and prices easing in some relatively more expensive parts of the country as well as places where prices rose most over the past two years,” said Jill Oudil, Chair of CREA, in a statement. “That said, the demand that was so strong just a few months ago has not gone away, but some buyers will likely stay on the sidelines until they see what happens with borrowing costs and prices.”
So, what about supply? The number of new residential listings tumbled 5.3 per cent in July, CREA data found. In addition, months of inventory, which measures the number of months it would take to exhaust current stocks at the present rate of sales activity, surged to 3.4 months by the end of July.
“It’s only one month of data at this point, but it suggests that some sellers are also playing the waiting game, and that is with an overall inventory of homes for sale that is still historically low,” said Shaun Cathcart, CREA’s Senior Economist, in a news release. “The Bank of Canada is also expected to finish up their remaining rate hikes (100 basis points or so) over the next few months, which five-year fixed mortgage rates have mostly already priced in. We’ve already witnessed a sharp housing market adjustment this year, but it will hopefully be short-lived if conditions continue to show signs of stabilizing.”
But new housing construction activity has been robust, increasing by approximately six per cent to 22,229 units in July, according to Canada Mortgage and Housing Corporation (CMHC). On a year-to-date basis, however, housing starts have slumped more than five per cent to 134,684 units.
When it comes to fresh supply being built, it is the major urban centres that have witnessed a decline, the CMHC noted.
“Monthly SAAR housing starts in Canada’s urban areas declined in July, driven by lower single-detached starts. However, Vancouver and Toronto both registered much stronger declines in multi-unit starts than in single-detached starts, while Montreal saw similarly large declines in both unit types,” said Aled Ab Iorwerth, CMHC’s Deputy Chief Economist, in a news release.
While housing stocks are improving, they are still insufficient to keep up with demand.
For example, new listings in the Ontario real estate market advanced 7.2 per cent year-over-year in August, coming in at 26,500 new residential listings, data from the Ontario Real Estate Association (OREA) show. While this is noticeably higher, new listings were seven per cent below the five-year average. Or according to the British Columbia Real Estate Association (BCREA), “inventories remain quite low, but the slow pace of sales has tipped some markets into balanced or even buyers’ market territory.”
As the nation’s population grows amid the federal government’s plan to welcome more than one million immigrants over the next couple of years, demand for Canadian real estate is expected to remain high. Although higher interest rates may minimize some of this demand, the post-pandemic hangover might persist.
Perhaps Jason Mercer, chief market analyst for the Toronto Regional Real Estate Board (TRREB), summarized the situation in the Canadian real estate market best: “We’re seeing a gap in the ‘missing middle.’” Until more housing supply comes online, it will prove to be challenging to see prices come down at a level whereby more families and households feel comfortable making that giant leap into homeownership, whether in downtown Toronto or a small town in Atlantic Canada.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
