The Royal LePage House Price Update and Market Forecast, distributed each quarter, includes price data and insights from experts in 62 real estate markets across the country, as well as national and regional forecasts.
Key highlights from the national release include:
Royal LePage increases its 2022 forecast to 15% following exceptionally strong first quarter.
National aggregate home price soars 25.1% year-over-year in first quarter of 2022 – highest Q1 gain on record.
Kingston, Ontario, posts highest year-over-year aggregate and detached home price gains in Canada for the second straight quarter.
Four markets in Ontario’s Golden Horseshoe region report median single-family detached home prices above $1 million for first time.
Early signs of moderation appear as some urban markets unveil improved conditions for buyers.
Promising new federal and provincial policies aimed at tackling housing availability and affordability not expected to provide relief in 2022.
Read the full national release here and find regional insights here.
Canada needs “a big surge of supply” to stop runaway house price growth, and that might happen when the pandemic ends.
House price growth in Canada is out of control, and the chief economist at the country’s real estate association says that won’t change until the pandemic lets up, and more people list their homes for sale.
The average resale price for all property types in January was $621,525, up 22.8 per cent from a year ago, the Canadian Real Estate Association (CREA) said Tuesday.
The number of home sales was up 35.2 per cent from a year ago, to the highest total for a January on record. Meanwhile, new listings plunged 13.5 per cent nationally, and by around 35 per cent in Toronto and Montreal, creating a record shortage of available homes.
“There were only 1.9 months of inventory on a national basis at the end of January 2021 – the lowest reading on record for this measure,” the Canadian Real Estate Association said in a statement, adding that some 35 Ontario markets have less than one month of inventory.
In Quebec, New Brunswick, Nova Scotia and P.E.I., the ratio of sales to new listings was above 100 in January.
“This means that there were more sales than new units listed last month in these provinces. This is a rare situation, but has occurred before in the Atlantic provinces. However, January marked a first on this front in Quebec,” TD Bank economist Rishi Sondhi wrote in a client note.
Sales-to-new-listings ratios were also very high in Ontario and Manitoba, bringing the national ratio to 90.7, its highest level in 19 years.
Economists credit record-low interest rates with spurring the homebuying boom. Even as prices have soared, monthly mortgage payments have fallen, making home ownership more affordable ― at least for those who can save up the record-high down payment needed to afford a home today.
“A big surge in supply is what so many markets really need this year to get people into the homes they want, and to keep prices from accelerating any more than they already are,” CREA senior economist Shaun Cathcart said in a statement Tuesday.
“We’re unlikely to see a rush of listings until the weather and public health situations improve, and we won’t see buyers until those homes come up for sale.”
TD’s Sondhi predicts that “with sales likely running above fundamentally-supported levels… some cooling in activity will take place, especially in the second half (of the year).”
If you own a home in Montreal, B.C.’s Fraser Valley or just about anywhere in Ontario, there’s a good chance your house is earning more money than you are.
With home sales on a tear across Canada this winter, “house prices are not only rising faster than family income, they are rising more than total annual income,” Bank of Montreal senior economist Sal Guatieri wrote in a client note Wednesday, titled “Your house earns more than you.”
That’s not necessarily true everywhere. If you live in the Prairie provinces, the single-digit price growth there wouldn’t match a median household income, but it’s true for virtually every market in Ontario, while many places in B.C. ― Chilliwack, Vancouver Island and the Okanagan Valley ― came very close.
In the Hamilton-Burlington real estate market southwest of Toronto, the benchmark house price rose by $154,000 in the past year, to $786,600. That’s double the $75,464 median household income for the area, as reported in the 2016 census.
“It’s clearly unsustainable in the long run, as affordability would deteriorate pretty quickly if it continued,” Guatieri wrote in an email to HuffPost Canada.
Still, Guatieri doesn’t see a correction in the cards this year “as demand is simply too strong relative to limited supply, but we do expect sales levels and price growth to moderate as affordability weakens and pent-up demand from teleworkers ebbs.”
One thing that could take some steam out of house prices would be rising mortgage rates, and there is some chance of that in the coming months. Mortgage rates tend to move with the interest paid on government bonds, and those have jumped in recent weeks.
In a client note Wednesday, Capital Economics estimated that the fixed, five-year discount mortgage rate will rise to 2.3 per cent this year, from 1.8 per cent today. If the difference between mortgage rates and government borrowing rates returns to normal ― it’s currently very narrow ― mortgage rates will hit 2.8 per cent, economist Stephen Brown predicted.
“We doubt either scenario would send house prices into reverse,” he wrote in a client note, adding that this would reduce the maximum purchase price by only a few percentage points.
BMO’s Guatieri doesn’t expect much of an increase in mortgage rates for one key reason ― the Bank of Canada won’t allow it.
“Central banks are pretty determined to keep the stimulus taps wide open,” he wrote.
Select cities where houses are making more than households:
Greater Toronto
Benchmark house price: $941,100
House price change, Jan. 2020-Jan. 2021: $100,082
Median household income: $78,373
Greater Montreal
Benchmark house price: $434,200
House price change, Jan. 2020-Jan. 2021: $62,000
Median household income: $61,790
Fraser Valley, B.C.
Benchmark house price: $911,300
House price change, Jan. 2020-Jan. 2021: $75,900
Median household income: $69,289
Ottawa, Ont.
Benchmark house price: $561,000
House price change, Jan. 2020-Jan. 2021: $102,000
Median household income: $86,541
Kitchener-Cambridge-Waterloo, Ont.
Benchmark house price: $660,900
House price change, Jan. 2020-Jan. 2021: $126,800
Median household income: $94,057
Mississauga, Ont.
Benchmark house price: $988,500
House price change, Jan. 2020-Jan. 2021: $107,000
Median household income: $83,018
Simcoe, Ont.
Benchmark house price: $478,800
House price change, Jan. 2020-Jan. 2021: $108,100
Median household income: $76,489 Benchmark house prices from the Canadian Real Estate Association. Household income data from the Canada Census 2016.
But the weakness in the rental market risks infecting the housing market.
ACH-DP VIA GETTY IMAGES
High-rise condo towers at Humber Bay Park in the Toronto borough of Etobicoke. House prices in many parts of Canada are rising amid the pandemic, even as rental rates drop.
MONTREAL ― The COVID-19 lockdowns have exposed a divide in Canada’s job market, with low-income earners getting hit much harder than high-income earners in the wave of layoffs that has taken place since March.
Now that divide is making itself felt in the housing market. As those on the lower rungs of the income ladder struggle to make rent, middle and higher-income Canadians are jumping back into the housing market.
The result? Rental rates rates are falling steeply across Canada, even as the housing market shows signs of life, with prices even rising in some markets.
Rental rates across Canada have fallen for three straight months and are down 7.8 per cent, on average, from before the pandemic, rental site Rentals.ca reported this week.
“Tenants have been more dramatically impacted by pandemic-related job loss than homeowners, and are not currently looking for apartments or other rental accommodation,” Bullpen Research president Ben Myers said in a statement. “This sharp drop in demand has resulted in landlords dropping their asking rents in most major markets across the country.”
RENTALS.CA
Rental rates have come down in many municipalities, according to this chart from Rentals.ca, with Victoria, B.C., and suburban cities in Greater Toronto leading the way.
Larger cities have been hit particularly hard. Rents per square foot have dropped steeply in Toronto since the pandemic and are now 9.5 per cent below their levels from a year ago, Rentals.ca reported.
Average asking rents jumped 3.8 per cent in May in Vancouver in May, but on a per square foot basis, condo rents fell 2.4 per cent in May, and are 5.4 per cent lower than a year ago, Rentals.ca said.
House prices rising in many markets
It’s a different story in the housing market, where real estate agents say they are seeing a sharp pick-up in activity since lockdowns started lifting. Buyers and sellers have become more comfortable with virtual tours and with social distancing measures taken during viewings, they note.
Many people pulled their houses off the market during the lockdowns, and as buyers come back, pressure is building on the market.
“The story lately has been a lack of overall inventory,” Toronto real estate Doug Vukasovic wrote in a recent report looking at the local housing market.
“For the year to date, a downward trend in pricing has already been corrected. … Even now, most properties are ripe for bidding wars, and many are getting snatched up within a few days of their being listed.”
Will the barrier break?
But the divide between the rental and housing markets could soon break down. That’s because a significant chunk of Canada’s homes, particularly condos, is in the hands of investors who rely on the rental market to pay their mortgages.
That could be a problem, especially for those investors who bought their properties in recent years at high prices. A recent report from TorontoRentals.com found that units in many of Toronto’s new condo buildings are losing money at current rental rates.
Some experts have warned that if this continues long enough, it could lead to forced selling in the housing market, driving up the supply and pushing down prices.
That could also happen if tourists don’t return to Canada’s cities, economists at National Bank of Canada wrote in a report at the end of May.
“Tourism is likely to be slow for some time, and the possibility cannot be excluded that lodgings currently marketed to tourists on short-term-rental platforms such as Airbnb will be put up for sale for lack of revenue,” economists Matthieu Arseneau and Alexandra Ducharme wrote.
Arseneau and Ducharme are forecasting a 10-per-cent drop in the Teranet house price index over the next year, which would make it the steepest one-year drop in Canadian house prices in decades.
NATIONAL BANK FINANCIAL
Economists at National Bank of Canada predict a steeper house price decline in this downturn than in the previous three recessions.
Among major cities, the National Bank economists predict that Toronto will see the steepest price decline, with its price index dropping 13 per cent.
House prices will also fall in Vancouver (down 12 per cent), Calgary (down 10 per cent) and Montreal (down 7 per cent), they forecast.
However, prices could fall more than that if immigration to Canada comes in below expectations after the pandemic, Arseneau and Ducharme wrote. Immigration has fallen after three of the past four recessions, they noted.
They also noted that prices could fall further than expected if Canada Mortgage and Housing Corp. (CMHC) tightens standards for mortgage insurance.
Days after the report came out, CMHC did just that, tightening the standards for the maximum amount of debt borrowers of insured mortgages can carry.
Experts estimate the change will reduce the maximum purchase price for a home with an insured mortgage by up to 12 per cent. Canada’s two privately-run mortgage insurers, Genworth and Canada Guaranty, have said they will not follow the CMHC’s move.
