Tag Archives: housing

The number of new homes being built in Canada just dropped

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As the limited housing inventory continues pushing real estate prices across Canada sky high, the number of new homes being built has dropped.

A new report from Canada Mortgage and Housing Corporation (CMHC) found that Canada-wide, the number of new homes under construction in October was down noticeably from the previous month. In September, the six-month average of new units starting construction was 270,661. In October, it dropped to 264,264.

“The six-month trend in housing starts declined from September to October, as the retreat in total starts from their earlier 2021 levels continued,” said Bob Dugan, CMHC’s chief economist. “For [seasonally adjusted annual rate] housing starts in Canada’s urban areas, a slight increase in single-detached starts didn’t offset a larger decrease in multi-family starts in October and led to a decline in overall starts for the month.

Despite this drop, Dugan notes that the level of housing developments in Canada is still historically high. In fact, compared to October 2020, the level of housing construction has gone up 4% across the country. Vancouver has seen one of the most significant increases year-over-year, with new home construction up 39% in October. Calgary is up 28%, and Montreal is up 15%, but Toronto, interestingly, saw a 12% decline year-over-year.

The largest change was seen in Ontario’s Kitchener-Cambridge-Waterloo area with a 143% year-over-year increase in housing starts. The Kitchener area has become increasingly popular during the pandemic, with rent prices there skyrocketing as many renters left downtown Toronto.

 

Solving Canada’s Housing Affordability Crisis

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While the housing affordability crisis is top of mind for many Canadians trying to get into the market, the chronic housing shortage that is the source of the problem, has been challenging many urban centres from coast-to-coast for years. 

Canada’s housing affordability crisis affects almost everyone, directly or indirectly. There are positive social and health benefits when housing insecurity is reduced. And, when housing becomes unaffordable for even the middle class, it can be the source of social unrest. Furthermore, the impact of the housing affordability crisis on the economy is significant. For example, the Toronto Board of Trade and WoodGreen Community Services recently found that the city’s housing shortage costs the economy and employers between $5.88 billion and $7.98 billion per year.1  

Over the years, Royal LePage has been proactive in raising this issue through ongoing market commentary in our press releases and in the media. In addition to listening to our on-the-ground agent network, we have also conducted third-party demographic research on a variety of topics such as consumer confidence, intention and even the anxiety caused by prices getting further out of reach. Not surprisingly, 75 per cent of first-time homebuyers in Toronto and 69 per cent in Vancouver reported feeling worried that they would not have a large enough down payment to purchase a home (68% and 58% in 2019, respectively).2

“Concerns about housing affordability are no longer the exclusive domain of traditionally high cost cities like Vancouver and Toronto. The national housing shortage that is driving up home prices everywhere is a public policy crisis of the highest order,” said Phil Soper, president and  CEO, Royal LePage. “Across the country, those looking to purchase homes locally are at risk of being priced out of the market as home prices surge with the influx of home buyers from even more expensive regions, a trend that disproportionately impacts young families. 

“Our public leaders must work to remove the barriers, regulatory and economic, that are preventing home builders from meeting the growing needs of those seeking shelter,” he concluded. 

What is the solution?

The goal is simple – more housing supply more quickly. The best way to address a shortage of homes, especially in a country with a growing population like Canada’s, is to create public policy that encourages and streamlines the home building process.  It will take years of planning and construction to shift towards a healthier real estate market that can absorb current and future demand. According to a recent report by Scotiabank, Canada has the lowest number of housing units per 1,000 residents of any G7 country and this number has been falling steadily since 2016.3 By allowing developers to move quickly while adhering to environmental standards and community consultations, we can address the issue. 

Governments have taken action in the past. Why isn’t it working?

Incentive policies, for example increasing the amount of money a potential home buyer can access from an RRSP, can certainly help prospective purchasers achieve their dream of home ownership. Unfortunately, in an environment with severely restricted housing supply, rising prices can be an unintended consequence. 

Tax policies that make homeownership more costly also do not increase the number of homes for sale. They simply temporarily sideline families seeking a home, creating pent-up demand which can result in spikes of house price inflation.  

But what about homeowners who own more than one property?

Secondary properties that are located in urban centres are overwhelmingly tenanted rental units. Policies that make secondary properties more costly could sharply increase the cost of rent as investors offload their rental properties into the resale market. With so few purpose-built rental buildings (rental buildings run by a single property manager), secondary units purchased for rental income are providing much needed rental stock for those who cannot afford or choose not to purchase a home. 

Ultimately, the most well-intended policies can have serious unintended consequences. 

What are home prices doing now?

The rate at which home prices are rising peaked in the first quarter of 2021. While we expect to see moderate price gains in the near- and mid-term due to continued lack of supply and historically low interest rates, we believe that record high rate of price appreciation is likely behind us, at least in the short term. A caveat to this is that while real estate markets have been very active during the pandemic, the future economic and health impact of the COVID-19 pandemic remains unknown. 

1 Toronto Region Board of Trade and WoodGreen Community Services, July 2021. https://www.bot.com/Portals/0/PDFs/The_Cost_of_Inaction_Workforce_Housing.pdf

2 Royal LePage, May 2021.
https://www.royallepage.ca/en/realestate/news/increasing-number-of-canadians-anxious-about-missing-out-on-their-first-home-due-to-an-insufficient-down-payment/

3 Scotiabank, May 2021.
https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.housing.housing-note.housing-note–may-12-2021-.html

 

BMO: ‘Your House Makes More Than You Do’

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This can’t last.

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.

Housing Market Update – February 2020

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Watch BCREA Chief Economist Brendon Ogmundson discuss the January 2020 statistics.

Click here to visit our YouTube channel. Read the news release here.

For more information, please contact:
Brendon Ogmundson
Chief Economist
Direct: 604.742.2796
Mobile: 604.505.6793
Email: bogmundson@bcrea.bc.ca

Housing market normalizes

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“The consensus within the industry is this is a positive outlook for the year ahead and shows signs of the housing market normalizing,” said Okanagan Mainline Real Estate Board president Michael Loewen, a realtor with Royal LePage Kelowna.

“A strong level of demand at the back-end of 2019, backed by an uptick of growth and consumer confidence, has helped push 2020 off to a great start.”

On Thursday, the board released January figures showing 250 residential properties of all kinds (fully-detached, single-family, townhouse, condominium, duplex, mobile home) sold during the month.

That’s a 30% increase in number of sales compared to January 2019.

The average-selling price of fully-detached, single-family home in Kelowna in January was $724,367, a 5% increase from the $688,886 it was at in January 2019.

The average selling price of a townhouse in the city last month was $457,615, down 6.4% from $489,037 in January 2019.

And the average selling price of a condominium last month was $382,445, up 14% from $336,258 in the same month last year.

For last half of 2018 and most of 2019, the local housing market sputtered. Sales softened and average selling price dropped as a four factors impacted the market — tough new mortgage rules, speculation tax and buyers from Vancouver and Alberta drying up.

In 2017, the market boomed with local buyers active and purchasers from Vancouver and Alberta snapping up recreational, second-home, investment and retirement homes in the Okanagan.

That year, sales set a record at 6,682 and the momentum pushed the average selling price of a single-family home to $781,000 in July 2018.

Sales in 2018 plummeted to 4,603 and in November of that year the average selling price of a single-family home plunged to $625,000.

In 2019, sales slipped a bit to 4,569 and the average selling price rebounded somewhat to $704,000.

Stronger activity at the end of 2019 and the continuation into the first month of this year are positive signs, but not a return to the 2017 boom times.

But it is what’s considered normal. Local demand for housing is solid as consumers are confident about their jobs, incomes and the overall economy.

However, buyers from Vancouver and Alberta are fewer and that contributes to the market not overheating.

A normal market also means there’s more balance for both buyer and seller.

Sellers have to price their home competitively to attract buyers and buyers have time to shop around and negotiate.

In 2017’s boom, homes sold quickly, sometimes with multiple offers driving up the price.

That’s unlikely to happen now as homes take an average of 73 days to sell and buyers have the chance to bargain for a deal below list price.