GTA Home Prices Up Again In June As “Persistent Lack Of Inventory” Sidelines Buyers
Bank of Canada Now Expected to Cap Rate-Hiking Campaign at 5%
The Bank of Canada will raise borrowing costs by another 25 basis points in coming months before capping its tightening cycle, economists said.
Canada’s central bank will increase its key overnight rate to 5% in the third quarter, according to a monthly Bloomberg survey of 25 economists. That would be the highest level since 2001.
The outlook still more or less shows the economy headed for a so-called soft landing as policymakers push rates deeply into restrictive territory. Analysts raised their expectations for growth in 2023 to 1.3% from 1% previously, and trimmed forecasts for next year to 0.7%. Inflation is expected to run at a 3% annual pace to end the year, from a 2.7% clip expected in the previous survey.
The results underline the challenge faced by economists as they try to pinpoint the end of Governor Tiff Macklem’s hiking campaign. In the last year, expectations for the country’s terminal rate have been consistently revised upward as surprising economic growth and robust household consumption defy the widely held belief Canada is more sensitive to higher interest rates than its peers.
Current Pace Of Canada’s Housing Market Recovery “Unsustainable”
Canada’s housing markets continued to recover in May, with sales and new listings rising on a monthly basis.
However, with the Bank of Canada (BoC) seemingly back on its rate hike campaign, economists predict the positive momentum may be short lived. According to the latest data from the Canadian Real Estate Association, national home sales climbed 5.1% from April to May, continuing the upward trajectory that began in February, while prices jumped 2.1%, the second consecutive monthly increase. It’s likely that both will rise further in June, due to the 6.8% increase in new listings seen in May.
While the stabilization in housing activity, and subsequent uptick in prices, was expected as the correction that began last spring came to an end, the magnitude and speed at which the market is recovering has taken experts aback.
Robert Hogue, Assistant Chief Economist at RBC, believed that activity would rebound slowly to start, as ongoing affordability issues held prospective purchasers back. However, after the BoC pressed pause on interest rate hikes in March, sidelined buyers returned to the market en masse, thinking the move would be long-lasting.
Labour Shortages, Construction Costs Lead To Drop In Housing Starts In May
As predicted by economists, housing starts declined across Canada in May as labour shortages and high costs weighed on new construction projects.
According to new data from the Canada Mortgage Housing Corporation (CMHC), the seasonally adjusted annual rate (SAAR) of housing starts fell to 202,494 units in May, a 23% decline from April. The trend played out on a local level, with Vancouver, Montreal, and Toronto all experiencing modest increases in single-detached starts but sizeable declines in multi-unit starts. Total housing starts in the cities fell 45%, 35%, and 28%, respectively, from April to May.
The most significant monthly declines were seen in Kingston (88%), Kamloops (95%) and Lehtbridge (95%). Meanwhile, total housing starts rose 110% month over month in Guelph, 386% in Chilliwack, and 409% in Abbotsford – Mission.
Provincially, only Manitoba, Alberta, and Saskatchewan recorded gains in May, with total housing starts rising 74%, 36%, and 3%, respectively. Prince Edward Island led the provincial decline, with a 79% drop from April to May, followed by Ontario (-39%), British Columbia (-34%), and Quebec (-23%).
“The decline in housing starts is due to constraints in new construction, including labour shortages and higher construction and borrowing costs, which is considerably affecting multi-unit starts,” said Bob Dugan, CMHC’s Chief Economist. “Despite this, starts have only declined to the relatively high levels observed prior to 2020.”
Continuing along the downward trajectory that began in November, Canada’s six-month trend in housing starts fell to 230,205 units in May, a 4.2% decline from April.
The data is in line with expert’s expectations; TD Economist Rishi Sondhi attributed the decline to falling home sales over the course of 2022, the effects of which are now weighing on construction activity, as well as a drop in permit issuance, which has fallen to 2019 levels.
As housing starts continue to decline, home sales are on the rise. According to new data from the Canadian Real Estate Association, national home sales rose 5.1% on a monthly basis in May and were up 1.4% annually, marking the first national year over year increase since June 2021.
While Randall Bartlett, Senior Director of Canadian Economics at Desjardins, expects resale activity to cool in the months ahead as interest rates continue to rise, the downward trend in housing starts and overall lack of supply will worsen the affordability crisis, “putting upward pressure on home prices and rent alike.”
Canada’s top banker says T.O.’s housing market is stabilizing too fast
Canada’s top banker says T.O.’s housing market is stabilizing too fast
Real estate market experts are saying Toronto’s housing correction is over, with prices and home sales rising month-over-month back-to-back for the first time since 2022. CIBC’s deputy chief economist Benjamin Tal gives us the scoop on where the market is headed this summer.
Is the housing correction over?
Yes, but we have to remember that the main reason why the market is stabilizing is the lack of supply. People are not listing — it’s not that the demand is back to normal. The market is turning into a seller’s market, especially for relatively cheap units — in Toronto and the GTA, we’re talking about something between $800,000 to $1.1 million.
What about mortgage rates?
The speculation regarding the Bank of Canada is not ending. It’s hurting the five-year rate and leading to higher mortgage rates that will introduce some softening of the market, no question about it. So it’s not going to be a linear trajectory. There are some factors that will ease or slow down recovery.
If you look at the distribution of mortgages, the vast majority of people are now taking one- and two-year mortgages, as opposed to five-year variable ones. That’s something I’ve never seen before. I think people realize that interest rates will start falling in 2024, and they’re buying time taking one or two years, although it’s expensive, and then will ride the rest of the way down.
What do you predict for the months ahead?
The rate of improvement will slow down over the next few months. I think that, quite frankly, the housing market is stabilizing too fast. The fact that the market is stabilizing with these interest rates after such a significant increase is telling us how tight the market is, right? It’s not just that there’s demand and everyone’s willing to buy now. It’s that there’s no supply, and that’s protecting prices.
Expert: Lip Service Alone Will Not Solve The Housing Crisis
As spring reveals its blossoms, it brings forth a renewed perspective on the real estate landscape, highlighting the interplay between seasonal shifts and the ever-evolving dynamics of the housing market.
And indeed, there has been growth in the spring market. According to the latest Canadian Real Estate Association (CREA) housing statistics report, Canada’s real estate market posted an 11.3% growth in national home sales on a month-over-month basis in April 2023. All signs of a possible recovery in the housing markets for this year have been evident in recent months, and if the lively post-Easter weekend spring market is any indication, then it seems it could come to fruition. However, the problem of supply and demand in housing persists.
A Perennial Problem
Demand outpacing supply has become a perennial problem, especially when it comes to affordable housing units. In a 2022 report, the Canada Mortgage and Housing Corporation (CMHC) stated that on top of the forecasted 22 million housing units required to help achieve housing affordability, an additional 3.5 million affordable housing units are needed by 2030 to better cater to the needs of the people. Further, Dalhousie University’s analysis of Canada’s National Housing Strategy (NHS) found that the NHS’s programs and policies have had little effect on affordability, with most of its programs focusing on market housing and private sector developers.
And while the national government announced last year an additional funding of roughly $7.8 billion for the NHS (bringing the total budget to $82+ billion), a review conducted by the Parliamentary Budget Officer (PBO) in early 2023 estimates that spending is closer to $89 billion, only a fraction comes at a net fiscal cost, and only a portion is net-new spending.
Causes of the Affordability Crisis
Limited supply of new construction, speculative buying, Canada’s welcoming immigration policy, building of luxury homes instead of affordable ones, and the lack of skilled tradespeople in the construction industry are all factors that have led to this crisis. The current inflationary environment and high borrowing costs have also contributed to and exacerbated the state of housing in Canada.
Housing Stock Gains Outpaced Population Growth In Toronto, Vancouver
Although Canada’s residential real estate markets are facing a significant supply shortage, the housing stock grew at a faster pace than the total population in major cities in recent years.
Although Canada’s residential real estate markets are facing a significant supply shortage, the housing stock grew at a faster pace than the total population in major cities in recent years.
From 2019 to 2021, the population in the Toronto census metropolitan area (CMA) grew by 1.3%, while the region’s housing stock increased by 3.5%, or 61,320 properties. A similar trend was seen in the Vancouver CMA, with the population increasing 2.1% as the housing stock jumped by 3.6%, or 28,085 properties.
This data is included in the latest release from the Canadian Housing Statistics Program, a data project from Statistics Canada. Condominium apartments accounted for more than half of the growth in both CMAs, with the housing type increasing by 38,070 units in Toronto and 19,970 units in Vancouver from 2019 to 2021. Both regions also saw the number of row houses surpass the number of single detached houses.
Toronto added 12,825 net new row houses and 8,425 net new single-detached homes; Vancouver saw the former increase by 6,245 and a net reduction in the latter of 3,680. Differences appear when properties with multiple residential units — which StatCan noted are a “prime source of rental supply” — are concerned. Toronto added just 55 such properties from 2019 to 2021, while Vancouver saw a net increase of 6,020.
The discrepancy is due to differences in densification — Toronto produces a higher number of large housing structures, such as rental apartment towers, while Vancouver opts for more concentrated forms of density, such as duplexes and laneway suites.
Toronto home price surge biggest since pandemic peak
Another sign of persistent inflation just before the Bank of Canada’s decides on rates
Another sign of persistent inflation just before the Bank of Canada’s decides on rates.
Prices in Toronto’ housing market increased 3.2 per cent in May to $1.14 million on a seasonally adjusted basis, the third straight monthly increase and the biggest since the market peaked in February 2022, according to data from the Toronto Regional Real Estate Board.
The spring surge in Toronto house prices accelerated again in May, providing another sign of persistent inflation in parts of the Canadian economy before a key central bank interest rate decision next week.
The benchmark price of a home in Canada’s largest city increased 3.2 per cent last month to $1.14 million on a seasonally adjusted basis, the third straight monthly increase and the biggest since the market peaked in February 2022, according to data released Friday from the Toronto Regional Real Estate Board.
The average selling price, at $1,196,101, fell 1.2 per cent from May 2022 but rose 3.7 per cent from April 2023.
Economic Research: Economic Outlook Canada Q2 2023
Economic Research: Economic Outlook Canada Q2 2023: A Dip Is Expected, Though Resilience Persists
The Canadian economy was surprisingly resilient in the first quarter of 2023 after a disappointing end to 2022. Helped by a mild winter and better economic conditions in the U.S. at the start of the new year, first-quarter economic data seems to be coming in better than we expected. We now expect a 0.4% annualized gain in real GDP for the first quarter (was down 0.9% in our November forecast).
However, some weakness is likely heading into the second quarter. S&P Global Ratings Economics expects Canadian economic activity to dip 0.6% in the second quarter on continued declines in housing, a slowdown in consumer spending, and weakening exports as the U.S. falls into recession. For the year, however, we expect a 0.8% increase in real GDP as Canada likely avoids recession.
Since our September forecast, we have expected the U.S. to fall into a shallow recession in 2023. We now expect U.S. GDP to decline by 0.3 percentage point between its peak in first-quarter 2023 and its third-quarter trough. If this prediction proves correct, this recession will beat the 2001 recession as the softest since 1960.
Although safeguards from the Federal Reserve and other regulators have stabilized conditions, banking concerns increase the risks of a worse outcome. We developed these forecasts during a period of high market volatility and significant policy changes, and they therefore have wider-than-normal confidence bands. Forecasting began before the failure of Silicon Valley Bank.
Canadian economic growth stalled in fourth-quarter 2022 for the first time since the pandemic-led contraction in second-quarter 2021. A slowdown in inventory accumulation and continued weakness in housing and business investment led to the flat GDP growth.