Canadian Housing Showing Strength, but Not All Markets Are Firing Equally

Recently released data by the Canadian Real Estate Association (CREA) shows that national residential real estate sales are accelerating faster than new listings, and prices are up in most places except the Prairies. Housing prices are also up from five years ago in large housing markets in the east and west, but are lower in markets in Alberta and Saskatchewan.

Residential sales across Canada increased by 26% in July over June, and 30.5% higher than in July 2019. But as sales accelerated, indicating a higher-than-usual demand, the supply side lagged, with month-over-month new listings increasing by just 7.6%. The mismatch between demand and supply, with sales outpacing new listings, exerted pricing pressure such that the average housing price in Canada increased by 14.3% in July from the same month a year ago.

Canada’s three largest housing markets led the charge, mostly as a result of the pent-up demand from forgone sales in March and April. Seasonally adjusted July sales were up by 49.5% in the Greater Toronto Area, 43.9% in Greater Vancouver and 39.1% in Montreal over the previous month.

Sales volume was higher in July in the Prairies relative to last year, but the pace of growth was much slower than the more populous cities. Seasonally adjusted July sales were up by 15.7% in Calgary, 9.7% in Edmonton, 8.2% in Regina and 5.6% in Saskatoon over the previous month.

The slower growth in housing sales in the Prairies masks the broader economic struggles in Alberta and Saskatchewan resulting from the decline in crude prices. A comparative analysis of indexed benchmark prices, which allows for a comparison of structurally similar dwellings, shows that prices over the past five years in large markets were up except in Alberta and Saskatchewan.

Benchmarked prices in July were down 10.2% in Calgary, 9% in Edmonton, 9.6% in Regina, and 8.3% in Saskatoon over five years. By comparison, prices were up 55% in the Greater Toronto Area, 47% in Greater Vancouver and 34% in the Montreal Census Metropolitan Area (CMA).

Another sign of trouble was recently revealed by Canada Mortgage and Housing Corp. (CMHC), which reported higher mortgage deferral rates in resource-extraction economies. Deferral rates were 21% in Alberta, and 14.8% in both Saskatchewan and Newfoundland, compared to 10.1% in Ontario and 5.6% in Quebec.

The largest price increases over five years were recorded in smaller towns within the commuter shed of more populous markets. For example, benchmarked five-year prices in July increased by 88.5% in the Niagara Region and 66% in the Hamilton-Burlington area near Toronto. Similarly, prices were up by 75% in Fraser Valley near Greater Vancouver.

The accelerated price increases in the satellite towns near large urban centres suggest that smaller towns are narrowing the price gap with their larger neighbours. Consider that prices in the Greater Toronto Area five years ago were 226% higher than those in the Niagara Region, but that gap was reduced to 186% in July.

Affordable small towns within the commuter shed of larger, more expensive towns might experience greater demand during COVID-19 as homebuyers have expressed renewed interest in larger dwellings, which are more affordable in the remote suburbs.

Housing markets in Montreal and further east are also showing strength, with sales and prices mostly higher over the past 12 months. The Quebec City CMA, the second-largest market in Quebec, reported a 43% increase in July sales from five years ago.

Surprisingly, benchmarked prices were up by just 4.4% over the same period. A strong post-pandemic economic recovery might push prices higher in places such as Quebec City that have not experienced a large increase in prices over the past five years.

Housing markets are being held together by mortgage forbearance and income support measures implemented by lenders and governments to limit COVID-19’s adverse impact on the economy and consumption.The preliminary numbers for August sales and prices hint at the continuation of increasing sales and rising prices, at least partly supported by income support measures, which might be extended into 2021.

At the same time, recent gains in employment suggest an economic recovery, as do reports suggesting that mortgage deferrals are in decline — some borrowers apparently opted to defer as an early precautionary measure — even though CMHC is reporting that almost 14% of the mortgages are in deferral.

The housing market outlook depends upon the pace of any economic recovery and the extension of income support and deferral programs. Much is not known with certainty. Hence, it will be prudent for homebuyers to respond to uncertainty with caution and restraint than exuberance.

Source: Financial Post


Stats Canada Releases Building Permits Numbers for July 2020

The total value of building permits fell 3.0% to $7.8 billion in July, entirely as a result of declines in British Columbia (-34.2% to $1.2 billion), Quebec (-15.1% to $1.5 billion) and Newfoundland and Labrador (-19.0% to $54 million). The value of permits rose in every other province and territory—led by a $474 million commercial permit issued in the city of Ottawa for the construction of the 2.7 million-square-foot Project Python, part of which will house the city’s second Amazon distribution centre.

Permits for multi-family dwellings down sharply in British Columbia and Quebec

The total value of residential permits decreased by 6.2% to $5.1 billion in July, largely because of the decline in British Columbia (-39.4%). Following a 31.1% increase in June, the value of permits issued for multi-family dwellings in British Columbia fell by 47.8% to $542 million in July, its lowest level since the onset of the pandemic in March. In Quebec, multi-family permits declined 16.2% to $581 million, following a 13.6% increase in June. The value of permits issued for single-family homes increased by 3.9% to $2.2 billion in July, driven by gains in Alberta (+12.6%) and Quebec (+6.3%).

Strong gains in commercial permits offset losses in industrial and institutional permits

The total value of non-residential permits rose 3.3% to $2.7 billion in July, despite declines in industrial and institutional permits. Commercial permits increased by 29.9% to $1.6 billion in July, mainly due to the $474 million permit issued in the city of Ottawa. 

The value of industrial permits declined for the second straight month, falling 15.7% to $462 million in July. The decrease was largely attributable to Quebec, down 37.1% to $170 million. Following a 43.4% gain in June, the value of institutional permits fell 24.2% to $628 million in July. Ontario (-45.2%) and British Columbia (-50.2%) were behind most of the drop.

Source: Statistics Canada