RBC expects home sales to dive 30%, prices to decline because of outbreak

Canada’s housing market could see a significant pullback this year because of the COVID-19 pandemic, but could rebound next year, a report by RBC says. This year’s home resales could dive by 30% to a 20-year low as physical distancing limits sales while the economic fallout erodes confidence and leaves speculators sitting on the sidelines, said bank analyst Robert Hogue. Market activity in the Greater Toronto Area is already showing a sharp drop-off.

John Pasalis of Realosophy Realty said in a report that while sales were up 50% in the first two weeks of March compared with a year earlier, by last week sales were down 37% compared with a year earlier, while new listings were down 33%. Pasalis said average prices are still up over last year, but that prices have trended lower over the month.

“This is freezing the market,” John Pasalis, president of Toronto property brokerage Realosophy Realty, said in a phone interview. “The best-case scenario is we see an improvement in activity in the fall. I don’t think anyone’s really expecting anything before that.”

Real estate, along with residential building construction, accounted for almost 15% of Canada’s output last year, ahead of energy at about 9%. It has been a key driver of growth in Toronto, Vancouver and Montreal, where an influx of immigrants has fed a boom in activity in everything from architecture and design to insurance and lending.

The buoyant market has also been central to the massive wealth effect that has been driving consumption in recent years. The value of real estate assets owned by households has risen by $2.5 trillion (US$1.8 trillion) over the past decade, an increase of 80 per cent.

Robert Hogue, senior economist at Royal Bank, said the pandemic will be a “tough but temporary blow” to Canada’s housing market. He sees a recovery coming in stages as buyers take as much as a year to regroup and rebuild confidence amid high unemployment. Hogue said home prices could stay stable in the near-term as both buyers and new listings pull back, but expects the composite benchmark price to fall 2.9% in the second half of this year compared with last year. “In a matter of weeks or months, surging unemployment and the market’s illiquidity will compel a growing number of tight-squeezed sellers to make price concessions.”

The trends, however, could reverse next year as low interest rates, a strengthening job market and a bounce-back in immigration help sales to surge more than 40% in 2021 and price dynamics also return to favouring sellers, Hogue said.

The report said Prairie economies that rely on oil will feel the housing pullback more acutely, with price declines “bound to re-accelerate significantly” and little prospect of prices rebounding any time soon.   

The report also notes that the bank’s affordability measure, defined as the share of median income needed to cover home ownership, was steady at 50% in Canada in the fourth quarter of 2019. Vancouver was highest at 80.4 per cent, Toronto at 68.2%, while Edmonton was 31.6%.

Source: Globe & Mail
Source: The Star
Source: Financial Post

There are signs that the coronavirus outbreak is having a negative impact on the housing industry, with Toronto, Vancouver, and Montreal home sales slowing down due to COVID-19, despite strong start in March.

According to data from the national housing agency, Canadian housing starts fell 7.3% in March from the previous month, in a sign that the coronavirus outbreak began to hit residential construction activity,. The value of Canadian building permits has likely fallen 23.2% year-over-year in March, Statistics Canada said in a preliminary flash estimate. Canada 3 largest markets, Toronto, Vancouver and Montreal have seen a significant slowdown in their housing markets due to COVID-19.

Toronto

  • Sales of 8,012 homes for the whole month was up 12.3% from 2019
  • Home sales were up 49% in the first two weeks compared to 2019, but sales were down 15.9% compared to 2019 for the rest of the month.
  • New listings for the whole month were up 3% to 14,424
  • Listings dropped by 18.4% in the latter half of March compared to 2019
  • The average selling price in March was up by 14.5% to $902,680, while the average selling price for the second half of the month alone was up 10.5%

“While real estate fundamentals indicate that housing demand will bounce back over the long term in major urban centres like Toronto, COVID-19 has caused an immediate slowdown in housing market activity and across the economy more broadly,” said Zoocasa. “Just two weeks following the announcement of a state of emergency, there was a noticeably visible impact on the house and condo market in the GTA.”

Vancouver

  • Overall sales for March were up 46.1% to 2,524 sales compared to March 2019 (the lowest level in over 30 years)
  • Sales averaged 138 per day for the first 10 days of the month, but were down to an average of 93 a day for the last 10 days
  • The decline in sales left activity down 19.9% from the 10-year average
  • The composite benchmark price for Greater Vancouver rose 2.1% in March to $1.03 million

The outbreak is also pushing down pre-sales for new buildings after a busy start to March, said Jon Bennest, a principal at Urban Analytics. “Last week and leading up to this week, it has obviously slowed significantly, just largely because a lot of sales centres have completely closed their sales centres down. People obviously have different things on their mind rather than purchasing a new property.”

Montreal

  • In the first part of March, 3,079 homes sold in the Montreal area, compared with 2,828 in the latter half of the month
  • The average selling price across all types of homes was $412,126 in the first half of March and dropped to $402,414 in the second half of the month
  • 5,907 homes sold in March in Montreal despite the slowdown
  • Overall sales saw a 4 % increase over March, 2019, and the 61st straight month of sales increases

The Quebec Professional Association of Real Estate Brokers said the relatively high level of sales was owing to activity that occurred earlier in the year. As home prices decline, the association predicted greater “price stability over the medium term as we emerge from the crisis.” Montreal’s real estate market has been booming over the past few years, with investors pouring money into new condo developments.

Source: The Star
Source: The Star
Source: Globe & Mail
Source: Financial Post
Source: Globe & Mail

Uncertain future for GTA home construction after strong start to year

New-build, single-family home sales in Greater Toronto rose to the highest levels since 2004 in February — up 228% year over year, as prices declined 2.2% to a benchmark of about $1.09 million. The 2,247 homes — detached, semi-detached and townhomes — sold by builders in February represented a 44% per cent increase over the 10-year average, according to the Building Industry and Land Development Association (BILD). Condo  prices continued to climb 21.3% in February to $961,268 with the number of sales 197% above February 2019 and 48% above the decade average.

BILD CEO David Wilkes said on April 25th that builders now face “an uncertain time.“As an industry, we are focused on bringing to completion many of the projects that are underway to ensure that those that were promised those units, that they are delivered,” he said. Builders are addressing the health and safety requirements and public-health direction of authorities working to slow the spread of COVID-19.There had been reports that some construction workers were facing unsafe conditions in terms of distance from other people and sanitation at work sites.

The construction industry was deemed an essential service by the province, but Premier Doug Ford is now closing down most construction sites in the province including residential home construction except those new homes near completion.

“We are still seeing people buying, certainly not to the levels we saw (in January and February) but there are a number of discussions going on digitally, through Skype, with potential purchasers,” he said.“But approvals for new projects have been slowed down even more,” he said. When the crisis passes, the industry and municipalities will have to address the backlog that is accumulating as many city and provincial services are stalled.

Source: The Star