16 Feb

Canadian Housing Market Remains Weak

Home Sales

Posted by: Peter Carstensen

New data was released the week of February 13th on January home sales across the country.

What follows below is a summary of Dr. Sherry Cooper’s article on the housing data.

December Housing Data Ended 2022 On A Weak Note

The Canadian Real Estate Association says home sales in January were the lowest for the month since 2009 and fell 37.1% from a year ago. The Canadian housing market has been sliding for eleven consecutive months as the unprecedented rise in interest rates–up from 25 basis points to 4.5% for the policy rate–has moved buyers to the sidelines. This is an abrupt reversal in the fevered pace of home sales during the pandemic.

The rapid rise in interest rates, designed to combat inflation, has driven many buyers to the sidelines. Higher borrowing costs have reduced affordability despite the sharp decline in prices in many regions.

On a regional basis, sales gains in Hamilton-Burlington and Quebec City were more than offset by declines in Greater Vancouver, Victoria and elsewhere on Vancouver Island, Calgary, Edmonton, and Montreal.

New Listings

Last month, the number of newly listed homes rose 3.3% on a month-over-month basis, led by increases across British Columbia. Despite the slight increase, new listings remain historically low nationally. New supply in January 2023 hit the lowest level for that month since 2000.

With new listings up and sales down in January, sales-to-new listings eased back to 50.7%. This is roughly where it had been over the entire second half of 2022. The long-term average for this measure is 55.1%. There were 4.3 months of inventory on a national basis at the end of January 2023. This is close to where this measure was in the months leading up to the initial COVID-19 pandemic lock-downs, considered historically slow.

Home Prices
Canadian home prices fell by the most on record in 2022 as rapidly rising interest rates forced a market adjustment that is still ongoing.

The Aggregate Composite MLS® HPI was 15% below its peak in February 2022. Looking across the country, prices are down from peak levels by more than they are nationally in many parts of Ontario and some parts of B.C. and down by less elsewhere. While prices have softened to some degree almost everywhere, Calgary, Regina, Saskatoon, and St. John’s stand out as markets where home prices are barely off their peaks at all.

In contrast, some East Coast markets have bottomed and appear to be trending higher.

Housing Construction Falls

In other news, CMHC reported that the annual pace of housing starts fell 13% in January. The national housing agency says the seasonally adjusted annual rate of housing starts for the year’s first month was 215,365 units compared with 248,296 in December.

This is very troubling as the population growth in Canada is slated to be very strong, and rental properties are in very short supply. The housing shortage will only rise. Rents have surged in many parts of the country for new inhabitants, straining household budgets even more.

With interest rates high and the cost of construction booming, many developers are moving to the sidelines.

The table below shows the decline in MLS-HPI benchmark home prices in Canada and selected cities since prices peaked in March when the Bank of Canada began hiking interest rates. More details follow in the second table below. The most significant price dips are in the GTA and the GVA, where the price gains were spectacular during the COVID-shutdown.

Even with these large declines, prices remain roughly 33% above pre-pandemic levels.

Bottom Line

The Bank of Canada has promised to pause rate hikes assuming inflation continues to abate. We will not see any action in March. But the road to 2% inflation will be a bumpy one. I see no likelihood of rate cuts this year, and we might see further rate increases. Markets are pricing in additional tightening moves by the Fed.

There is no guarantee that interest rates in Canada have peaked. We will be closely monitoring the labour market and consumer spending.

You can read the full article by Dominion Lending Centre’s Chief Economist, Dr Sherry Cooper by clicking on the link below

https://sherrycooper.com/category/articles/

https://dominionlending.ca/economic-insights/canadian-housing-market-remains-weak

16 Dec

Canadian Home Prices Fell For the Ninth Consecutive Month As Activity Slowed

Home Sales

Posted by: Peter Carstensen

The Canadian Real Estate Association released statistics for the month of November on December 15th.
Here are Dominion Lending Centre’s Chief Economist, Dr. Sherry Cooper’s thoughts on the future of home sales in the country.

Another Month, Another Dip in Housing

Statistics released today (December 15, 2022) by the Canadian Real Estate Association (CREA) show home sales edged down in November. National home sales fell 3.3% between October and November, continuing the moderating sales trend that began last February on the precipice of unprecedented monetary policy tightening. Sales are down a whopping 39% from a year ago. The Bank of Canada has hiked their overnight policy rate by 400 bps, from 25 bps to 4.25%, triggering a whopping rise in mortgage rates.

About 60% of all local markets saw lower sales in November, led by Greater Vancouver and the Fraser Valley, Edmonton, the Greater Toronto Area (GTA) and Montreal.

The actual (not seasonally adjusted) number of transactions in November 2022 came in 38.9% below a near-record for that month last year. It stood about 13% below the pre-COVID-19 10-year average for November sales (see chart below).

New Listings

Sellers remain on the sidelines as the number of newly listed homes edged down last month by 1.3%, declining 6.1% from a year ago. Most sellers are waiting for interest rates to fall, either because they expect a rebound in sellers or are unwilling to buy new properties themselves with mortgage rates so high.

While sales have swung wildly, new listing flows have remained relatively steady through the recent turbulence and are very much in line with pre-COVID norms. There’s still not a lot of forced selling, which can exacerbate a price correction.

New listings fell in slightly more than half of the local markets. Among the larger markets in Canada, month-over-month movements in new supply were generally small, the only exception being some more significant declines in the B.C. Lower Mainland and Okanagan regions.

In terms of monthly new supply, the bigger picture is listings are not flooding the market. With the one exception of 2019, November 2022 saw the fewest new listings for that month in 17 years.

With sales down month-over-month by a little more than new listings in November, the sales-to-new listings ratio fell to 49.9% compared to 50.9% in October. The ratio has remained close to around 50% since May. The long-term average for this measure is 55.1%.

Based on a comparison of the current sales-to-new listings ratio with long-term averages, about 70% of local markets are currently in the balanced market territory.

There were 4.2 months of inventory on a national basis at the end of November 2022. This is close to where this measure was in the months leading up to the initial COVID-19 lockdowns and still nearly a full month below its long-term average.

Home Prices

The Aggregate Composite MLS® Home Price Index (HPI) edged down 1.4% month-over-month in November 2022, continuing the trend that began in the spring.

The Aggregate Composite MLS® HPI now sits about 11.5% below its peak level. Breaking that down regionally, the general trend is prices are down somewhat more than they are nationally in Ontario and parts of B.C. and down by less elsewhere. While prices have softened to some degree almost everywhere, Calgary, Regina and Saskatoon stand out as markets where home prices are barely off their peaks at all.

The table below shows the decline in MLS-HPI benchmark home prices in Canada and selected cities since prices peaked in March when the Bank of Canada began hiking interest rates. More details follow in the second table below. The most significant price dips are in the GTA and the GVA, where the price gains were spectacular during the COVID-shutdown.

Bottom Line

OSFI announced this morning that the minimum qualifying rate for uninsured mortgages at federally regulated financial institutions would remain unchanged. They will review Guideline B-20 next month, but don’t hold your breath for an easing of the stress test.

In other news, housing starts were little changed last month at 264,600 annualized units. This is a strong level of new construction; the year-to-date average is roughly 265,000 units. Combined with the record 275,000 new units started last year, we are in line for the most significant two-year wave of housing starts on record. On a per-capita basis, we’re starting 2023 with an unprecedented construction boom despite higher costs, labour shortages and much higher interest rates.

Outlook

The Bank of Canada is likely to raise the policy rate a couple of times by 25 bps in the first half of next year, pausing between rate hikes. They will not cut rates in 2023 even though the economy will post at least a mild contraction.

2024 will be a recovery year but don’t expect the overnight rate to return to the pre-Covid level of 1.75%. Indeed, the new cycle low will likely be more like 2.5% assuming inflation continues to trend downward. Price growth will be much more subdued than during the rocking ten-year period before the pandemic. Still, the underlying fundamentals of rapid population growth, mainly from immigration, bode well for sustained growth going forward.

https://dominionlending.ca/economic-insights/canadian-home-prices-fell-for-the-ninth-consecutive-month-as-activity-slowed