Month: April 2021

The latest Canadian Real Estate Association (CREA) statistics revealed that precious new supply made its way into the country’s housing market last month, and while that should theoretically quell runaway price growth, proposed government intervention to cool the market has rendered that new supply inconsequential.

“I have noticed more supply coming out on the market in the last week and a half or two weeks, so spring supply is here—it hasn’t been delayed—but we can also see the increased demand due to the upcoming stress test [which would raise the minimum qualifying rate to 5.25%],” said Toronto-based Alex Balikoti, SVP of sales with Balikoti Real Estate Group, referring to the Office of the Superintendent of Financial Institutions’ proposed stress test.

“Everyone is trying to purchase with the lower stress test qualification on their mortgage. Come June, when the new stress test is introduced, qualification for purchasers will be very different. We do have spring supply, but it’s not enough, and this year it’s not enough for a different reason—the OSFI proposal.”

According to the CREA data, new listings increased across the country in March, with the sales-to-new-listings ratio falling to 80.5% from 90.9% in January when it peaked. Compared to the Canada-wide long-term sales-to-new listings ratio average of 54.4%, it hasn’t lowered nearly enough. There were only 1.7 months of inventory countrywide at the end of March, which is the lowest on record considering that the long-term average is slightly over five months.

“Seeing how many homes were bought and sold in March 2021, one could be forgiven for thinking the market just continues to strengthen, and maybe to some extent it is,” said Cliff Stevenson, CREA’s chair. “The real issue is not strength in housing markets but imbalance. That demand has been around for months, but with the shortages in supply we have across so much of Canada, a lot of that demand has been pressuring prices. So the big rebound in new supply to start the spring market is the relief valve we need the most to get that demand playing out more on the sales side of things and less on the price side.”

The data also revealed that March set another sales record by increasing 76.2% year-over-year to 76,259 transactions, which is also 5.2% higher than February, and almost 14,000 more sales than in July 2021, the previous peak.

Additionally, noted CREA, the actual average price of a Canadian home hit a record $716,828 in March, a 31.6% increase over the same month last year.

Low housing inventory in Montreal is contributing to rising prices, but that isn’t the only reason.

“You order material and suppliers will say two weeks, but then six, eight, 10 or 12 weeks go by, and this is what we’re seeing in most of our projects,” said Patrice Groleau, owner of McGill Real Estate, a brokerage involved in the sale of 60% of new construction developments in Greater Montreal.

“In one project, we increased the prices by 5% because of how difficult it is to secure material. The price of new construction is still rising. A lot of it explains why the value of real estate in the province is increasing right now, and it will keep going up until the end of the year.”

Groleau says suppliers are sitting firmly in the driver’s seat rather than developers and contractors.

“Everyone wants material, and the suppliers are saying, “Okay, are you willing to pay this much more for it?’”

He recounted one supplier telling him they aren’t taking new clients. Instead, they’re letting the clock tick, waiting for existing clients to become desperate at which point the supplier price gouges them.

Moreover, whispers of a strike at the Port of Montreal could exacerbate the problem.

Home sales on the Island of Montreal rose by 32% month-over-month in March, and only by 8% year-over-year, driven largely by condo sales surging 45% from February, according to data from the Quebec Professional Association of Real Estate Brokers (QPAREB). Groleau added that, in addition to low supply preventing buyers from resting on their laurels, optimism surrounding COVID-19 vaccines helped drive sales last month.

“Condos and new construction are catching up and that means buyers are optimistic with the vaccine, and we saw a huge, huge difference after the start of vaccination,” he said. “Obviously we won’t be able to keep that pace, but if there’s no inventory and there’s a shortage of new construction supply, it’s the perfect storm.”

According to a statement from QPAREB, rising valuations could soon become problematic.

“With market conditions continuing to be very favourable to sellers, median prices continue to soar, which increases the risk of drifting towards an overvalued market, especially in this particular economic context with its uncertain outlook. Single-family homes reached a median price of $481,000 (+32%). Median price increases were also remarkably high for condominiums (21 per cent) and plexes (8 per cent).”

A new report from LowestRates.ca revealed just how much Toronto renters have to earn a year to live in the city.

“The average cost of a one-bedroom unit in Toronto was $1,866 a month last November,” said the report. “This represents a 19% year-over-year decrease. The average cost of a two-bedroom was $2,468, representing a 17% year-over-year decrease.”

According to the report, that means renters who commute would have to earn at least $45,500 per annum to afford a one-bedroom, which would amount to $36,104.88 after taxes, or $3,008.74 a month.

Renters who drive, on the other hand, would need to earn $51,500 annually, which, after taxes, is $39,884.76, or $3,323.73 a month.

According to Tom Storey, a real estate broker and investor, he rents out a one-bedroom unit to a couple, but noted credit score is more important than income—“A Credit score about 700 is ideal, and a credit score below 600 is not ideal,” he said. However, while every investor is different, he does have an income cutoff.

“Let’s say the rent is $2,500 a month, I figure out what it would be per year and hope it wouldn’t be more than 40% of their salary,” Storey told CREW. “For a two-bedroom, it would be fairly similar with the 40%, but with two bedrooms you typically have roommates, so it would be less of an issue and also ends up being below 40% because it’s a dual-income scenario. Every investor has a different metric, but that’s what I use.”

For homeowners in Toronto proper, where the average price a home is $894,576—it was $929,699 in the GTA at the end of 2020—assuming a mortgage down payment of 15%, which would involve CMHC insurance, the total mortgage amount would be $781,681 on a 25-year amortization, and that would necessitate $78,500 in annual income. After taxes, the homeowner would be left with $58,638.84, or $4,886.57 a month, and with five-year fixed rate mortgage at 1.68%, their monthly mortgage payment would be $3,191.

“There’s also property tax to take into account, which is based on the following factors: Toronto’s municipal tax rate, the educate tax, the city building fund, and the value of your property,” said LowestRates.ca’s report. “Using the City of Toronto’s Property Tax Calculator, on an $894,576 home, you’d be paying $5,364.80 a year in property tax, which works out to about $447 a month.”

Housing prices in major Central Canadian markets saw double-digit growth last quarter, according to a new report from Royal LePage.

Greater Toronto Area

In the GTA, aggregate home prices were up by 13.1% year-over-year in Q1 to $989,961. Two-storey homes saw 13.6% price gains to reach $1,164,894, and while bungalows rose by 15.3% to $982,120, condominiums only climbed 1.2% to $598,819.

In the City of Toronto, the overall price of a home rose by 7.4% year-over-year to $984,709 in Q1-2021. Two-storey homes were up by 11.8% to $1,550,577 and bungalows increased by 14.7% to $1,061,534, but the median price of 416 condos declined slightly by 0.6% to $637,551.

In the report, Debra Harris, senior vice president of Royal LePage Real Estate Services Ltd, noted that sellers do not feel confident about securing their next homes because listings don’t last long on the market.

“Typically, we measure absorption—how long it would take to run out of inventory—in months. At the moment, we have an absorption rate in the GTA of about three and a half weeks. The number of new listings added each month is lower than the pace of sales, and that gap continues to widen,” said Harris.

Royal LePage expects condo sales in the GTA to increase by autumn when the door reopens to immigrants and both domestic and international students return to school.

In Q4-2021, Royal LePage anticipates that the aggregate price of a GTA home will increase by 11% year-over-year.

Greater Montreal Area

Canada’s second-largest metropolitan region saw the average price of a home increase by 19.7% last quarter to $534,026, with two-storey homes surging 21.5% to $681,768, bungalows shooting up 20.2% to $420,699 , and condos increasing by 14.7% to $398,705.

In Montreal proper, the average price of homes rose by 11.1% year-over-year to $635,907 in Q1-2021. Two-storey homes in the city increased in price to a median of $888,021, up by 15.7% year-over-year, and bungalows increased 12.3% to $594,437, while Montreal Island condo prices averaged of $455,433, up by 7.8% last quarter compared from Q1-2020.

“One year after the start of the pandemic, residential demand has continued to grow in Greater Montreal and the number of single-family homes for sale on the market today is approximately half of the inventory we had before the pandemic,” said Dominic St-Pierre, vice-president and general manager of Royal LePage Quebec. “Multiple-offer scenarios continued to dictate market conditions in the first quarter, driven by the worsening supply of inventory and persistent buyer demand. Similar to what the Toronto area has been experiencing for years, Montreal is now also feeling the impact of chronically low supply.”

According to St. Pierre, working from home has allowed many buyers to save money that will be spent on home purchases, but the expectation is that, when lockdown measures are repealed, savings will decrease. Moreover, because Royal LePage doesn’t anticipate prices will decline in the Montreal metropolitan region any time soon and that could price first-time buyers out of the market.

Royal LePage forecasts the average home price in the Greater Montreal Area to rise by 16% in Q4-2021. Ottawa

The average price of a home in Canada’s capital grew by 16.1% year-over-year to $589,240 in the first quarter of the year, and broken down by housing type, two-storey homes were up 18.6% to $630,96, followed by bungalows rising by 15.1% to $604,931, and condos increasing by 5.2% to $385,040.

“Ottawa has a strong housing market bolstered by stable, healthy household incomes,” said John Rogan, broker of record at Royal LePage Performance Realty. “We are continuing to see very low inventory across all housing types; about 40% less than this time last year. Unless interest rates increase dramatically, I don’t anticipate the supply will be able to catch up with the growing demand.”

Royal LePage expects the average home price in the city will increase 14% year-over-year in the last quarter of 2021.

Blowout Canadian job growth continued in March

This morning, Statistics Canada released the March 2021 Labour Force Survey showing much stronger-than-expected job growth for the second month in a row, pointing towards a Q1 growth rate of more than 5.5%. This survey reflected labour market conditions during the week of March 14-20, when public health restrictions were less restrictive in several provinces than during the prior month.

Employment surged by a whopping 303,100 in March after a gain of 259,200 in February. The jobless rate fell to 7.5%, the lowest since before the pandemic. However, there remain many discouraged workers who are no longer actively looking for jobs but would prefer to be gainfully employed. Many of them might well be mothers who could not afford or find quality daycare or needed to help children with remote learning.

The employment rate—the percentage of the population aged 15 and older that is employed—increased 0.9 percentage points to 60.3%, which was still 1.5 percentage points below the rate seen in February 2020.

Employment gains in March were spread across most provinces, with the largest increases in Ontario, Alberta, British Columbia and Quebec. Much of the employment increase reflected a continued recovery in industries—including retail trade and accommodation and food services—where employment had fallen in January in response to public health restrictions. Growth in health care and social assistance, educational services, and construction also contributed to the national increase in March.

The COVID-19 pandemic continues to impact the labour market. Compared with February 2020, there were 296,000 (-1.5%) fewer people employed in March 2021 and 247,000 (+30.4%) more people working less than half of their usual hours. The number of workers affected by the COVID-19 economic shutdown peaked at 5.5 million in April 2020, including a drop in employment of 3 million and an increase in COVID-related absences from work of 2.5 million.

Among workers who worked at least half their usual hours in March, the number working at locations other than home increased by about 600,000 for the second consecutive month as public health restrictions eased across the country.

While the number of Canadians working from home declined by 200,000 in March, working from home remains an important adaptation to the COVID-19 pandemic. Of the 5 million Canadians working from home in March, more than half (2.9 million) were doing so temporarily in response to COVID-19.

Total hours worked rose 2% in March, driven by gains in several industries, including educational services, retail trade, and construction. Building on a steady upward trend since April 2020, this brought total hours to within 1.2% of February 2020 levels. Hours worked among the self-employed continued to be much further behind (-7.7%) February 2020 levels, while hours among employees returned to pre-pandemic levels.

The unemployment rate falls to the lowest level since the start of the pandemic.

The unemployment rate declined for the second consecutive month, falling 0.7 percentage points to 7.5% in March, the lowest since February 2020. This reflected strong employment growth that exceeded the number of people entering the labour market.

The number of people unemployed fell 148,000 (-8.9%) in March, with the majority (59%) of people leaving unemployment becoming employed. Despite sharp reductions in both February and March, the number of people unemployed stood at 1.5 million, up 371,000 (+32.4%) compared with February 2020.

The number of long-term unemployed—people who had been looking for work or on temporary layoff for 27 weeks or more—held steady in March. There were 286,000 (+159.5%) more people in long-term unemployment compared with February 2020. These are the folks that could be permanently scarred by the pandemic and for whom job training may well be helpful.

Bottom Line

While Friday’s jobs report surprised on the upside, there are still concerns around an uneven recovery and the impact of the third-wave shutdown in the economy. As the virus becomes more contagious and lethal, the economic recovery remains at risk, heightened by the vaccine’s very slow rollout. The reduces the importance of this employment report for the Bank of Canada even though it is the last report before the central bank’s April policy decision. No doubt the Bank of Canada will highlight the rising risk of contagion on the economic recovery.

Prime Minister Justin Trudeau’s government will release its 2021 budget on April 19 and has already promised an additional spending dose. The Bank of Canada’s next policy decision is on April 21. The Bank will thus maintain the overnight rate at 25 basis points and refrain from tapering quantitative easing.

Vancouver, Calgary and Edmonton all saw single-digit price growth last quarter while Winnipeg’s aggregate home prices grew by double digits, according to a Royal LePage report.

Greater Vancouver

The most expensive real estate market in Canada saw 9.5% year-over-year growth to the aggregate price of homes, which reached $1,163,276 last quarter. The metropolitan region’s two-storey homes increased in price by 12.1% to an average of $1,545,705, while bungalows rose in value by 12% to an average price of $1,325,006. The Greater Vancouver Area’s condominium market saw growth, albeit only 2.3% year-over-year, last quarter to bring average home prices to $652,923.

In Vancouver proper, the average home price was up 7% year-over-year in Q1 of this year to $1,271,363, with two-storey homes increasing 9.9% to $2,218,099, bungalows rising by 10.7% to $1,563,971, and condos climbing by 5.2% to $782,979.

“The market is remarkably busy right now. March was a record-breaking month for our brokerage,” said Randy Ryalls, general manager of Royal LePage Sterling Realty. “Almost every property is receiving multiple offers, and the sales to listings ratio is more than double what we’d typically see in a balanced market. That being said, we are starting to see an increase in supply come on the market. Hopefully that can continue.”

Although a surge in spring inventory has been expected, new supply is being absorbed rapidly as demand has outpaced supply in Metro Vancouver, from the downtown core to the suburbs. Nevertheless, by Q4-2021, Royal LePage anticipates that the aggregate price of a home in Greater Vancouver will rise by 13%.

Calgary

The city saw home prices rise by 5.2% year-over-year to $481,694 in Q1-2021. Two-storey Calgary homes rose by 5.4% to $530,912 and bungalows increased by 4% to $507,957, however, the average price of a condominium in the city declined by 1.6% to $243,902.

“After years of economic uncertainty in the province of Alberta, real estate in Calgary was entering a balanced market heading into 2020,” said Corinne Lyall, broker and owner of Royal LePage Benchmark. “While the pandemic has certainly had an impact on real estate nationwide, Calgary’s housing market has experienced less fluctuation than other major cities in Canada.”

However, first-time buyers in the city have benefited from low interest rates and growth in savings to buy starter homes, which has enabled movement for other buyers trying to move up the housing ladder. The city’s low housing inventory has put sellers in the driver’s seat, save for in the condominium market where activity appears muted. A consequence of the oil boom is that condos were overbuilt and they have depreciated as a result. Although Lyall expects many condo rentals to become tenanted by new immigrants and international students, she’s doubtful that condo sales will be impacted for some time to come.

Royal LePage forecasts that the aggregate price of a home in Calgary will increase by 4.5% in Q4-2021.

Edmonton

According to the Royal LePage report, the average price of a home in the provincial capital grew by 5% year-over-year in Q1-2021 to $379,461, with two-storey homes increasing in value by 4.1% to an average price of $443,460. Edmonton’s bungalows increased by 8.7% year-over-year last quarter to $366,101, however, the average price of a condo fell by 3.4% to $196,641.

According to Tom Shearer, broker and owner of Royal LePage Noralta Real Estate, first-time buyers were very active in Edmonton’s housing market last quarter, and just like their counterparts in Calgary, they took advantage of low mortgage rates and savings increases going back to the inception of the pandemic.

“Young professionals with employment stability continue to drive the market while the ability to work and study remotely have created an opportunity to move to more affordable suburbs. Their willingness to expand their geographical searches gives them great buying power,” said Shearer, adding that buyers are acting quickly because of supply scarcity, which has created multiple offer scenarios in 40% of transactions in the city.

“I wouldn’t be surprised if the typical brisk spring market extends into summer this year. Sellers who are holding out for more people to be vaccinated will become part of the summer demand when they look for their new homes.”

Royal LePage anticipates that the aggregate price of a home in Edmonton will increase by 4% in the last quarter of 2021.

Winnipeg

The aggregate price of a home in the city shot up by 12.3% year-over-year in Q1-2021 to $334,901, with two-storey homes increasing by 13.7% to $367,179, while bungalow homes rose by 11.3% to $322,188, and condos saw a 7.9% bump to $235,908.

Multiple-offer scenarios are commonplace across different housing types and price brackets in Winnipeg, and the result is often that homes sell for over asking. According to Michael Froese, broker and manager at Royal LePage Prime Real Estate, Winnipeg is experiencing something unusual for its real estate market: double-digit price gains. Moreover, he expects this quarter will mirror Q1 with robust first-time homebuyer demand and move-up buyers capitalizing on low mortgage rates.

“Inventory cannot enter the market fast enough. Since the start of the year, sales are up almost 50% and listings are down 43%,” said Froese. “This demand is expected to remain a long-term trend, especially with the expected return of immigrants and students in the fall.

Royal LePage anticipates the aggregate price of a home in Winnipeg will grow by 8.5% in Q4-2021.

Tenant demand in the GTA’s industrial sector is scorching, and while that makes entry difficult for investors, there are still ways to get in and capitalize on the boom.

For example, cannabis companies, perhaps because of the larger industry’s nascence, aren’t regarded as desirable tenants and that makes securing tenancy challenging. However, for landlords in the industrial space, that spells opportunity.

“Cannabis groups will pay a premium because a lot of landlords don’t want that kind of use in their buildings,” said Diana Hoang, an industrial specialist with Colliers based in Toronto. “For most landlords, they want good tenants with strong financials and they look for tenants with long-term stability. [Cannabis companies are] not as stable but they want to get in the game and establish a location, and landlords force them to pay the premium because they know not a lot other groups of investors are taking them in.”

Hoang recommends that landlords, upon establishing which asset class they’d like to invest in, seek out vacant warehouse distribution buildings that they could fill with tenants during the rezoning process for a conversion, which can take between 12 and 24 months. In the interim, landlords can earn rental income.

“Target typical industrial users, which are your warehouses for e-commerce or warehousing for trades in the area,” said Hoang, adding that the most desirable buildings have 20-foot clearing heights and shipping aprons, and they can command $1.00-1.50 psf in additional rent.

Demand for those facilities has been robust through the COVID-19 pandemic because of the outsized growth of e-commerce, which had already steadily eaten away at the retail sector for years. And while the office and retail sectors have languished since the pandemic struck in March 2020, industrial real estate is riding a tidal wave.

“Tailwinds from e-commerce and rising product inventories appear to be offsetting sectors negatively impacted by the pandemic, including those with integrated global supply chains or those more sensitive to local economic activity,” said a report from GWL Realty Advisors.

But with the increased competition for limited vacancies, finding the right facilities could prove difficult. In the GTA, bidding wars are commonplace, but Hoang advises not to let that cloud one’s judgement.

“Word of mouth and testimonials are important, and talk to groups that have already used the facilities services,” she said.

Although the immediate GTA is lacking in inventory, areas to the north, while not exactly brimming with facilities, often don’t charge maintenance fees, which can at least partially offset some of the trucking expenses. Moreover, Hoang says that borrowing power is the ultimate determinant.

“Buying power is No. 1; understand the magnitude of your line of credit. Even the big players have to understand where the value is. They’re not only competing with newbies but established investors too because investor groups are looking for products to purchase. They’re looking for this asset because it’s more stable than even the stock market.”