The media loves to cover expensive housing, and right now they’re having a feeding frenzy over the Canadian real estate market.
It’s fair to point out that the market has caused its share of problems, with even rural areas and small towns now grappling with soaring prices and seemingly endless buyers and bidding wars.
Although there are some signs the housing market could moderate within the next year or two, in the meantime, Canadians unable to pay the $1 million-plus average home price are increasingly looking to the housing option of rentals, like Alto Properties’ 859 Kennedy Road.
As vice president of Alto Properties, I’ve certainly seen the demand for the apartments at 859 Kennedy Road, a multifamily residential building in the heart of Scarborough.
Managing 859 Kennedy Road, which is Alto Properties’ flagship property, has taught me plenty about the real estate market and the need to stay patient through periods of turbulence.
Young People Look to Rentals and Condos
Many people, especially Millennials who don’t have the hefty downpayment for a house, want more flexibility from their housing situation.
Even if they could afford it, many young Canadians don’t want a $1.5 million house with a mortgage that they’ll be paying for the rest of their lives.
Renting, however, provides flexibility and a different lifestyle, and the market is already showing the rising popularity of rentals and condos.
As optimism rises with the availability of vaccines, both of these markets have started to normalize.
Rental popularity is likely to return with a normalizing economy, according to the Canada Mortgage Housing Corporation’s Spring Housing Market Outlook, and condo sales have already taken a bigger slice of overall home sales in 2021.
The national housing agency, or CMHC, said there’s an overall increase in demand for higher-density housing.
“This compositional shift in sales toward condominium apartments will continue as the pandemic recedes and will contribute to the moderation of average house price growth,” CMHC said in its report.
Can the Gov’t Help the Housing Market?
There are some signs that the market will calm down in the near future.
In a recent interview with Mortgage Broker News, Michael Bourque, CEO of the Canadian Real Estate Association, pointed to several positive trends as well as possibilities for federal involvement.
Part of the reason the Canadian government hasn’t done more to curb demand is because of news from the Bank of Canada, Bourque said.
“The Bank of Canada is signalling that interest rates are going to go up, so our feeling is when that happens, vaccination has taken place and the economy starts to open up again, the market will cool down – so there was no real reason for the government to do more than they’re currently doing,” Bourque said.
The federal government will likely take additional steps to increase inventory.
On April 19, the country’s finance minister committed another $2.5 billion to the federal government’s affordable housing program. That money will build or repair 35,000 residences and use more than $1 billion to try and convert commercial buildings into housing.
That will certainly help, but as Bourque pointed out, the government could still do more.
“The next thing we’re looking for is for the federal government to play a more active role on the supply side,” Bourque said. “They did announce some considerable infrastructure spending [in the budget], and the number one request that we have is for the federal government to create conditions around infrastructure spending for housing.”
Moderating Housing Market A Slow-Moving Proposition
There’s other good news, though.
According to an analysis from RBC economics, the market is already showing signs of moderation. April sales slowed down and new listings began to rise, easing the lack of inventory. Prices continued to escalate because the market has yet to acknowledge the change, according to the RBC report.
In large markets, home resales and new listings increased anywhere from 140 percent to 462 percent, the report said.
It’ll take time for the market to cool, however. In April, annual HPI (house price index) growth still accelerated in Canada’s biggest real estate markets. The increase in inventory was ignored or just not noticed by pre-approved buyers, who already prepared for short and intense bidding wars.
But rapid change in the marketplace is unlikely.
The reality is that 2021 may see some slowdown of the market, but higher interest rates and an inventory increase large enough to cool prices still may not occur until 2022, according to the Bank of Canada.
Also, the bank’s housing experts predicted that 701,000 properties will be exchanged on Canadian MLS systems in 2021.
For the rest of 2021, the bank expects that housing activity will likely continue to see monthly records. This year, the national average home price could rise by 16.5 percent to more than $665,000.
In 2022, analysts see a “soft landing” for the Canadian real estate market.
There’s a good chance that real estate activity could reach more than half a million units — a 6.5 percent increase over 2020, according to RBC Senior Economist Robert Hogue.
Toward the end of the year, Hogue said the market will cool down and prices will start to fall.
“Call it a 2022 soft landing,” he said.
In December 2020, annualized resales peaked at 700,000 units. By the end of this year, RBC forecasts a downturn of that number by 26.4 percent.
So there’s reason to be hopeful, but for now, Canadians looking for a home will likely continue to face big price tags and lots of competition.