What housing market conditions mean for homebuyers right now

TORONTO -

It’s been a record-breaking year for Canada’s real estate market so far, with interest rates at an all-time low, and housing prices at historic highs. After a slight drop in monthly home sales, the latest statistics from the Canadian Real Estate Association show a real estate market that’s slowly reheating again.

“We were expecting some warming in the housing market again,” BMO’s Chief Economist Doug Porter told CTVNews.ca in a phone interview on Monday. “The national view suggests that the market, broadly, is looking like it's starting to strengthen again.”

National home sales in Canada have set a new annual record this year, rising 8.6 per cent from September to October. Last month, seasonally-adjusted sales reached 53,746, compared to 49,485 sales in September.

The total sale of single family one-storey and two-storey homes, as well as townhouses and apartments, saw month-over-month increases across about three-quarters of all local markets, including all major Canadian cities. This is the largest month-over-month growth since July 2020. Along with this, more than 580,000 residential properties were sold via Canada’s MLS systems so far this year, eclipsing the annual record of 552,423 sales across all of 2020.

But perhaps the most revealing numbers stem from the MLS Home Price Index. The HPI, a tool used to gauge home price levels, is based on the values assigned to different housing attributes as they evolve over time. As Porter puts it, the index attempts to correct any distortions in the market for a purer measure of home price activity.

From September to October, the MLS HPI rose 2.7 per cent, while year-over-year, Canadian home price levels have seen a growth of 23.4 per cent.

“If you do a like-for-like comparison of houses, that's a fairly accurate reading that a four-bedroom house in a suburb of a typical city has gone up by 20 per cent in the past year, which is a phenomenally strong number,” said Porter.

In terms of what this means for the average Canadian, it depends on what side of the market they’re on, Porter says.

“If you're a real estate agent or you've been trying to sell your house, that's a great thing. If you are looking to buy a house, it's not such a good thing,” he said. “I think in housing, we always have to be careful what we wish for.”

From an economic growth perspective, he admits that a comeback in national home sales is a positive, but having the market lean too much either way isn’t ideal.

“You never want to see the market get to the point where you're basically pricing out not just people of modest means, but people of significant means,” he said. “I would say the best outcome for pretty much everyone now would be a plateauing in the market, if not a very mild correction over the next couple of years.”

Looking at these numbers from the perspective of a first-time homebuyer, Porter says he would find them concerning. But he insists more time is needed to determine which trends will continue to appear in the market.

TORONTO SEEING HIGHER PRICES, LESS ACTIVITY

The actual average house price in Canada, meaning it’s not been seasonally adjusted, rose 18.2 per cent year-over-year, settling at $716,585 last month. These figures are largely affected by activity in the Greater Toronto Area and Greater Vancouver, which are known to be two of the country’s most active and expensive housing markets. Both regions alone account for $155,000 of the national average price in October.

House prices in Toronto have been generally high for quite some time now, notes Desmond Brown, a real estate agent with Re/Max Hallmark Realty Ltd. in Toronto and host of the podcast Sold in the 6ix. This is something most residents have come to expect by now, he says, although he is seeing a slight cooldown in the market.

“We're still seeing sale prices going over asking, however, we're not getting as much activity,” he told CTVNews.ca over the phone on Tuesday. Brown points to a property he recently sold that had 53 showings but only three offers as an example.

“We're not getting as many multiple offers per property…maybe from buyer fatigue or just not as many people are out looking [for houses] at this time of year.”

Ontario recorded an increase of almost 30 per cent in home price growth year-over-year, something that’s also reflected in the GTA’s market, says Brown. With so many homes selling over asking price, it begs the question of whether or not people are getting the best bang for their buck. According to Brown, they are.

“The most popular strategy that's being used right now is underpricing the property so you get lots of action on it, and get a sold price over the asking,” he explained. “It's not a big deal for something to sell over asking, the house usually ends up selling for what the market value is.”

RESIDENTS STAY PUT IN VANCOUVER

When looking at Greater Vancouver and the surrounding area, Adil Dinani, a real estate agent with Royal LePage West Real Estate Services, is noticing that sellers who were anticipated to place their houses on the market in the fall, are instead staying put. This is resulting in an especially tight supply crunch across the region.

“I hate to say it but there's a shortage of supply,” he said to CTVNews.ca in a phone interview on Tuesday. “We're at 30-year lows for inventory.”

He attributes this to residents wanting to spend more time in their homes and with family, as in-person gatherings become more common.

“I feel like the holiday season that we didn't have last year is what we're going to get this year,” he said. “And that's probably going to continue to impact the amount of product that comes on the market.”

Just last month, there were 4,049 new listings for detached, attached and apartment properties on Metro Vancouver’s MLS system. This represents a drop of 27.3 per cent compared to 5,571 properties listed at the same time last year, and a 21.7 per cent decrease compared to 5,171 homes listed in September.

This is placing an upward pressure on prices, Dinani explains, resulting in difficulties for residents at both ends of the market spectrum.

“It's a challenging time to be a purchaser and also a challenging time to be a seller,” he said. “As great as it is to be a homeowner looking to sell your home, given the strong seller environment, you still need somewhere to go and it's challenging getting into the market in that sense.”

ALBERTANS LOOKING IN THEIR OWN BACKYARD

Adding fuel to the fire are record low interest rates. During the pandemic alone, Canadians saw interest rates plummet across the country for both variable and longer-term fixed rates. That, combined with policies providing income support and fewer things to spend money on, meant Canadians had the wherewithal to spend, explains Porter.

“People [have been] looking at their four walls maybe wanting more space,” he said. “[This] basically prompted people to invest more in real estate, whether it was their first house or their second or third property.”

Chynna Winter, a real estate agent with Engel & Volkers Calgary Real Estate, has experienced this first-hand with some of her clients.

“People used to have recreation properties in Palm Springs or they’d go to B.C., to the Okanagan, all these different places,” she told CTVNews.ca on Tuesday in a phone interview. “That has shifted so dramatically [and] Albertans have really started looking close to home for these secondary properties.”

This is mostly due to the pandemic, she says, and restrictions put in place to limit travel. Residents are in search of more space right in their own backyards Winter explains, whether in the form of office space or outdoor space with easier access to natural attractions. This has led to greater activity within the province, she says.

“I think this is a pretty special time in history where people are able to just decentralize and go to live in these more remote places and still be able to have that income,” she said. “People's real estate requirements have really changed over the last couple of years.”

The city of Calgary in particular has seen growth in the average price of its properties year-over-year. The average price of a condominium in October of last year was more than $240,000. One year later, that price has grown to about $288,000. The average price of a detached home in Calgary increased as well, though not as dramatically. In October of last year, the average price was about $553,000, whereas in October of this year, it was $571,000. Total sales across each housing unit increased year-over-year as well.

Winter points to the rise in home sales and prices as just one piece of a puzzle that shows the province’s changing economic landscape. After a historically challenging year, it appears as though Alberta’s economy is seeing signs of recovery. Winter herself has seen Calgary’s luxury real estate market bounce back dramatically this year with increased activity.

“It's great to see the rebounds in Alberta,” she said. “I just think there's a renewed confidence in the economy in Alberta.”

THE IMPACT OF INTEREST RATES

While Winter points to low interest rates as having allowed many first-time homebuyers to enter into the market, Dinani explains this is part of the reason why home prices have been so high.

“When interest rates are low, generally there's an inverse relationship where prices rise and conversely, when interest rates go up, prices generally stabilize,” he said.

With current interest rates so low and home prices so high, this creates an imbalance in the market, one that’s generally not possible to maintain long-term.

“There's a certain level of unsustainability with the way [the market] is going, and it's not really healthy,” said Dinani. “In terms of not having enough inventory to go around, buyer demand outstripping supply, and upward pressure on prices.

“What I would love to see is obviously some stabilization in that price growth, and for us to see low single digits or mid-single digits [instead]. When we get into these high double-digit growth patterns and trends, it is very…challenging for folks to enter the market.”

The solution to rising house prices? Higher interest rates, says Porter.

“The biggest policy lever we have in this country is interest rates,” he said. “There's been a lot of talk recently that the Bank of Canada may indeed start raising interest rates next year. But I think it will take more than one or two bites of the apple in terms of interest rate hikes to really crawl this market.”

For Canadians wondering what to expect next year, Porter points to a slight decrease in home sales and overall market activity.

“I would be very surprised if we were able to maintain the kind of strength that we've seen in the past year next year,” he said.

Brown agrees, and while he does foresee a rise in home prices, they won’t be increasing to the same degree as they’ve been in 2021.

“We had a lot of pent-up demand after all the shutdowns across the country due to COVID,” he said. “I think the prices have pretty well found their levels now, and we'll start seeing incremental increases across the country of four to six per cent per year.

“We'll continue to see increases [in home prices], but not at the same rate that you saw the increase over the last year.”