Canadian Home Sales Begin to Slow in March

General Mark Goode 19 Apr

Canadian March Home Sales Posted Their Biggest Decline Since June

Statistics released today by the Canadian Real Estate Association (CREA) show that rising interest rates were already dampening housing activity well before the Bank of Canada’s jumbo spike in the key policy rate in mid-April. National home sales fell back by 5.4% on a month-over-month basis in March. The decline puts activity back in line with where it had been since last fall (see chart below).

New Listings

The number of newly listed homes fell back by 5.5% on a month-over-month basis in March, following a jump in February. The monthly decline was led by Greater Vancouver, the Fraser Valley, Calgary and the GTA.

With sales and new listings falling in equal measure in March, the sales-to-new listings ratio stayed at 75.3% compared to 75.2% in February. The long-term average for the national sales-to-new listings ratio is 55.1%.

About two-thirds of local markets were seller’s markets based on the sales-to-new listings ratio is more than one standard deviation above its long-term mean in March 2022. The other third of local markets were in balanced market territory.

There were 1.8 months of inventory on a national basis at the end of March 2022 — up from a record-low of just 1.6 months in the previous three months. The long-term average for this measure is more than five months.

 

Home Prices

 

The Aggregate Composite MLS® HPI was up 1% on a month-over-month basis in March 2022 – a marked slowdown from the record 3.5% increase in February.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up by 27.1% on a year-over-year basis in March. The actual (not seasonally adjusted) national average home price was $796,000 in March 2022, up 11.2% from last year’s same month.

Bottom Line

The March housing report is ancient history, as sharp increases in market-driven interest rates have changed the fundamentals. This report also precedes the 50 basis point hike in the overnight policy rate by the Bank of Canada. Anecdotal evidence thus far in April suggests that new listings have risen, and multiple bidding has nearly disappeared.

The rise in current fixed mortgage rates means that homebuyers must qualify for uninsured mortgages at the offered mortgage rate plus 200 bps–above the 5.25% qualifying rate in place since June 2021. This, no doubt will squeeze some buyers out of higher-priced markets.

The federal budget introduced some initiatives to help first-time homebuyers and encourage housing construction–but these measures are hitting roadblocks. Labour shortages are plaguing the construction industry, and the feds do not control zoning and planning restrictions but at the local government level. The ban on foreign resident purchases will likely have only a small impact, so the fundamental issue of a housing shortage remains the biggest impediment to more affordable housing in Canada.

 

Please Note: The source of this article is from SherryCooper.com/category/articles/

Housing A Major Theme in Federal Budget

General Mark Goode 8 Apr

Affordable Housing Is A Key Theme In Federal Budget 2022

 

Today’s budget announced a $10 billion package of proposals intended to reduce the cost of housing in Canada (see box below). The fundamental problem is insufficient supply to meet the demands of a rapidly growing population base. Thanks to the federal government’s policy to rapidly increase immigration since 2015, new household formation has risen far faster than housing completions, both for rent and purchase. This excess demand has markedly pushed home prices to levels beyond average-income Canadians’ means.

The measures announced in today’s budget to increase housing construction, though welcome, are underwhelming. The Feds can control the construction of lower-cost housing through CMHC. Still, most home building is under the auspices of the municipal governments, where the red tape, zoning restrictions and delays abound. The federal government increased funds to help local governments address these issues, but NIMBY thinking still prevents increased housing density in many neighbourhoods.

The headline policy announcement for a two-year ban on foreign residential property purchases may sound reasonable. Still, according to Phil Soper, chief executive of Royal LePage, “It will have a negligible impact on home prices. We know from the pandemic period, when home prices escalated with virtually no foreign money, that our problem is made-in-Canada.”

According to the Financial Post, Soper added that measures like the tax-free savings account for young Canadians would be encouraged to help them achieve their dreams of homeownership in a typical real estate market. However, in a low-supply environment with pandemic-fueled price gains, these measures would only add more demand without addressing the supply issue. Only a few first-time buyers would be able to take advantage of it.

The Home Buyers’ Bill of Rights that would end blind bidding and assures the right to a home inspection and transparent historical sales prices on title searches is also long overdue.

The First-Time Home Buyer Incentive has been extended to March 2025. This program has been a bust. Buyers do not want to share the equity in their homes with CMHC. The Feds are taking another kick at the can, “exploring options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.” To date, the limits on the program have made them useless in high-priced markets such as the GTA and the GVA.

 

Budget 2022 Measures To Improve Housing Affordability
Tax-Free Home Savings Account

  • Introduce the Tax-Free First Home Savings Account that would give prospective first-time home buyers the ability to save up to $40,000. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA.

New Housing Accelerator Fund

  • With the target of creating 100,000 net new housing units over five years, proposes to provide $4 billion over five years, starting in 2022-23, to launch a new Housing Accelerator Fund that is flexible to the needs and realities of cities and communities, while providing them support such as an annual per-door incentive or up-front funding for investments in municipal housing planning and delivery processes that will speed up housing development.

 New Affordable Housing

  • To ensure that more affordable housing can be built quickly, Budget 2022 proposes to provide $1.5 billion over two years, starting in 2022-23, to extend the Rapid Housing Initiative. This new funding is expected to create at least 6,000 new affordable housing units, with at least 25% of funding going towards women-focused housing projects.

An Extended and More Flexible First-Time Home Buyer Incentive

  •  Extension of the First-Time Home Buyer Incentive–which allows eligible first-time homebuyers to lower their borrowing costs by sharing the cost of buying a home with the government–to March 31, 2025. Explore options to make the program more flexible and responsive to the needs of first-time homebuyers, including single-led households.

A Ban on Foreign Investment in Canadian Housing

  • Proposes restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a two-year period.

 Property Flippers Pay Their Fair Share

  • Introduce new rules so that any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income, applying to residential properties sold on or after January 1, 2023. Exemptions would apply to Canadians who sell their home due to certain life circumstances, such as a death, disability, the birth of a child, a new job, or a divorce.

Rent-to-Own Projects

  • Provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. This will include $100 million to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.

Home Buyers’ Bill of Rights

  • Bring forward a national plan to end blind bidding. Among other things, the Home Buyers’ Bill of Rights could also include ensuring a legal right to a home inspection and ensuring transparency on the history of sales prices on title searches.

Multigenerational Home Renovation Tax Credit

  • Provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability, starting in 2023.

Doubling the First-Time Home Buyers’ Tax Credit 

  • Double the First-Time Home Buyers’ Tax Credit amount to $10,000, providing up to $1,500 in direct support to home buyers, applying to homes purchased on or after January 1, 2022.

Co-Operative Housing Development

  • Reallocate funding of $500 million to a new Co-Operative Housing Development Program to expand co-op housing in Canada. Provide an additional $1 billion in loans to be reallocated from the Rental Construction Financing Initiative to support co-op housing projects.

There is also a laundry list of other programs to create additional affordable housing for Indigenous Peoples, Northern Communities, and vulnerable Canadians. Enhanced tax credits for renovations to allow seniors or disabled family members to move in; and for seniors to improve accessibility in their homes. As well, money is provided for long-term efforts to end homelessness.

To combat money laundering, the government said it would extend anti-money laundering and anti-terrorist financing requirements to all mortgage-lending businesses within the next year.

For greener housing initiatives, the government is planning to provide $150 million over five years starting this year to drive building code reform to focus on building low-carbon construction projects and $200 million over the same timeline for building retrofits large development projects.

 

Bottom Line

Nothing the federal government has done in today’s budget will make much of a difference in the housing market. What does make a difference is the spike in interest rates that is already in train. Fixed mortgage rates are up to around 4%, and variable mortgage rates have begun their ascent. There is still a record gap between the two, but the Bank of Canada will likely hike the policy rate by 50 bps next week. The Bank will probably hike interest rates at every meeting for the remainder of the year and continue into the first half of next year.

It is also noteworthy what Budget 2022 did not do. It did not address REITs or investment activity by domestic non-flipping purchasers. Some were expecting a rise in minimum downpayment on investor purchases or restrictions on using HELOCs for their funding.

Budget 2022 did not raise the cap of $1 million on insurable mortgages. It did not reinstate 30-year amortization, a favourite of the NDP. And, it did not follow the BC provincial government in allowing a “cooling-off” period after a bid has been accepted, technically giving would-be buyers more time to secure financing.

 

Artical Author: Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca