Have home sales peaked? The Canadian Real Estate Association seems to think so.
According to figures from the country’s real estate market in April, the trade association representing real estate brokers, agents and salespeople in Canada says that on the surface, the market is still booming. The average price for a home in Canada rose 13.1 percent year-over-year in April to $508,097 while the number of homes changing hands was up 3.1 percent. National home sales even set a new monthly record in March and April.
While that may sound like good news, the CREA is worried about the supply side. There is a declining number of for sale signs on lawns of homeowners. New house listings fell by 0.2 percent and there were only 4.7 months of inventory at the close of April – its lowest level in over six years.
The shortage of listings is magnified in Canada’s two top real estate markets, Toronto and Vancouver, which are at their lowest levels since 2003. In Toronto, the number of homes changing hands was down for all property types except condos. It’s not as bad in Vancouver, but sales volumes for attached homes still fell in April. And the picture doesn’t look like it will improve any time soon.
The CREA has referred to the chronic shortage of listings in Toronto as a “self-reinforcing” supply shortage. Price have become unaffordable for many, not just for first-time homebuyers. Faced with a red hot real estate market, those looking to move up in the housing market are choosing to stay put. And who can blame them? Although homeowners may make a mint selling, they will have to buy somewhere, unless they choose to leave the market and rent instead. If buying, they will likely have to face a bidding war where homes in Toronto – for example – can sell as much as $400,000 over the listing price.
Factors Leading to the Rise in Real Estate
The Canadian real estate market has been booming ever since 2009, shortly after the financial crisis. With the stock market down in the doldrums at the time, Canadians flocked to real estate in droves to park their money. This has driven the price of real estate up much faster than the rate of inflation.
The expectation was that Baby Boomers would be downsizing en masse. This hasn’t happened for a number of reasons. Millennials are staying at home longer and either depending on the bank of mom and dad or saving up for a down payment on a home of their own. Some parents are deciding to tap into the equity in their houses and lend a helping hand to their adult kids. And Baby Boomers are also choosing to remain where they are and enjoy their homes and communities, rather than move far away from their family and friends.
Foreign buyers are also pushing the price of real estate higher. This is especially prevalent in Vancouver, but the trend is quickly making its way through Toronto’s market. The government has started collecting numbers on foreign buyers and is trying to decide what’s next.
The Future of Canada’s Real Estate:
The supply shortage doesn’t look to be easing any time soon. The Bank of Canada’s most recent mortgage tightening rules of raising the minimum down payment from 5 per cent to 10 per cent for homes priced between $500,000 and $1 million has likely only thrown gasoline on the fire.
Although home sales may have topped out and interest rates are expected to stay low for the foreseeable future, Canadians can expect steady gains in real estate over the coming months and years in most markets.