Home Buyers Are Rebounding… Big Time
Canadian housing demand is bouncing back with vigour from a downturn that “no one noticed” according to the House Price survey released Thursday by Royal Le Page. The report indicates that buyers are recovering en masse from recession conditions as well as affordability and borrowing restrictions imposed over the past few years.
According to Phil Soper, president and chief executive of Royal Le Page, weak sales have been overshadowed in housing headlines by crash fears and overheated prices. “Canada experienced a significant housing market correction over the last four quarters that most in the nation missed entirely,” he stated in a release. “Many regions experienced dramatic slowdowns in the number of homes trading hands, but news of double-digit unit sales declines went largely unnoticed, over-shadowed by a macabre fascination with the prospect of a U.S.-style home price collapse, which of course never transpired.”
Home Prices Are Higher Still
Those overheated price concerns show no sign of cooling; two-storey detached units increased 3.7 per cent to $418,686, while bungalows are up 4.1 per cent to $381,811 nationwide. Condos experienced only moderate price growth at 1.2 per cent, and can be had for a national average of $246,530.
In Canada’s urban centres, big price gains have elevated buying costs to scorching levels. For example, in Toronto two-story homes will now set buyers back by an average of $678,016, and $577,563 for bungalows. Such prices drastically limit options for first time buyers, who have traditionally turned to the condo market, currently priced at a national average of $355,483. However, as we previously noted, demand has stemmed among this group due to poor employment prospects, an inflated cost of living, and the promise of more property outside city limits.
City Leaders Urge Harper To Cool Market Costs
This steep affordability has prompted deep concern among city leaders, who reached out to Prime Minister Stephen Harper this week with open letters urging a two-year focus on addressing the livability challenges posed by high housing costs.
Claude Dauphin, president of the Federation of Canadian Municipalities said high home prices create vulnerability for Canadian personal finances and the overall economy. “As it stands, for those who cannot afford to purchase a home, the short supply of rental units is driving up rental costs and making it hard to house workers in regions experiencing strong economic activity,” he stated in a letter to Harper.
Considering a quarter of all Canadians are already blowing the CMHC’s 30 per cent income limit on their housing costs, continuously rising costs may prove unsustainable for the market.
Short Term Lower Mortgage Rates Could Be In Store
One small measure of relief for cash strapped buyers may come in the form of moderately lower fixed mortgage rates this month, according to our October Mortgage Rate Outlook Panel. A lingering government shutdown in the U.S. combined with growing concern over debt ceiling consequences are driving nervous investors back to safe haven options, like Government of Canada bonds. This has led to a slight decline in yields, which may prompt lenders to follow suit with their fixed rate offerings.
The Debt Ceiling Creeps Closer
However, it’s difficult to predict whether this investor sentiment is here to stay, as the threat of a U.S. threat default, forecasted for October 17, is unprecedented. However, Finance Minister Jim Flaherty expressed confidence in a resolution this week, stating, “Obviously, political gridlock in the U.S. is not good for the global economy or Canada. I am confident that U.S. leaders will reach an agreement and start really addressing high U.S. government debt levels.”
His comments follow a growth forecast cut for the world, U.S. and Canada from the International Monetary Fund, due to ongoing turbulence in the global economy.