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Is Affordability In Sight for the Canadian Housing Market?


Affordability is a hot topic in Canadian housing market. Rising interest rates, intended to combat inflation, are significantly impacting homebuyers and in turn, sellers. Thus, home prices have begun to moderate from their record highs, but any savings is being offset by the higher cost of borrowing. It is no surprise that affordability is such a focus for Canadians. RE/MAX® Canada’s 2022 Housing Affordability Report outlines the concerns of home buyers from coast to coast.


According to a Leger survey commissioned by RE/MAX, Canadians are ready to relocate in order to find a house they can afford. Sixty-four percent of survey respondents said they would pack up and head to a new city. Forty-three percent of survey respondents said the high price was a barrier to entry into the Canadian housing market. Other hurdles include:

  • A higher cost of living (35 percent)
  • A shortfall in salary (24 percent, down two percent from 2021)
  • Market volatility (24 percent)
  • Rising interest rates (24 percent, up six percent from 2021)

Is there hope for homebuyers facing a financial crunch? In the face of demandand rising interest rates, some buyers are opting to sit on the sidelines for now. “The demand that was so strong just a few months ago has not gone away, but some buyers will likely stay on the sidelines until they see what happens with borrowing costs and prices. As they re-enter the market, they’ll find a bit more selection, but not as much as might be expected,” said Jill Oudil, Chair of The Canadian Real Estate Association (CREA).


As part of the RE/MAX Canada’s five-year housing outlook, Benjamin Tal, Deputy Chief Economist, CIBC, noted that there are several factors beyond interest rates that will impact housing affordability across Canada. “It’s the pace at which interest rates increase that poses a greater risk to the housing market and economy in the short-term. In the long-run, factors such as rising immigration levels putting further strain on demand, limited housing supply, supply chain hold-ups, and the shortage of skilled labourers will be the greatest hurdles in overcoming Canada’s housing affordability crisis.”

Regional Canadian Housing Market Overview (January-June, 2021 vs. 2022)

WESTERN CANADA


Western Canada is home to some of the most affordable homes in Canada but has some markets that have seen significant growth.


Competition from out-of-town or move-over buyers has put upward pressure on home prices year-over-year in a number of markets, including:

  • Kelowna/Central Okanagan, BC +21.1%, $778,657 in 2021 to $942,977 in 2022
  • Vancouver, BC +19.69%, from $1,097,000 in 2021 to $1,313,000 in 2022
  • Victoria, BC +14.93% from $885,117 in 2021 to $1,017,292 in 2022
  • Winnipeg, MB +12.66% from $388,291 in 2021 to $437,460 in 2022

The most significant factors impacting housing affordability in Vancouver and Victoria include the high cost of living in Canada’s second most expensive city, inflation and the housing supply shortage.


In Edmonton, residential construction delays, out-of-region buyers driving up demand, and rising interest rates contribute to affordability challenges. In Calgary, the primary factor is increasing interest rates.


When faced with an affordability crisis, Westerners turn to alternative living arrangements. Some regions across Western Canada are experiencing trends such as renting part of a primary residence to supplement monthly mortgage payments.


For those willing to move, Western Canada presents four of the most affordable markets in Canada. Red Deer, Regina, Brandon, and Edmonton top our list of the most affordable places to buy real estate in Canada.

ONTARIO

Due to rising demand and limited supply, regions outside of Toronto have experienced some of the highest year-over-year price increases in the first half of 2022. The markets include:

  • Windsor, ON +24.42%, from $542,225 in 2021 to $674,637 in 2022
  • Barrie, ON +24.40%, from $767,004 in 2021 to $954,133 in 2022
  • Sudbury, ON +23.85%, from $402,855 in 2021 to $498,939 in 2022
  • London, ON +23.26%, from $632,302 in 2021 to $779,383 in 2022
  • Hamilton, ON +22.35%, from $775,742 in 2021 to $949,099 in 2022
  • Thunder Bay, ON +17.58%, from $315,321 in 2021 to $370,761 in 2022
  • Kingston, ON +20.83%, from $574,844 in 2021 to $694,576 in 2022
  • Ottawa, ON +11.46%, from $728,205 in 2021 to $811,653 in 2022

Alternatives to traditional home ownership have also seen an uptick in some Ontario regions, as identified by RE/MAX brokers in Hamilton and Windsor. Some of the most significant factors impacting housing affordability in Ontario, highlighted by brokers in Windsor, Sudbury and Ottawa, among others, include low or diminishing housing supply, rising interest rates, cost of living and inflation, out-of-province/out-of-region buyers, and economic and employment conditions.


Economists from TD expect declining sales numbers and prices in Ontario in 2023. Sales activity in the Ontario real estate market is anticipated to endure a 31.7-per-cent crash this year and a 13.3-per-cent drop next year. On the pricing front, TD Economics projects a gain of 3.8 percent this year and a decline of 9.4 percent in 2023.

ATLANTIC CANADA

In Atlantic Canada, Halifax has experienced significant year-over-year price growth (+23.59% from $460,787 in 2021 to $569,475 in 2022). The price jump results from the move-over buyers migrating to the region for its relative affordability.


More modest price increases were experienced in St. John’s, NL (+6.23% from $313,364 in 2021 to $332,900 in 2022), Moncton, NB (+2.11 % from $331,003 in 2021 to $337,992 in 2022) and Charlottetown, PEI (+29.30% from $355,000 in 2021 to $459,000 in 2022).


St. John’s and Moncton are featured in the top 10 most affordable places to buy in Canada, with average prices under $340,000 in both markets.


Affordability in regions across Atlantic Canada is impacted by rising interest rates, low housing supply, out-of-province/out-of-region buyers, immigration, and insufficient new-home construction.


What’s In Store for the Canadian Housing Market?


Ultra-low interest rates and low supply contributed to record-high price growth throughout the pandemic. But, there are other factors to consider. As Benjamin Tal reminds us, “in the long-run, factors such as rising immigration levels putting further strain on demand, limited housing supply, supply chain hold-ups, and the shortage of skilled labourers will be the greatest hurdles in overcoming Canada’s housing affordability crisis. These must all be addressed in order to help balance supply.”


Elton Ash, Executive Vice President at RE/MAX Canada, noted that recent market moderation is overdue. “The shifts we are seeing in the Canadian housing market, with prices starting to ease across the country in tandem with softening demand and sales, are an overdue adjustment. A healthy housing market is characterized by price appreciation in the mid-to high-single digits, and many markets across Canada are re-entering that comfort zone.”


A possible recession is on the horizon, but recessions often bring strong rebounds, and real estate has traditionally been a safe bet. Looking ahead, urbanization will be a significant boon to future housing demand, as Canada’s urban population is projected to grow by 10 million by 2050.


One key to easing the affordability crisis is more homes. A new study by Canada Mortgage and Housing Corporation (CMHC) determined that the country needs approximately 3.5 million affordable housing units by the year 2030 to accomplish the federal government’s affordability objective. This is in addition to the 2.3 million new housing units already on track to be built by 2030.


Shifting interest rates, housing supply, and the state of the economy are all critical factors to monitor as we enter 2023 and see what the real estate market has in store.


Courtesy of RE/MAX Canada

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Supply levels ease with fewer new listings in August

City of Calgary, September 1, 2022 – August sales activity was comparable to the strong levels recorded last year and well above long-term trends for the month.

While sales have remained relatively strong, there continues to be a shift towards more affordable options as the year-over-year pullback in detached sales was nearly matched by gains for multi-family product types.


“While higher lending rates have slowed activity in the detached market, we are still seeing homebuyers shift to more affordable options which is keeping sales activity relatively strong,” said CREB® Chief Economist Ann-Marie Lurie. “This makes Calgary different than some of the larger cities in the country which have recorded significant pullbacks in sales.”


At the same time, new listings continue to trend down, preventing any supply gains or a substantial shift in the months of supply.


Despite year-over-year gains in new listings, the spread between new listings and sales this month narrowed compared to the past three months. This caused total inventory to trend down and prevented any significant shift in the months of supply. The months of supply in August remained at just above two months, not at tight as earlier in the year, but still below levels traditionally seen this time of year.


For the third month in a row, benchmark prices eased declining to $531,800. While the reduction reflects shifting market conditions, it is important to note that previous gains are not lost, and prices remain over 11 per cent higher than last year.


Detached


Sales continued to trend down compared to levels seen earlier in the year and August of last year. While the recent declines have not offset the strong gains reported earlier in the year, conditions are changing in this segment of the market. At the same time, we have seen listings continue to ease in for lower-priced homes. This is causing persistently tight conditions for homes priced below $500,000. Meanwhile, supply gains in the higher price range of the market are supporting more balanced conditions.


Easing demand has had an impact on prices which have trended down relative to the high levels achieved in May. However, with a benchmark price of $633,000, levels are still over 13 per cent higher than last year.


Semi-Detached


There was a significant pullback in new listings relative to a slight easing of sales for semi-detached properties this month. This caused the sales-to-new-listings ratio to push above 80 per cent for the first time since April while total inventory dropped relative to levels seen over the past several months and last year. Like the detached sector, conditions do vary depending on price ranges with the lower-price ranges continuing to see relatively tight market conditions.


Despite the adjustment this month, prices still trended down compared to May levels. However, like other property types, price levels are over 10 per cent higher than last year with a benchmark price of $569,300.

 

Row


Despite sales trending down relative to levels seen earlier in the year, the row-home market remains strong and year-to-date levels are nearly 50 per cent higher than last year. At the same time, there was a notable decline in new listings this month causing a decline in inventory levels. This prevented any significant adjustments to the months of supply which remained below two months.


While market conditions remain relatively tight, home prices have remained fairly stable over the past few months. Overall, the benchmark price for row properties in August was over 14 per cent higher than levels reported last year.


Apartment Condominium


Sales activity improved in August, contributing to year-to-date record sales of 4,576 units, which is an increase of 65 per cent compared to last year. Some of this growth was possible thanks to this segment of the market having more supply. However, the recent growth in sales relative to new listings has caused the supply gap to narrow.


Though conditions have shifted over the past month, prices remain relatively stable compared to July but are over 10 per cent higher than last year’s prices. Despite the recent gains in prices, apartment condominium sales remain below peak prices set back in 2014.


 


REGIONAL MARKET FACTS


Airdrie


Sales in Airdrie continued a downward trend that began in April. While new listings have also trended down compared to earlier in the year, there are still more new listings on the market this month than there were last year. Overall, inventory levels are starting to rise from the exceptionally low levels, causing the months of supply to shift away from the strong seller market conditions.


Despite recent shifts in supply demand balances, with less than two months of supply conditions still remain tight.  Nonetheless, prices continue to trend down from earlier in the year as purchasers become more cautious. While this has slowed the pace of growth, prices still remain over 18 per cent higher than last year’s levels.


Cochrane


In August, easing sales were met with gains in new listings, causing the sales-to-new-listings ratio to drop to 70 per cent in Cochrane. The rise in new listings compared to sales caused inventory gains, but levels are still far below what is typical for our market.


The gains in inventory did support a shift toward more balanced conditions, but with a month of supply still averaging just over two months, conditions remain tight. Benchmark prices in the centre remain relatively stable this month but is still nearly 17 per cent higher than levels reported last year.

 

Okotoks


In Okotoks, the residential benchmark price was $549,300, reflecting the third consecutive month where prices trended down. However, recent pullbacks have not offset earlier gains and prices are still 16 per cent higher than last year.

 

Home sales in Okotoks continued to trend down despite a gain in new listings supporting slightly higher inventory levels. These recent shifts in the market are supporting a shift away from the exceptionally strong sellers market conditions seen earlier in the year.  However, with less than two months of supply market conditions still remain tight.

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Data is supplied by Pillar 9™ MLS® System. Pillar 9™ is the owner of the copyright in its MLS®System. Data is deemed reliable but is not guaranteed accurate by Pillar 9™.
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