Key indicators combined with lender risk mitigation measures shore up expectations of resilience.

Interest rate hikes served to destabilize most major Canadian housing markets beginning in 2022, however a new report from RE/MAX Canada reveals that homeowners are well-positioned to ride out the coming storm in large part due to lower loan-to-value ratios on new mortgages.

The RE/MAX 2023 Canada Housing Barometer Report examined average price and new mortgage values published by CMHC-Equifax Canada in 12 major markets from British Columbia to New Brunswick, to compare loan-to-value (LTV) ratios between Q3 2012 and Q3 2022. The report found that LTV ratios had declined in 67 percent of markets (eight) over the past decade, with the greatest drops noted in London and Moncton (21 percent), Halifax (15 percent), Hamilton (14 percent), Toronto (10 percent) and Ottawa-Gatineau (nine percent). Four markets, including Calgary, Edmonton, Saskatoon, and Regina, were up over 2012 levels, a trend that is set to reverse in the years ahead as Alberta and Saskatchewan’s economic engines gain momentum and drive home-buying activity. The lowest loan-to-value ratios were found in the most expensive markets, including Vancouver (50 percent), Toronto (53 percent), and Hamilton (54 percent) while the highest loan-to-value ratios were found in Regina (88 percent) and Edmonton (83 percent). Nationally, loan-to-value ratios hovered at 57 percent.

Three factors were largely responsible for the downward pressure on loan-to-value ratios over the past decade, according to the Canada Housing Barometer Report: equity gains, the pandemic facilitating the ability to work remotely in smaller markets, and the transfer of intergenerational wealth, particularly in the latter half of the last decade and the early 2020s.

FACTS & STATS

• MARKETS WITH THE LOWEST APPRECIATION OVER THE 10 YEAR PERIOD REPORTED THE HIGHEST LOAN TO VALUE RATIOS.

• 8 OUT OF 12 MARKETS ANALYZED SAW THE LOAN-TO-VALUE RATIO DECLINE OVER THE 10 YEAR PERIOD EXAMINED.

• THREE FACTORS WERE LARGELY RESPONSIBLE FOR THE DOWNWARD PRESSURE ON LOAN-TO-VALUE RATIOS OVER THE PAST DECADE.

“Risk factors for the overall housing market are greatly reduced when homeowners own a larger proportion of their homes. With half of loan-to-value ratios within the 50- and 60-per-cent range in Canadian markets, homeowners are better able to withstand downward pressure on housing values and fewer will find themselves underwater, carrying upside down loans.”

Canadian buyers are much better qualified than a decade ago as a result, according to the RE/MAX report. A recent CMHC-Equifax Canada report confirmed a significant reduction in the number of buyers with credit scores under 660 in the past decade. Nationally, that number fell to 4.7 percent in the third quarter of 2022, down from eight percent a decade earlier. Ottawa-Gatineau, at 3.9 percent, had the lowest share of new mortgage holders with credit scores below 660, while Winnipeg had the highest at 6.4 percent. The loan-to-value ratio in all markets was down from decade-ago levels.

Mortgage delinquency rates have also fallen in most markets across the country, with the national percentage sitting at just 0.14 percent – down just over 63 percent from levels reported in 2012. The lowest rates can be found in Ontario and British Columbia, where the delinquency rates are below 0.08.

Rapid population growth was identified as a primary catalyst in driving home-buying activity over the past decade, with the quarterly population estimate rising 12.1 percent nationally from Q3 2012 to Q3 2022. Interest rates also played a starring role over the 10-year period, with the overnight rate dropping to 0.25 percent in May of 2009 and maintaining relatively low levels throughout the 2010s, climbing in 2018 and 2019 only to fall again to 0.25 percent in 2020.

Population growth is expected to continue in the years ahead, given the federal government’s commitment to increase immigration levels, but interest rates will likely remain relatively high in the foreseeable future, which should temper home-buying activity to some extent, particularly in the first half of the year.

“As we head into 2023, there are likely to be challenges, but a healthy number of homebuyers are expected to continue to enter the country’s housing markets from coast to coast,” says Ash. “The trend toward smaller markets should continue to play out in Atlantic Canada, Ontario and Western Canada —areas where in-migration from more expensive markets has occurred recently. Major centres in Alberta and Saskatchewan are expected to see strong growth in the year ahead as provincial economies continue to operate on all cylinders. However, there could be some tough times ahead for larger markets that are seeing an uptick in over-extended buyers, as well as increased financial hardships for parents who helped their kids into homeownerships by taking out Home Equity Line of Credit (HELOCs). While most chartered banks are typically willing to work with homeowners in distress situations, buyers that chose to work with private lenders are having a different experience, as evidenced in recent stories in the media.”

While overall risk to the Canadian housing market remains low, risk mitigation remains top of mind for regulators, given real estate’s impact on the Canadian economy. The sector has accounted for 10 to 17 percent of GDP in recent years. The government’s OSFI stress test is among the additional measures aimed at reinforcing the country’s real estate market going forward. While still in development, it would look at addressing three key factors: mortgage size and debt load, new debt service ratios, plus a new interest rate stress test. Given the success of the Stress Test to date (qualifying buyers at two percent above posted rates since 2018), it’s clear some constraints can prove invaluable. That said, further measures that would make it more difficult for Canadians to realize home ownership, while well-intentioned, may potentially cause more harm than good.

“At the end of the day, what’s evident by the loan-to-value ratios and by policies to discourage speculation and over-extension is that real estate is and will always be a long-term hold,” explains Alexander. The Canada Housing Barometer Report shows that most purchasers are aligned with that philosophy, as demonstrated by their tenacity to get into the market and hold steady. Savvy homebuyers and homeowners are looking to offset carrying costs by reducing their footprint—choosing smaller homes, as reported in Ottawa, or renting out basement suites in their homes, a trend noted across the board, but especially apparent in London and Saskatoon. Some buyers are purchasing duplexes and other multi-unit properties and living in one of the units. Multi-generational sales are also happening with increasing frequency across Canada, whereby two or three generations live together. This trend was strong in Toronto’s 905 region, as well as in Winnipeg and Saskatoon.

“The bottom line is that the dream and desire for home ownership is unmistakable,” says Alexander. “The mechanisms in place to underpin stability are working, and although more challenging conditions in 2023 may cause some to temporarily take pause, the longer-term outlook remains positive. Once the Bank of Canada has signalled that it is done with quantitative tightening, the market is expected to return to more normal levels of homebuying activity overall.”

REGIONAL HIGHLIGHTS

Calgary

Alberta’s strengthening economic engine continues to fuel robust home-buying activity in the province’s largest centre. Calgary is one of few markets in the country reporting an increase in home sales in 2022, with the number of properties sold climbing by just over seven percent, while prices rose close to five percent year-over-year. Inventory levels continued to dwindle, falling 21 percent from 2021 levels. Despite higher interest rates, multiple offers are occurring, with the greatest activity reported in the $450,000 to $650,000 range for single-detached homes and $240,000 to $270,000 for condominiums. The rebound in the oil and gas sector has greatly contributed to the overall health of the housing market. Over the past decade, challenges in the resource sector cast a shadow over housing performance throughout the province, which was reflected in the 10-year stats. Average price in the Calgary CMA in Q3 2022 rose just 18.2 percent to $503,450 over the past decade, up from $425,820 during the same period in 2012. The loan-to-value ratio edged up to 74 percent in 2022, up three percent over the 71 percent reported in 2012. The market’s trajectory changed during the pandemic, coming alive as the province’s economic destiny changed course. In-migration has gained momentum in lockstep in recent years, as evidenced by the uptick in population. According to Statistics Canada, Alberta experienced a 2.7 percent increase between the first and fourth quarter, welcoming more than 118,929 people to the province. Buyers from British Columbia and Ontario are arriving almost daily, attracted to the city’s affordable housing stock and well-paying jobs. With Alberta expected to lead the country in terms of economic growth in the year ahead, home-buying activity in Calgary should remain strong for the foreseeable future.

Courtesy RE/MAX Canada

The Calgary Real Estate Board (CREB®) has released its 2023 Forecast Calgary and Region Yearly Outlook Report. The report, which is prepared by CREB® Chief Economist Ann-Marie Lurie, provides a detailed analysis of the economic and housing market trends in Calgary and surrounding areas for the upcoming year.

According to the report, elevated lending rates are expected to weigh on sales in 2023, bringing levels down from the record high in 2022. However, with forecasted sales of 25,921 in 2023, levels are still expected to be higher than the activity reported before the pandemic.

“Higher commodity prices, recent job growth, record high migration and relative affordability are expected to help offset some of the impacts higher lending rates are having on housing demand. At the same time, we are entering the year with low supply levels which are expected to prevent significant price declines in our market,” said Lurie.

Supply levels declined to the lowest levels seen in over a decade as gains in higher price properties did not offset the supply declines occurring in lower-priced homes. This has left our market in a situation where lower-priced properties still face sellers’ market conditions while higher-priced homes are seeing more balanced to buyers' market conditions.

The shift between supply and sales by price ranges is expected to create divergent trends in prices depending on property type and price range. Overall, price declines in the upper end of the market are expected to offset gains reported in the lower ranges, causing an annual decline of less than one percent.

“With much of the pandemic behind us, 2023 reflects more of an adjustment into more typical conditions and a pause on price gains following 12 percent growth in 2022. While other markets in the country are forecasted to see more significant price and sale declines in 2023, Calgary did not face the same gains as those markets, as prices only recovered from the 2014 highs in 2021,” added Lurie.

Click here for the full CREB® 2023 Forecast Calgary and Region Yearly Outlook Report.

DECEMBER HOUSING MARKET UPDATE

2022 saw record-high sales and double-digit price growth

December sales eased, however, slowing sales over the second half of 2022 were not enough to offset earlier gains as sales reached a record high of 29,672 units in 2022.

Over the past several months, the pullback in sales was also met with a significant pullback in new listings, causing further declines in inventory levels. As of December, there were 2,214 units available in Inventory, making it the lowest level of inventory reported for December in over a decade.

“Housing market conditions have changed significantly throughout the year, as sales activity slowed following steep rate gains throughout the later part of the year,” said CREB® Chief Economist Ann-Marie Lurie. “However, Calgary continues to report activity that is better than levels seen before the pandemic and higher than long-term trends for the city. At the same time, we have faced persistently low inventory levels, which have prevented a more significant adjustment in home prices this year.”

Benchmark prices eased to $518,800 in December, down nearly five percent from the peak price in May but almost eight percent higher than last December. While prices have trended down annually, they remain over 12 percent higher than last year’s levels.

The housing market in 2022 generally outperformed expectations both in terms of sales and price growth.

For more information on the 2023 housing market, join us at our Forecast Conference on Jan. 24.

Detached

The detached market has felt most of the impact of higher rates as a pullback in sales in the year’s second half contributed to the year-to-date decline of over seven percent. While there have been some gains in new listings over the last quarter, much of the growth has occurred in the market's upper-end, supporting more balanced conditions. However, supply levels for lower-priced homes remain low relative to the sales activity, causing that market segment to continue favouring the seller. Overall, the detached market has seen activity shift away from the strong sellers’ conditions reported earlier in the year.

Prices in the detached market have trended down in the second half of the year, as the December benchmark price of $619,600 has eased by just over four percent from the June high. The recent adjustments have not erased all the earlier gains, as benchmark prices reported an annual gain of over 14 percent. Annual price growth has ranged from a high of 19 percent in the South East, North and North East districts to a low of nearly eight percent in the City Centre.

Semi-Detached

Further declines in sales this month contributed to the year-to-date sales decline of nearly three percent. While sales have eased relative to last year’s record levels, activity is still far stronger than long-term trends and levels reported prior to the pandemic. At the same time, new listings have been trending down for this property type, keeping the inventory and months of supply relatively low compared to historical levels.

While conditions are not as tight as earlier in the year, there has been some downward pressure on prices. The monthly benchmark price peaked in May of this year and has eased by nearly four percent since then. However, on an annual basis, benchmark prices remain nearly 12 percent higher than in 2021. The North district reported a higher annual price gain of over 18 percent.

Row

Significant reductions in new listings weighed on sales over the last few months of the year. Despite recent shifts, annual sales in the city reached a new record high, with 5,153 sales in 2022. Not only was it a record year, but sales were nearly double long-term trends. Higher lending rates are driving more purchasers toward the more affordable row options. While new listings were still higher than last year’s levels on an annual basis, the recent pullback combined with relatively strong sales has caused inventory levels to fall.

As of December, inventory levels were at the lowest since 2013. This has ensured that this segment of the market continues to favour the seller. While prices have eased by just over one percent from the June peak, overall year-to-date prices are nearly 15 percent higher than last year.

Apartment Condominium

Unlike other property types, apartment condominium sales continue to rise above the previous year’s levels throughout the year. This caused year-to-date sales to rise by 50 percent to 6,221 units, a new record high. Demand for affordable product, along with renewed investor interest thanks to rental rate growth, helped support sales growth. Gains in this sector were also possible thanks to the growth in annual new listings. However, like other sectors, the increase in new listings was not enough to outweigh the sales growth, and inventory levels trended down to levels not seen since 2013.

After several years of being oversupplied, the shift to tighter conditions supported annual price gains of nearly nine percent. While price gains occurred across every district, city-wide prices remain well below the previous highs reached back in 2014.

REGIONAL MARKET FACTS

Airdrie

Sales in Airdrie have declined since April, mainly because of the significant drop in detached home sales. December was no exception, as sales slowed compared to last year’s levels. Despite recent declines, year-to-date total residential sales increased by seven percent and have set a new record-high of 2,469 units. Regional population growth combined with the relative affordability of homes in Airdrie compared to Calgary are some factors supporting the record sales in 2022.

While new listings trended down in December, 2022 saw a general rise in new listings in the market. This has helped support some recent year-over-year gains in inventory levels over last year’s exceptionally low levels. Recent adjustments in both sales and inventory levels have caused the months of supply to trend up from the strong seller’s market conditions reported earlier in the year. However, conditions remain relatively tight with less than two months of supply.

The December benchmark price in Airdrie has eased by over six percent from the April peak. However, this is still 12 percent higher than last year's level. Overall, the annual benchmark price in 2002 was $489,558, nearly 20 percent higher than last year's level.

Cochrane

December sales eased, contributing to the year-to-date decline of eight percent. The annual pullback in sales was met with new listings comparable to last year. This has helped support some inventory growth in the market, but levels are still well below what is typically available in the resale market. While inventory levels remain low, the recent pullback in sales has resulted in more balanced conditions taking some of the pressure of price growth seen over the last four months of the year.

On an annual basis, the benchmark price reached $504,067 in the town, nearly 17 percent higher than last year’s prices. Price gains were the strongest in both the detached and semi-detached sectors, where prices rose by 19 percent, establishing 2022 as the new record-high price.

Okotoks

Sales activity eased in December, but the year-over-year pullback over the past few months has not offset the gains reported earlier in the year, as year-to-date sales activity rose by nearly two percent. This growth in sales was met with additional new listings in the market, helping support higher inventory levels over last year’s record lows. Even with some inventory growth, conditions continue to remain tight with under two months of supply, placing limits on the price adjustments.

While prices have trended down from the high seen in May, on an annual basis, benchmark price growth in the town was nearly 16 percent. Price growth was strongest in the detached sector, which for the first time, pushed above $600,000 on an annual basis.

Click here to view the full City of Calgary monthly stats package.