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BMO - Housing - What is next for Canada

Paul Young

Experience Senior Financial Planning, Analysis and Reporting SME seeking P/T or F/T job.

发布日期: 2024年9月7日

Several Canadian cities released August existing home sales results this week and, to little surprise, buyers have greeted the Bank of Canada’s initial rate cuts with a collective shrug. Sales remain subdued, inventory continues to rise, and prices are mostly flat to lower. At best, lower rates have provided limited stability without sparking a recovery.

Sales in Canada’s priciest region, Greater Vancouver, plunged 17% from a year ago and remain 26% below the decade norm for the month. Active listings shot up 37% y/y and are 21% above normal. Accordingly, benchmark prices slipped in the month and are down 0.9% y/y. The super-expensive detached homes market favours buyers—if only they could afford them. The only reason prices haven’t fallen faster is that sellers aren’t desperate and believe lower rates will eventually harden demand. In the nation’s second-priciest region, Greater Toronto, sales rose modestly in August, but remain 5.3% below year-ago levels after falling in five of the prior six months. Active listings jumped 46% y/y, sending benchmark prices down 4.6%, though they have steadied recently. Condo prices are even weaker due to a glut of small investor-owned units that few people wish to squeeze into. Driving west along the 401 in search of more affordable options, sales remain soft in the London/St. Thomas region (-6.0% y/y) while active listings have shot up 19%, creating an ample 5-month supply and sending median prices down 3.2% y/y. Travelling further west, sales in Windsor remain well below normal but have firmed in the past year, bringing growth in median prices to 1.9% y/y.

Outside B.C. and Ontario, the less expensive regions of the country have cooled a bit, possibly due to a drop in international students. Calgary’s sales are down 20% from last year’s record high, but remain 17% above long-run norms. Sellers, though still calling the shots given the tight 2.1 month supply, have ceded some pricing power as inventories jumped 37% in the past year. Benchmark price gains have moderated to 6.3% y/y from double-digit gains earlier this year. Edmonton’s robust market has also piped down, with sales off 12% in the month though still up 16% in the past year, and benchmark prices are up 7.6% y/y.

The affordable pockets of the country should benefit more from further rate reductions, while the still-expensive regions are unlikely to make much headway until the central bank has chopped rates further (we see another 125 bps by June 2025). With the 5-year Canada rate at a 16-month low of 2.8%, a sub-4% fixed mortgage rate could be in the offing; but, barring an even larger drop, poor affordability will likely remain an issue in B.C. and Ontario. Given ample supply and soft prices, buyers are in no rush to jump into the market, while sellers (and notably investors) are likely to take advantage of any upturn in prices to add to supply. The recovery is coming, but it won’t be V-shaped. That’s good news for buyers and borrowers, as the central bank likely won’t need to worry about a resurgence in shelter costs fanning inflation.

Source - 满地可银行

Housing affordability and availability have been issues for years. Jagmeet Singh came out the other day and said that if he was elected that he will deal with housing and rental costs.

There many challenges with driving down rental costs and housing costs:

a) Availability of Land

b) Cost of capital (Mortgage Rates and Debt Financing Rates)

c) Building Codes

d) Regulatory burden (approval of permits, environmental assessments, infrastructure, and overall taxation)

e) Adopting of construction technology and building methods (3D printing, Modular, Mass Timber, Green Building Codes, closing skills gap with the trades.

Let me expand on the above issues that Mr. Singh all but ignores as he has always been about political grandstanding

a) Land availability comes back zoning areas like farm land or converting empty space/lots to residential or crown land (Federal and Provincial) or lack of urban planning strategy (Rural, Northern, Remote, and Urban Planning)

b) Infrastructure is required to support both non-residential and residential construction including water, roads, bridges, public safety, and other areas of infrastructure.

c) Many cities like City of Kelowna have been leveraging chatbots as part of streamlining the building permit process

d) Mitigating the impact of climate change through better emergency management planning, reporting and spending (operational and capital spending)

e) Complete gap analysis of revenue and expenses by the local government as part of managing their fiscal management cycle including moving more services online.

My blog on urban planning:

https://www.dhirubhai.net/pulse/addressing-issues-urban-affairs-planning-paul-young/

Here is my blog on housing for July 2024 -

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