Autumn chill does not cool hot market

General Robyn McLean 22 Dec

Market update from our friends at First National.

Dec 21, 2020
First National Financial LP

The Canadian home market remains robust as pent-up demand from the spring continued to unwind into the fall.

The November numbers from the Canadian Real Estate Association show sales hit another new monthly record, up 32.1% compared to a year ago.  Month-over-month, sales slipped a modest 1.6% from October.

The national average price for a home has now topped $603,000, a 13.8% increase from last November.  Of course, the two busiest and most expensive markets in the country – Toronto and Vancouver – continue to skew that figure.  When they are taken out of the calculation the national average price drops to about $481,000.

A key component in the Toronto and Vancouver markets is showing a marked slowdown.  Downtown condos have seen a sharp decrease in price acceleration.  While single, detached homes and other ground-oriented housing experienced a 14.1% increase, condos rose 4.9%.

CREA expects to see Canada’s national average home price rise by another 9% in 2021, to more than $620,000.

The realtors say tight supply is driving prices.  New listings were down by 1.6% in November holding the sales-to-new listings ratio at 74.8%.  That is one of the highest levels ever recorded for the metric.  The long-term average sales-to-new listings ratio is 54.2%.

There were just 2.4 months of inventory on a national basis at the end of November 2020 – the lowest reading on record for this measure.

Housing Competition Strongly Favours Sellers in 25 Major Housing Markets Across Canada

General Robyn McLean 17 Dec

An interesting read from our friends at Zoocasa.


Housing market activity remained at historically high levels across Canada, based on new data from the Canadian Real Estate Association (CREA). Home sales grew 32% year-over-year, and home prices rose 14% annually to $603,344. On the whole, the 15% growth  in new listings couldn’t quite keep up with blockbuster demand, and  some regional markets like Calgary (-8%) and Edmonton (-2%) even experienced annual new listing declines.

According to CREA Senior Economist, Sean Cathcart, 2020 is on track to be a historic year for Canadian home sales, despite “historically low supply.” Looking to 2021, Cathcart notes that “…vaccination is a light at the end of the tunnel. Immigration and population growth will ramp back up, mortgage rates are expected to continue to remain very low, and a place to call home is more important than ever. On top of that, the COVID-related shake-up to so much of daily life will likely continue to result in more people choosing to pull up stakes and move around.”

To understand how buyers and sellers in Canada’s major housing markets fared this fall, Zoocasa took a closer look at housing competition across 25 Canadian housing markets by reviewing sales and new listings data for each region for the month of November. With this data, Zoocasa determined the sales-to-new-listings ratio (SNLR) to illustrate demand and supply dynamics in each market, and to identify the degree of competition local buyers faced in relation to supply. SNLR is calculated by dividing sales by new listings for a specified time period, and:

  • An SNLR under 40% depicts a buyer’s market: where new listings outstrip sales, and buyers have greater choice
  • An SNLR between 40% and 60% depicts a balanced market: where demand and supply are in balance
  • An SNLR over 60% depicts a seller’s market: where sellers may have the upper hand as demand outpaces supply

Our findings show that given historically low supply in relation to demand, the Canadian housing market as a whole overwhelmingly favoured sellers, with an SNLR of 90%. All 25 markets included in our analysis exhibited competition conditions that strongly favoured sellers over buyers. Comparatively, in 2019, 19 of these 25 markets were seller’s markets, with the remainder exhibiting balanced market conditions, and the national SNLR was 79%

8 Canadian Housing Markets Exhibited an SNLR over 100% in November

Of the 25 regions included in our analysis, fiery hot demand coupled with limited inventory resulted in very competitive housing conditions for home buyers in 8 regions, where the SNLR was over 100%. That meant that demand was much higher than new listings and buyers began to purchase properties that were listed prior to November.

Canada’s most competitive housing market for buyers was Sudbury, with an SNLR of 117%, where November sales grew 26% year-over-year while listings dropped by 10%.

Saint John and Gatineau followed next, each with an SNLR of 110%. Home sales grew 30% in Saint John, while new listings increased 12%. That being said, the average home price in both regions remained under $350,000 – with Saint John at $209,702 (up 9% from 2019) and Gatineau at $345,099 (up 21% from 2019) – making them one of the most affordable housing markets in Canada based on average price.

The full list of Canadian regions with an SNLR over 100% were: Sudbury (SNLR of 117%), Saint John (SNLR of 110%), Gatineau (SNLR of 110%), London and St. Thomas (SNLR of 109%), Halifax-Dartmouth (SNLR of 108%) Thunder Bay (SNLR of 106%), Niagara Region (SNLR of 106%), and Victoria (SNLR of 101%).

Greater Toronto Among Only 3 Markets That Were Less Competitive for Buyers Compared to 2019

Some of Canada’s largest housing markets, including Greater Toronto, were among those that were less competitive for buyers in November 2020, compared to last year. Although Greater Toronto, Greater Vancouver, and Hamilton-Burlington exhibited strong seller’s market conditions, the SNLR declined on a y-o-y basis.

In Greater Toronto, the SNLR was 76% (down from 82% in 2019), with sales growing 24% and new listings rising 34%. The average sold home price in the region was $955,615.

Similarly, in Greater Vancouver, the SNLR dropped from 83% in 2019 to 75% this November, and in Hamilton-Burlington it declined slightly from 94% to 93%. Home prices rose in both regions on an annual basis – rising 8% in Greater Vancouver to $1,084,001 and 21% in Hamilton-Burlington to $724,730.

Check out the infographic below to see which Canadian housing markets were most and least competitive in November, and how they compared to the same time period in 2019.

Sources and Contact

The sales-to-new-listings ratio is calculated as the number of sales divided by new listings.

Home prices, sales and new listings were sourced from the Canadian Real Estate Association.

Canadian Home Sales Hit a New Record For The Month of November

General Robyn McLean 15 Dec

November stats and insight from Dr. Sherry Cooper, Chief Economist at Dominion Lending.

Today’s release of November housing data by the Canadian Real Estate Association (CREA) shows national home sales continued to run at historically strong levels last month. Competition among buyers remains intense in the detached-home market and townhouses. Still, condo apartment sales-relative-to-new-listings have slowed as new listings surged, especially in the City of Toronto.

Thanks to the lack of tourism and the reduced influx of immigrants, rents in Toronto have declined, changing the economics of condo investing. Many Airbnb properties in the short-term rental pool are now available for long-term rental, and the supply of newly built condos continues to rise. Lower rents have created a negative cash flow situation for some investors who are now anxious to sell.  As the supply of condo listings rises, demand has also slowed as many buyers look for less densified space. Combine that with the dearth of tourists and new immigrants, and it’s no wonder that the condo sector–especially smaller condos, is the weakest in the housing market.

The Canadian federal government has committed to increased immigration targets for the next three years to make up for the shortfall in 2020. this was featured in a Government of Canada news release stating, “The pandemic has highlighted the contribution of immigrants to the well-being of our communities and across all sectors of the economy. Our health-care system relies on immigrants to keep Canadians safe and healthy. Other industries, such as information technology companies and our farmers and producers, also rely on the talent of newcomers to maintain supply chains, expand their businesses and, in turn, create more jobs for Canadians”. Canada aims to welcome 401,000 new immigrants in 2021, 411,000 in 2022 and 421,000 in 2023.

The newly available vaccine will also encourage a return of short-term renters, but probably not until 2022 at the earliest.

Home Sales

Home sales edged down moderately for extremely high levels in both October and November. Notwithstanding this, monthly activity is still running well above historical levels (see chart below).Actual (not seasonally adjusted) sales activity posted a 32.1% y-o-y gain in November – the same as in October. It was a new record for that month by a margin of well over 11,000 transactions. For the fifth straight month, year-over-year sales activity was up in almost all Canadian housing markets compared to the same month in 2019. Among the few markets that were down on a year-over-year basis, it is likely the handful from Ontario reflect a supply issue rather than a demand issue.

This year, some 511,449 homes have traded hands over Canadian MLS® Systems, up 10.5% from the first 11 months of 2019. It was the second-highest January to November sales figure on record, trailing 2016 by only 0.3% at this point.

Shaun Cathcart, CREA’s Senior Economist, said, “It will be a photo finish, but it’s looking like 2020 will be a record year for home sales in Canada despite historically low supply. We’re almost in 2021, and market conditions nationally are the tightest they have ever been, and sales activity continues to set records. Much like this virus, I don’t see it all turning into a pumpkin on New Year’s Eve, but at least vaccination is a light at the end of the tunnel. Immigration and population growth will ramp back up, mortgage rates are expected to remain very low, and a place to call home is more important than ever. On top of that, the COVID-related shake-up to so much of daily life will likely continue to result in more people choosing to pull up stakes and move around. If anything, our forecast for another annual sales record in 2021 may be on the low side.”

New Listings

The number of newly listed homes declined by 1.6% in November, led by fewer new listings in the Greater Toronto Area (GTA) and Ottawa.With sales and new supply down by the same percentages in November, the national sales-to-new listings ratio was unchanged at 74.8% – still among the highest levels on record for the measure. The long-term average for the national sales-to-new listings ratio is 54.2%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 30% of all local markets were in balanced market territory in November, measured as being within one standard deviation of their long-term average. The other 70% of markets were above long-term norms, in many cases well above.

There were just 2.4 months of inventory on a national basis at the end of November 2020 – the lowest reading on record for this measure. At the local market level, some 21 Ontario markets were under one month of inventory at the end of November.Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.2% m-o-m in November 2020. Of the 40 markets now tracked by the index, all but one were up between October and November.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 11.6% on a y-o-y basis in November – the biggest gain since July 2017 (see chart below).

The table below shows the changing preferences of homebuyers for less densely populated areas outside the city core. With more people working from home, shorter commuting times don’t seem to be as important as before.

The largest y-o-y gains – between 25- 30% – were recorded in Quinte & District, Tillsonburg District, Woodstock-Ingersoll, and many Ontario cottage country areas.

Y-o-y price increases in the 20-25% range were seen in Barrie, Bancroft and Area, Brantford, Huron Perth, London & St. Thomas, North Bay, Simcoe & District, Southern Georgian Bay and Ottawa.

Y-o-y price gains in the range of 15-20% were posted in Hamilton, Niagara, Guelph, Cambridge, Grey-Bruce Owen Sound, Kitchener-Waterloo, Northumberland Hills, Peterborough and the Kawarthas, Montreal and Greater Moncton.

Prices were up in the 10-15% range in the GTA, Oakville-Milton and Mississauga.

Meanwhile, y-o-y price gains were in the 5-10% range in Greater Vancouver, the Fraser Valley, Chilliwack, Victoria and elsewhere on Vancouver Island, the Okanagan Valley, Regina, Saskatoon, Winnipeg, Quebec City and St. John’s NL. Price gains also climbed to around 1-2% y-o-y in Calgary and Edmonton.

The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in sales activity mix from one month to the next.

The actual (not seasonally adjusted) national average home price was just over $603,000 in November 2020, up 13.8% from the same month last year.

Bottom Line

Housing strength is largely attributable to record-low mortgage rates and strong demand for more spacious accommodation by households that have maintained their income level during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, non-essential retail and tourism-related sectors. These are the folks that can least afford it and typically are not homeowners. The good news is that the housing market is contributing to the recovery in economic activity.  

The level of sales is firm and holding up better than most pundits had expected. Despite the historic setback to the market earlier this year caused by the pandemic, CREA projects national sales will hit a record of 544,413 units in 2020, representing an 11.1% increase from 2019, and rise again next year by 7.2% to around 584,000 units.

Bank of Canada Holds Rates at Effective Lower Bound

General Robyn McLean 9 Dec

Bank of Canada last rate annoucement of 2020…what it means to Canadians from Dr. Sherry Cooper, Chief Economist at Dominion Lending.

Bank of Canada Confirms Commitment To Low Interest Rates

Despite the good news on the vaccine front since the Governing Council’s last meeting in late October, the Bank of Canada reasserted its commitment to provide extraordinary monetary policy support for many months to come. The statement released today reiterated that the Bank will hold the policy interest rate at its effective lower bound of 0.25% “until economic slack is absorbed so that the 2% inflation target is sustainably achieved.”  Although inflation in October picked up, it was mainly because of higher prices for fresh fruits and vegetables. The Bank’s policy statement said that measures of core inflation are all below 2%, and “considerable economic slack is expected to continue to weigh on inflation for some time.”  The economy will continue to require this stimulus until 2023–as stated in the most recent (October) Monetary Policy Report (MPR).

The central bank will reassess the outlook when it meets again on January 20 when it releases the next full update of its outlook for the economy and inflation, including risks to the projection, in the January MPR.

Despite the good news regarding the vaccine, other recent developments weigh heavily on the economy. Canada has been hard hit by the second wave in Covid cases (see chart below). The daily number of cases have averaged just over 6,000 in the past week. According to the Public Health Agency of Canada, Covid-19 cases are on pace to exceed 20,000 a day at the current rate of spread. Provinces all over the country have imposed aggressive new restrictions to slow the spread of the virus.

New lockdown measures are having a crippling effect on non-essential retailers and restaurants during the all-important holiday season. The government announced aggressive fiscal policy measures last week to cushion the blow on businesses and households. Indeed, among all the G7 countries, Canada’s fiscal response has been the most aggressive.

As well, according to Bloomberg News, Canada has reserved more vaccine doses per person than anywhere, as PM Trudeau has accelerated plans to start giving shots.  “The first Canadians will be vaccinated next week if we have approval from Health Canada this week,” Trudeau told reporters in Ottawa. “This will move us forward on our whole timeline of vaccine roll out and is a positive development in getting Canadians protected as soon as possible.”

The Canadian dollar has also risen to a two-year high of over 78 cents US, which the Bank says is in large measure a reflection of broadly based US dollar weakness.

Quantitative Easing Continues

Another potential drag on the Canadian economy is the rise in market rates of interest triggered by the welcome news of a successful vaccine. The Bank of Canada is responding by purchasing at least $4 billion a week in longer-term Government of Canada bonds. For example, the GoC 5-year yield has risen from a low of 31 basis points in the past six months to a current level of just under 50 basis points. No doubt, quantitative easing has dampened the upward trend and will continue to do so.

If the Bank decides that additional monetary support is needed in January, it is more likely to come via a boost to GoC bond purchases than an adjustment in the overnight rate.

In his testimony before the House of Commons finance committee on Nov. 26, Governor Tiff Macklem acknowledged market distortions could occur once the bank’s share of government bond holdings grows beyond 50%. As shown in the chart below, the Bank currently holds about 34% of the market, and if buying continues apace,  CIBC economists estimate the Bank would own 48% by the end of 2021.

Bottom Line: Interest rates will remain low for the foreseeable future. The pandemic will largely determine the growth of the economy and the government’s response. Experts suggest that the second wave will last through the winter and that a widely dispersed vaccine will not be available until the second half of 2021.

Signs of a strong market amid economic confusion

General Robyn McLean 7 Dec

Where are we headed? Some interesting insight from our friends at First National.

Dec 7, 2020
First National Financial LP

Fast moving, ever changing and, often, contradictory information is making it hard to predict what’s coming for the economy.  But, a couple of recent reports may be offering some hints about where residential real estate and mortgages are heading.

A recent survey by the brokerage Properly seems to reinforce current notions that people – particularly millennials – are looking for more space both inside and outside their homes, as a result of being cooped-up by the COVID-19 pandemic and the desire to maintain the option to work from home.

According to the Properly survey more than half of millennials are unhappy with their current homes.  Their preferences have shifted towards:

– detached housing, 45%             – ample square footage, 44%

– better home offices, 28%           – backyard space, 57%

– proximity to green space, 34%

Of the millennials who expressed a desire for a new residence, about 8% said that they have firm plans to buy next year.  That is double the 4% indicated by the rest of the population in the survey.

This report dovetails with a recent survey of real estate brokers by Re/Max.  It suggests move-up and move-over buyers are seen as the big sales drivers over the next year.  Forty-five percent of brokers expect buyers “moving up” to bigger homes and properties will be a key market force.  Thirty-five believe buyers “moving over” from other cities will drive the market.

Both reports suggest that price pressure, resulting from low inventories,  will continue to be the biggest consideration in buying or moving (over or up).  But ongoing low interest rates will continue to be a mitigating factor.

Canada’s Fiscal Response To COVID is the Largest in the Industrialized World

General Robyn McLean 1 Dec

The latest from Dr. Sherry Cooper, Chief Economist at Dominion Lending.

Federal Fiscal Update–Finance Minister Freeland’s Debut

Justin Trudeau’s government, which has delivered the biggest COVID-19 fiscal response in the industrialized world, announced plans for another dose of stimulus and vowed to continue priming the pump as long as needed.

Finance Minister Chrystia Freeland unveiled $51.7 billion of new spending over two years in a mini-budget Monday, led by an enhanced wages subsidy for business. Freeland also pledged, without detailing, another $70 billion to $100 billion of additional stimulus over three years to spur the recovery.

But the finance minister clearly heeded calls for fiscal prudence. She put off any major structural spending announcements, promised any additional stimulus will be temporary and introduced new taxes on digital giants including Netflix, Amazon, and Airbnb, to help pay for it all.

“Our government will make carefully judged, targeted and meaningful investments to create jobs and boost growth,” Freeland said. It will provide “the fiscal support the Canadian economy needs to operate at its full capacity and to stop COVID-19 from doing long-term damage to our economic potential.”

Freeland revised higher the nation’s projected deficit this year to $381.6 billion, or 17.5% of GDP. That’s up from a deficit of 1.7% of GDP last year. According to estimates from the International Monetary Fund, no major economy will show a bigger fiscal swing in 2020.

The budgetary red ink is projected at $121 billion next year, before any additional stimulus. In total, spending linked to the government’s COVID response accounted for C$75 billion of this year’s deficit, and C$51 billion next year.Based on Monday’s projections, the deficit is seen gradually narrowing to about $51 billion in two years and $25 billion by 2025.

The planned stimulus over the next three years will total no more than 4% of GDP, which the document said is in line with the Bank of Canada’s estimate of the level of slack in the economy. Freeland said, “fiscal guardrails” tied to the labour market would help determine the extent of the additional stimulus.

Among the measures announced today, Freeland boosted the government’s wage subsidy program (Canada Emergency Wage Subsidy, CEWS) to cover as much as 75% of payroll costs for businesses and extended its commercial rent subsidy and lockdown support top-ups until March. Both were slated to run out on December 20. The current cap on CEWS was 65%.

The federal government plans to create a new funding program to help restaurants, tourism companies and other businesses in industries hardest hit by COVID-19.

The Highly Affected Sectors Credit Availability Program (HASCAP), which was announced in the government’s fiscal update Monday, will offer eligible businesses loans of up to $1 million, with a 10-year term.

The money will be lent by banks or other financial institutions, but guaranteed by the federal government.

“We know that businesses in tourism, hospitality, travel, arts and culture have been particularly hard-hit. So we’re creating a new stream of support for those businesses that need it most — a credit availability program with 100-per-cent government-backed loan support and favourable terms for businesses that have lost revenue as people stay home to fight the spread of the virus,” Finance Minister Chrystia Freeland said in her prepared speech to the House of Commons.

Establishing a national childcare plan is a key long-term goal, with Freeland vowing a detailed plan in next year’s budget. In her forward to the fiscal update, she described the daycare strategy as “a feminist plan” that also “makes sound business sense.”As a start, the Liberals are proposing in their fiscal update to spend $420 million in grants and bursaries to help provinces and territories train and retain qualified early childhood educators.

The Liberals are also proposing to spend $20 million over five years to build a child-care secretariat to guide federal policy work, plus $15 million in ongoing spending for a similar Indigenous-focused body.

The money is designed to lay the foundation for what will likely be a big-money promise in the coming budget.

Current federal spending on child care expires near the end of the decade, but the Liberals are proposing now to keep the money flowing, starting with $870 million a year in 2028.

There is also money for action on climate change. The government allocated C$2.6 billion in grants for homeowners to improve efficiency and $150 million over three years for electric vehicle charging stations.

The government also detailed some help for the hard-hit tourism sector, including funding for airports. But with Transport Minister Marc Garneau’s negotiations with airlines underway, there is no specific money for carriers including Air Canada and WestJet Airlines Ltd.

Bottom Line

There will continue to be great concern about the largest budget deficits since World War II. Does Canada really need the proportionately largest COVID fiscal response in the industrialized world?  The outlook is somewhat less dire than when the government released a fiscal snapshot in July. The unemployment rate at 8.9% is down materially from May’s 13.7% high but well above February’s 5.6%. The economy recovered ground through the third quarter, although the second wave of pandemic and ensuing restrictions undoubtedly will topple economic activity this quarter.

There is little worry that the government can sustain a massive deficit this year. It can, given low debt levels entering the crisis and historically low interest rates. But now that it has no fiscal guardrails, there’s a risk debt-to-GDP will continue to rise in the medium term if it continues to spend ambitiously.

The government is adding a new revenue source by taxing large digital companies. Still, in time, with this level of spending, they will be tempted to raise taxes on domestic sources, for example, hikes in the GST and higher capital gains taxes. This would be misguided, given the fragility of the recovery.

There is a greater risk that the government is overdoing the stimulus with vaccines on the horizon than undergoing it. Canada’s programs have been generous and household-focused compared to our G7 peers. The government must be strategic in assuring that new program spending is focused on future growth, beyond the pandemic, so that our debt-to-GDP will resume its downward trend. The risk is that once created; it is difficult to rein in spending.