Canadian Housing and Condo Market: 2017 Mid-Year Update
The Canadian housing market has been the focus of much media attention in the first half of 2017. This includes concerns over a housing bubble in Vancouver and Toronto, debates over whether or not the Bank of Canada will raise rates, and the implementation of a foreign buyer tax in Toronto, to name only a few.
Goldman Sachs even predicted that the Canadian housing market has a 30% chance of a bust within 2-years; not overly reassuring to market watchers. Yes, it's been a busy year for Canadian real estate investors and professionals.
Overall, the Canadian economy is seeing some growth, with the International Monetary Fund (IMF) forecasting modest 2.5% GDP growth for 2017. Bank of Canada Governor Stephen Poloz recently commented on CNBC that he believed the growth of the Canadian economy would remain moderate through 2017. The keyword here is growth.
But we do face some headwinds, not only a looming correction of home prices in Vancouver and Toronto, but we have low oil prices and an upcoming NAFTA renegotiation with our friends down south to focus our attention on.
The Canadian Real Estate Association (CREA) sees an overall national decline in home sales by 1.5% in 2017. All of the discussion around a housing correction is centered on two markets; Vancouver and Toronto. If you exclude these two markets, the average home price in Canada drops from about $400,000 to $270,000.
Our prediction for the remaining quarters of 2017 is that we will witness a flattening of real estate prices across the country. Canada isn't as susceptible to traditional bubbles as our neighbors down south, due to our tighter banking regulations. That said, homeowners in the GTA and Vancouver area who may have to liquidate in the short to medium-term will likely face some financial hardships.
To help navigate the Canadian housing and condo markets, Condo.Capital has brought in a number of experts across Canada to give updates and analysis on their respective real estate markets. Let's get started!
Jordan Scott - Vancouver - Realtor at Macdonald Realty Downtown
This has been strong first half of the year in Downtown Vancouver. We haven't quite hit the same numbers as last year due to a lack of supply, but May was the strongest month since mid-last year prior to the 15% PTT being implemented (and was still above the 10 year average).
Condos downtown have continued to go up in price with the benchmark price being 14.1% higher than it was a year ago (now at $664,100) as multiple buyers are competing for fewer properties, driving prices up. In the past month, though, the average sale price in Downtown was $1.1M with an average of just 14.8 days on the market while 68% of properties have sold at or above the asking price.
Buyers right now are scrambling to get into the market because there's a very real fear that if they don't get into the market now then in a year or two they'll have to move further away from the city.
As we head into the summer months we expect to see a slight slowdown as we always do, but we're not seeing any indications that there will be a significant market shift in the near future and we expect prices to continue to increase.
Denis Borisenko - Toronto - Partner, Head of Capital Markets at Tranio
Three key housing policy changes have been made to Toronto’s residential market regulations: tax on foreign buyers (15%); vacant homes tax (rate under discussion) and rent increase cap (2.5% p.a.). The latter is most the controversial.
Not only may the reasons for introducing it include a political context (as voters obviously prefer lower rents), but hard-limit regulation can have a two-pronged effect: limiting rate increases ensures affordability of rental housing, but it may lead to a decrease in supply as developers are less willing to build rental homes. As such, the negatives associated with the implementation of the measure may outweigh the positives. However, there are a number of places throughout the world (e.g. Berlin) where they have managed to successfully implement such a policy.
Regulation to control abnormal and excessive price increases (10-20% annual increases over the course of several years is abnormal on a developed markets, where disposable incomes do not grow at such a pace) has benefits for the market, but it is important not over do it with too much regulation. Furthermore, while, in theory, limitations on rental rate increases may sometimes lead to the opposite effect on rental rates, in particular cases such as that of Toronto, it is unlikely to lead to abrupt and long-term rental price increases.
Peter Sagos - Ottawa - Founder of Condo613
Canada is celebrating its 150 years as a wonderful democratic country, and the Ottawa condo market is climbing to new heights in sales cycle history. New buyers are driving both the units sold ( an increase of 19.9 per cent), and average sales prices have increased a modest but very healthy 2.3% from May 2016.
We are leaning towards a seller's market, and inventor is on the mark where you have multiple offers and fewer days of marketing to successfully sell. Prices are steady and moving accordingly, but no spikes have been seen to indicate a true seller's market.
Alex Kay - Montreal - Real Estate Broker at Remax Action Westmount
The Downtown Montreal real estate market has witnessed a noticeable increase in sales since the same time last year. Results for Q1 show the number of sales has risen by 18% whereas the volume of sales has risen by 37%. This reflects the fact that people are buying more expensive properties (over $500,000) in greater numbers, a market which has been relatively stagnant since 2011. The average sale price for a condo has actually increased 15% and the median price has increased 7%.
The average time to sell a unit has dropped 12 days to 123. Market activity has remained strong through Q2 and we can expect a similar improvement in the sales statistics by the quarters’ end. We believe that activity will only drop slightly though the summer and will then pick up the pace around mid-September.
Whilst statistically still a balanced market due to the high supply, it should be noted that the number of listings has dropped 2% since Q1 2016. At this rate, the market will become balanced by early 2018 and could well become a sellers market by 2019.
With Toronto and Vancouver attempting to slow their growth with additional taxes, the Montreal market looks set to receive much of the overspill.
Nickey Calford - London - Sales Representative at Keller Williams Realty
London's Condo market is HOT! The average sale price ao condo's has gone up 16.1% from $201,097 in May of 2016 to $233,459 in May of 2017. The number of condo units sold is up 39.1% year to date. Our market is still going strong and as of today we are still seeing bidding wars.
Paul Lisanti - Oakville - Sales Representative PaulListanti.com
In Oakville, the condo market appreciated 6.1% in May since last month, and 36.6% over the past 12 months. The price of single-family homes in Oakville depreciated by 4.8% since last month and appreciated 19.1% since this time last year. From April to May, condo apartment prices rose 6.1%. Over the past 12 months, they rose 36.6%.
Radner Reyes - Coquitlam - Realtor at Sutton West Coast Realty
The Coquitlam condo market is highly competitive and a difficult place to be looking as a buyer. With a 10 year inventory low of only 120 total active listings in the month of April 2017, we have very low supply but consistently high demand due to the first time home buyer loan offered by the government. Prices have increased drastically as well, as benchmark prices have risen $35,000 since January 2017 and $79,000 since January 2016. We foresee a consistent increase in prices unless we can exponentially increase the supply.
Final Thoughts - Glenn Carter - Condo.Capital
Far from the doom and gloom we hear in major news media across the country, what becomes clear from the above experts is that most Canadian markets remain robust. At worst, we believe that we could see a flattening to the Canadian housing market in the coming year as we see a slow down in markets like Toronto and Vancouver.
This is not solely based on soaring housing costs in these markets, but a number of external policy factors as well. An overall tightening of lending and policy restrictions placed on financial institutions will contribute to the overall flattening of the Canadian housing market in the short-term. This will be exacerbated by the prospect of higher interest rates heading into the second half of 2017.
Indeed, the Canadian Real Estate Association (CREA) predicts a decline in national sales volume through 2017 of 3.3%. As interest rates edge higher, the most important thing to be aware of is your bottom line. Stress test your books with higher interest rates to ensure you can withstand a rate increase.
For the savvy entrepreneur, this reality represents an opportunity to pick up properties on sale throughout various key Canadian markets. Landlords will also see a rise in prospective tenants who have either been priced out of home-buying, or who cannot fulfill the increasingly restrictive lending requirements.