Canadian Housing Update 3: July 31st, 2023

The third installment of our housing update. We are still in the camp that real estate prices or rates will need to come down, as affordability is at all-time highs and cannot sustain these levels. Historically, they have never been able to and the three main factors that make up that metric are:

Therefore, we need one or a combination of the following:

Income to Increase

House Prices to Decrease

Interest Rates to Decrease

We are starting to see that now in the expected areas of real estate. Generally, Toronto Central will be the most resilient to price drops and as you move further away those towns and cities will become more susceptible.

Outside Towns/Cities:

The further you move out you are starting to see markets getting flooded with supply and this tidal wave will make its way inward 

London, Collingwood, Kitchener, Kingston, St. Catharines, Fort Erie, Niagara Falls, Ottawa, etc. are all seeing all-time highs in listings. These areas see about a20% correction from their highs of 2021 when rates were low. With these listings being dropped on the market they have also seen an increase in rental listings, which has flattened rent. This volatility is traditionally how prices trend with the areas further from urban centres.

Niagara Falls: 

Closer Suburban Cities:

In larger cities like Hamilton, Oakville, Burlington, Brampton, Barrie, Whitby, Milton, etc. you are still seeing evenly supplied markets. Listings or supply has not gotten out of control and there is a limited balance right now, but prices are still off about 20% from their highs. These markets have remained in tighter supply, what you are seeing here are fewer “for sale” listings and an increase in rental listings over the past 1.5 years. This is apparent as many investors have bought properties and are trying to rent them. 

The statistic to watch for is a decrease in rental listings with an increase in selling listings, which is very present in the outer towns/cities. With affordability very low, investors cannot make a profit renting out a home therefore they may decide to sell the property. Slowly, the same dynamics way trickle into these areas.

Brampton:

Urban Centres:

Prices remain high, only off about 10% from the highs, Toronto (as an urban example)will always be the most resilient to house price decreases. The demand is always high here, so do not expect a drastic drop in price to come. The supply is tight right now, but the market is so large and liquid that prices never go too high or too low fast. The current illiquidity will remain strong and probably keep prices elevated for longer.

Toronto Central:

Summary

We are starting to see a large supply in the smaller towns and cities, this could start to leak into the larger suburban cities soon if rates remain high. There is a difference between wanting to buy a home and the ability to buy a home. Right now, there is a large part of the population that does not have the ability to buy a home at this affordability level, regardless of if they want to or not. Investors are in the same boat but instead of affordability they look at it as profitability and right now it is difficult to justify making an unprofitable investment. 

Justin, Konrad, and Merriel

More articles and information are available at www.lkwealth.ca

Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research

Disclaimer: This newsletter is solely the work of Konrad Kopacz and Justin Lim for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.

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