Canadian Housing Update 4: September 6th, 2023

Seasonally, this usually is when you start to see higher supply therefore, we need to take that into consideration. Even with that seasonality, supply continues to grow across the country. The areas that have been the most affected are the suburban outside cities and towns that received a massive bump during the work-from-home period. 

Median Pricing Back to Early 2021 Levels

Prices have not crashed at all but rather have remained depressed. Due to delays in new housing outside of “hot spots” you most likely will not see a crash in pricing but rather these lower prices for longer. Across the GTA, the median prices are the same as in January 2021 when people were rushing for a work-from-home residence. This has resulted in a 2-3% drop in price in the GTA for the month of August.

In British Columbia, they are seeing the same thing in the Metro Vancouver area with prices lower than their interim peak in March of 2021. 

Supply in the Areas More than 1.5 hours from an Urban Centre

These prices tend to be more volatile the further away you are from urban centres like Toronto or Vancouver. In Ontario, places like Kingston, Niagara Falls, St. Catharines, Belleville, Kingston, Woodstock, London, Peterborough, etc. are approaching or at their all-time highs of active listings. In British Columbia, there are the same characteristics with Pemberton and the Fraser Valley seeing all-time highs in listings. This data is generally not the result of a drastic increase in new listings, but rather homes sitting on the market without being sold. Properties are sitting on the market longer as sellers do not want to sell at a lower price and buyers do not want to pay the list price.

Rates and their Affects

Mortgage rates are up about 0.10% since December of 2022. There was a bit of a dip in April and May, but really, they have been flat all year. 

These elevated mortgage levels have only been around for about a year, with the 5-year fixed breaking 5% around June of 2022. We suspect the full effect of higher mortgage rates has only been felt by about 25%-30% of Canada. Which is a small amount and going forward we will really start to see the full effect of higher rates. Once, this is felt by about 50% of the population then we can get a good gauge of the impact. This is more likely to be around the spring or summer of 2024, once we are closer to 50% of mortgages that reflect higher rates. 

The Bank of Canada decided to pause, we believe a hike would have been uncalled for as GDP has shrunk, the Canadian dollar has appreciated vs. global currencies, and employment is weakening. An increase in rates would have really hurt a low-demand and low-supply market.

Housing Market Going Forward

Hard to say what will happen, rates definitely hurt real estate, but inflation of building costs and higher rental rates have really hurt the housing supply. Whatever the outcome we are closer to the beginning than the end. Rates will take some time to work their way through the system and housing construction is usually a 1-4 year period. The “impact” of higher rates and low supply will more likely be determined in the spring/summer of 2024 as opposed to now.  

The other factor in this equation is the employment data. Historically the two greatest factors of house prices are affordability and unemployment. Affordability is a combination of price multiplied by the rate, recently prices have dropped to bring this metric down while rates have remained level. While interest rates do affect house prices, they are weakly correlated and there are many instances of house prices increasing along with rates. But when housing unaffordability is high and unemployment is rising, this almost always results in lower house prices. Currently, we have both.

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 Justin Lim and Konrad Kopacz 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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