Canadian Housing Update 5: October 3rd, 2023

Key Stats for September

Median GTA prices are up about 5%

Median VTA prices are up about 4%

Active Listings up about 15-20% across all areas

Total Sales down about 25% across all areas

Suburban Area Prices Down Overall

            Ex. Pickering -3%, Milton -2%,Niagara Falls -9%, Kitchener -2%

Topics

1. Positive News: Urban Prices Rise in September
2. Negative News: Supply Rapidly Growing
3. Neutral News: Rental Market
4. Negative News: Outside Urban Cities
5. Negative News: Canadian Debt to Income
6. Negative News: Lower Demand at current price levels

1. Urban Prices Rise in September

The median price across the GTA slightly rose during the month of September with the largest increase coming in Central Toronto. Most other areas outside Central Toronto were pretty flat. Our friends out west (BC) saw the same small price increase and it was mostly in the Central Vancouver area. This month saw a dramatic shift in real estate prices as there was a large decrease in areas far away from the urban centres and a large increase in central urban areas. Remember when they said we would never go back to the office?

2. Supply Rapidly Growing

Across every area the spread between Inventory and Sales continues to expand, this is normally bad news for prices. The further this spread becomes the more pressure there will be on prices to drop to meet lower demand. Ideally, a healthy market has a consistent spread. This lower demand has not hurt supply as it continues to grow for the 9th straight month to the highest levels since the summer of2019. Seasonally, this is normally when seller pulls their properties off the market. This does not appear to be the case as listings have jumped about 15%.  

In the VTA, there is the same story, except they have exceeded their previous but with higher supply numbers after a similar 15% jump in listings.  

In both urban centres monthly properties sold continue to trend downwards from May which is creating a longer term spread between listings and sales. This is not common to have a prolonged movement in the opposite direction. Normally, they move in the same direction creating stable pricing throughout the seasons. A large spread can cause pricing irregularities, we will need to see either a pick-up in buying or a drop in listing to maintain current pricing.

3. Rental Market

In the GTA and VTA, rental rates remain flat and do not appear to be breaking down. Rents appear to be following the normal trends of the seasons, with a slight drop after the summer months. Vacancy rates remain low, and the demand even at these prices seems to remain strong.

4. Outside Urban Cities

These are areas 1 hour outside a major urban centres. These areas continue to get hit hard as supply moves from the rural areas to more suburban areas. Some areas have seen price drops of 5% or more in the month of September. Here is a list of cities seeing record highs and close to or above 5% price drops:

Milton

Oshawa

Pickering

Newmarket

Kingston

Abbotsford(BC)

Burnaby(BC)

These are not precisely small cities, with over100,000 in population, all with Wal-Marts and probably a Costco. They all have the same problem of 9 months of increasing supply and slowing demand to buy.

The charts remain the same for the outside suburban areas, except for a larger and growing spread between Inventory and Sales. Also, the units for sale are smaller, which creates greater price volatility than an urban area.

5. Canadian Debt to Income

The current Canadian Household Debt to income ratio is at about 180% this is very similar to 2019 when the same metric was 180%. The biggest difference now is that interest rates are substantially higher than they were in 2019, about 50%higher on that debt than before. While the total debt to income remains the same the cost of that debt has gone from about 7% of income to about 10% of income. As Canadians, on average 10% percent of your gross income goes towards just the interest on your debt. Nice to be a bank nowadays.

6. Lower Demand at these Prices

There is a lot of talk about increasing population, less housing being built, etc. but the reality is demand has fallen off. The demand is simply not there right now to purchase houses at the current prices. We believe much of this is the increase in interest rates and that restriction on being approved for a mortgage.

If rates stay at the current level there could be another 15-20% downside in overall prices to get to a more affordable level. That price drop can be mitigated by cutting rates, but that would likely require a higher unemployment level or recession.

Summary

If these trends continue we will continue to see weakness in the Canadian housing markets. Generally, we only watch the GTA and VTA, due to the availability of data. The other markets are smaller and the monthly data can be quite skewed. But, across Canada, the general trends remain. The demand for housing at current prices is less than the supply available at current prices. This will most likely lead to lower prices because the consumer can not stretch themselves further at this debt-to-income level. This should affect smaller cities more than larger urban cities.

Justin, Konrad, and Merriel

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