Last week’s market reports from real estate boards including those in Vancouver and Toronto show that there is recovery underway with even the tough market conditions in Vancouver suggesting a bottoming-out.
This is unlikely to end calls for the mortgage stress tests to be altered or scrapped, says RBC Economics’ senior economist Robert Hogue, but it should “quiet down critics fearing a market collapse.”
In his latest assessment of the Canadian housing market, Hogue says the rebound for Toronto sales in May (resales up 19% year-over-year) says more about weakness a year ago than market momentum, with seasonally adjusted figures pointing to stabilization rather than a surge.
And ‘back-of-the-envelope’ calculations on the slowing of declining resales in Vancouver (-6.9% year-over-year in May compared to -30% in April) show that resales increased by more than 25% month-to-month in May on a seasonally-adjusted basis.
“This is the strongest sign yet that the market isn’t spiraling out of control. In fact, we believe it indicates that a bottom has been reached,” writes Hogue.
The report also notes several other Canadian housing markets as showing encouraging signs.
The traditional option of a condo as a cheaper alternative to a single-family detached home is less attractive in the hottest cities.
RBC says that demand for condos has driven prices higher and their affordability measure has increased (become less affordable) by far more than single-family homes (2.9% vs. 0.9%) over the past year.
Buyers of an average condo in Vancouver, Toronto, Victoria, and Montreal pay a premium of more than $900 per month relative to renting a two-bedroom apartment, a figure that has ballooned in the past three years.
Buying a condo is a bigger step up from renting than it's ever been in these cities.
Interest rate outlook
RBC Economics is not expecting rates to rise anytime soon but does forecast a continuation of the strong labour market, helping boost household income.
BCREA 2018 First Quarter Housing Forecast Update
Vancouver, BC – March 9, 2018. The British Columbia Real Estate Association (BCREA) released its 2017 Fourth Quarter Housing Forecast today.
Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 8.6 per cent to 94,855 units in 2018, after decreasing 7.5 per cent in 2017. A record 112,209 unit sales were recorded in 2016. The ten-year average for MLS® residential sales in BC is 84,800 units. Strong employment growth, consumer confidence and favourable demographics have been highly supportive of housing demand over the last four years. However, slower economic growth, tougher mortgage qualification rules, and a rising interest rate environment are expected to slow the pace of housing demand over the next two years
“Housing demand in the province is expected to moderate this year and in 2019,” said Cameron Muir, BCREA Chief Economist. “More stringent mortgage qualifications and rising interest rates will further erode affordability and household purchasing power.”
The 5-year qualifying rate is forecast to rise 35 basis points to 5.49 per cent by Q4 2018, and another 21 basis points to 5.70 per cent by Q4 2019. “With home prices already at an elevated level, BC households are more vulnerable to rising interest rates.”
The supply of homes for sale continues to trend at or near decade lows in most BC regions. However, this condition hasn’t gone unnoticed by home builders. There are over 60,000 homes now under construction in the province, well above the previous peak of 45,000 units recorded in 2008. In Metro Vancouver, over 42,000 units are in the pipeline, 56 per cent more than recorded in 2008. Slowing consumer demand combined with a surge in new home completions over the next several quarters will create more balance in the housing market and produce less upward pressure on home prices. The average MLS® residential price in the province is forecast to increase 6.0 per cent to $752,000 this year, and a further 4.0 per cent to $781,800 in 2019.
Mortgage rule changes and increasing interest rates—surprisingly—weren’t the top motivators for prospective homebuyers in 2017, according to a new survey from the Canada Mortgage and Housing Corporation (CMHC).
Instead, the 2018 Prospective Home Buyers Survey found that improved accessibility (i.e., fewer physical obstacles and barriers) and investment opportunity were the main driving factors to purchase a home.
The results were divided into three segments of buyers: first-time buyers, previous owners (who had previously owned a home but do not currently) and current owners.
For first-time buyers and previous owners, the desire to stop renting was ranked as one of the top three motivators to buy a home by 65% and 60%, respectively.
“The majority of prospective home buyers from all groups agree that home ownership is a good long-term financial investment,” the survey noted.
This is the first time CMHC has conducted this specific study, which examined attitudes and expectations of prospective Canadian homebuyers, as well as their understanding of the homebuying process.
There was also some positive news for brokers, as the survey confirmed that a majority of buyers from all three groups—including a full 80% of first-time buyers—planned to consult a mortgage broker before making their home purchase.
Here are some of those findings (with key stats in blue):
Mortgage Rule Changes, Home Prices & Rising Interest Rates
- 36% of first-time buyers were aware of the 2016 mortgage qualification rule changes(e.g., the 10% down payment required for the home price portion above $500,000 and the requirement for all insured mortgages to be stress-tested using the 5-year posted rate).
- 53% of previous owners and 58% of current owners were aware.
(Ed. note: On average, a minority of prospective homebuyers were aware of key mortgage rule changes. This helps make the case for the value a mortgage broker can bring in terms of increasing buyer awareness and helping them navigate sometimes complicated and unknown mortgage regulations.)
- 20% of first-time buyers not previously aware of the rule changes said it will impact their purchase decision in some way.
- Vs. 18% of previous owners and 14% of current owners.
- 50% of first-time buyers said the changes would cause them to delay their home purchase, while 23% would purchase a smaller home.
- 51% of previous owners and 65% of current owners would delay their purchase
- 35% of previous owners and 32% of current owners would purchase a smaller home
- 76% of first-time buyers said they are likely to delay their home purchase due to high home prices, followed by 73% of previous owners and 63% of current owners.
- 70% of first-time homebuyers said they are concerned about the possibility of interest rates increasing before they buy their home, followed by 62% of previous owners and 61% of current owners.
- 61% of first-time buyers would, as a result, likely delay their home purchase, followed by 61% of previous owners and 50% of current owners.
- 69% of first-time buyers agree that they have a good understanding of how much mortgage they can afford.
- Vs. 79% of previous owners and 83% of current owners.
- 54% of first-time buyers and previous owners are planning to spend under $300,000 on their next home.
- Vs. 33% of current owners.
- 25% of first-time buyers and previous owners are planning to spend between $300,000 and $500,000 on their next home.
- 34% of current owners are planning to spend over $500,000 on their next home.
- 68% of first-time homebuyers feel confident they can find a suitable home within their budget.
- Vs. 83% of current owners.
In a scenario where buyers would not be able to find their ideal home:
- 43% of first-time buyers would delay their purchase.
- Vs. 45% of previous owners and 28% of current owners.
- 42% of first-time buyers would compromise on the size of the home.
- Vs. 39% of previous owners and 42% of current owners.
- 38% of first-time buyers would compromise on the location of the home.
- Vs. 39% of previous owners and 38% of current owners.
- 80% of first-time homebuyers plan to consult with a mortgage broker before purchasing a home.
- Vs. 72% of previous owners and 69% of current owners.
- 16% of first-time buyers pre-qualify for a mortgage within three months of purchasing their home.
- Vs. 21% of previous owners and 22% of current owners.
- 33% of all buyers prepare a detailed budget on their own within six months to a year before purchasing their home.
- 66% of first-time buyers say they have a good understanding of the full cost of homeownership, including mortgage payments, property taxes, condo fees, utilities, maintenance, etc.).
- Vs. 79% of previous owners and 85% of current owners.
- 33% of all homebuyers say they will take additional steps to pay down their mortgage as soon as possible.
- 40% of first-time buyers and previous owners say they are unlikely to have a financial buffer in case their expenses change in the future.
- 40% of first-time buyers say they are confident they have the necessary tools and information to manage their mortgage and debt load.
- Vs. 40% of previous owners and 50% of current owners.
(Ed. note: These numbers are surprisingly low, particularly for previous and current owners, and again illustrates the opportunity for mortgage brokers to play a role in educating homebuyers to prepare them for financially responsible home ownership)
Homebuyers and Technology
- 68% of first-time homebuyers would prefer to complete the entire homebuying process with help from a professional and be using online tools and resources:
- Vs. 60% of previous owners and 58% of current owners.
- 7% of first-time buyers would prefer to use online tools and resources exclusively, without the help of a professional:
- Vs. 4% of previous owners and 5% of current owners.
This survey was conducted in October 2017 and involved 2,507 prospective homebuyers who intended to purchase a home within the next two years.
Housing Demand Normalizes as Supply Dwindles
Vancouver, BC – April 13, 2017. The British Columbia Real Estate Association (BCREA) reports that a total of 9,826 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in March, down 21.8 per cent from the same period last year. Total sales dollar volume was $6.79 billion, down 30 per cent from March 2016. The average MLS® residential price in the province was $690,597, a 10.5 per cent decrease from the same period last year.
"Consumer demand continues to normalize following blockbuster home sales in 2016," says Brendon Ogmundson, BCREA Economist. "However, the supply of homes available for sale has not recovered and is still declining in many markets around the province."
Although the average price in BC was down year-over-year due to a shift in the composition of sales, home prices in most markets are being pushed higher due to severe supply constraints. This is particularly true for the Victoria region, which currently has less than two months of inventory for sale, as well as for the apartment and townhouse market in the Lower Mainland.
Year-to-date, BC residential sales dollar volume was down 34.7 per cent to $14.1 billion, when compared with the same period in 2016. Residential unit sales declined 25.5 per cent to 20,893 units, while the average MLS® residential price was down 12.4 per cent to $674,856.
Vancouver, BC – November 15, 2016.
The British Columbia Real Estate Association (BCREA) reports that 7,272 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in October, down 16.7 per cent from the same month last year. Total sales dollar volume was $4.4 billion in October, down 24.2 per cent compared to the previous year. The average MLS® residential price in the province was $606,787, a decline of 9.1 per cent compared to the same month last year.
"Housing demand remained mixed across the province in October," said Cameron Muir, BCREA Chief Economist. "Home sales across the Lower Mainland were down from the elevated levels of one year ago, but stabilized on a month to month basis. In contrast, home sales on Vancouver Island and in the interior of the province continue to post strong year-over-year gains."
"The decline in the average residential price reflects a smaller proportion of transactions in the province originating in Vancouver," added Muir. Home sales through the Real Estate Board of Greater Vancouver fell to 31.4 percent of BC transactions last month, compared to 42.6 per cent a year ago.
Year-to-date, BC residential sales dollar volume increased 27.4 per cent to $70.4 billion, when compared with the same period in 2015. Residential unit sales climbed by 15 per cent to 101,069 units, while the average MLS® residential price was up 10.8 per cent to $696,992.