Since the beginning of this year, there have been many fearful forecasts about a significant downturn in the Canadian housing market — especially in Vancouver and Toronto. It’s true that the market has experienced a moderate slowdown in the last few months; however, it’s not that dramatic. According to statistics released on November 15th by the Canadian Real Estate Association (CREA), national home sales activity and average prices didn’t change much in October 2012.
The overall 13,004 home sales recorded through the MLS® Systems of Canadian Real Estate Boards and Associations in October 2012 represent a negligible 0.1 per cent decline from September and a 0.8 per cent decrease compared to last year’s October. The average price of a Canadian home sold last month remained flat at $361,516. The figure represents a minuscule increase of $80, or 0.02 per cent, compared to October 2011. The number of new listings in Canada went down by 3.8 per cent from 74,618 in September to 71,757 in October. However, this decline kept the market balanced in terms of supply and demand.
Furthermore, the stats show an improvement in sales activity in about half of all local markets from September, including Greater Vancouver and Greater Toronto. However, the number of transactions in the country’s hottest markets remains considerably lower than it was in the first half of the year as well as one year ago.
According to Gregory Klump, CREA’s Chief Economist, there weren’t any significant changes since national activity started to slow after the new mortgage rules came into force in July. As the figures demonstrate, national sales in October were equal to the stats in the same month last year and in line with the ten-year average for October. National sales activity for the year-to-date and the ten-year average are very much alike. Klump adds,
These results suggest that the Canadian housing market overall has returned to a more sustainable pace.
All in all, there were 402,322 homes sold through the Canadian MLS® Systems during the first ten months of 2012, which is a 0.8 per cent increase from the levels reported over the same period in 2011 and a 0.4 per cent under the ten-year average for this period.
Furthermore, the number of newly listed homes fell by 3.8 per cent in October after a considerable increase in September. Almost two thirds of all local markets experienced such declines, with Greater Toronto and Greater Vancouver highly exceeding the national trend.
Balanced Canada Real Estate Market in 2013
Even though Canada’s housing market is slowly cooling down, economic strength, immigration, and low interest rates will prevent any significant changes and secure that prices and sales will remain mostly flat in the rest of 2012 and 2013, according to RE/MAX’s housing market outlook, which was released on November 14, 2012. Based on a survey of trends in 26 different Canadian markets, the outlook expects national sales to decrease 1 per cent in 2012 and then maintain a steady level in 2013. Prices are projected to be flat in 2012 and increase by 1 per cent in 2013.
Gurinder Sandhu, regional director of RE/MAX Ontario-Atlantic Canada, suggests that even though home sales have recorded a slight decline, they remain within healthy levels. “Greater optimism is expected to return next year as the economy marks further improvement,“ he adds.
According to RE/MAX’s outlook, about 454,000 homes will be sold in 2012 — 1 per cent below the 2011 upturn level of 456,749, and this figure remain flat at 454,000 units in 2013. The average price of a Canadian home is projected to be $364,000 in 2012, on par with the 2011 figure, while values are forecasted to appreciate nominally in 2013, going up by 1 per cent to $366,500.
The new mortgage rules have significantly affected housing markets, pushing home ownership beyond the level of affordability for many first-time buyers. However, according to this report, Canada’s economy should expect an improvement in the second half of 2013 that will together with low interest rates have a positive impact on the housing market.
Vancouver Housing Market in 2013
According to CMHC’s Fall 2012 Housing Market Outlook Vancouver/Abbotsford Report, Greater Vancouver should remain a buyers’ market until later in 2013, when sales increase and listings fall, returning balance to the market. Housing starts in the Vancouver Central Metropolitan Area are expected to remain flat next year, following a forecasted increase in 2012.
As Robyn Adamache, CMHC’s Senior Market Analyst, suggests, stable economic conditions and favourable construction costs should provide that home builders will maintain a steady level of residential construction — especially in multiple-family projects.
The report estimates housing starts in the Vancouver CMA to reach a total of 19,000 homes in 2012 and 19,100 homes in 2013. The high preference of multiple-family projects like apartments and town homes rather than single-detached homes is expected to pick up multiple-family home starts over the forecast period.
The resale market in Vancouver is projected to end 2012 as a buyer’s market; however, bolstering resale activity should return the market to balance in 2013. The sales of existing homes are expected to fall to 28,500 in 2012 before retrieving to 30,000 in 2013. The report indicates that multiple-family residences should gain more market share than single-detached homes based on their relative price. This is expected to slow the growth of the average MLS® price, which is projected to decrease to $733,500 in 2012 and $730,000 in 2013 for the Greater Vancouver Real Estate Board area.
According to Robyn Lake, a senior market analyst with CMHC, the Vancouver housing market outlook is cautiously optimistic. The reason for this optimism is economic stability, which is indicated by three factors: low mortgage rates, improving employment numbers, and increasing migration to B.C. from across Canada and abroad.
CMHC does not expect a significant change in mortgage rates, except a small increase in the latter half of 2013 as a result of higher employment and economic growth in 2013. Furthermore, there have been more than 35,000 new jobs created in Vancouver and this number is expected to increase at a rate of 2.9 per cent in 2012 and at about 2.2 per cent in 2013. Most of the job gains over the last 18 months have been in full-time jobs. The population growth in Vancouver has steeply declined from its recent high of 42,826 new immigrants in 2010. Even though immigration levels fell to approximately 26,000 in 2011, the numbers are slowly rebounding with about 34,000 new immigrants in 2012 and 40,000 forecasted in 2013. As Citizenship and Immigration Canada informs, 17 per cent of new immigrants become homeowners within six months of arrival and more than half are homeowners within four years.
Despite these optimistic outlooks, CMHC suggests that the major risks to Canadian economy and the cause of our real estate market downturn originates from concerns about inflation pressures out of the U.S. and a global economic cool-down. If these remain stabilized, consumer confidence will improve.