The pandemic mortgage boom has subsided – but there’s still plenty of competition at play
At the height of Canada’s pandemic-era housing and mortgage boom, frenzied bidding wars and feverish competition emerged as two of the most prominent trends throughout the country’s hottest markets.
Scores of would-be homebuyers looked on in despair, forced to shelve their purchasing plans as other bidders ramped up offers and pushed home prices to eyewatering levels that were unmatchable for many – even with interest rates hovering near a rock-bottom low.
That spike in purchase demand arrived as the onset of COVID-19 created something of a perfect storm on the housing front, with a remote-working revolution allowing many Canadians to work from anywhere while travel restrictions and business shutdowns saw household savings surge.
The figures told their own startling tale: average Toronto home prices rocketed by 16.5% on a year-over-year basis in March 2021 compared with the same month the previous year, according to the Toronto Regional Real Estate Board, with sales across the region nearly doubling.
In cities that didn’t witness such startling price appreciation, competition was still rampant. Calgary, which saw the benchmark price of a home increase by a more modest 6% during that same period, experienced its busiest March sales-wise since 2007 as purchase activity jumped.
That scorching pace of housing market activity has since cooled dramatically. A series of interest rate hikes by the Bank of Canada in response to ballooning inflation drove many buyers to the sideline, squeezing their purchasing power by pushing up borrowing costs even as prices slipped across many markets.
Toronto's real estate market showed growth in home sales, listings, and prices in July compared to last year, but the momentum has slowed due to higher interest rates. https://t.co/CIYSyqJFV3#mortgagenews #mortgageindustry #homesales #interestrates
— Canadian Mortgage Professional Magazine (@CMPmagazine) August 3, 2023
Demand remains sky-high in Alberta’s largest city
Still, while sales activity across major markets has plummeted from its pandemic highs, demand remains elevated in Calgary, with a chronic lack of inventory still at play.
Toronto, Montreal and Vancouver have all seen demand begin to cool somewhat as listings increase and rate hikes take their toll, according to RBC, although the bank noted “no signs of quieting down” for the Calgary market with a “brisk pace of activity” likely there for the remainder of the year.
Demand is indeed pronounced in the city, according to Calgary-based broker Max Singh (pictured top), who described the ongoing reality of prospective buyers being frozen out of the bidding process due to competition and rising prices.
“Usually by the end of the week, everybody’s prepared and charged over the weekend to go and find homes,” he told Canadian Mortgage Professional. “I come in on Monday… pick up the phone and call every one of these individuals, and every one of them lost out on offers.
“Every one of them were beaten out by unconditional cash, quick closings, all sorts of different strategies that were implemented in Ontario and BC for years. So it’s a serious challenge with inventory being as low as it is [and] the demand being so high.”
When will bidding wars begin to fade in the Calgary housing market?
The bad news for Calgary buyers is that there’s little end in sight to that outlook. Inventory looks set to remain scarce for the foreseeable future, according to RBC, meaning “fiercely competing buyers” will likely help drive prices even higher.
“Calgary’s benchmark price is already rising at one of the fastest paces in the country,” RBC economists Robert Hogue and Rachel Battaglia said last week, noting that prices there have seen growth at a 5.7% yearly clip. “Prices for townhouses (+14% y/y) and apartments (+12% y/y) have been real standouts in the past year.”
Sellers are also still in the ascendancy in Edmonton, Regina and Saskatoon, according to the bank, although Ontario and British Columbia saw a significant market rebalancing thanks to new supply last month.
While more inventory may be hitting the market at present, long-term prospects for housing supply remain bleak. Canada Mortgage and Housing Corporation (CMHC) has sounded the alarm on the acceleration in housing starts that’s required to restore affordability to the national housing market by 2030, indicating that 3.5 million additional units on top of its projection of 2.3 million are needed.
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