Prices and activity are beginning to rise as spring heats up
Homebuying activity is beginning to gather pace in Canada’s housing market this spring – and some of the country’s biggest cities are leading the charge for sales and home price growth.
After seeing a dramatic cooldown in the rising-rate environment of the past year, the Vancouver and Toronto markets are heating up again, according to RBC, with Calgary and Montreal also starting to sizzle on the housing front.
While a pronounced correction has gripped the Vancouver market over the past year, there are strong indications that the trend has “run its course,” the bank’s assistant chief economist Robert Hogue said in its May housing market update.
A jump in new listings likely helped fuel homebuyer enthusiasm to re-enter the market, even though the pace of resales (up by about 30% on a monthly basis) appeared to far outstrip an increase in new listings of around 9%.
The Real Estate Board of Greater Vancouver (REBGV) also indicated that it was seeing activity pick up again after the market was pummelled by the erosion of borrowing power brought about by the Bank of Canada’s series of rate hikes.
Residential home sales were still well below the 10-year seasonal average in April, REBGV said – but a month-over-month rebound in sales and prices showed that buyers are “returning with confidence after a challenging year for our market,” according to its director of economics and data analytics Andrew Lis.
Prospective buyers continue to grapple with supply challenges
Kyle Green (pictured top), owner at the Vancouver-based Origin Home Financing Group – Green Mortgage, told Canadian Mortgage Professional that his team had noticed a definite uptick in market activity despite inventory challenges, although he said affordability remained a big hurdle for many first-time buyers.
“There is still a severe lack of supply but there is a large number of buyers who are preparing to enter the market,” he said. “The prices haven’t dropped enough to counter the rise in interest rates, and therefore the rise in the stress test rate, so it is harder to qualify than it was 16 months ago.”
Indeed, Lis noted that home prices have already increased by about 5% to date in 2023, according to the latest MLS Home Price Index (HPI) data, above REBGV’s forecast of 1-2% by the end of the year, although he said it “remains to be seen” whether those price increases would last into 2024.
The MLS HPI for residential properties across Metro Vancouver in April had dipped by 7.4% compared to the same time last year, but at upwards of $1.17 million it remains well above the levels seen in other large cities across the country, including Toronto. On a monthly basis, that figure crept up by 2.3%, according to REBGV.
Hogue said those continued affordability challenges were likely to keep home price appreciation subdued for the foreseeable future.
“Tighter demand-supply conditions will likely keep prices on an upward trajectory in the period ahead. But we continue to believe that extremely poor affordability will significantly limit the speed at which they will rise,” he said.
Major drivers of soaring home prices include the existing barriers to construction in Canadian cities, according to a new report by the C.D. Howe Institute.https://t.co/VeWhlSNUa8#mortgagenews #mortgagebrokers #houseprices #housingmarket
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 5, 2023
Is now a good time to enter the Vancouver housing market?
Green described himself as cautiously optimistic on future prospects for the Vancouver market, forecasting a “relatively flat” outlook for the remainder of 2023 followed by a resurgence in stronger activity next year and into 2025.
The prospect of a much hotter market in the coming years means that while some buyers may have misgivings about purchasing in the current climate, they might not get a better opportunity than the present, he added.
“Although it doesn’t seem like today is a great time to buy, I also believe that buying in a year or two will be worse,” he said. “We are seeing a lot of developers choose not to start projects as they would be locking in their sales prices – revenue – at today’s lower values, but there is still inflationary pressure on costs – supplies and labour.
“So fast-forward a year or two with more than 500,000 immigrants moving to Canada, and couple that with falling interest rates, and we’re going to see a huge imbalance in supply and demand again which will push prices up yet again.”
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