Some regions are faring significantly better than others, RBC analyst says
Amid sustained strength in sales activity and price growth in the Canadian housing sector, current trends are indicating larger divergences across these markets’ performances, according to RBC Economics.
“Local real estate boards reported varying results in March that may signal a break from the uncharacteristically synchronized trends seen during the pandemic,” said Robert Hogue, senior economist at Royal Bank of Canada.
“Last month’s first rate hike from the Bank of Canada since 2018 likely had little cooling effect on the market,” Hogue added. “If anything, it might have heated up demand somewhat as some buyers advanced purchasing decisions to lock-in lower rates.”
This might change soon, however, as RBC is anticipating the central bank will raise its policy rate by at least 150 basis points by the end of 2022.
“Activity brought forward since the fall has exhausted some future demand – but more importantly, materially higher borrowing costs will make it harder for buyers to enter the market,” Hogue said.
Read more: Canadian cities seeking immediate help on housing
RBC suggested that the Toronto market might be nearing its peak, with spring activity starting on a “quieter note” in 2022.
“Home resales were down 30% in March from a year ago and off an estimated 16% from February (on a seasonally-adjusted basis),” Hogue said. “Scarce inventories are still an issue but the tightness between demand and supply is easing at last. It looks like rapidly worsening affordability might be (finally) taking a toll on demand. … Clearly, the $1.38 million price tag for a typical home is a stretch for a growing number of buyers.”
Vancouver appears to be going strong, for now.
“Strong buyer competition took prices higher to a record $1.36 million (MLS HPI benchmark), up a solid 3.6% from February and 20.7% from a year ago,” Hogue said. “Odds are they’ll rise further in the near term. Sellers are still comfortably in the driver’s seat while inventories remain scarce. The drop in new listings tightened demand-supply conditions even more in March.”
Montreal’s buyers appear to be taking a step back, impelling further moderation in March.
“We estimate resales fell 4% from February (seasonally adjusted), which would make it the fifth-straight monthly decline,” Hogue said. “Historically-low inventories have been a significant drag on activity since last year as buyers scrambled to find properties meeting their needs. But we believe rising ownership costs are increasingly tamping down buyers’ enthusiasm. … Median prices have grown more slowly in recent months, including March. This is especially the case for the more expensive single detached homes.”
In contrast, Calgary seems to be “firing on all cylinders,” with sales and price growth remaining robust for several months now.
“While supply picked up significantly in the past two months – new listings were up a solid 24% from a year ago in March – it just wasn’t enough to keep up with soaring demand. So upward price pressure continues to build,” Hogue said. “Strong successive gains in the last three months have pushed the index up nearly 18% from a year ago – the biggest annual increase since 2007. … With the provincial economy now roaring, in-migration rapidly gathering steam and affordability comparing well relative to other major markets, we expect housing demand to stay solid in the period ahead.”
