Canadian home sales soared in September – the seventh consecutive month this year. Recent gains are a strong indicator that Canada’s real estate market is recovering after the six-year low it hit in February 2019.
The latest statistics from the Canadian Real Estate Association (CREA) show national home sales surged 15.5% compared to one year ago, and September activity was up by 0.6% month-over-month. Benchmark home prices also climbed by 0.5% last month and 1.3% year-over-year.
On a national level, activity is 18% above the six-year low recorded in February, but still 8% below the peaks experienced in 2016 and 2017. Compared to last year, transactions were up in all of Canada’s largest urban markets.
Toronto & Vancouver Sales Skyrocket
Both Toronto and Vancouver saw record increases in home sales in the fall after picking up over the summer. Sales in Vancouver soared by 46.3% year-over-year; in Toronto, the number of homes sold increased by 22% from the same month last year. However, benchmark home prices were up just 5.2% in the Toronto market and down 7.3% in Vancouver.
Similarly, the number of units sold in Vancouver was up 4.6% month-over-month, but levels are still 1.7% below the 10-year average. Ashely Smith, president of the Real Estate Board of Greater Vancouver, said in the board’s news release:
“We’re seeing more balanced housing market conditions over the last three months compared to what we saw at this time last year. Homebuyers are more willing to make offers today, particularly in the townhome and apartment markets.”
New data from the Toronto Real Estate Board showed sales were up for almost every price range in Toronto, with the exception of the number of units sold for less than $499,999, which decreased by 4.5% year-over-year. Sales of homes priced between $1.25 and $1.75 million saw the most significant increase, jumping by 52.7%. Despite a considerable recovery, sales still lag behind the highs reached in 2016.
Cause of Sales Bounce Back Unclear
While the industry welcomes the rebound, the reason sales are increasing is unclear. Some experts believe low mortgage rates contributed to this recovery; another possibility is that buyers who were previously discouraged by stress tests have adjusted to the guidelines in terms of property type, location, price and down payment amount, according to Jason Mercer, chief market analyst for the Toronto Real Estate Board.
Yet another theory is that shared equity mortgages (SEMs) helped to increase sales by reducing monthly mortgage payments and encouraging first-time homebuyers to purchase. SEMs went into effect in September, offering up to 10% off of the purchase price to first-time homebuyers in return for an equity stake in the property. However, according to the Financial Post, this theory is an unlikely catalyst. To qualify for an SEM, the property must be priced less than $500,000, a category that saw a decrease in sales.
Tsur Somerville, professor of real estate finance at the University of British Columbia, noticed homes in Vancouver were selling very quickly in high-demand neighbourhoods over the summer. He pointed out that the increase in sales followed a down period in September 2018, when sales plummeted by 43.5% year-over-year. Somerville was intrigued that sales suddenly surged in both Toronto and Vancouver in a time when underlying economic fundamentals hadn’t changed much.
Signs of Markets Reaching Balance
According to some experts, converging prices of semi-detached units, condos, and townhouses in cities like Toronto are a sign of markets reaching an equilibrium. Benjamin Tal, deputy chief economist with CIBC World Markets, actually considers the correction already over in low-rise housing.
Tal believes the pent-up demand in Toronto brought buyers back from the sidelines – resulting in an increase in sales and prices. He believes housing markets are right back where they should have been.
More evidence supports the idea that Canada’s real estate is balancing. The September sales number in Toronto – at 7,825 units – is similar to the numbers recorded in 2014 and 2015. Also, the sales volume has been resilient during the past five years, despite an earlier decline.
Finally, Gregory Klump, CREA’s chief economist, believes that the length of the current rebound will depend on economic growth, which is controlled by trade and business investment uncertainties.