Canada paints a picture of sellers’ and buyers’ markets that present major differences.
Following new policies and regulations such as the federal mortgage-qualification stress test, Canada’s broader housing market appears to have been tempered according to a recent report from the Canadian Real Estate Association.
Although the national market has seen some improvement since February’s dismal figures, it still cannot be compared to previous years’ levels. One important factor to acknowledge is that Canada is not a homogenous market but a series of distinct regional markets.
Concomitantly, the MLS home price index registered the steepest decline in the last decade, namely a 0.5% year-over-year drop this March.
Considering the division between sellers’ and buyers’ markets, Robert Hogue, senior economist for Royal Bank of Canada, declared to The Globe And Mail:
“Buyers hold a strong hand in several of Canada’s large markets at this stage, while policy makers will view lower prices as (good) signs of improving affordability that require no further intervention”.
He believes that according to March data, some of the largest western markets are declining, namely Vancouver, Calgary and Edmonton. Hogue mentions that home resales (seasonally adjusted) fell to a 10-year low in Vancouver and near 8-year low for the Edmonton and Calgary real estate.
Prices are also declining, with the MLS home prices index dropping by 7.5% in Vancouver, 5% for Edmonton homes for sale and 4% in Calgary. Hogue believes that policy changes and the problem of housing affordability will continue to affect the prices of Vancouver homes for sale in the near term, while in Calgary and Edmonton the economic situation remains uncertain.
The MLS home index prices increased by 7.6% in Ottawa compared to the previous year, while for the Montreal homes for sale it rose 6.3%. As CREA doesn’t cite an index for Halifax, Hogue looked at the average price which skyrocketed by 12.7%.
Supply and demand conditions continue to be tense as the sales-to-new-listings ratio far exceeded 70% in all three cities. This means that sellers greatly influence the prices at this stage.
The Toronto Market
Hogue believes the Toronto real estate is patchy with high-end properties staying longer on the market. Albeit sales increased by 1.8% in March, it is worth noting that they plummeted 9% in the previous month.
New listings are registering a 6-month continuous decline. This could impede a sturdy rebound of the market as options are scarcer for buyers. The MLS HPI increased to 2.6% from 2.3% the previous month, which means limited supply could nudge buyers to bid more aggressively.
What’s to Come
Regarding the housing markets, Hogue expects a quiet spring season, adding that experts will monitor whether the decreased mortgage rates ease the stress test for some buyers and if first-time buyers will wait for more information on the First-Time Home Buyer Incentive in the months to come.
Douglas Porter, chief economist for Bank of Montreal, also noticed the differences between regional markets. He adopts a positive outlook for the year to come.
“Second, fundamentals actually look to become a bit more supportive in the year ahead, with the policy tightening likely having run its course. And, finally, the weather can’t get any worse … right? We continue to contend that prices, sales and starts are likely to hold broadly stable nationally in 2019 amid the many moving parts for the market.”
Sal Guatieri, Porter’s colleague and senior economist for Bank of Montreal believes the policy changes have been the proper dosage for lessening the speculative practices that affected Toronto and Vancouver housing markets.
Another thing they managed to do was push households to borrow at more sustainable rates, according to their income. He adds that the policies have had a positive impact on the overall market and that they will continue to do so in the long term.