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Canadian Housing Still Sees Pent-up Demand. But for How Long?

Canadian Housing Still Sees Pent-up Demand. But for How Long?
3 min. read
Canadian Neigbourhood

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Canada’s surprising real estate market rebound is still going strong, with home sales across the country seeing a 20% boost relative to pre-pandemic levels. But how long will the pent-up demand in housing last?

According to the Canadian Real Estate Association (CREA), home sales in August increased by 33.5% compared to the same period last year and 6.2% compared to July (a monthly record). The average home price also jumped 18.5% to $586,149, although when the higher-priced Toronto and Vancouver markets are excluded, it dips to $464,000. The number of newly listed properties grew by 10.6% from July to August.

Inventory Level Changes

Costa Poulopoulos, Chair of CREA, stated:

“Many markets dealing with inventory shortages have been seeing fierce competition among buyers this summer; although, that was something that had been anticipated for 2020 prior to COVID-19.”

Inventory levels continued to fall to a record low of just 2.6 months in August – this is basically how long it would take to liquidate the current supply at today’s sales rate.

However, as noted by CREA, new inventory is outpacing increasing sales for the first time since the start of the rebound. Specifically, the sales-to-new-listings ratio dropped to 69.4% in August from 72.3% in July.

Here’s a snapshot of different areas across the country, including home prices and sales changes:

  • PEI: $288,302 (+30.7%)
  • Ottawa: $517,800 (+19.9%)
  • Halifax: $372,982 (+18.2%)
  • Greater Montreal Area: $408,200 (+16.4%)
  • Greater Toronto Area: $890,400 (+11.1%)
  • Greater Vancouver Area: $1,038,700 (+5.3% year-over-year)
  • Victoria: $719,300 (+3.5%)
  • Calgary: $414,100 (-0.8%)

Sales only increased in about 60% of local markets this August, compared to the previous two months when activity was up all over Canada. Real estate in the Greater Toronto Area (GTA) and British Columbia’s Lower Mainland saw the largest gains, as well as a significant amount of new supply.

Housing Activity Cooling

In a recent report, Brian DePratto, senior economist at TD Economics, wrote:

“Canadian resale housing markets defied gravity again in August, with sales activity not just exceeding, but rocketing past the pre-pandemic pace. There are a number of reasons why this has been the case, including low borrowing costs, and the relative mix of employment/income losses, but it is clear that this strength is unlikely to last.”

After a tough spring market, the summer months saw unseasonably strong housing sales. However, activity is now close to normal, which DePratto says could mean that “much of this pent-up demand has been satisfied.” As a result, things may slow down somewhat over the rest of the year.

RBC Economics expert Robert Hogue echoed DePratto, noting in a recent report:

“The pandemic completely disrupted normal seasonal patterns by shifting activity from the spring to summer. With pent-up demand now largely exhausted, we see activity cooling later this fall. This should let some of the steam out of prices, though not to the point of causing outright declines on a large scale.”

Impact on Mortgages

Due to current rising home prices across the country, first-time buyers will need to make larger minimum down payments, as will those who want to avoid default insurance by putting at least 20% down.

According to RateSpy.com, average minimum down payments (5% of the property value) have risen by about 36% (from $24,736 last year to $33,614 this year). Additionally, the average 20% down payment is up too, although to a lesser extent, from $98,947 in 2019 to $117,229.

One major reason for minimum down payments rising disproportionately is that average home prices have topped the $500,000 threshold. So, buyers must put 5% down on the first $500,000 of the mortgage and 10% down on anything above $500,000, up to $1 million.

While the Canadian housing market continues to see significant recovery despite the COVID-19 pandemic, experts predict things will slow down soon. In the meantime, buyers and sellers continue to be active on local markets and new inventory continues to become available across the nation.

Source: Canadian Mortgage Trends


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