What happens when 37% of Canadian Investment Capital is in Housing?

The housing market ended 2020 extremely strong. 2021 only blew it out of the water. With record housing starts, record resale prices, record transactions, you can bet that real estate is a part of the conversation for many of the Canadians.  In comparison to other developed countries like the US, Germany, and Japan, we take the crown in housing investment. A whopping 37% of overall invested dollars!  This newsletter aims at looking into the data in bite sizes for easier digestion and update you on key news of the market.

 

HIGHLIGHTS OF THE MONTH

• January-May recorded strongest housing starts period in the last 20 years
• Major banks are expecting extraordinary growth for 2021 before leveling off in 2022

 

5 TOP METROPOLITANS AT A GLANCE

Toronto Housing Market

• 11,951 of homes sold (+159% vs May 2020)
• $1,108,453 in average price (+28% vs May 2020)

Montreal Housing Market

• 6,340 of homes sold (+8% vs May 2020)
• $514,868 in average price (+27% vs May 2020)

Vancouver Housing Market

• 4,268 of homes sold (+187% vs May 2020)
• $1,172,800 in average price (+14% vs May 2020)

Calgary Housing Market

• 2,989 of homes sold (+177% vs May 2020)
• $510,908 in average price (+16% vs May 2020)

Edmonton Housing Market

• 2,741 of homes sold (+137% vs May 2020)
• $401,390 in average price (+13% vs May 2020)

 

TOP MARKET NEWS AND INSIGHT

Canada’s Housing Market is Out of Control

• Over the past two years, total sales have increased by an incredible 76 percent. Statistics from April show that property prices went up by 42 percent when compared with the same period last year. This trend of property inflation has continued despite the financial turmoil caused by the pandemic.
• Government hopes to tax foreign investment properties that are empty. They believe this could lead to billions of dollars in tax revenue, which can be used to support 35K of new affordable housing. Many economists curbing the demand for housing isn’t realistic. Only by increasing supply of housing can help.

Major Banks Remove Negative forecasting and Sees Bullish Growth

• Scotiabank moved the worst case scenario from -6.6% to +0.4%. Their base case is 7.5% with best case scenario at 9.2% of growth. RBC also forecasted a very bullish 16% increase in transaction for 2021 due to government’s lack of actions against the hot housing market.

Bank of Canada Keeps Key Interest Rate at 0.25%

• The Bank of Canada held its target for the overnight rate at ¼ percent, bank rate at ½ percent, and the deposit rate at ¼ percent. Weekly net purchases of Government of Canada bonds is targeted at $3 billion.

New Mortgage Stress Test Effective June 1st

• The new stress test is an increase from 4.79% to 5.25%. This started to pre-determine if a borrower can still afford the mortgage payment in the case of reduced income, job loss, or interest rate increase. The new test impacts the qualification of a household to get a mortgage by 4-5%.

Government First Time Home Buyer Program Detail

• Qualifying buying value cap raised from $500Ks to $700Ks
• Borrow 5-10% of price as equity sharing and interest free – new construction 10% and resale unit is 5%
• Qualifying household income raised from $120K to $150K
• Borrowed amount raised from 4x to 4.5x of income

 

 

Sources:

• Bank of Canada. “Bank of Canada will hold current level of policy rate until inflation objective is sustainably achieved, continues quantitative easing.” https://www.bankofcanada.ca/2021/06/fad-press-release-2021-06-09/
• Government of Canada. “First-Time Home Buyer Incentive.” https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive
• Canadian Housing and Mortgage Corporation. https://www.cmhc-schl.gc.ca/
• Canadian Housing and Mortgage Corporation. “Rental Market Report – January 2021.” https://assets.cmhc-schl.gc.ca/sites/cmhc/data-research/publications-reports/rental-market-reports/2020/rental-market-report-69720-2020-en.pdf?rev=936ca622-a6c5-4cbc-b937-d29b1d63cc14
• Zochodne, Geoff. “Trudeau government’s federal budget enters housing fray with tax on foreign owners.” https://financialpost.com/news/economy/trudeau-governments-federal-budget-enters-housing-fray-with-tax-on-foreign-owners
• Punwasi, Stephen. “Scotiabank Cuts Worst-Case Scenario For Canadian Real Estate, Sees Higher Price Growth.” https://betterdwelling.com/scotiabank-cuts-worst-case-scenario-for-canadian-real-estate-sees-higher-price-growth/#_
• Punwasi, Stephen. “Canada Funnels The Largest Share Of Investment Into Housing In The OECD.” https://betterdwelling.com/canada-funnels-the-largest-share-of-investment-into-housing-in-the-oecd/

 

Disclaimer:

Data sourced from the regional Real Estate Boards, Canadian Real Estate Association (CREA), Canadian Housing and Mortgage Corporation (CMHC), and various other sources as specified below. Any analysis or commentary is the opinion of the analyst(s) at ITW Construction Products Canada and should not be construed as investment advice.

 

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