How hot is the Canadian real estate market right now? It is skyrocketing so much that the Canadian Real Estate Association (CREA) is projecting that the housing market is poised to post record highs again this year. According to the association, more than 700,000 properties will change hands in 2021, up from 551,262 last year. The national average home price will surge by an annualised rate of 16.5 per cent to $665,000 this year. All this is because demand is exceeding supply at a record-breaking pace.
But will this strength continue in 2022? CREA believes that the Canadian real estate market will be beginning to cool down next year, with 614,000 transactions and prices coming in below $680,000.
“At this point everyone knows how far the current monthly sales numbers are from historical norms, and that they have been setting record after record for eight months now, so this should not be a surprise,” CREA chair Costa Poulopoulos said in a statement.
CREA senior economist Shaun Cathcart offered a unique perspective on the housing boom, too. He asserted that regulatory changes in the real estate industry leading up to the pandemic contributed to the spike. The other factor, according to Catchart, is that households want to have a home they can ride out the COVID-19 public health crisis.
There might also be a fear of missing out (FOMO), with many Canadians concerned that prices will continue to surge and mortgage rates will eventually normalise.
“We are right at the start of the first undisturbed (by policy or lockdown) spring housing market in years and we also have the most extreme demand-supply imbalance ever by a large margin,” said Cathcart in a news release.
The new forecast comes after CREA confirmed that residential sales increased 39.2 per cent year-over-year in February, and prices advanced 25 per cent from a year ago to $678,091. By now, it is clear that your home – detached, semi-detached, townhouse, or condominium – is earning more than you. So says a new report from a leading financial institution.
BMO Study: ‘Your House Makes More Than You Do’
Do you own a home in the Canadian real estate market? If so, your property is likely earning more than you are at your 9-to-5 job, says a new study by the Bank of Montreal. Whether you currently own a townhome in the core of downtown Toronto or reside in a semi-detached house in the picturesque Okanagan Valley, the soaring value of your humble abode is making you wealthier than working Monday to Friday.
The BMO study, titled “Your House Makes More Than You,” concluded that housing prices are rising faster than family income and total annual income. While this is not prevalent throughout the entire Canadian real estate market, it is true for all of Ontario and many places across British Columbia.
“Normally asset prices start to raise red flags when they consistently outrun growth in underlying income or earnings. But across much of Canada, and notably Ontario, house prices are not only rising faster than family income, they are rising more than total annual income,” wrote Sal Guatieri, the senior economist at BMO, in a client note.
Indeed, Canada’s median family income is $83,900, but the national average home price is a whopping $531,000. Within the country, the Hamilton-Burlington real estate market southwest of Toronto, maintains a benchmark house price that increased by $154,000, or 24.24 per cent, in the past year to $786,600. According to the 2016 census, the median household income in this region is a little more than $75,000.
The report also assessed several other B.C. and Ontario markets (based on Jan 2021 CREA figures):
- Benchmark House Price: $499,800
- House Price Change (Jan. 2020 to Jan. 2021): +31.7% or $118,200
- Median Household Income: $86,970
- Benchmark House Price: $561,000
- House Price Change (Jan. 2020 to Jan. 2021): +22% or $102,000
- Median Household Income: $86,541
- Benchmark House Price: $911,300
- House Price Change (Jan. 2020 to Jan. 2021): +9.08% or $75,900
- Median Household Income: $69,289
Is Homeownership Impossible in Canada?
With real estate prices going through the roof, there are concerns that the homeownership dream is becoming less of a reality for many Canadians. The data is pointing to concerning trends for first-time homebuyers in particular.
The number of months to save for a down payment for a home across the Great White North has surged to an all-time high. Canadians need to save the longest in history to purchase a home, according to a new study from the National Bank of Canada (NBC). NBC data revealed that the median household needs 60 months of savings for the minimum down payment. The previous high was 57 months that took place in 1989, which had slumped to by 1992.
Separate NBC data also highlighted that Canadians need to earn more to carry a mortgage. In Toronto, for example, only 20 per cent of households could afford to purchase a non-condo home as they would need to maintain an annual income of $178,499 per year. Condo residents would need more than $124,000 per year in income.
Yet not all hope is lost! The one thing that homebuyers have in their advantage are historically low interest rates. The Bank of Canada (BoC) has slashed rates to near-zero, making borrowing cheaper than it has ever been. The central bank has signaled that it will not tighten policy until the economic recovery is well underway.
Overall, Canadian homebuyers – first-time, move-over, move-up, and out-of-town – are residing in a housing market that has its pros and cons. The most important thing is to save up, be prepared, do your due diligence, and have an impeccable team of licensed real estate agents on your side to help you confidently navigate this complex COVID-19-impacted real estate market!