Owned and rental housing are two sides of the same coin, and they flipped quite distinctively during the pandemic: There were unprecedented increases in the prices and sales of owned housing across the country, while demand for rental housing grew slightly overall, yet slowed in some markets.

The rental housing market is supplied through two primary channels: purpose-built rental (PBR) housing and privately-owned condominium rentals. The PBR vacancy rate was 3.1 per cent in October 2021, similar to the same period in 2020, but much higher than in 2018 and 2019.

PBR vacancy rates fell in Calgary, Halifax and Vancouver, but rose in Toronto and Winnipeg. The slow economic recovery in Toronto, especially in youth employment, partly contributed to the slow growth in rental demand there.

 

 

One thing is certain: the rental housing market provides strong evidence for the efficacy of supply and demand principles. For example, the number of occupied rental dwellings grew by 41,000 units across Canada from October 2020 to October 2021, which should have put upward pressure on rents, but the supply of PBR dwellings increased by 40,000 units, thereby offsetting demand.

 

Equally noteworthy is that the rental supply in October 2020 had exceeded demand by roughly 26,000 units over the previous 12 months, relieving pressure on rents and vacancy rates. Oddly, supply skeptics who doubt that increasing housing supply will help ease pressure on housing prices are not as critical of supply-side solutions for rental housing.

 

 University towns also reported tightening rental housing markets. With the gradual resumption of on-campus learning, university students returned in large numbers, contributing to the increase in the small, student-dependent rental markets.

 This was further amplified by the increase in the number of international students. The number of study permit holders grew by 44.3 per cent between October 2020 and August 2021, compared to the same period a year earlier, according to government data. Consequently, vacancy rates fell last year in places such as Kingston (1.4 per cent) and London (1.9 per cent) in Ontario.

 

Overall, though, thanks to the sizable increase in rental supply, rents in Canada grew more slowly in 2021 than the year before. For example, rents rose by 1.3 per cent in Toronto, a much slower growth rate than in 2020. But tighter markets in Vancouver and Halifax meant rents there rose by 2.4 per cent and 4.8 per cent, respectively, outpacing the previous year’s increases.

  

Yet despite the increase in the supply of PBR housing, a sizable segment of the population still struggles with affording housing in large urban centres. 

 Consider that an average-wage earner in Vancouver has to work 198 hours (roughly 28 standard shifts) each month just to keep the average monthly rent of a two-bedroom apartment to 30 per cent of their gross income. By comparison, an average-wage worker in Quebec would need to work for only 105 hours for an affordable rental dwelling.

 

With the economic recovery accelerating in sectors that employ young workers (for example, hospitality and tourism), a marked increase in net migration and a growth in the number of international students, one can expect a steady rise in the demand for rental housing, which is inherently tied to those three demographics. Fortunately, a continued expansion of rental supply will assist in maintaining the balance.

The MLS Home Price Index, which removes some of the volatility from seasonality, recorded a month-over-month gain of 3.5% and a 29.2% jump from a year ago.

In Ontario, the average house price has now surpassed the million-dollar mark, rising nearly 26% year-over-year to $1,086,493.

Home resales continued to pick up, rising 4.6% from January, while the number of newly listed homes jumped 23.7%. The increase was led by large gains in the Greater Toronto Area, Calgary and the Fraser Valley.

This increase in new listings is similar to the trend seen in 2020 and again in 2021, noted Shaun Cathcart, CREA’s senior economist.

“The real question is, what comes next? In the short term, expect at least one more month of stronger sales as the majority of those new listings came onto the market near the end of the month, so many of the associated sales likely won’t happen until early March,” he noted.

“Ideally, listings will continue to come out in big numbers in the months ahead. Combined with higher interest rates and higher prices, we could be at a turning point where price growth begins to slow down and inventories finally begin to recover after seven years of declines.”

The number of months of inventory remained at its all-time low of 1.6 months, well below the longer-term average of five months.

Removing the high-priced markets of the Greater Toronto and Vancouver areas, the average price stands at $638,720, which is $110,629 higher than a year ago.

 

Cross-country roundup of home prices

Resale prices continued to soar in many parts of the country, including throughout Southern Ontario and increasingly in Alberta. In just the past month, average prices increased by $80,100 in the Greater Toronto Area, $60,300 in Barrie, ON, and district, $58,200 in the Greater Vancouver Area and $40,600 in Ottawa. Calgary saw prices rise by $25,200 and Edmonton saw a monthly gain of $9,300.

“Calgary’s market has exploded to the upside, with the benchmark price up 34.6% annualized over the past three months, the fastest clip since the heady days of 2006,” noted BMO senior economist Robert Kavcic. “Relative affordability and $100 oil have clearly turned investors to that market.”

Here’s a look at some more regional and local housing market results for February:

  • Ontario: $1,086,493 (+25.8%)
  • Quebec: $498,688 (+18.3)
  • B.C.: $1,104,098 (+24.4%)
  • Alberta: $482,255 (+15.5%)
  • Barrie & District: $940,600 (+37.8%)
  • Greater Toronto Area: $1,340,000 (+35.9%)
  • Halifax-Dartmouth: $459,200 (+33.5%)
  • Victoria: $944,500 (+26.3%)
  • Greater Vancouver Area: $1,313,400 (+20.8%)
  • Greater Montreal Area: $545,900 (+20.3%)
  • Ottawa: $730,300 (+15.9%)
  • Calgary: $484,000 (+15.7%)
  • Winnipeg: $342,400 (+13.5%)
  • St. John’s: $292,900 (+10.9%)
  • Edmonton: $348,900 (+6.9%)

CREA updates its housing market outlook

Along with the February sales data, CREA also released an update to its 2022 forecasts, with upward revisions to both total sales and average prices expected for 2022.

The association now expects 612,800 properties to trade hands this year vs. 610,700 previously. This would represent an 8.1% decline from 2021 sales.

It also sees an annual average sale price of $786,000, a nearly $47,000 increase from its initial forecast released in December. Should that come to fruition, that would represent an annual gain of 14.3% over 2021 prices.

“Not surprisingly, this is higher than the previous forecast, as prices have continued to set new records, reflecting the unprecedented imbalance of housing supply and demand,” CREA noted.

Looking ahead to 2023, it added that home sales should continue to remain strong while moving slowly back to its longer-term average. “Limited supply, higher prices and higher interest rates are expected to further tap the brakes on activity and price growth in 2023 compared to 2022, particularly in Canada’s most expensive markets,” the association added.

 

The Bank of Canada’s overnight lending rate will end the year exactly where it started—unchanged at 1.75%.

As was widely expected, the Bank of Canada decided once again to leave rates on hold as it continues to assess the need for monetary policy easing given a strong domestic economy against a background of global headwinds. The BoC’s Governing Council noted that the Canadian economy continues to perform well, with growth in the third quarter of 1.3%, moderately expanding consumer spending, along with rising wages and investment spending. Additionally, inflation remains right around the Bank’s target of 2%, “consistent with an economy operating near capacity,” the council added.

Bank of Canada Governor Stephen Poloz “Future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against the sources of resilience in the Canadian economy—notably consumer spending and housing activity.” The BoC is bucking a global trend of central banks that have been easing monetary policy within the last quarter—more than 40 to date, the most notable being the U.S. Federal Reserve, which has cut rates three times this year. Some believe the longer the Bank resists a rate cut, the more risk that it may need to act more aggressively at a future date.

“I continue to believe that at some point the BoC will have to drop rates to weaken the Loonie and stimulate our moribund rates of economic growth, but the Bank remains determined not to cut until inflation materially weakens,” mortgage expert Dave Larock wrote in a blog post prior to the BoC decision. “Of course, if and when this happens, the BoC may then have to lower by more than it would have done had it acted preemptively. That, however, is a risk it appears willing to take.”

BoC Rate Cut in Store for 2020?

Earlier this summer, a rate cut (or two) from the Bank of Canada seemed all but guaranteed. But current economic conditions are causing many economists to constantly re-write their forecasts. Some now foresee another full year of no rate movement.

“While we can’t predict developments in the U.S.-China trade war with any real confidence, the resurgence of the housing market—with the sales-to-new listing ratio now pointing to house price inflation accelerating to over 10%—suggests that the Bank will keep policy unchanged throughout 2020 and probably longer,” wrote Stephen Brown, senior economist at Capital Economics. Market expectations are for at least one quarter-point rate cut by mid-2020. Overnight Index Swap markets are currently pricing in a roughly 70% chance of a rate cut by July, according to Westpac. Some, however, are calling for monetary policy easing earlier in the year.

“Our assumption has been that the BoC’s patience will eventually run out, with persistent trade uncertainty and below-trend growth around the turn of the year prompting a rate cut in early-2020,” economists at RBC Economics wrote in a research note. “Rising odds of a U.S.-China trade deal has pared back market expectations for a rate cut.

Canada’s national housing agency is forecasting Toronto region home prices to rebound in the next two years, rising as much as 5 percent in 2020 to an average of between $765,300 and $898,400 This year is predicted to end with prices averaging between $740,600 and $854,600. It predicts prices could average as much as $949,400 by the end of 2021, a 10.5 per cent increase over this year.

Sales and new home construction, led by the highrise sector, are also expected to fully recover after the market lull of the last two years, according to the annual Housing Market Outlook from Canada Mortgage and Housing Corp. (CMHC) released on Thursday. The complex geopolitical landscape, including an upcoming U.S. election, trade wars and Brexit, made the report’s forecast among the most difficult. But those are the conditions that are also expected to keep interest rates low, said Dana Senagama, CMHC manager of market analysis for Ontario. She said consumers can expect their monthly mortgage payments to remain stable through the end of 2021, the period covered in the report.

CMHC says the Toronto region market is heading back into more balanced and sellers’ territory thanks to high employment, the influx of immigrants and migration from other provinces.

Although policy changes such as stricter mortgage qualifications and a foreign buyers tax have slowed housing activity in the last couple of years, the resurgence of Toronto’s housing market was inevitable, said Senagama.

 

All unanimously forecast a sizeable decline in uninsured mortgage lending activity.

Meanwhile, Home Capital’s new CEO reported on progress made to date to turn the lender around following its liquidity crisis in the second quarter.

Highlights from the conference call transcripts from Street Capital, Home Capital and First National are below. The comments in blue deserve particular attention.

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