Home sales showed signs of recovering as 2019 came to a close. But make no mistake, the mortgage stress test continues to dampen Canadian housing markets—just by less than before.
From the standpoint of household formation, consider the oldest millennials are about to start turning 40 (the youngest still only 25). Given current demographic trends and record international immigration, national home sales have only begun to recover when they should arguably be setting records.
The homeownership rate has fallen. A lack of supply in a number of Canada’s most active markets has made the homes available for purchase more expensive, and the stress test has made it harder to get a mortgage.
This has slowed home sales in many parts of the country. What data published each month by the Canadian Real Estate Association doesn’t show is the spillover of housing demand into the rental market where it, combined with the emergence of short-term rentals, is driving up rents and ultimately hurting the most housing-insecure Canadians. Think rent control is the answer? Google “renoviction.”
National measures of housing market balance are once again getting tighter. In fact, taking the Prairies and Newfoundland and Labrador out of the equation, the number of months of inventory for British Columbia, Ontario, Quebec and the Maritimes all put together is already at a 15-year low and still falling—and that’s with British Columbia and Ontario markets only just starting to recover.
Readings below their long-term average are generally consistent with seller’s market conditions. By that metric, as of the end of October 2019 (the most recent data available at the time of this writing), some 46 local markets out of 101 tracked were in seller’s market territory. That’s the highest number on record.
It’s finally becoming widely acknowledged the main issue is one of supply. More people and more households mean more roofs over more heads, whether rental or ownership. The continued sprawl of large single-detached homes is unsustainable but 700 square feet condos don’t hold great appeal for families.
People have been talking about the “missing middle” for years now. Builders are eager to build them but are being thwarted by zoning and red tape. All levels of government need to figure out how to work together to start getting more of these and other types of projects built. Otherwise, prices for existing ground-related properties (or, more precisely, the land they’re sitting on) will likely continue to rise further.
The trick is to be able to connect the dots between nice-sounding statements in a budget document and actual shovels in the ground. REALTORS® have an opportunity to play an important role in this process by sharing our knowledge about what home buyers actually want and the challenges they face, and by coordinating our board and association advocacy efforts at the federal, provincial and municipal levels.
Shaun,
It is nice to see someone actually acknowledging that there is a shortage problem. A couple of points which I think are missing from your analysis in this article are how foreign buyers are scooping up new builds, and how the stress test is affecting home owners who bought 4-5 years ago. The foreign buyer issue is obvious, but nobody wants to talk about it. The foreign buyer problem is crystallized by the amount of tax revenue Vancouver is generating via the vacancy tax. Secondly, a percentage of the entry level home owner who bought 4-5 years ago have gotten caught in a financial debt crunch. The updated stress test combined with their debt is preventing them from moving up. This is reducing the number of entry level homes available for resale. Entry level homes is where the biggest problem is. I am hoping 2020 will be the last year that the 4-5 year home owner problem has a material impact on housing supply. Fundamentally changing the stress test is not a good idea. Let the new norm take hold. The foreign buyer problem needs politicians to grow some spines.
Thank you Shaun
Well said!!!