GLOBAL ECONOMICS | GLOBAL REAL ESTATE TRENDS November 14, 2016
Poles Apart From a national perspective, Canada’s housing market appears to have a remarkably steady hand on the tiller. Home sales have cooled modestly since the spring alongside worsening affordability and a tightening in macro-prudential rules, including increased downpayment requirements on homes priced over $500,000 (effective February 2016) and stricter lending criteria for insured mortgages (effective October 2016). Overall, however, housing demand remains well supported by low interest rates and solid population growth. MLS resale transactions in September were 6% below April’s record high, but still 13% above their 10-year average.
CONTACTS Adrienne Warren 416.866.4315 Scotiabank Economics adrienne.warren@scotiabank.com
At the more localized level, however, activity is becoming increasingly disparate: Vancouver home sales have tumbled 40% since February, and are trending below their decade average. A severe lack of affordability compounded by recent policy changes has curtailed both domestic and foreign purchases, most notably for single-family homes. In addition to the national measures outlined above, the B.C. government has imposed a luxury tax on property sales over $2 million (effective February 2016) and a 15% tax on sales to foreign buyers in Metro Vancouver (effective August 2016). Benchmark home prices in October were up a staggering 25% y/y, but have begun to soften on a m/m basis. We expect Vancouver home prices could face further downward pressure in the year ahead, with overall market conditions moving back into balance amid the sharp drop in sales. Meanwhile, the Greater Toronto Area is setting consecutive monthly sales records. Price appreciation continues to accelerate amid strong demand and a dearth of listings. Benchmark home prices were up 20% y/y in October, while average prices are showing their biggest gains since the late 1980s. With singlefamily homes in the GTA out of reach for many first-time buyers, the strong momentum is sales and pricing has spread to the condominium market as well as to more affordable surrounding communities such as Hamilton, Kitchener and Guelph. Given increasingly stretched affordability, we expect the latest tightening in mortgage qualifying rules will lead to a cooling in GTA housing demand over the coming year. At the same time, severely constrained supply — the ratio of sales to new listings climbed to a seven-year high in September — will likely keep upward pressure on prices in the near term. Calgary home sales are stabilizing at lower levels, while benchmark prices are posting modest single-digit declines amid ample supply. While the region’s better affordability suggest it will be less impacted by the new mortgage rules than Vancouver or Toronto, weak labour market conditions and softening demographics will continue to suppress housing demand. The City of Calgary reported a net outmigration of residents in the 12 months to April. A stable pool of listings suggests the risk of a significant price correction is low. However, several segments are more vulnerable to oversupply, including the condominium market and the rental market. Elsewhere, the vast majority of local markets are showing a fairly stable trend in sales in line with historical norms, and moderate price increases, consistent with balanced market conditions. Initial estimates from the Department of Finance
National MLS Home Sales 600 000s, annualized 550 500 450
10-year average
400 350 300 250 04
06
08
10
12
14
16
Source: CREA, Scotiabank Economics.
MLS Home Sales 180 index January 2014 = 100 160
B.C.
140
Ontario
120 Rest of Canada
100 80
Alberta, Saskatchewan and Newfoundland & Labrador
60 2014
2015
2016
Source: CREA, Scotiabank Economics
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