Strength in Housing Led By GTA–Policy Actions Coming
This morning, the Canadian Real Estate Association (CREA) released its March national real estate statistics showing home sales rose 1.1% from February to March, exceeding the previous monthly sales record set in April 2016. This strength in sales was boosted by a rebound in the Lower Mainland of British Columbia, London and St. Thomas (Ontario) and Montreal. On a year-over-year basis, sales activity last month was up 6.6%, with gains in close to 75% of all local markets. Sales in the Greater Toronto Area (GTA) showed continued strong gains, which offset a decline in Vancouver. Even there, however, the decline in the number of homes changing hands has slowed as the lagged effects of the 15% tax on foreign purchases seems to be dissipating. Many suggest that the Vancouver housing market has bottomed.
Today’s March data had been delayed by the Easter holiday and ironically they have been released on the very day that federal Finance Minister Frank Morneau and Ontario Finance Minister Charles Sousa along with Toronto Mayor John Tory are meeting to discuss ways to slow the Toronto housing juggernaut. Many expect the Ontario budget on April 27 to include at least some of these measures. Actions under discussion include a tax on foreign nonresident home purchases, a tax on vacant property–both of which have been introduced in Vancouver–as well as a tax on investors (speculators) who flip properties and the possible extension of rent controls. The lack of supply in both the sales and rental markets will also be discussed.
In public comments last week, Sousa said speculators are reselling contracts for pre-construction homes multiple times before closing, using assignment clauses.“There are those who go into new developments, buy up a slew of properties, and then flip them, while avoiding paying their fair share of taxes,” he said. “I call them property scalpers.” However, the finance minister admitted there are no data to show how widespread “property scalping” is in Ontario. According to Sousa, in Ontario property scalping involves only new developments.
According to media reports last year, a similar practice – called “shadow flipping” – became increasingly common in Vancouver. It typically involved a real estate agent reselling the same previously owned home multiple times before the closing date, driving up the price of the house, sometimes by hundreds of thousands of dollars. In May 2016, the B.C. government put in place new rules that require real estate agents to draft offers that require the seller’s consent to a contract transfer, and any resulting profit to be returned to the seller.
New Listings Shot Up in March
Supply shortages have been a major issue depressing sales activity and raising prices, especially in and around Toronto and parts of BC. But in March, the number of newly listed homes rose 2.5%, led by gains in the GTA, Calgary, Edmonton and the Lower Mainland of British Columbia.
With new listings having climbed by more than sales, the national sales-to-new listings ratio edged downward to 67.4% in March compared to 68.3% in February. The ratio in the range of 40%-to-60% is considered generally consistent with balanced housing market conditions. Above 60% is considered a sellers’ market and below 40%, a buyers’ market.
The sales-to-new-listings ratio was above the sellers’ market threshold in about 60% of all local housing markets, the majority of which continued to be in British Columbia, in and around the Greater Toronto Area and across Southwestern Ontario.
Number of Months of Inventory
The number of months of inventory is another important measure of the balance between housing supply and demand. It represents the number of months it would take to completely liquidate current inventories at the current rate of sales activity.
There were 4.1 months of inventory on a national basis at the end of March–down from 4.2 months in February and the lowest level for this measure in almost a decade. Clearly government efforts to increase supply are warranted.
The imbalance between limited housing supply and relatively strong demand in Ontario’s Greater Golden Horseshoe region continues to be without precedent (the region includes the GTA, Hamilton-Burlington, Oakville-Milton, Guelph, Kitchener-Waterloo, Cambridge, Brantford, the Niagara Region, Barrie and nearby cottage country). The number of months of inventory in March stood at or below one month of sales in the GTA, Hamilton-Burlington, Oakville-Milton, Kitchener-Waterloo, Cambridge, Brantford and Guelph, Barrie, parts of the Niagara Region and parts of cottage country.
Prices Continue to Rise
The Aggregate Composite MLS House Price Index (HPI) rose 18.6% year-over-year last month. Price gains accelerated for all benchmark housing categories tracked by the index.
This price index, unlike those provided by local real estate boards and other data sources, provides the best gauge of price trends because it corrects for changes in the mix of sales activity (between types and sizes of housing) from one month to the next.
Prices for two-storey single family homes posted the strongest year-over-year gains (+21%), followed closely by townhouse/row units (+17.9%), one-storey single family homes (16.6%) and apartment units (16.3%). In many of these regions, the supply of new single-family homes is so limited, you practically need to knock down a house to build a new one.
Price trends continued to vary widely by location. In the Fraser Valley and Greater Vancouver, prices have been recovering in recent months after having dipped in the second half of last year. On a year-over-year basis, home prices in the Fraser Valley and Greater Vancouver remain well above year-ago levels (+19.4% year-over-year and +12.7% year-over-year respectively).
Meanwhile, year-over-year benchmark price increases were in the 20% range in Victoria and elsewhere on Vancouver Island. Guelph recorded a similar price gain, while Greater Toronto and Oakville-Milton saw prices rise in the 30% range in March, fulling continued concerns of a housing bubble and precipitating today’s meeting of federal and provincial policy makers.
By comparison, home prices eased by 1.2% year-over-year in Calgary and by 1.5% year-over-year in Saskatoon. Prices in these two markets now stand 5.4% and 5.1% below their respective peaks reached in 2015.
Home prices were up modestly from year-ago levels in Regina (+1.7%), Ottawa (+4%), Greater Montreal (+3.3% year-over-year) and Greater Moncton (+4.7%).
The actual (not seasonally adjusted) national average price for homes sold in March 2017 was $548,517, up 8.2% from where it stood one year earlier.
The national average price continues to be pulled upward by sales activity in Greater Vancouver and Greater Toronto, which remain two of Canada’s tightest, most active and expensive housing markets.
Greater Vancouver’s share of national sales activity has diminished considerably over the past year, giving it less upward influence on the national average price. Even so, the average price is reduced by more than $150,000 to $389,726 if Greater Vancouver and Greater Toronto sales are excluded from calculations.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres