HOUSING MARKET CONTINUES ITS REBOUND
SUMMARY
Canadian housing market activity continued to heat up in June amid ongoing easing of COVID-19 restrictions across the country, as repeat home sales and new listings surged 63.0% and 49.5% m/m sa, respectively. The relatively larger surge in sales lifted the national-level sales-to-new-listings ratio to 63.7%—a figure usually consistent with roughly balanced supply and demand conditions, but right on the cusp of sellers’ market territory. The MLS Home Price Index (HPI) continued to climb at a steady pace of 5.4% nsa y/y, in line with gains since February.
Last month, 17 of the 31 cities for which we maintain data saw the rate of sales gains accelerate versus the prior month, and 12 witnessed record monthly percentage increases in home purchases. Edmonton, Regina, Saskatoon, Kingston, Thunder Bay, Quebec City, and Moncton have already recouped March–April losses, while Sudbury, Winnipeg, Victoria, and Okanagan-Mainline are within 5% of doing so. Though they have rebounded considerably since April’s trough, sales in Toronto (-27%), Montreal (-9%), Vancouver (-15%), Ottawa (-12%), and Calgary (-6.5%) sat further below February levels. In Ontario’s Greater Golden Horseshoe region, sales were generally 15–20% lower than five months ago.
New listings in some cities have bounced back slightly more strongly. Vancouver and Victoria have already made up losses incurred in March and April, as has Montreal and most major centres in the net oil-producing provinces. However, new listings in Ottawa were about 6% below February levels, and listings across centres in the Greater Golden Horseshoe generally sat 10–15% below where they were prior to the imposition of COVID-19 containment measures.
In June, twelve of the centres we monitor were technically in sellers’ market territory, while only St. John’s reported conditions favouring buyers, though ratios continued to largely reflect the timing of local lockdown imposition and easing. MLS HPI gains were generally consistent with those witnessed in recent months, though advances continued to slide somewhat in Toronto—from almost 11% nsa y/y in March to a still-solid y/y rate over 8% in June.
IMPLICATIONS
Further revival in housing activity was expected given continued easing of restrictions across Canada in June, as well as early signals from local real estate boards, but the strength of the recovery has surprised thus far. Though purchase volumes still sat below February 2020 levels in Canada’s four largest cities, we expect further lockdown easing to continue to lift those markets in July. There is particularly strong upside for Ontario, which begins a new phase of its reopening this week. Anticipation of stricter mortgage qualification rules taking effect July 1st may have induced marginal buyers to pull purchases forward—an effect that could be unwound next month. However, consistently declining five-year mortgage rates—which sit at a three-year low—should continue to stimulate demand.
Going forward, we generally expect housing market transactions to follow the course of the virus. To the extent that the Canadian labour market’s recovery and regional re-openings proceed successfully, we suspect that sales will increasingly align with fundamentals. A second wave of COVID-19 and any related containment measures would undermine that trajectory. Persistent weakness in population growth—vis-à-vis border closures, travel restrictions, post-pandemic apprehension about migration, and the shift to online learning—continues to represent a key risk to the outlook. Unwinding of supports such as payment deferrals that have helped cushion the market against COVID-19’s economic fallout will also need to be timed to balance fiscal sustainability and support for both homeowners and prospective buyers. If these measures are halted before the labour market makes a full recovery, an uptick in mortgage arrears and defaults could reasonably be expected (see report here).
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