So many economic pundits have predicted a wide variety of scenarios for the Canadian real estate market. As of the last few weeks some theories seem plausible, interest rates are climbing, homes are lingering on the market a little longer, inflation is at an all time high, and the price of oil is sky high. I’m not sure what the price of oil has to do with owning a home, but it sounded good to include it.

Boom

When you look at the Canadian housing market against an international backdrop you find that we are undervalued compared to other international cities. When you look at our industry within the confines of Canada, we all agree its been a market which has shot up like a rocket. But was it a rocket or was it just playing catch up? Our housing market is fueled by large annual population growth through immigration. 400,000 immigrants translates into approximately 160,000 households, and those households need a roof over their head. It’s been reported that immigrants buy a home within 2-5 years of their citizenship, with upwards of 10% purchasing a home prior to becoming a citizen.

If you want to examine stagnant real estate markets, look at birth rates, percentage of population over the age of 65, and their immigration policies, and you will find your answer. Italy is with case in point, low birth rate, an aging population and very little immigration, which equates to a stagnant/low growth in housing prices

Bust

Our friends at the Royal Bank of Canada recently announced in a statement that ‘affordability of housing in Canada is grim’. They reported that the cost of home ownership including mortgage payments, property taxes, and utilities is at its highest level compared with median incomes since 1990. In order to get back to pre-pandemic affordability levels, prices would have to take a major tumble, approximately 22%. The threat of higher interest rates will have little affect on our housing market as long as employment stays strong (we are in the midst of a huge labor shortage) and Canadians use their new found pandemic wealth due to increased savings and increased equity, wisely. 

Echo

I have been predicting severe government intervention for investors for a long time. The recent budget really didn’t address this class of home owner, except for the new flipping tax (details to be announced. I predict many loopholes on this one). Not that I am against investors in real estate, as many of you know that I am an investor. I just run paranoid and I assumed the big bad investor was in the governments cross hairs.

There have been studies which peg retail real estate investors at between 20 and 25 percent of all residential purchases in Canada. The thirst for properties in Canada from equity-rich investors has been insatiable. Many investors who have been active since 2015 have refinanced their way to accruing and growing their residential portfolios.

There are 5 pillars which prop up the Canadian real estate market in many regions throughout Canada. These factors were never present during housing market cycles of the past, and include Increased Immigration, shortage of construction trades, the rise of the housing retail investor, Greenbelts and restrictions to urban boundary growth, and increased red tape at the municipal and at some provincial levels, which are a barrier to housing development and increases timelines. If anyone can predict which one of these pillars will fall, or when a pillar will get removed, then we may see some sort of correction to our real estate market. Otherwise the status quo will prevail.

The Final Word Goes to CMHC

I realize CMHC’s track record when it comes to predictions is not often accurate, however, they just came out with their Spring 2022 Housing Market Update which is in line with a supply side analysis. As far as Anthony Passarelli, senior analyst for CMHC (Hamilton CMA) is concerned, “Strong price growth will continue this year, with the resale market expected to be more balanced in the 2023-2024 period.” His low/high forecast for average prices in 2024 are $1,090,000/$1,300,000 respectively. In St Catherines-Niagara, senior analyst Inna Breidburg had a slightly tempered forecast for 2024’s low/high average price at $765,000/$970,000. All in all, both analysts for our trading areas have predicted price growth, in both the resale market and the rental market.