November 2021 Market Intelligence
Find critical insights on local and national trends to help navigate your Real Estate investments.
Real Estate has been a hot topic, both locally and nationally. We have seen some substantial price increases, set many new price records in the community, including a recent single family non-waterfront lot sale for over $800,000. This is having many people re-evaluate where we may go from here. Land that has been sitting vacant is now being developed. We hope this may help offset the ongoing supply shortage and increase the tax base for our city. Many significant developments are well underway, such as the FOOTHILLS with the recent paving of Broadridge Place, which is a great example of a master-planned community that is now gaining steam.
Many of us who have lived through various economic cycles understand that this current market will make the record books. We need to look to the past, such as the early 2000's and even as far back as the ‘70s, to understand what, if any, inflation risk we may face. As this is not the 1970’s and the production of goods through technology has been streamlined, it remains to be seen if inflation is transitory in nature due to short-term supply shortages or if it's a longer-term problem due to the massive quantitative easing over the last few years. I am not an expert on economic cycles but understand Real Estate and enjoy devouring as much information on trends as possible.
Over the last few years, there have been many policy changes in the constant effort to curb escalating housing prices. Implementing a “cooling off “period and the potential removal of “blind bidding “is the most recent. Hopefully, the Government will look at the implications of such actions. Unfortunately, however, these policies are often decided upon by individuals outside of our industry and lack the inside knowledge on what needs to happen.
Remember when CEO compensation was getting very high? The Government implemented a requirement to make CEO wages public, which inadvertently had the opposite effect they were trying to achieve. Once those wages were made public, others asked for more, and CEO compensation increased. Governing bodies need to consult people in the field to see how proposed changes could affect consumers before just adding a new policy.
What is a “cooling off “period? This is a proposed timeframe during which Buyers would have the right to “change their minds “and cancel their agreement to purchase a property. It will be interesting to see how the Government would implement this and what the rules will be around it. There is something similar in place already for Multi-Family New Construction projects, which allows the Buyer 7 days to read through often lengthy legally written Developer Disclosure Statements.
As leading professionals with a pulse on our local market, we evaluate the benefits and/or risks of such measures. The reasons for making these decisions are sound. Unfortunately, the existing market conditions do not allow Buyers the time required to make fully informed decisions, with little or no opportunity for proper research and due diligence on one of our basic needs as human beings: SHELTER, which also happens to be the largest monetary purchase. The Government is also talking about creating rules against unconditional offers. This would allow every Buyer a “cooling off “period by default.
We understand the stress that Buyers and Sellers are going through and recognize that it is more important than ever before to find the right strategy for each unique situation. The best agreement in any industry is a win/win solution, which is much easier to achieve in a well-balanced market. Simply put, supply and demand need to come closer together.
- Derek and Connie
Inflation’s impact on Real Estate
Real Estate and inflation: A simple correlation, statistics for 1974-1999, show that Canadian Real Estate is a much better short-term inflation hedge than Canadian stocks and bonds, especially in a high-inflation environment.
As the cost of goods increases with inflation, so does Real Estate. When inflation increases, then housing and other Real Estate asset prices follow. However, you may see mortgage rates rise, which can put pressure on demand for Real Estate as debt becomes more expensive.
Because things get more expensive with inflation, the cost of materials used in construction will also rise. There’s a lot that goes into building, and all those prices will generally increase as inflation rises.
According to Stanford University, residential Real Estate is historically a safe investment haven during inflationary periods. It would be best if you looked back to 1970 to see how inflation affected Real Estate, and this study done by Stanford will give you a better perspective.
Canadian home prices continue to re-accelerate in September
- National home sales rose 0.9% on a month-over-month basis in September.
- The actual (not seasonally adjusted) activity was down 17.5% on a year-over-year basis.
- The number of newly listed properties declined by 1.6% from August to September.
- The MLS® Home Price Index (MLS® HPI) rose 1.7% month-over-month and was up 21.5% year-over-year.
- The actual (not seasonally adjusted) national average sale price posted a 13.9% year-over-year gain in September.
“September provided another month’s worth of evidence from all across Canada that housing market conditions are stabilizing near current levels, “said Cliff Stevenson, Chair of CREA. “In some ways that comes as a relief given the volatility of the last year-and-a-half, but the issue is that demand/supply conditions are stabilizing in a place that very few people are happy about. There is still a lot of demand chasing an increasingly scarce number of listings, so this market remains very challenging. “
Based on a comparison of sales-to-new listings ratio with long-term averages, a small but growing majority of local markets are moving back into seller’s market territory. As of September, it was close to a 60/40 split between sellers and balanced markets.
There were 2.1 months of inventory on a national basis at the end of September 2021, down slightly from 2.2 months in August and 2.3 months in June and July. This is extremely low and indicative of a strong seller ‘s market at the national level and in most local markets. The long-term average for this measure is more than 5 months.
The actual (not seasonally adjusted) national average home price was $686,650 in September 2021, up 13.9% from the same month last year. The national average price is heavily influenced by sales in Greater Vancouver and the GTA, two of Canada’s most active and expensive housing markets. By excluding these two markets from the calculation in September 2021 cuts over $146,000 from the national average price.
HOUSING MARKET CLOSED OUT SUMMER THE WAY IT BEGAN
Active listings of single-family homes were 47 percent lower last month than in September 2020, while VIREB’s inventory of condo apartments and row/townhouses dropped by 57 percent and 48 percent, respectively, from one year ago.
There were 932-unit sales in the VIREB area last month, down 27 percent from one year ago. By category, 447 single-family homes sold in September, down three percent from August and 30 percent year over year. September saw 122 condo apartment sales compared to 123 one year ago and 101 in August. In the row/townhouse category, there were 86 sales last month, down 21 percent from September 2020 and five percent from the previous month.
In its most recent housing forecast, the British Columbia Real Estate Association (BCREA) states that the supply situation is especially difficult in markets outside the Lower Mainland, including Vancouver Island. Listings activity has been lackluster, and even if sales come back down to long-run average levels, total listings would need to nearly double to bring markets back into balance.
The board-wide benchmark price of a single-family home reached $747,600 in September, up 32 percent year over year and slightly higher than in August. In the apartment category, the benchmark price hit $395,100 last month, a one percent increase from August and up by 30 percent year over year. The benchmark price of a townhouse rose by 34 percent from the previous September and by two percent from August, climbing to $578,500.
National consumer confidence continued to dip in October 2021 after a historic bounce-back earlier in the year following the steep drop in confidence seen at the start at the pandemic, according to the Conference Board of Canada’s survey-based index of consumer confidence.
The overall sentiment was down across all regions of the country in October except for British Columbia and the Atlantic region. Concerning job prospects over the next six months, the number of respondents expecting stability moved higher as the number of respondents expressing better job opportunities over the next six months fell.
Regarding expectations for their household budget over the next six months, the number of respondents expecting stability continued to trend near record highs. There was a decline compared to the previous month in the number of those expecting improvement in their consumer household finances and a slight uptick in those expressing uncertainty or worsening conditions.
Interest Rate Change
Bank of Canada holds rates steady, ends quantitative easing program.
The Bank of Canada kept its policy rate at 0.25% while maintaining its guidance for the future trajectory of the overnight rate going forward.
More notably, the Bank also revealed it will be closing its bond buying program, more popularly known as quantitative easing (QE), ending the extraordinary monetary support in the form of liquidity that it has been providing to the financial system.
The Bank’s assessment is that the global economic recovery from the pandemic is progressing steadily, despite the existence of several variants of the Coronavirus continuing to pose a threat to human health and overall economic activity.
Additionally, the Bank noted that amid strong demand, growth is still being constrained by pandemic-related disruptions to the production and transportation of goods globally. These supply-side bottlenecks along with higher energy prices, have led to inflation picking up in many countries.
The Bank’s assessment of domestic economic conditions has indicated that strong economic growth has resumed in Canada following a contraction in the second quarter of this year. The Bank alluded to the fact that labour market conditions are also improving as evidenced by the strong employment gains in recent months, mostly concentrated in sectors and among workers most impacted by COVID.
However, as the economy reopens, labour shortages continue to persist in some sectors, as both employers and workers continue to search for skills and jobs respectively that are best suited to their individual needs.
In light of this, the Bank now forecasts the Canadian economy to expand by 5% this year before slightly moderating to 4¼ and 3¾ percent in 2022 and 2023, respectively. The Bank anticipates that demand will be supported by strong consumption and business investment, along with an uptick in exports as the US economy recovers. The Bank also expects housing activity to remain upbeat, supported by high disposable incomes and low borrowing rates.
Canadian Bankers Association says only 0.18 per cent of Canadian homeowners are underwater, despite record-high home high prices and mortgage debt.
The CBA found the two provinces with the highest average home prices, Ontario and British Columbia, also had the lowest mortgage defaults. In Ontario, just 0.07 per cent of mortgages were underwater as of July 31, while B.C. had the second-lowest default rate at 0.13 per cent.
National Employment Trends
The unemployment rate in Canada was 7.1% as of September 2021, down 0.3% from the previous month. The unemployment rate stood 6% below the peak from June 2020 and is on par with the long-run average.
There were 115,000 more full-time jobs in September 2021 compared to a month earlier. A loss of 1,200 part-time positions led to an increase of 113,800 total jobs in September.
As you review some of the market stats, the average price information can help establish trends over time but does not indicate the actual prices in centres comprised of widely divergent neighbourhoods or account for price differential between geographic areas.
Call or email us for an interpretation of your specific area and conditions that may affect your community.