Home sales over Canadian MLS® Systems rose by 5.2 per cent from January to February 2017 to reach the highest level since April 2016, according to statistics released by The Canadian Real Estate Association (CREA). Meanwhile, CREA has updated its forecast for home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards and Associations in 2017 and 2018.

While February home sales were up from the previous month in about 70 per cent of all local markets, the national increase was overwhelmingly driven by an increase in activity across the Greater Toronto Area (GTA) and surrounding neighbourhoods.

“Housing market trends continue to differ by region,” said CREA President Cliff Iverson. “Homes are selling briskly throughout the Greater Toronto Area and nearby communities. Elsewhere, competition among potential buyers is less intense, so listings take longer to sell.”

Regional divergence

Canadian housing market trends continue to display considerable regional divergence. In British Columbia, activity in the Lower Mainland has cooled markedly from all-time highs recorded early last year; however, sales and price pressures elsewhere in the province remain historically strong. In the resource-intensive provinces of Alberta, Saskatchewan, and Newfoundland and Labrador, sales activity is still running at lower levels and supply is elevated, which has resulted in weakened price trends.

In housing markets around the Greater Toronto Area and including the furthest reaches of Ontario’s Greater Golden Horseshoe (the region includes the GTA, Hamilton-Burlington, Oakville-Milton, Guelph, Kitchener-Waterloo, Cambridge, Brantford, the Niagara Region, Barrie and nearby cottage country), the balance between supply and demand has become increasingly tight. This is expected to lead to continued double-digit price growth, resulting in further erosion in affordability and sales activity in the absence of a significant and sustained rise in new supply.

“In and around Toronto, many potential move-up buyers find themselves outbid in multiple-offer situations amid a short supply of listings,” said Gregory Klump, CREA’s Chief Economist. “As a result, they aren’t putting their current home on the market. It’s something of a vicious circle from the standpoint of a supply shortage and a challenge for first-time and move-up home buyers alike. By contrast, housing markets in urban markets elsewhere in Canada are either balanced or are amply supplied. Because housing market conditions vary by region, further tightening of mortgage regulations aimed at cooling the housing market in one region may destabilize it elsewhere.”

Housing markets in places like Manitoba, Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island have all experienced, to varying degrees, a breakout year in 2016 following a number of years of stagnation, with rising sales drawing down elevated supply.

Nationally, sales activity is forecast to decline by 3 per cent to 518,700 units in 2017. In line with CREA's previous forecast, the upward revision to the sales forecast for Ontario offsets a downward revision to British Columbia’s. British Columbia is forecast to see the largest decline in sales in 2017 (down 17.5 per cent), followed by Prince Edward Island (down 10.8 per cent). Activity in both provinces is retreating from all-time highs reached last year. In provinces where economic and housing market prospects are closely tied to the outlook for oil and other natural resource industries, average prices are showing tentative signs of stabilizing; Alberta is forecast to have the largest increase in activity in 2017 (up 5 per cent) that still leaves it nearly 10 per cent below the 10-year average, while softening sales are predicted in Saskatchewan and Newfoundland and Labrador.

Elsewhere, sales activity is forecast to be little changed from 2016 to 2017. Ontario sales are forecast to rise by less than 1 per cent in 2017, as strong demand runs up against an increasingly acute supply shortage. In 2018, national sales are forecast to number 513,400 units, representing a decline of 1 per cent compared to the 2017 forecast. Most of the annual decline is expected result from fewer sales in Ontario.

Factors affecting price

In some regions, the recently tightened “stress test” for mortgage financing qualification will force some first-time buyers to re-think how much home they can afford and may lead to a drop in home purchases as they shop for a lower priced home. In regions where there is a shortage of lower-priced inventory, some sales may be delayed as buyers save longer for a larger down payment. This, combined with higher mortgage default insurance premiums and an expected rise in mortgage interest rates could be a hit to affordability in all Canadian housing markets. In markets like Vancouver and Toronto, where single family homes are in short supply and there are few affordable options, some buyers may find themselves priced out of the market entirely or prompt some buyers to move further out into communities where homes are more affordably priced.

While prices are still rising rapidly in Ontario, British Columbia has seen a compositional shift in the average price that reflects softer sales activity in the Lower Mainland, which has some of the most expensive real estate in Canada. Average prices in other provinces are either rising modestly or holding steady, reflecting well balanced supply and demand.

The national average price is forecast to rise by 4.8 per cent to $513,500 in 2017, with significant regional variations. The average price is expected to retreat by more than 5 per cent in British Columbia as well as Newfoundland and Labrador, by 2.8 per cent in Saskatchewan, and rise by more than 15 per cent in Ontario.

In 2018, the national average price is forecast to rise by 5 per cent to $539,400, reflecting ongoing market tightness in Ontario and a further return to more normal levels in British Columbia. Price gains outside of the Greater Golden Horseshoe are not expected to approach the increase in the national average price.

Saskatchewan and Newfoundland and Labrador are projected to see average prices decline in 2018 by less than 1 per cent. In most other parts of Canada, home price increases are forecast to more or less track overall consumer price inflation in 2018.

In other provinces where average price last year began showing tentative signs of improving, average price gains are forecast to hold below the rate of inflation in 2017 as the impact of recent regulatory changes and higher expected mortgage rates lean against stronger demand and tighter market conditions.

Home listings reveal sellers markets

The number of newly listed homes rose 4.8 per cent in February 2017, led by the GTA and nearby markets following a sharp drop in January. More than one-third of all local housing markets saw new listings recede from levels the previous month, including those in the Prairies, northern Ontario and the Atlantic region. Meanwhile, new listings in the Greater Vancouver region fell significantly from January levels, having decreased by nearly 25 per cent to reach the lowest level since 2001.

Actual (not seasonally adjusted) activity was down 2.6 per cent from levels for last February. The decline reflects a moderation in sales in the Lower Mainland of British Columbia compared to extraordinarily elevated levels recorded one year ago.

With similar monthly increases in both sales and new listings, the national sales-to-new listings ratio was 69 per cent in February, little changed from 68.7 per cent in January. A sales-to-new listings ratio between 40 and 60 is generally consistent with balanced housing market conditions, with readings below and above this range indicating buyers’ and sellers’ markets respectively. The ratio was above 60 per cent in almost 60 per cent of all local housing markets in February, the majority of which are located in British Columbia, in and around the GTA and across southwestern Ontario.

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents how long it would take to completely liquidate current inventories at the current rate of sales activity. There were 4.2 months of inventory on a national basis at the end of February 2017, down from 4.5 months in January and the lowest level for this measure in almost a decade.

Benchmark home prices expected to increase through 2018

The Aggregate Composite MLS® HPI rose by 16 per cent year-over-year in February 2017. This was up from January’s gain reflecting an acceleration in home price increases, particularly for single family homes in and around Toronto.

Prices for two-storey single family homes posted the strongest year-over-year gains (up 17.9 per cent), followed closely by townhouse/row units (up 16 per cent), one-storey single family homes (up 15 per cent) and apartment units (up 13.7 per cent).

While benchmark home prices were up from year-ago levels in 11 of 13 housing markets tracked by the MLS® HPI, price trends continued to vary widely by location.

In the Fraser Valley and Greater Vancouver, prices are slightly off their peaks posted in August 2016. That said, home prices in these regions nonetheless remain well above year-ago levels (up 21.4 per cent year-over-year and up 14 per cent year-over-year respectively).

Meanwhile, benchmark prices continue to climb in Victoria and elsewhere on Vancouver Island, as well as in Greater Toronto, Oakville-Milton and Guelph. Year-over-year price gains in these five markets ranged from about 18 per cent to 30 per cent in February.

By comparison, home prices were down by 1.9 per cent year-over-year in Calgary and by 1.2 per cent year-over-year in Saskatoon. Prices in these two markets now stand 5.6 per cent and 5.1 per cent below their respective peaks reached in 2015.

Home prices were up modestly from year-ago levels in Regina (up 3.5 per cent), Ottawa (up 3.8 per cent), Greater Montreal (up 3.3 per cent year-over-year) and Greater Moncton (up 1.2 per cent).

The MLS® Home Price Index (MLS® HPI) provides the best way of gauging price trends because average price trends are prone to being strongly distorted by changes in the mix of sales activity from one month to the next. The actual (not seasonally adjusted) national average price for homes sold in February 2017 was $519,521, up 3.5 per cent from February 2016.

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. That said, 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. The average price is reduced by almost $150,000 to $369,728 if Greater Vancouver and Greater Toronto sales are excluded from calculations.

 

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