The Remarkable Comeback of the Canadian Housing Market
The Canadian housing market has defied expectations with a remarkable comeback, displaying resilience and strength in the face of uncertainty. According to the Desjardins Canadian Residential Real Estate Outlook, various factors have contributed to this resurgence, including population growth, a stable job market, and accumulated savings. In this article, we will delve deeper into the reasons behind this housing market revival and its implications for both buyers and sellers.
Stabilization of the Housing Market:
Traditionally, rising interest rates have been associated with a slowdown in the housing market. However, the market stabilized in early 2023 as the Bank of Canada paused rate hikes. This pause in interest rate increases signaled a change in direction for the housing market, leading to a surge in existing home sales in April and May. This shift, combined with a decline in listings, has propelled the Canadian housing market back into seller's territory and driven up home prices, especially in major cities.
Population Growth and Housing Demand:
One of the key drivers behind the recent spike in home sales and prices is population growth. Canada has experienced a significant influx of immigrants and non-permanent residents, contributing to the demand for housing. Research by Statistics Canada reveals that immigrants play a substantial role in Canada's housing market, often exhibiting a higher likelihood of owning properties like condominium apartments, row houses, and semi-detached houses compared to Canadian-born homeowners. The increasing population, fueled by immigration, continues to drive the demand for housing across the country.
Stable Job Market and Financial Position:
The Canadian job market has also played a significant role in boosting home sales. Sustained employment and income gains have improved households' financial positions, making homeownership more accessible. Although there was a slight decline in employment among young Canadians in May, it is not expected to have a significant impact on the overall labor market or monetary policy. Moreover, Canadians have accumulated substantial savings during the pandemic, further contributing to the rebound in the housing market.
Potential Challenges Ahead:
While the Canadian housing market has displayed remarkable resilience, potential challenges lie ahead. The Desjardins report cautions that recent interest rate hikes by the Bank of Canada and persistent inflation may discourage some potential homebuyers due to higher borrowing costs. Economists anticipate another 25 basis point rate hike in July, which may give prospective homeowners pause before entering the market, considering the possibility of further rate increases. Furthermore, the full impact of last year's rate hikes, including the most recent hike in June, is yet to be fully felt by all homeowners, particularly those with fixed-payment variable-rate mortgages.
Housing Supply Concerns:
Despite strong housing demand, concerns remain regarding the availability of housing supply. Although home construction has held up well despite rising interest rates, the majority of housing starts are condos, reflecting the limited supply in the "missing middle" housing segment, such as townhomes, duplexes, and low- to medium-rise apartments. This shortage of new housing options exacerbates upward pressure on home prices, and government policies have yet to provide meaningful relief.
Regional Variations in the Housing Market:
The housing market in Canada exhibits variations across provinces and cities. In British Columbia, resale activity, primarily in the Greater Vancouver Area, has driven up home prices in the province. Ontario has also experienced an increase in sales and prices, particularly in the Greater Toronto Area, driven by international migration. Alberta, Saskatchewan, and Manitoba have become popular destinations for young Canadians due to affordability and a booming economy. However, the Atlantic provinces have witnessed significant price increases, making homeownership increasingly difficult for locals. Quebec, on the other hand, remains a seller's market, although there has been a slight increase in housing inventory.
The Canadian housing market has made a remarkable comeback, defying expectations of a housing correction. Driven by factors like population growth, a stable job market, and accumulated savings, the market has shifted back into seller's territory, driving up home prices. However, challenges lie ahead, including potential interest rate hikes and limited housing supply. It is crucial for prospective buyers and sellers to stay informed and adapt to the evolving dynamics of the Canadian housing market.