Canadian Real Estate is at a Critical Juncture

Canadian real estate is at a critical point. Declining housing affordability due to supply shortages remains the biggest challenge facing Canadian homebuyers, particularly first-time buyers. To improve these challenging market conditions and help more Canadians enter into home ownership, RE/MAX Canada Executives have been calling on the federal government to lead a collaborative national housing strategy across all levels of government. The band-aid “solutions” of the past have been primarily aimed at controlling the housing market instead of getting to the root of the problem. Without a substantial supply boost, Canadian real estate it is likely that affordability will continue to decline.

Demand for Canadian Real Estate is on the Rise

The Canadian real estate market is experiencing record-high average home prices and overwhelming demand – conditions that were amplified during COVID-19, but present in the Canadian housing market long before the pandemic struck. Facing the brunt of it is the average Canadian homebuyer.

Year over year, the RE/MAX Hot Pocket Communities Report found fewer detached homes changed hands, with 95 per cent of markets surveyed reporting a downturn in home-buying activity. Yet, quarter over quarter, the market’s resilience is evident and demonstrative of the existing demand while constrained by current interest rates.

From a longer-term perspective, as we return to a more regular rhythm with our economy, and immigration and population growth continues, Canada’s strain on the supply will intensify.

If Canadian real estate continues on its current path, the middle class will further erode, dividing Canadians into the housing-haves and the housing-have-nots. According to RE/MAX Canada’s survey, Canadians who don’t own their home are more likely to agree that Canada needs a national housing strategy, while homeowners are significantly more likely to say they do not. Roughly 43 per cent said that a national housing strategy is one of the best ways to solve Canada’s affordability crisis, according to a Leger survey commissioned by RE/MAX in 2021.

Markets will likely remain subdued until interest rate stability returns

The Canadian housing market has proven resilient, even amidst falling housing values. Buyers remain committed to their purchase plans, signalling a robust market. However, the Bank of Canada’s rate hikes and inflation rising to four per cent in August from 3.3 per cent in July have instilled a sense of caution among consumers and investors. Any additional rate hikes could stall market activities even further.

What’s causing this hesitation is the rates themselves and the turbulence created by their volatility. We have witnessed pockets of economic instability arising mainly from the threat of further hikes, leading to a subdued market atmosphere. While we seem to be nearing the end of the rate hike cycle, there’s still a palpable atmosphere of uncertainty. The market is waiting for a sign of stability in interest rates to breathe easily again.

With summer ending, there’s additional pressure on buyers racing against time to finalize deals before their rate expires. Even without a decrease, a period of stability in interest rates could act as a catalyst for market activity. A case in point was the pause in rate hikes from late January to June, which boosted the housing market as both sales and prices saw an uptick. It showed us that a stable rate environment can reinvigorate market enthusiasm.

The shortage of inventory, which hasn’t been a focus due to rate fluctuations, will soon come to the fore as demand rises once stability returns. Therefore, all eyes are on the Bank of Canada’s upcoming decisions, which will likely set the pace for market performance for the rest of the year. One wrong move could dampen sales and build pent-up demand for the future. The timing remains uncertain, but the expectation is that stability in interest rates will eventually turn the tide.

What should a national housing strategy include?

  1. Add more housing supply. First and foremost, a National Housing Strategy that successfully increases supply must be a coordinated effort among all three levels of government. Full stop. This is the most critical solution to our housing crisis.
  2. Incentivize developers. Rather than penalizing with taxes and policies that do nothing to boost supply levels, we need to incentivize more development of affordable, family-sized housing like three-bedroom condos and allow for more detached housing beyond our existing urban centres.
  3. Reduce red tape. Tax rebates, reducing red tape and easing the application and approval process can go a long way. Right now, in cities like Toronto and Vancouver, it can take years to get a project approved, and then even longer to build. During that time, Canadians are waiting, immigration is happening, demand is growing, and prices continue to rise. Now is the time to consider expanding the boundaries of developable land.
  4. Add a mandatory condition to every offer. Making the purchase conditional on financing would reduce buyer’s remorse and help ensure people can afford what they buy.
  5. Develop an industry “watchdog.” We need a federal government agency to review transactions where homes are sold well over the asking price to ensure fair listing prices and prevent homes from being listed well below market value to create bidding wars. Agents found to be contravening these rules would be forced to face fines.

Not all issues must be tackled at the federal level, but they require collaboration between governments.

Ban on blind bidding won’t create affordable Canadian real estate

Low supply and high demand have rendered a strong seller’s market in Canada, leaving many first-time homebuyers and young families hard-pressed to buy. RE/MAX Canada is in favour of transactional transparency, and it’s clear that consumers want reform when it comes to blind bidding. But before implementing overarching policies, governments must consider their implications. And if they’re not sure, real estate industry members are more than willing to offer some insight.

The real problem plaguing Canada’s housing market is the lack of supply. To improve the affordability crisis, a newly appointed federal government needs to lead a collaborative national housing strategy across all levels of government to create more homes for Canadians.

Two of the biggest lessons learned throughout the pandemic have been the importance of flexibility and our home stability – and governments should take note. Canadians need something adapted to the current challenges, especially for first-time homebuyers craving that type of stability for their futures. Seventy-three per cent of Canadians believe home ownership is one of the best investments, and 34 per cent said they wish they could afford a home.

While affordability is a challenge, Canada doesn’t have a “home ownership crisis.” If these issues are not resolved, we eventually could.

Throughout the pandemic, Canadians have been able to work from home and save more than they might have before. Fifteen per cent of Canadians reported they were able to grow their savings during the pandemic and plan to use these funds as a down payment on a home in the next six to 12 months, according to our recent Affordability Report. Coupling these savings with record-low interest rates has prompted many Canadians to invest in real estate, or at least try, with 35 per cent saying the pandemic has accelerated their interest in owning a home.

Much of Canada’s land mass is undeveloped, with the majority of Canadians concentrated in Toronto, Vancouver, and Montreal. Our smaller cities and towns offer an excellent quality of life and have room to grow. Roughly 70 per cent of Ontarians living in rural Ontario own their home – indicating that life outside these major cities can be a viable option for some.

While we wait for a national housing strategy, and given Canadians’ increased flexibility to work remotely and live anywhere, our governments should focus on ways to attract people to less-populated regions, such as Alberta, Saskatchewan, Manitoba, and Newfoundland. Canada still has lots of “affordable” cities to buy a home, and easing the pressure on Canada’s big cities may also ease the prohibitive price growth.

The fact remains that opportunity exists. Despite ongoing challenges around rising house prices, affordability, or the capacity to break into the market, many communities/areas are still accessible and offer great opportunities for Canadians looking for more affordable options. The bottom of the market seems to be behind us, and the longer-term outlook is improving.

The home-ownership rate in Canada is amongst the highest in the world at 70 per cent ownership.

Source: RE/MAX National Housing Strategy Survey

About Leger and the RE/MAX National Housing Strategy Survey
Leger is the largest Canadian-owned full-service market research firm. An online survey of 1,544 Canadians was completed between August 20-22, 2021, using Leger’s online panel. Leger’s online panel has approximately 400,000 members nationally and has a retention rate of 90 per cent. A probability sample of the same size would yield a margin of error of +/- 2.51 per cent, 19 times out of 20.

Houses for sale in Ottawa

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *