Home Prices Set New Record High, Sales Surpass Pre-COVID Levels
Continuing the upward trend that started in June, home sales bounced back to pre-COVID levels in July, soaring 30.5% year-over-year.
Home prices, too, set a new record high of $571,500, a 14.3% increase from July 2019, the Canadian Real Estate Association reported on Monday. Excluding the higher-priced markets of Toronto and Vancouver, the national average would be $454,500.
“What a difference three months makes, from some of the lowest housing numbers ever back in April to the multiple monthly records logged in July,” said Shaun Cathcart, CREA’s senior economist. “A big part of what we’re seeing right now is the snapback in activity that would have otherwise happened earlier this year. Recall that before the lockdowns, we were heading into the tightest spring market in almost 20 years.”
Another metric that shows sellers once again with the upper hand in most markets is the sales-to-new listing ratio, which is at 74%, the highest it’s been in 18 years, noted RBC economist Robert Hogue. A balanced ratio is between 40 and 60% and anything below 40% is considered a buyers’ market.
“COVID-19 did not destroy this year’s spring market—it mostly delayed it,” Hogue said, noting the busy spring market activity is now taking place during the summer, a traditionally slower period for home sales.
“We expect further unwinding of pent-up demand to keep sales brisk in August and perhaps September before cooling later this year,” he added.
Historically low housing supply is also contributing to this unusual situation of a hot real estate market occurring while unemployment is still above 10%.
There were just 2.8 months of inventory available, meaning that’s how long it would take to liquidate current inventories at the current sales rate. That’s the lowest reading CREA has on record.
A Look at Individual Markets
CREA noted that, “generally speaking, most markets east of Saskatchewan are seeing prices accelerate in line with strong sales numbers,” while B.C. and Alberta experienced more “modestly positive” price gains.
Here’s a look at where average prices stand in some of the country’s key markets:
Ottawa: $506,700 (+18.4%)
Halifax: $363,692 (+17.2%)
Kingston, ON: $458,026 (+15.2%)
Fredericton: $571,471 (+14.3%)
Greater Montreal Area: $401,300 (+14.1%)
Greater Toronto Area: $880,400 (+10%)
Greater Vancouver Area: $1,031,400 (+4.5% year-over year)
Victoria: $724,600 (+3.5%)
Calgary: $411,200 (-1.4%)
Making Sense of This Housing Market
Earlier this year, before COVID changed the world, several of Canada’s largest housing markets were approaching “frothy” levels of activity not seen since 2016. In January, for example, the Greater Toronto Area recorded an 8.5% increase in selling prices compared to the year before.
Much of that demand came from first-time buyers competing fiercely against one another for fear of missing out, or “FOMO.”
In July, GTA home prices soared 10% year-over-year to an average price of $800,400 for all property types.
Yet, homebuying intentions are stronger than ever. The percentage of renters who said they plan to purchase in the next 12 months more than doubled from 7% to 14%, according to recent data from Mortgage Professionals Canada. Likewise, 9% of current homeowners plan to purchase a new home within the next year, up from 7% in 2019.
“It can be hard to understand how the housing market can be so hot when the unemployment rate remains in double-digits,” wrote Brian DePratto of TD Economics.
One possible explanation, he says, is to look at the demographics most impacted by COVID-related job losses.
“The pandemic has disproportionately impacted lower-income Canadians, who are less likely to be or become homeowners,” DePratto said, adding that July employment among low-wage earners was 85.4% of pre-pandemic levels, compared with 97.4% for all other paid employees.
Secondly, government assistance programs to support those affected by COVID are likely keeping economic data stronger than it normally would be.
“A number of support programs, including mortgage forbearance, are helping insulate the economy from the worst impacts of the pandemic,” DePratto said. “As autumn approaches, these programs will expire or change form. Depending on the progress of the broader economic recovery, this could bring significant headwinds to housing markets, particularly prices.”
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