Last week’s interest rate hike as put forward by the Bank of Canada was the ninth hike and came following what was promised as a ‘pause’, and meaning that no further rate hikes would be put in place for the near foreseeable future. What they’ve provided as a rationale for making that move is a stronger economy than expected as represented by Canada’s GDP. And despite the fact there’s not much healthiness to it, we as a country have a shockingly high amount of our GDP being produced by the purchase and sale of real estate.

That’s the product of loose monetary policy and an ‘anything will do’ approach to economic underpinnings in a country that has made a sharp and drastic departure from the socioeconomic track it had been on for well over a century to date. That’s an entirely different and much larger discussion for a different time though, and instead it’s going to be our focus to look at how a reinvigorated housing market seen over recent months here in Canada has done much to fuel the decision to raise rates.

That uptick in activity certainly is welcome for many different people with a host of different interests in seeing the real estate market rebounding as it has. Realtors will be among them, but agents who still struggle to be finding and retaining new clients will like how our online real estate lead generation system here at Real Estate Leads is the smart choice for giving you the advantage you need there.

Forced by Household Sector Demand

Digging deeper, the resale market’s role in the most recent inflation measure is even more pronounced than some might have thought it to be, and Statistics Canada’s Consumer Price Index (CPI) edging up 4.4% in April is the first of a few indicators of that. Seeing an economy continuing to features excess demand exceeding supply to an ever-greater extent with not the expected rebalancing there is front and center with why the interest rate hike was deemed necessary

Growth in the second quarter with regards to home sales was viewed as likely to be stronger than forecast in the April MPR, and even though housing resale prices had grown over the course of three months it wasn’t lining up with the expectation for inflation to decrease to near 3% over the summer. It’s clear by this point that is not going to happen, and all of these rate hikes have been undertaken with the primary aim for them being to reel in inflation.

And that checks out here too, as the trends in the core inflation data have created doubts about the strength and durability of ongoing disinflation. Those are coming at the same time as concerns that inflation could become stuck at a level materially above the 2% target. The last part of that is darn near a direct quote from the BoC, and there are others that relate to additional variables contributing to the need to rise rates, but we’ll skip those for now.

Robust Demand

Nothing is more integral to the perspective than the way consumer demand has proved to be more robust than expected. As to why the economy has shown itself to be so resilient, we can look to a number of specific points; a delay in the full effects of past monetary policy tightening, pent-up demand for services and improvements in supply chains for goods, excess , and labour markets that have stayed much tighter than economists had expected. Emphatic population growth and seasonal adjustment factors have their own roles to play too.

Another outlier from what was foreseen was an accompanying jump in median household spending, and this always has a connection to increased consumer confidence across the board with different markets. The housing market is never an exception to that, and by the middle of this current month (June ’23) there’s been enough evidence to convince the BoC that their policy needed to be more restrictive to rebalance supply and demand in the economy and reorient themselves to reach the 2% inflation target.

The rate hikes do mean that people who can’t afford to pay cash for a home WILL have greater difficulty affording their mortgage, and anyone that applies to won’t like to hear that they may be upcoming interest rate hikes again before the year is done. Another decision will be made on the 12^th of next month following a further review.

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This was the first raise since January and experts are cautioning that it won’t be the last.

The next interest rate decision is slated for July 12, 2023. A monetary policy report is also scheduled for release at that time.

Only 2 days remaining in Spring before we have the longest day of the year and the official start of summer on June 21. So if we’re to look back at Spring here, we can see that one of the more forefront stories in Canadian real estate circles for Spring 2023 was the ‘rebound’ seen in the housing market. We saw the first national year-over-year sales increase in almost two years, and looking at that from ground level it was a very welcome change for homeowners who had shelved plans to put their homes on the market before the chill came.

It’s been a promising turn of events, if not a natural resumption of the standard realities of market forces doing what they do. That’s preferable for homeowners, but at the same time there is still a pressing need to find a balance and there are still too many people who are shut out from owning a home despite having a good income and credit history. That itself may be a discussion for another time, but it’s important to say that those who take exception to home prices have their grievance with federal and municipal governments rather than homeowners themselves.

Realtors are among those who’ll be happy to see this rebound, but one thing it will not alter is the competitive nature of the business. Realtors who are newer to it may be at a disadvantage no matter how strenuously they try to generate new clientele, but for these agents our online real estate lead generation system here at Real Estate Leads is an excellent way to get better results from those efforts.

Let’s now turn to looking at the housing market rebound in greater detail, and specifically with how it may run out of steam to at least some extent.

Better than Incremental Gains

The housing market gains seen in May that came after an 11.3% spike in April did narrow the gap between current sales rates and pre-pandemic levels, said RBC assistant chief economist Robert Hogue. Home sales are now just 6% down from where they were in February 2020, the approximate time when the pandemic was about to begin and turmoil was to reach into every aspect of Canada’s economy.

But this current recovery rate is stronger than expected, and gains were seen across the entire country. Every province had sales numbers up considerably, and the largest increases were in British Columbia. There sales increased 23%, and Ontario was a close second with 22%. As for individual cities, not much surprise in seeing that in Vancouver and Toronto home sales increased 35% and 32% respectively.

For the second consecutive month median home prices were up across the country too. The national composite MLS Home Price Index fell 15% from its February 2022 peak, has now gained 4.1% over just the last two months. May’s 2.1% rise lines up with the average monthly rate of increase seen during the market boom.

By Cities

Here are cities that enjoyed sharp increases in prices. Cambridge, Ontario had prices go up 4.9% month over month, and the number for Northumberland Hills was 4.7%. For Sudbury it was 4.5% and 3.6% for Kitchener-Waterloo. Getting right into the Big Smoke, Greater Toronto was up 3.1%. Heading out west to BC the gains were more modest, with Fraser Valley (Abbotsford / Chilliwack) leading the way with a 2.4% rise. Other notables in Canada were Winnipeg with 0.9% and Halifax with 0.8%.

What we can say with certainty is that the sudden turnaround is by and large attributable to interest rates. Let’s remember that it was the central bank’s aggressive hiking campaign over last year that initiated the housing market’s downward spiral, and the signal in March that the worst of rate hikes might be over really reinvigorated demand and pulled prospective buyers and sellers out of their slumber.

That enthusiasm chilled in a big way when earlier this month the BoC changed their mind (not without good logic for doing so to be fair) and raised rates by another 25 basis points to 4.75%. We can be nearly certain that’s going to take a LOT of steam out of the recovery and pull back on the momentum that’s been gained over recent months.

Dampening Market Optimism Too

Industry experts are indeed saying that the Bank’s latest 25 basis-point rate hike will definitely dampen market psychology. That hike did take commercial banks’ prime rate to 6.95%, a 22-year high but what is noteworthy with regards to this discussion is that bond yield rates are climbing at the same time. What this does is push up shorter-term fixed mortgage rates, and up until now they’ve been a popular – and viable – alternative to variable rates.

The Royal Bank also feels the current strength in the market will not likely be sustained for the rest of the year, and they chime in similarly with saying that the 25 bp rate hike should cool demand by at least a few percentage points overall and for individual housing markets too.

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Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads that are delivered to only one realtor – you. Plus these leads will be for prospective clients who have indicated a genuine willingness to either buy or sell a home in the city or town in Canada where you are working as a real estate agent. It presents you with the opportunity to be first in-touch with them and impress upon them the fact that you are the industry pro they need guiding them through the process for maximum returns on the sale of the home or best interests in purchasing it.

We’re going to assume that a good many of the realtors that visit our site here and read our blog will be able to remember a time when clients were able to purchase detached homes for less than $200, 000 dollars. And that it was even possible in ‘desirable’ locations in Canada provided you were able to temper your expectations about they type of home you’d be receiving for that price.

Many of them would have been considered starter homes, and as such the types of people buying these homes would be entirely amenable to the fact that the home wasn’t perfect. That was the reality for plenty of our parents with their first home they bought in Canada for less than a quarter of a million dollars.

Was it a time when the real estate business was any less competitive? Likely not, although some would make the fair point that there likely weren’t as many realtors back then. And primarily for the fact that working in real estate wasn’t as potentially lucrative to the same extent. But whether that’s the case or not, realtors who are finding it difficult to drum up new clientele the way they’d like then our online real estate lead generation system here at Real Estate Leads is a solid choice.

Now with the standard recommendation made, let’s proceed with this blog entry and look at how these long-standing affordable homes in Canada are close to becoming non existent.

35 of 50

We agree that it is a sign of Canada’s deepening affordability crises when we come to understand that homes under $200,000 are becoming near unheard of all across the country. A study by real estate marketplace facilitator Point2 Homes has put out a study that has laid out the facts regarding the near-total lack of homes for sale anywhere in the country that cost $200,000 or less.

Their study found that you’ll be unable to find homes under $200,000 in 35 of Canada’s 50 most expensive large cities. All of these cities are located in either British Columbia or Ontario and the criteria established was done by taking Canada’s 100 largest cities and then ranking them by highest median home price.

The other 15 cities on the list may have returned a few homes on the market below this price point, but with the exception of two of them all came back with zero to 1% of their respective markets featuring homes with a sub-$200k starting price point, and then of course let’s all keep in mind that any home that is even remotely affordably is almost certainly going to be the subject of a bidding war and sell for over asking price.

We can add to this further and point out from the report as well that 24 of the top 50 cities have benchmark home prices upwards of $1 million.

Lower than the Previous Low

It might make sense to think that because last 12 of the 50 largest, most expensive cities had homes for sale under $200,000 and 30 had benchmark prices of over $1 million that what we have for 2023 is an improvement. But that’s not the case; a closer look shows that the actual share of these homes in the market is equally as bleak when put in perspective. The reality is that homes below $200,000 once again represent less than 1% of all the homes available for sale in the top 50 cities.

Just two spots in Ontario – Waterloo and Kawartha Lakes – had any measurable shares of homes under $200,000. Waterloo’s number was 3.13% and it as 2.62% for Kawartha Lakes. Homebuyers priced out with this now have the best chance of finding a home in Atlantic Canada or the Prairies if they need to be below $200K as a price point. Cape Breton, N.S., and Saint John, N.B., had the highest share of homes under $200,000 at 44.5% and 36.6%.

They may also be wise to look to the Prairies, with all of Regina, Winnipeg and Edmonton having between 18.6% and 28.9% of listings under that point.

BC is the worst for housing unaffordability if we evaluate it with this criteria. Of the province’s 18 most expensive cities there are absolutely zero homes under $200K on the market. And only two out of the 2,300 listings in Surrey are currently listed for less than $200,000 and only one in Abbotsford and Richmond.

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Toronto is sometimes referred to as Hogtown, but it is the other nickname ‘Big Smoke’ that reflects the way that Toronto is the equivalent of what New York City is to the United States. It’s the most populated city and likely will be for the foreseeable future. Bay Street will always be the primary hub for Canadian business, and there’s all sorts of other industries where people work and make their living and that necessitates them needing to live in the Greater Toronto area.

But that’s increasingly difficult to do for a lot of people, and as you might expect it is in Toronto and Vancouver where home prices have been overinflated for many years now. Now that May is done the industry is cleared to review and evaluate the Spring real estate market in Canada, and with the thaw seemingly in full swing and any degree of what many would call a market correction looking to be over it is also not surprising that prices have resumed climbing in Toronto.

Buyer enthusiasm will always be the primary impetus to seeing that happen, but in Toronto more than any other place in the country the way that there is so much more demand than supply is fueling what we’ve just seen as a market rally that will be good news for homeowners ready to put homes on the market.

There are always going to be challenges related to working as a real estate agent in major metro regions, and that’s true for both Canada and the USA. It’s a competitive business, and our online real estate lead generation system here at Real Estate Leads is an excellent resource for realtors working in Toronto or any other big-city area who are struggling to drum up new clientele to the extent they’d like to be.

Let’s stay on track and look at how Toronto’s housing crunch is exacerbated by supply and demand inequalities more than elsewhere in the country.

25% Sales Increase From Spring ‘22

Positive indicators from the Toronto Regional Real Estate Board’s (TRREB) May data are very reflective of how demand for housing in Toronto is higher as expected in comparison to other cities and regions of the country. The average homes price has increased 3.7% since last month, but that still comes in at 1.2% lower than what was seen for this time last year.

But home sales in Toronto have increased 20% since last month and have now gone up nearly 25% since last year. New listings in the city increased 36% from April 2023, and May had 15,194 listings registered with the Toronto MLS. Further, the market has remained tight with listing supply down 18.7% from last year and what this continues to do is make the Toronto housing market one that is much more conducive to homeowner’s interests rather those of buyers.

And so it is that it will continue to be a seller’s market in much the same way it is for Vancouver and to a lesser extent Montreal. For Toronto it is common for listings to sell within 14 days, and that is some 20% sooner than last month but remaining at 16.7% slower in comparison to the even more overheated spring market of 2022.

Source Supply

The month-over-month increase in new listings comes as a welcome relief to the tight supply and demand imbalance but is still down 19% compared to May of last year. kept sellers in a price-setting position for most of the year to date. Grasping these and other supply logistics facts could offer insight into how the remainder of the year will go for Canadian real estate.

With Toronto and other major markets, the reality seems to be that if move-up buyers are the ones primarily driving supply shortcomings then the market could be providing a forecast of recovery. Oppositely though, if the market is being driven by sellers in any measure of financial distress and needing to offload investment assets then it may suggests that the market is in line to experience some headwinds against a recession this year.

Looking past Toronto to put the relevance of all this in a bigger-picture perspective, nationwide supply did pick up toward the end of May and so continued opportunistic selling could put an end to the spring market being a seller’s market, although we need to keep in mind that average price usually go down from May until August every year.

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