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The Worst Kept Secret Is Uut: Canada’s Housing Market Is the Most Undersupplied in the G7

The Worst Kept Secret Is Out: Canada’s Housing Market Is the Most Undersupplied in the G7

While it does not take a market expert to know that we have a supply problem, the quantum and dire shortage compared to our G7 colleagues might.

Scotiabank’s Chief Economist Jean-Francois Perrault has been a pioneer in analyzing G7 housing data and his findings are alarming.

The supply of Canadian housing simply has not kept up with population growth pointing to a near-record imbalance between the supply of housing and demand.

Despite the COVID-19 induced stagnation in population growth in 2020 it is set to get EVEN WORSE as normalcy returns with the increased Immigration Plan of 1.2MM new people coming to this country over the next 3 years.

Canada has 424 housing units per 1000 residents – well below the G7 average of 471 – to make good on the shortfall and catch up with the G7 average would mean building a massive 1.8MM new homes.

Scotiabank is not advocating the unrealistic waving of a magic wand with millions of new homes being built immediately. They are making a realistic and commercially viable plea for vested parties to come together to solve a national and political hot potato – the housing supply crisis.

“We propose the urgent creation of a national table composed of federal, provincial and municipal authorities, along with real-estate developers, investors and civil society organizations to comprehensively identify and tackle the obstacles to more responsive supply in all segments of the housing market”

In GTA the imbalance is the worst in the country by a wide margin – well below the national average which is significantly worst than the G7 shortfall.

For the immediate future, the GTA is a housing supply disaster.

A short-term solution is unrealistic and pricing to make an equilibrium of strong demand and a depleted supply are expected to chase prices higher in the short to mid-term.

New Zealand, a country of only 5MM people has an even more insoluble supply crisis and nose-bleed price housing price increases. Its government has recently become the first industrialized country to instruct the independent Reserve Bank of New Zealand (RBNZ) to consider housing prices in making Monetary Policy.

The next release of Monetary Policy Statements (MPS) from RBNZ will be keenly watched around the globe and could be an influential arbiter for a Canadian housing supply crisis solution.

*Please note that this article only reflects the views of the author, and does not represent the stance of the company.

*The information provided here is for general information purpose only, which does not necessarily reflect the views or opinions of Bay Street Group. We assume no responsibility for its accuracy, completeness, or sufficiency.
*As for intellectual property rights of others, anyone who believes that their work has been reproduced in a way that constitutes copyright infringement may contact us.

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CMHC Predict a 14% Climb in Canadian Home Prices Over The Next 12 Months

CMHC Predict a 14% Climb in Canadian Home Prices Over The Next 12 Months

In a sharp contrast to last Springs’  prediction of an 18% annual decline in housing prices, CMHC is now marching in tandem with the general consensus in the market forecasting world – as outlined in their CMHC Housing Market Outlook – Spring 2021.
They now see Canadian home prices could climb over 14% in the pandemic’s second year as the combination of low-interest rates, an insoluble supply shortage, the government’s unwillingness to rock the boat and a significant increase in immigration all combine in tandem with the recovery of the economy.
 
This confluence of events is expected to remain in place and reinforce strong house price growth throughout 2021 bringing more modest, single price growth expected in 2022 and 2023.
 
Toronto Real Estate Board (TREB) recently released its sales figures for April which showed a modest decline in activity compared to March’s numbers – no surprise given the unprecedented high level of sales over the last 12 months.
Putting the numbers in context – the 13,663 transactions for April is still 36.6% higher than the GTA’s 10 year average for April.
 
Jason Mercer, TREB’s Chief Market Analyst remains cautiously bullish and optimistic.
“Home prices will likely continue an upward trend. Revised population growth over the next year with a persistent lack of new inventory will underpin home price appreciation”
 
The momentum in housing price growth appears set to continue for the foreseeable future.
 
 

*Please note that this article only reflects the views of the author, and does not represent the stance of the company.

*The information provided here is for general information purpose only, which does not necessarily reflect the views or opinions of Bay Street Group. We assume no responsibility for its accuracy, completeness, or sufficiency.
*As for intellectual property rights of others, anyone who believes that their work has been reproduced in a way that constitutes copyright infringement may contact us.

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The Trouble with Using the Word “Bubble” in Real Estate

The Trouble with Using the Word “Bubble” in Real Estate

In March 2020 at the outset of COVID-19, Canada Mortgage and Housing Corporation (CMHC) issued a warning that the average house in Canada could see a decline of up to 18%.

Fast forward a year later – the average price of a home in Canada rose to $716,828 – an astonishing year over year rise of 32%.
Toronto’s average home price rose to over a million dollars and also saw year over year growth of 16.5% – still regarded as very robust.
 
Sometimes forecasting makes a mockery of the best of intentions.
 
During  the same period the price-to-income ratio rose to a 40 year high. This well known rule-of-thumb valuation matrix suggests that the average price in your city should not exceed 4X the average income – any higher and its starting to get expensive and affordability is an issue. Toronto is at 10X and Vancouver rose to a record 12x.
 
Affordability bells started to ring for real estate analysts – there is a “bubble” brewing, when will it burst? For a housing market correction there needs to be a catalyst or a triggering event.
The most obvious is a sudden rise in interest rates  – if the cost of a mortgage becomes too expensive, fewer people can afford their homes. Variable rate holders are particularly vulnerable as their commitments increase immediately upon any interest rate hike.
 
Another trigger is government intervention which has at its disposal a number of tools and strategies.
 
Canada is not alone and is not the worst exposed with the problem of trying to cool the housing market (see chart below). The challenge is a gradual cooling without causing a crash – something that would be disastrous at a time  when the economies are still grappling with the effects of the pandemic.
 
 
There is widespread consensus that the real culprit is a supply shortage and imbalance – which cannot be corrected with a knee-jerk reaction. While housing starts surged 21.6% in March 2021 for a record annualized pace of 335k units – this supply based solution moves very slowly.
 
Housing’s first big test will be when the economy begins to re-open which could lead to an increase in interest rates and redefine expectations. 
 
However the following points all tilt towards leaving the status quo alone and a continuing drift in average housing prices across the country.
 
1) The Bank of Canada has made it clear interest rates and thus mortgage affordability is not changing for the foreseeable future
2) The Federal Liberals through Adam Vaughan the Parliamentary Secretary for Housing promised to do everything possible to prevent a price decline – even a modest one was unacceptable
3) Immigration targets have been revised upwards to $1.2MM over the next 3 years – at least 1/3rd of these will settle in GTA and have a hunger to buy real estate
4) The economy is set to rebound as the country gets to finally organize an effective vaccine roll-out strategy – with this comes more spending and fuelling the real estate fire
 
Anthony Scilopati is the President and CEO of Veritas Investment Research, an equity analysis firm in Toronto that closely follows the housing market. He worries that Canada’s economy has come to depend too much on the unpredictable residential sector and leaves it vulnerable to any weakness in that area. 
Despite these reservations, he doesn’t see an imminent end to Canada’s housing addiction. 
 
Given these parameters, it’s tough to envision a scenario when the  “bubble” bursts soon.
 
No doubt those in the Canadian seats of influence over the housing market are anxiously watching and having dialogue with other countries housing influencers.
It’s tough to see a “Made in Canada” only solution to this tough to solve dilemna.
 
 

*Please note that this article only reflects the views of the author, and does not represent the stance of the company.

*The information provided here is for general information purpose only, which does not necessarily reflect the views or opinions of Bay Street Group. We assume no responsibility for its accuracy, completeness, or sufficiency.
*As for intellectual property rights of others, anyone who believes that their work has been reproduced in a way that constitutes copyright infringement may contact us.

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Budget 2021 – Fails to Curb Demand and Prices Will Continue to Rise

Budget 2021 - Fails to Curb Demand and Prices Will Continue to Rise

The Federal  Government introduced its first pandemic budget on April 19th 2021 and committed to the following housing initiatives.

  • $2.5 billion to Canada Mortgage and Housing Corporation over seven years, to fund the Rapid Housing Initiative, Affordable Housing Innovation Fund, Canada Housing Benefit and Federal Community Housing Initiative

  • $1.3 billion, advanced and reallocated to previously announced funding to build and repair units and convert commercial space into rentals

  • $3.8 billion to build, repair and support 35,000 affordable housing units

  • 1% value-based tax proposed on vacant homes Canada-wide, owned by foreign non-residents

The budget was not expected to set out major housing reforms or cooling measures and the ongoing nationwide shortage of properties continues to drive up home resales and rental rates while hurting affordability across the spectrum.

With the annual 1% tax signalling Ottawa’s dislike of the housing supply not being maximized, it is highly unlikely to push homeowners to rent or sell their houses – many regarding it simply as “the price of doing business”.

Given the new Immigration Levels Plan 2021-2023 committing to 1.2MM new immigrants any COVID – 19 induced shortfall will only become more acute. The problem is exacerbated in the major metropolitan centres across the country with The Greater Toronto Area (GTA) usually absorbing at least at least a third of the new demand for real estate.

Basic economics reminds us that with increasing demand and a supply shortfall prices only have one direction to trend – upwards.

Until potent and progresssive cooling measures are introduced and the underlying issue of addressing the housing supply leads to cultivating a much healthier balance between supply and demand all initiatives by governments including those listed above will be band-aid remedies at best.

Douglas Porter, the Chief Economist with The Bank of Montreal is succinct.

“These are not insignificant measures – I just don’t believe that stacked up against the tidal wave of demand that they can make much of a dent”.

*The information provided here is for general information purpose only, which does not necessarily reflect the views or opinions of Bay Street Group. We assume no responsibility for its accuracy, completeness, or sufficiency.
*As for intellectual property rights of others, anyone who believes that their work has been reproduced in a way that constitutes copyright infringement may contact us.

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Bank of Canada Maintains Current Level of Policy Rate

Bank of Canada Maintains Current Level of Policy Rate; Still Expected to Remain on Hold Until 2023

In a scheduled announcement on March 10, 2021, the Bank of Canada kept its target for the overnight lending rate at its effective lower bound of 0.25%. The Bank signaled it will continue to keep rates low until economic slack is absorbed and inflation is sustainably back to its 2% target, which the Bank doesn’t anticipate will happen until 2023. The Bank also recommitted to maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week.

Despite ongoing challenges across regions and sectors, the Bank is seeing a recovery in the global and U.S. economy, with the U.S. economic recovery gaining momentum as COVID-19 infections decline and fiscal support boosts income and consumption. In Canada, the Bank noted the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures, with GDP growing by 9.6% in the final quarter of 2020 and a stronger housing market highlighted as a source of strength. The strength of economic activity in the U.S. and higher commodity prices have also brightened the prospects for exports and business investment according to the Bank.

Even with this stronger near-term outlook, the Bank still sees considerable room for improvement and further uncertainty about the evolution of the virus and the path of economic growth. The labour market has a long way to go, particularly regarding women, low-wage workers, and young people. Employment levels will likely take a long time to return to pre-pandemic levels. The threat of new, more transmissible variants of the virus also poses the largest downside risk to economic activity, as localized outbreaks and restrictions could restrain growth and slow the recovery.

Canada’s major chartered banks are currently advertising five-year fixed mortgage special interest rates of around 1.99%. Home buyers can often negotiate the interest rate for mortgage financing based on their creditworthiness and the degree to which they do other banking business with the mortgage lender. 

The Bank of Canada’s next scheduled interest rate announcement will be on April 21, 2021 and will be accompanied by a full update of the Bank’s outlook for the economy and inflation, including risks to the projection, in its Monetary Policy Report.

 

*This article was originally posted on CREA. The information provided here is for general information purpose only, which does not necessarily reflect the views or opinions of Bay Street Group. We assume no responsibility for its accuracy, completeness, or sufficiency.
*As for intellectual property rights of others, anyone who believes that their work has been reproduced in a way that constitutes copyright infringement may contact us. 

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2020 Bay Street Group Champion Award

BAY STEET GROUP HALL OF FAME- 2020 CHAMPION AWARD

Since day one, it is Bay Street Group agents’ mission to guild our clients to their dream homes.  Many of our agents have devoted themselves to providing outstanding services in different fields. Let us meet the best of the best- Champion Award in the year 2020, measured separately by performance in resale, listing, buying, leasing, commercial, pre-construction, and team management.

 

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