It was only in the spring of this year when some industry experts suggested a modest downturn in the Canadian housing market might have been a temporary ‘cool off’ period, and some others thought maybe the long forecasted correction for the market was about to arrive. The first part might be true if it were to have been categorized as a very temporary cool off, and in regard to the second one anyone who hoped median home prices in Canada were going to come down are going to be disappointed.
2021 is shaping up to the busiest year ever for the housing market in Canada, and while that is good news for homeowners looking to sell their home it can be something of a mixed blessing for anyone just starting out in career in real estate. Homes that sell for higher prices offer more of the earning opportunity they’d like to have for themselves, but that means more realtors entering the business to get a slice of pie. Then you have to also keep in mind that fewer would-be buyers stay as prospective buyers because they can’t qualify for the financing needed to buy these homes.
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Full 18% Increase
If you’re a realtor you’ll be familiar with the CREA. They’re the group representing more than 100,000 realtors across the country and according to their records since Jan. 1 the average selling price for a home sold on the MLDS Service was just over $716,500, and that works out to an 18% increase from where we were at this point late in 2020. Sales are heating up right along with this, and similar records are indicating that to this point in 2021 some 581,000+ homes have been purchased from existing owners over the course of the last ten months.
The previous high for that number was 552,423 and that makes immediately clear just how 2021 really has been the hottest year ever for real estate in Canada. And let’s keep in mind that we’ve still got over a month to go here before the end of the year.
We’ve also seen home sales pick up considerably since the end of summer, although this is a trend that is seen nearly every year. It’s just never been as pronounced as it has this year when it comes the sheer number of homes sales attached to each month or quarter.
Steaming Ahead
It’s also well understood that the BOC’s maintain of low interest rates has been a pivotal factor in allowing so many homes to be purchased. The semi freeze seen in the early days of COVID ended early because it is likely that a great many people thought if they’re ever going to get in the market, the time is now. There’s also the fact that many were re-evaluating their life / work arrangements, but we won’t get into that end of it.
Ever since the summer of 2020, Canada’s real estate market has been on fire and it seems that each year we’re busting numerous records along the way. Mortgage debt should be a concern for would-be homeowners, but it appears it’s not so prominent a concern for a lot of buyers moving ahead with the purchases of homes.
Let’s look at just last month (October 2021) alone – the average selling price was exceptionally close to the monthly record of $716,828 set in March 2021, when activity was at its most frenzied pace for the year. Increases to mortgage stress testing did little to slow the trend and that is a good sign for realtors as it indicates that most qualified prospective buyers remain as such even if more is required of them.
Fundamental Changes
We are also seeing how this buying frenzy is starting to change the way buyers and sellers think about the market in fundamental ways. When you have a country of 36 million people adding another $18 billion onto existing nationwide housing debt in just one month, it is clear that anything that people might have assumed will be intimidating buyers isn’t really intimidating most of them at all.
So many times we’re seeing buyers who have already lost out on multiple previous offers coming to a new table with all they’ve got, and looking past the obvious realities of the housing crisis and demand way outpacing supply there’s also a part of this that shows how homebuyers want to get into the market or up the ladder because of the increasing values in real estate.
Values that – if all of this is any indication – will only be going up for the long foreseeable future.
The last thing we’ll mention about all of this today is how interest rate hikes are likely on the way from the BOC, and it’s been well documented by many news outlets regarding the way many would-be homebuyers are rushing for mortgage pre-approvals to get locked in before rates rise. This is something that realtors can also be receptive too for potential clients, but let’s not lose track of the fact that a part of your responsibility will be tampering their enthusiasm to buy home when you believe it’s not the right fit for them.
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Homebuyers rush for mortgage pre-approvals amid mounting signs of rate hikes to come
“There is this sense of urgency to get into the market,” Tal said in an interview. “People are starting to sense that interest rates are rising and will be rising in the future.”
House prices have increased at a much faster pace than incomes, which has begged the question of how young buyers just starting out in their careers are managing to come up with the cash to buy in.
How are people affording to buy in at today’s prices? According to a recent report at CIBC, almost one third of first time buyers who bought in the past year got money from their parents to do so. (Patrick T. Fallon/Bloomberg)
Tal looked into the topic in a recent report and found that for a growing number of buyers, the answer is: their parents.
Almost one third of first time buyers in the past year received some sort of gift from family to help with the down payment. The average amount was $82,000, but in big, expensive cities like Toronto and Vancouver, the average parental gift was $130,000 and $180,000, respectively.
Although the numbers are eye-popping, Tal says it makes sense considering the $200 billion worth of cash that people who managed to keep their job during the pandemic have accumulated.
“You cannot spend all of it overnight [so] a lot of it will go to help kids into the real estate market and that’s exactly what we are seeing.”
ANALYSIS It’s not just Toronto and Vancouver — Canada’s housing bubble has gone national
It’s not just first timers making withdrawals from the bank of mom and dad.
Tal calculates that even among those who already own and are moving up the property ladder, almost 10 per cent of them are getting even more help to do so, to the tune of $200,000 in Toronto and a staggering $340,000 in Vancouver. That’s more than the price of the average home in Saskatchewan.
Tal says the trend is clearly growing, which means policy makers need to be aware of it.
“We are taking a wealth gap that is already very, very wide [and] unfortunately this is really widening it.”
“If you are lucky enough to get it, that’s fine. But we have to find a way to produce affordability into the system and supply is the only solution.”
