Five crazy signs in Canada’s housing market
Today on xlr8 realty we are discussing the latest in Canada’s housing market, which has gone crazy and the following will explain why and how.
For more than a decade, we have been questioning the rise of house prices. During that time, we have had a global financial crisis and two years of a pandemic. Housing ate it all up.
2022 began with a new all-time high for average resale house prices that was built on double-digit increases from year-earlier levels. Does this fast growth make sense? Here are five signs of why the housing market is out of control:
More million-dollar cities
Besides Toronto and Vancouver, the latest real estate numbers show that there are at least seven more cities or regions in the country where the average resale house price is over $1-million like Oakville. Orangeville, Hamilton, Mississauga, and York and Durham regions (all in Ontario), plus the Fraser Valley in British Columbia.
In the U.S. housing market our friends at realtor.com report median selling prices of around US$1.3-million in San Francisco, San Jose, and Manhattan, to a low in Atlanta at $375,000 and Chicago at $315,000.
In Canadian dollars, Boston is on par with Chilliwack, B.C., and Seattle in the same zone as Guelph, Ont. Chicago priced in Canadian dollars is less than half the price of Barrie, Ont.
U.S. house prices are hot right now. But the demand to own homes here is on a different level. It is turning small cities, which were once quiet, into real estate hot spots.
Prices up by almost half in just two years for Canada’s housing market
Just before pre-COVIC in January 2020 the average price arguably was $504,350. In January 2022, the average price of $748,439 – an increase of 48.4 percent in 24 months.
From 2011 to 2021 the average growth rate was 6.6 percent. Data from the Canadian Real Estate Association show this was a big growth, given the average inflation rate was 1.6 percent in those years.
House prices have grown because of low-interest rates and pandemic lockdowns. This made people want to move to bigger homes first and, second, helped people hold onto the cash they needed for down payments.
The price growth today is out of whack compared with not only historical trends but also what’s happening elsewhere in the country. We are getting over the latest COVID wave, but big economic challenges are ahead and political divisions are widening. Immigration is on the rise, and how can these newcomers afford to buy a house at today’s prices?
The pandemic has created a lot of job movement, which means people are leaving jobs and finding new ones. Employers are finding they have to pay more to lure or keep employees, and this is starting to put some upward pressure on wages.
Income growth has been left in the dust
The December jobs report from Statistics Canada said average hourly wages increased 2.7 percent on a year-over-year basis. Some sectors are seeing higher growth than that. Late last year, it was reported by Statistics Canada that wage growth exceeded the inflation rate, then at 4.3 percent, in 41 percent of the 355 occupations it tracks.
House prices have long risen at higher rates than income. It is to be noted today that wages are showing unusually high growth in some areas, yet housing is pulling further ahead than ever.
The growth in house prices today and the ability of the Canadian population to afford them are nowhere linked at all.
Inflation and the interest rate outlook are worsening
Inflation is at a new 30-year high of 5.1 percent in January compared to a year earlier, and there’s no sign yet of relief ahead. You can still get a pretty good mortgage rate right now, and you should definitely do so if you intend to buy this spring. But the cost of other things, like food and gasoline, is rising in such a way that it is hard to own a home.
The rise in inflation has economists wondering if interest rates will rise faster and further than previously anticipated. If this happens, people renewing mortgages in the years to come may find their mortgage payments rise so high they cannot afford to own a home.
The outlook of inflation and rate should caution people not to buy but that is not what people are doing. Growth in house prices scares people into thinking that if they don’t get into the market now, they’ll never own a home. Pending rate hikes are seen as a reason to buy now, whatever the cost.
No one wants to sell
CREA monthly reports show that Canada’s housing market has very low numbers of houses for sale at a time when we have a massive demand for them.
It will be interesting to see what happens over the next couple of months.
For more information read the source article at Globe and Mail
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