Canada's real estate inventory levels may reach a "crisis point": RE/MAX
In its recently released 2022 Housing Inventory Report, RE/MAX Canada examined active listings in July from 2013 to 2022 in eight major markets, including Greater Vancouver, the Greater Toronto Area, Calgary, and Montreal. The report, which also studied Winnipeg, Hamilton-Burlington, Ottawa, and Halifax-Dartmouth, found that inventory levels fell short of the 10-year average in all but one of the markets in July 2022. Double-digit declines were seen in six markets, including Montreal (40.16%), Calgary (26.1%), and Greater Vancouver (16.1%). Halifax-Dartmouth saw the largest drop, at 65.5%. The housing inventory shortage was “less-pronounced” in the GTA, with supply falling just 6.8% from the 10-year average. Hamilton-Burlington was the only market to forgo the trend, with supply rising 3.2% above the 10-year average. RE/MAX noted that several markets, including the GTA and Greater Vancouver, experienced more active July listings between 2003 and 2012 than in the following decade. The “robust” supply in the early 2000s made for healthy sales and annual price appreciation, and created an anchor for the housing market during the Great Recession, said Christopher Alexander, President of RE/MAX Canada. “Population growth and household formation have played a significant role in depleting inventory levels from coast to coast over the most recent decade, triggering chronic housing shortages in large urban centres that resulted in mini ‘boom’ and ‘bust’ cycles,” he said. “If we don’t move now to build more housing in the current lull, it’s expected that this same scenario will continue to resurface over and over again.” RE/MAX warns that between Canada’s growing population, immigration commitments, and incoming international students, the inventory shortage will “intensify further,” especially in Toronto and Vancouver. While inventory “remains key” to the health of Canada’s real estate market, RE/MAX said that affordable housing depends on supply. A June report from Canada Mortgage and Housing Corporation (CMHC) found that to restore affordability, 3.5 million new homes must be built by 2030. However, Canada is averaging just 200,000 to 300,000 new units per year, RE/MAX said. “The truth of the matter is that we probably need more than the CMHC estimate to create the desired level of affordability,” Alexander said “During this window of softer demand, building efforts should be ramped up, not down. The offshoot effect is straining rental markets and contributing to ever-rising levels of homelessness throughout the country.”
The inventory challenge is exacerbated by new housing starts and purpose-built rentals, which “continue to fall short.” The lack of housing supply, along with rising mortgage rates, is keeping would-be buyers in the rental market, leading to even fewer homes being put up for sale. At the same time, a “perfect storm” of factors, including global supply chain issues, inflation, and labour shortages in the trades, is weighing on the construction of new homes. “Current market realities have upended the economic viability of many developments, causing new residential projects to be cancelled or put on hold indefinitely,” said Elton Ash, Executive Vice President of RE/MAX Canada. “The feasibility of many new or planned housing starts is now in question, but the ones that already had smaller margins—affordable housing and starter homes—are at the top of the chopping block. If we’re already experiencing an inventory crisis, what will the consequences be when demand rebounds?” According to the CMHC, there was a decrease in the seasonally adjusted annual rate of housing starts in urban areas across Canada in July 2022. Nationally, the decline was led by lower starts in detached homes, but Vancouver saw stronger declines in multi-unit residential starts. Montreal saw a “substantial” slowdown in both multi-unit and detached residential starts. But the trend was “most pronounced” in the GTA, where an estimated 10,000 units expected to launch for pre-construction sale in 2022 will not materialize. Alexander called the trend of scrapped and paused projects a “serious concern,” and called for a new long-term development and growth strategy. Although demand is considerably less than in the past two years, it’s expected to rebound. And with stock already falling behind demand, the market is not prepared, he said. Purpose-built rentals, new home construction, and policies that support and accelerate residential building activity are “paramount” to averting a further lack of inventory. Without action, affordability will be further strained. “The trouble is that housing development is a slow process, and experience tells us the only thing slower might be government processes,” Alexander said. “Removing barriers and cutting red tape is necessary. A crisis is looming, but the outcome is not cast in stone. There is a short runway to reverse course before the impacts become very real for Canadian homebuyers and renters.” There are “early signs” that the sharp adjustment seen in Canada’s housing markets this year has run its course. ADVERTISEMENT According to new statistics from the Canadian Real Estate Association (CREA), national home sales fell 24.7% in August on a yearly basis, but were down just 1% from July. Although it marks the sixth consecutive month of decline, it was the smallest of the six. Activity was down in roughly half of Canadian markets, including Greater Vancouver, Calgary, and Edmonton. Gains were led by the Greater Toronto Area and a “large regional mix” of other markets in Ontario. “August saw national sales hold steady month-to-month for the first time since February which, along with a stabilization of demand/supply conditions in many markets, could be an early sign that this year’s sharp adjustment in housing markets across Canada may have mostly run its course,” said Jill Oudil, chair of the CREA. ADVERTISEMENT “That said, some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing.” Following the 5.9% decline seen in July, the number of newly listed homes fell 5.4% month-over-month in August. The drop was “broad-based,” the CREA noted, with listings down in approximately 80% of local markets. Montreal was the only large market where new supply didn’t decline.
With new listings down and sales stagnant, the sales-to-new-listings ratio rose to 54.5% from July’s 52.1%, putting it nearly on par with the long-term average of 55.1%. August ended with 3.5 months of national inventory, a slight increase from the 3.4 months recorded at the end of July. Although still “well below” the long-term average of five months, it has risen considerably from the record-low 1.7 months seen at the start of 2022. The Aggregate Composite MLS Home Price Index (HPI) was down 1.6% on a monthly basis in August — not a “historically” small decline, but less so than those seen in June and July. Ontario markets, which have seen most of the recent monthly declines, were the greatest contributors to the overall national drop in August. Prices in Alberta “appear to have peaked,” while Quebec saw another month of declines. While the HPI was still up 7.1% annually in August, it was the first single-digit jump in almost two years after the nearly 30% annual increases seen six months ago. ADVERTISEMENT The actual (not seasonally adjusted) national average home price hit $637,673 in August, down 3.9% from a year ago. The figure is “heavily influenced” by sales in the GTA and Greater Vancouver; excluding the two from the calculation cuts $114,800 from the national average price.