The Canadian housing market is being split into two extremes where some affordable cities are booming while big cities are seeing prices drop, according to new data from Royal Lepage.
The reason behind it is a combination of tight inventory in smaller regions, shifting buyer behavior, and oversupply in urban condo markets, explains Philip Soper, CEO and president of Royal LePage.
The company released its first-quarter data on Thursday, which showed mid-priced markets like Quebec City seeing prices surge over 10 per cent, while big cities like Toronto and Vancouver saw prices drop roughly 4.5 per cent or more from the previous year.
“Every single city is expected to be up in the low to mid-single digits (percentage appreciation), except Vancouver and Toronto,” says Soper.
The report shows Canadian home prices dropped two per cent compared to last year, bringing the average price to $812,900. However, things have mostly leveled off recently, with prices barely moving, up just 0.7 per cent, since the end of last year. In Greater Montreal, home prices rose 3.3 per cent compared to last year.
Soper says resource-based industries in places like Sudbury are causing wages and salaries to move up, which directly correlates with higher local purchasing power.
But building isn’t keeping up, and that is consistent across Canada, he says,
“It’s putting upward pressure on prices. Except for Quebec City, we’re not seeing double digit-price increases,” says Soper.
Too many condos in Toronto
Toronto remains oversupplied, especially in condos, says Soper.
He says the condo market was hit hard after the federal government sharply cut back on temporary foreign workers and foreign students in recent years.
“A lot of their customers simply disappeared,” says Soper, who believes a policy change in the next few years will immediately change the trajectory of condominium demand.
On the other hand, he says detached and semi-detached homes are starting to recover, even in weaker markets.
“We’re beginning to eat into that inventory over supply,” says Soper.
Buyer behaviour has shifted
For the last two decades, the norm for homeowners was finding and buying a new home first, which was difficult due to supply constraints, and then selling an existing home, Soper explains.
Now, buyer behaviour has shifted, “which is, they look to sell their home before they go shopping,” says Soper.
He says first-time buyers remain the most anxious about the geopolitical landscape, and so they remain on the sidelines by renting if they can. But even that is becoming more difficult.
“Typically in Canada, rents are so high that it’s pushing people into ownership,” says Soper.
He says recent GST/HST rebate expansions for first time home buyers are being well received by the industry across banks, real estate and builders.
“They’re aimed right at the heart of where the friction is in the real estate cycle,” says Soper.
He says the numbers haven’t shown up in the data yet, but the impact will likely be visible in the next quarter.
