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Canada’s homeownership rate has declined to 66.5% after peaking in 2011 at 69% as people struggle to get off sidelines

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Canada’s homeownership rate has declined to 66.5 per cent after peaking in 2011 at 69 per cent, according to a Statistics Canada release Wednesday, with the agency acknowledging that people are having a hard time getting off the sidelines.

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“Trying to figure out the right time to buy is a difficult decision that can leave Canadians wondering how long they want to hold out on entering the real estate market — or whether they even want to,” the agency said in its report.

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While the slowdown in home starts and sales continues, home prices had previously increased to such levels that even a major correction may not be enough for most Canadians to enter the market given current interest rates.

Adults under the age of 75, especially young millennials aged 25 to 29 years, were less likely to own their home in 2021 than a decade earlier, according to the Statistics Canada report, Portrait of Housing in Canada 2011-2021.

Meanwhile, the growth in renter households has more than doubled the growth of owner households. The agency said renter households grew 21 per cent between 2011 and 2021 compared to the homeownership growth rate of 8.4 per cent.

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Housing is still at its most unaffordable level in 30 years — since the height of the housing bubble in the 1980s and the 1990s — according to recent reports by the National Bank of Canada and Royal Bank of Canada.

Despite the higher costs, Statistics Canada said the number of households that spent more than 30 per cent of their income on housing declined to 20.9 per cent in 2021 from 24 per cent in 2016.

The rate of unaffordable housing for renters fell to 33.2 per cent from 40 per cent during the same timeframe, with most of the decline occurring among renters earning below the median renter household income (68.4 per cent in 2016, compared with 56 per cent in 2021).

According to Statistics Canada, Canadians found housing more affordable in 2021 because they had higher incomes, in large part due to pandemic support programs.

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Despite broad-based increases in wages and salaries, however, income inequality increased in the first quarter of 2022 compared to the same quarter a year earlier, according to the latest Distributions of Household Economic Accounts estimates.

City dwellers faced the highest unaffordable housing rates. The percentage of renters spending more than 30 per cent of their income on shelter costs in 2021 was above the national average in 33 of 42 large urban downtowns.

More than one-third of dwellings built from 2011 to 2021 were occupied and primarily maintained by millennial renters or owners in 2021, the largest share of any generation. Millennials also represented the largest share of condominium occupants (30.2 per cent).

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  1. Teranet–National Bank National Composite House Price posted its largest drop in its history Tuesday.

    Teranet home price index posts biggest drop in its history

  2. Since price movements with larger deviations from the long-term trend influence consumer sentiments more, the idea that buyers' remorse is more pronounced now is taking root.

    Falling housing prices may not be leading to widespread buyers’ remorse the way you think

  3. Homes under construction in a development in Langford, B.C.

    Housing inventory may reach crisis point in major Canadian centres, report finds

But Canadian housing starts have declined since Statistics Canada collected the data for its report. The decline in August was 2.8 per cent, to 267,443 units, on a seasonally adjusted annual basis, from 275,158 units in July, according to data released by Canada Mortgage and Housing Corp. The decline comes amid widespread concern about a shortage of housing supply in the country.

Residents of Atlantic Canada have historically been the most likely to be homeowners, and this remained true in 2021 even though rates declined. Indeed, the largest declines in the country were posted in Prince Edward Island, down to 68.8 per cent from 73.4 per cent, and Nova Scotia, down to 66.8 per cent from 70.8 per cent.

British Columbia had the third-largest decline in homeownership (66.8 per cent from 70 per cent), followed by Ontario, which was down to 68.4 per cent from 71.4 per cent.

Quebec had the smallest drop (to 59.9 per cent from 61.2 per cent), but still had the lowest homeownership rate in Canada, as has historically been the case. The Northwest Territories had the only increase.

• Email: shcampbell@postmedia.com

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Home prices so high that even a major correction may not be enough for most Canadians to enter the market as interest rates rise

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Canada’s homeownership rate has declined to 66.5 per cent after peaking in 2011 at 69 per cent, according to a Statistics Canada release Wednesday, with the agency acknowledging that people are having a hard time getting off the sidelines.

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“Trying to figure out the right time to buy is a difficult decision that can leave Canadians wondering how long they want to hold out on entering the real estate market — or whether they even want to,” the agency said in its report.

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While the slowdown in home starts and sales continues, home prices had previously increased to such levels that even a major correction may not be enough for most Canadians to enter the market given current interest rates.

Adults under the age of 75, especially young millennials aged 25 to 29 years, were less likely to own their home in 2021 than a decade earlier, according to the Statistics Canada report, Portrait of Housing in Canada 2011-2021.

Meanwhile, the growth in renter households has more than doubled the growth of owner households. The agency said renter households grew 21 per cent between 2011 and 2021 compared to the homeownership growth rate of 8.4 per cent.

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Housing is still at its most unaffordable level in 30 years — since the height of the housing bubble in the 1980s and the 1990s — according to recent reports by the National Bank of Canada and Royal Bank of Canada.

Nevertheless, Statistics Canada said the number of households that spent more than 30 per cent of their income on housing declined to 20.9 per cent in 2021 from 24 per cent in 2016.

The rate of unaffordable housing for renters fell to 33.2 per cent from 40 per cent during the same timeframe, with most of the decline occurring among renters earning below the median renter household income (68.4 per cent in 2016, compared with 56 per cent in 2021).

According to Statistics Canada, Canadians found housing more affordable in 2021 because they had higher incomes, in large part due to pandemic support programs.

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Even with the broad-based increases in wages and salaries, income inequality increased in the first quarter of 2022 compared to the same quarter a year earlier, according to the latest Distributions of Household Economic Accounts estimates.

City dwellers faced the highest unaffordable housing rates. The percentage of renters spending more than 30 per cent of their income on shelter costs in 2021 was above the national average in 33 of 42 large urban downtowns.

“We’re seeing the results of people dropping out of the homeownership game, and they’re moving into rental and there’s just not enough affordable rentals being built,” Cherise Burda, executive director of City Building TMU at Toronto Metropolitan University, said of the current market.

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“We’re doing something wrong. With all this effort and energy and resources from the national housing strategy, we’re not generating more affordable units. We need to have a really targeted focus for the next several years on building affordable rental because that’s where people are dropping down in the housing ladder, and that’s where we need effort and funding and resources the most.”

More than one-third of dwellings built from 2011 to 2021 were occupied and primarily maintained by millennial renters or owners in 2021, the largest share of any generation. Millennials also represented the largest share of condominium occupants (30.2 per cent).

  1. Teranet–National Bank National Composite House Price posted its largest drop in its history Tuesday.

    Teranet home price index posts biggest drop in its history

  2. Since price movements with larger deviations from the long-term trend influence consumer sentiments more, the idea that buyers' remorse is more pronounced now is taking root.

    Falling housing prices may not be leading to widespread buyers’ remorse the way you think

  3. Homes under construction in a development in Langford, B.C.

    Housing inventory may reach crisis point in major Canadian centres, report finds

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Story continues below

Article content

But Canadian housing starts have declined since Statistics Canada collected the data for its report. The decline in August was 2.8 per cent, to 267,443 units, on a seasonally adjusted annual basis, from 275,158 units in July, according to data released by Canada Mortgage and Housing Corp. The decline comes amid widespread concern about a shortage of housing supply in the country.

Residents of Atlantic Canada have historically been the most likely to be homeowners, and this remained true in 2021 even though rates declined. Indeed, the largest declines in the country were posted in Prince Edward Island, down to 68.8 per cent from 73.4 per cent, and Nova Scotia, down to 66.8 per cent from 70.8 per cent.

British Columbia had the third-largest decline in homeownership (66.8 per cent from 70 per cent), followed by Ontario, which was down to 68.4 per cent from 71.4 per cent.

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Quebec had the smallest drop (to 59.9 per cent from 61.2 per cent), but still had the lowest homeownership rate in Canada, as has historically been the case. The Northwest Territories had the only increase.

Overall, the agency’s release indicates there is more pressure on the rental market regardless of increased household incomes, leaving the housing industry worried that both rental and homeowner prices are growing out of reach for many.

“We are going to push people out of our cities, out of our urban areas, even our suburban areas because people can’t afford to live there,” Burda said. “It’s really critical, if we want to maintain a workforce, to keep our cities functioning, to keep our cities welcoming. We need to focus on building more affordable housing.”

• Email: shcampbell@postmedia.com

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Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

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Office buildings across Canada have faced high vacancy rates for years, and the rise of work from home arrangements has only amplified the crisis.

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This week on Down to Business, Steven Paynter, a principal in Toronto at Gensler, the largest architectural and interior design firm in the world, spoke about the future of the office building.

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During the pandemic, the city of Calgary hired Gensler to study whether it would be practical to convert many of its empty office buildings into residential units, and Gensler explained what he found.

Such conversions may help cities kill two birds with one stone — that is add more housing while helping offset some of the costs of empty office buildings, which deprive them of tax revenue, hurt local retail and have many other deleterious effects.

But Paynter also said that the office building suffers from a series of woes, and the reasons that many buildings are empty aren’t going away immediately. As always the interview is edited for clarity and brevity.

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The value of Canadian residential real estate fell for the first time since 2018 in the second quarter of 2022, helping to drag down the overall value of Canadian household wealth by a record $990 billion.

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According to Statistics Canada‘s national balance sheet and financial flow accounts figures released on Monday, the total value of all residential real estate in the country fell by $446.3 billion to $8,655.6 billion during the quarter, a marked reversal from the $344 billion rise recorded in the prior quarter.

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“The streak of gains in real estate that began in late 2018 was halted by a housing market grappling with rapidly rising interest rates,” the federal agency said in the report.

In terms of household wealth, non-financial assets including real estate declined by $389.8 billion while financial assets fell by a record $530.6 billion in the quarter. Despite the decline, the value of household residential real estate remains 41 per cent above the level recorded at the end of 2019.  An increase in financial liabilities of $69.8 billion as outstanding mortgage debt continued to expand, helped drive the overall drop in household wealth to nearly $1 trillion, or 6.1 per cent, the steepest quarterly drop since data tracking began in 1990.

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“Today’s release revealed that households faced rising financial headwinds in the second quarter,” Ksenia Bushmeneva of TD Economics said.

Bushmeneva attributed the drop in household wealth to the selloffs in financial markets earlier this year combined with a decline in house prices.

Average resale prices dropped to roughly $710,000, while home resale inventory levels remained lower than average. By July, the average resale price dropped further to $635,000.

  1. Bank of Canada senior deputy governor Carolyn Rogers says the central bank is wary of a wage-price spiral.

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  3. Employment in Canada declined for a third consecutive month in August.

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Debt growth also outpaced income gains, as households added a near record $56.3 billion of debt in the second quarter. They now have $1.82 in credit market debt for every dollar of household disposable income.

Statistics Canada’s figures also showed the savings rate fell to 6.2 per cent in the second quarter from 9.5 per cent in the previous quarter, as rising expenditures outpaced tepid income growth.

A key measure of housing affordability also reversed course. Real estate as a percentage of disposable income fell to 546.7 per cent from 581.3 per cent in the second quarter of 2020.

• Email: dpaglinawan@postmedia.com | Twitter:

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Episode 165 of Down to Business podcast

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Across Canada, the number of houses and condos being sold is dropping, and what’s more prices are falling. But has anything fundamentally changed in the real estate market?

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This week on Down to Business, Murtaza Haider, a professor of real estate management at Toronto Metropolitan University, explains why he thinks housing prices in Canada will return to their space-ward trajectory.

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Haider said rising interest rates have forced prospective homebuyers to look in lower price brackets, which is bringing housing prices down. But he thinks the problem remains the same — too many people, not enough houses.

But as hybrid work arrangements take a more permanent shape, and companies reconsider their commercial office space, things could change. But that remains several years away at best. As always the interview is edited for clarity and brevity.

Listen on Apple PodcastsSpotifyStitcher and YouTube where you can also subscribe to get new episodes every Wednesday morning.

If you have any questions about the show, or if there are topics you want us to tackle, email us: downtobusiness@postmedia.com.

• Email: gfriedman@postmedia.com | Twitter:

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New report calls for change as rents soar at fastest pace since the late 1980s

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The leaders of Canada’s biggest city are being challenged to confront a surge in “renovictions,” a phenomenon that has already caused tensions between landlords, tenants, and politicians in other big municipalities, including Vancouver and Montreal.

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Last week, Abigail Bond, the executive director of Toronto’s housing secretariat, published a report that called on the provincial government to tie rent control regulations to units rather than the tenants who live in them, which she argued would make it harder for landlords to jack up rents under the guise of renovations.

“The primary objectives of these activities are to preserve the city’s affordable and mid-range rental housing supply and help support tenants who are at risk of being evicted,” Bond wrote.

Terms such as “renovictions” and “vacancy decontrol” have become part of the local political discourse across the country, as the surge in housing prices has created an incentive to take advantage of the shift in market conditions. For example, rents in Ontario are increasing at the fastest year-over-year pace since the late 1980s, according to Statistics Canada data. Rent jumped 5.4 per cent in June from a year earlier, slower than the 5.6-per-cent gain posted in May, but otherwise the biggest increase since the fall of 1989.

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Many provinces have rules in place that limit rent increases. However, one way around those regulations is to renovate a property, and then put it back on the market at a higher rate. Often, existing renters find themselves unable to pay the higher price and are forced to move.

According to Bond’s report, ending “vacancy decontrol” would help curb the financial incentive for landlords to eject long-term tenants. “Vacancy decontrol” is essentially the opposite of rent control; while the law provides existing tenants with a cap on rent increases, there are no restrictions on what a landlord can charge when the unit turns over. Tenant advocates argue that “vacancy decontrol” increases instability for tenants, especially low-income households paying lower rents.

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The door is wide open for ‘renovictions’ and we need to shut it

Mike Layton, City of Toronto councillor

“REITS have caused our city to become commoditized,” Toronto councillor Mike Layton said during a debate on Bond’s report on July 22, referring to real-estate investment trusts. “The door is wide open for ‘renovictions’ and we need to shut it. When the rent doubles, it’s a huge loss for our city,” Layton continued. “If we don’t stop the commoditizing of housing, then the rent will only continue to rise. (Bond’s) report moves us forward.”

Mayor John Tory’s office didn’t return a request for comment on the Bond report, nor did a spokesperson for Ontario Housing Minister Steve Clark.

Canada is facing an acute housing affordability and supply crisis. According to a joint report by Urbanation and the Federation of Rental Housing of Ontario, rental apartment supply from purpose-built units and secondary condominiums is projected to fall short of demand by over 200,000 units — even if construction starts double in 10 years.

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Major cities such as Toronto and Vancouver rely heavily on the private market to provide mid-level housing, and the “renoviction” phenomenon has resulted in fewer affordable homes on the market.

Robert Patterson, a spokesperson for the Tenant Resource & Advisory Centre (TRAC) in British Columbia, said he has seen the negative effects of “renovictions” due to “vacancy decontrol,” observing that, “B.C. has experienced a ‘renoviction’ crisis and the problem is that it can affect so many tenants at once. Often dozens of people (living in a building) are evicted at once for renovations.”

However, policy can correct the issue, Patterson said. As of July 1, 2021, British Columbia’s Residential Tenancies Act (RTA) makes “renovictions” tougher for landlords by forcing them to apply for permission from the Residential Tenancy Branch (RTB), introducing some bureaucratic friction that creates a disincentive to make cosmetic improvements simply as an excuse to hike the rent.

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Ontario law allows landlords to evict tenants if they are undertaking major renovations on a unit, and there is no rule that bars landlords from raising the rent between tenants.

Although Patterson said that he has seen fewer “renovictions,” he has observed an increase in renters receiving RTB-32 notices, which allow landlords to evict tenants to make way for a relative or person who will be providing care for another resident of the building.

“Whenever there is an incentive to move out tenants, landlords will take the necessary steps to do that,” Patterson said. “It’s not about the type of evictions when there are a number of loopholes. The policies should match the incentives.”

Back in Toronto, councillors appeared to support the thrust of Bond’s recommendations, but some argued that a framework that protects both the tenants and the properties is necessary.

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“We need to tackle both ends,” said councillor Ana Bailão, as critics of vacancy control suggest landlords need an incentive to maintain and upgrade properties. “We need to ensure that stock is in a state of good repair and at an affordable moderate rate for the people of Toronto.”

But city councillors are not the only ones taking the government to task. In a press release this week, Jessica Bell, the Ontario New Democratic Party’s housing critic, said the lack of oversight in the housing ministry is contributing to skyrocketing rent prices. Bell advocates legislation that would ensure that new tenants would be able to pay the same rent as their predecessors.

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For existing tenants, Ontario’s rent control system permits annual rent increases based on the Ontario consumer price index (CPI), which the province recently doubled to 2.5 per cent for next year. Increases greater than that must be justified and approved by the Landlord and Tenant Board. When the unit is vacated, there are no limits on how much rent the landlord can seek.

In Ontario, landlord applications to evict tenants for reasons other than failing to pay rent increased by nearly 100 per cent between 2014 and 2020, while applications to raise rent on current tenants beyond what’s allowed under rent control rules rose by nearly 40 per cent, according to data from the Landlord and Tenant Board.

While “creating new supply is crucial, there’s a parallel need to protect the affordable housing that already exists,” Bond said in a press release alongside her report. “That means taking a holistic look at what’s driving costs upwards.”

Financial Post

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Homeowners either waiting for the market to come back or renting their properties

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Cancelled property listings are increasing across the Greater Toronto Area at a rapid rate, further evidence that Canada’s biggest housing market is slowing after more than a decade of rapid growth.

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Slate Realty Inc., which runs the Strata.ca real-estate platform, released a report that found that sellers scrapped 2,822 listings in June, a 643-per-cent spike from 380 cancellations in January.

“Many sellers are still operating under the impression that this is a seller’s market, so they are listing too high and not seeing any action,” Alex Hood, a Strata realtor, said in the report. “At the same time, rising inflation and interest rates are making buyers feel uncertain about the trajectory of the market, which is causing them to be more conservative with their bids.”

The Bank of Canada has raised the benchmark interest rate 2.25 percentage points since March, an unusually aggressive path forced on the central bank by the fastest inflation in four decades. Frothy housing markets have cooled quickly in response to higher mortgage costs. Home prices in Toronto were little changed, according to the latest Teranet-National Bank house price index, showing the year-over-year increase slowed to 19.7 per cent from 22.5 per cent in May.

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Many sellers are still operating under the impression that this is a seller’s market, so they are listing too high and not seeing any action

Alex Hood, Strata realtor

For homeowners, it is well within their right to terminate listings if they no longer want to sell, or if the contract between them and the listing agent expires before an offer is accepted. In today’s market, sellers are opting to go this route at an “unprecedented” rate, Strata said.

Anna Wong, another Strata agent, said that most sellers who have terminated their listings are waiting for a better time to re-list or have made a “shrewd” decision to rent out their property. Unlike the oversupplied sales market in the GTA, real-estate experts say the inventory of apartment rentals has fallen nearly 60 per cent since January.

Rents in Ontario are increasing at the fastest year-over-year pace since the late 1980s, according to Statistics Canada data. Rent jumped 5.4 per cent in June from a year earlier, slower than the 5.6-per-cent gain posted in May, but otherwise the biggest increase since the fall of 1989.

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Average price stood at $665,850 in June, two per cent lower from a year earlier and six per cent lower from May

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Toronto real-estate agent Harry Sarvaiya was ready for higher interest rates, but not like this.

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“I think the intention was shock,” Sarvaiya said a couple of days after the Bank of Canada raised the benchmark a full percentage point, the biggest increase since 1998. “In real estate, people didn’t expect it.”

Housing is probably the industry most sensitive to interest rates. That’s helpful when the economy is in trouble. The central bank can stoke demand quickly by dropping interest rates in the knowledge the Canadians will rush to buy houses — and then renovate them and fill them with big-ticket items such as appliances and furniture. Service providers such as banks, brokers, contractors, and movers all benefit.

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If prices keep rising, the broader economy benefits, because households feel richer, something economists call the “wealth effect.”

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Canada’s economic growth over the past dozen years has depended to a great degree on such wealth effects. But the central bank’s job isn’t goosing the housing market; its mission is to control inflation, which accelerated to nearly eight per cent in May.

Bank of Canada Governor Tiff Macklem has now raised borrowing costs more in the past four months than his predecessors did during the decade between the end of the Great Recession and the start of the pandemic. The effect on the housing market has been just as immediate as when borrowing costs were dropped to nearly zero, but nowhere near as pleasant for the real-estate industry and aspiring buyers and sellers.

“We’ve had everything happen to us in the past couple weeks,” said Joe Baglieri, broker at Re/Max Realtron Property Shop in Markham, Ont. “We’ve had deals fall through, we’ve had renegotiations happen.”

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Baglieri said that real estate is more of a long-term game and anyone involved in it has to expect cooler periods. The problem is, borrowing costs have been so low for so long, many households have forgotten what it’s like when interest rates bite. Geoff Morgan, a brand marketer from Toronto, said his bank raised his variable mortgage rate within hours of the Bank of Canada’s shock policy announcement on July 13, while his variable-rate savings account barely budged.

“I’ve asked my bank for an explanation,” Morgan said. “They tell me they offer competitive rates.”

The impact goes beyond the strain for current home owners. Home sales and prices continue to slide across the country, as rising mortgage costs ripple throughout the market, putting more homebuyers on the sidelines. Sarvaiya said he lost a sale on a $400,000 condo in Toronto because the buyer failed to qualify for the mortgage.

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“He had the 20-per-cent down payment, but after that it’s ratios,” said Sarvaiya. “He has to qualify for prime plus two, which he would have two months back easily, and now it’s difficult to qualify.”

The Canadian Real Estate Association reported on July 15 that the nationwide actual, non-seasonally adjusted average price stood at $665,850 in June, slipping nearly two per cent from a year earlier and sliding six per cent from May.

The number of homes changing hands fell 5.6 per cent month-over-month in June and fell approximately 24 per cent from the June record set in 2021. The association noted that the declines were not as large as the drops seen in April and May.

“Sales activity continues to slow in the face of rising interest rates and uncertainty,” Jill Oudil, chair of CREA, in a press release accompanying the data. “The cost of borrowing has overtaken supply as the dominant factor affecting housing markets at the moment, but the supply issue has not gone away.”

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Lauren Haw, chief executive officer at Zoocasa Realty Inc., told Financial Post’s Larysa Harapyn in a July 12 interview that more Canadians are holding off on their purchases and seeing what the Bank of Canada would do next.

“As people are saying right now, just let the dust settle before they make that big decision,” Haw said. “So that means there’s a lot of dislocation and people are just sitting on the sidelines.”

Haw added that prospective homebuyers are waiting for an indication that prices have hit the bottom before they re-enter the market.

The Bank of Canada observed in its latest quarterly report that a “sharp slowdown” in housing is “underway.” Robert Kavcic, an economist at Bank of Montreal, called the latest data the “early days of correction” in a note to clients.

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“Sales have now fallen back into pre-COVID ranges and below the 10-year average for the first time since the pandemic broke out,” Kavcic wrote in a note to clients. “The period of extreme excess demand is essentially over, and we are on track for a very weak year ahead for resale volumes and prices.”

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Some are already warning that Canada is headed for a housing bust. At the same time, some of those people have been saying that for more than a decade. Christopher Alexander, president at Re/Max Canada, argued that the exuberant average price growth during the pandemic had been unsustainable and that higher interest rates will leave the market healthier.

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“This is good news for buyers and sellers who need to move within the market, and ultimately, good for the real-estate professionals who serve them,” said Alexander. “A healthy market that’s appreciating in the mid- to high-single digits will allow more Canadians to engage in the market. The real challenge for consumers and the real estate industry will be the supply shortage.”

Kelsey Smith, who is looking to purchase her first home in Calgary, said house hunting and mortgage shopping has become a lot more difficult. The recent MBA graduate said she plans to avoid locking into a five-year fixed rate mortgage, even though she doesn’t relish the idea of “riding the rollercoaster” of variable rates.

“I chose to bring my price range down by $50,000 because of the current interest rates,” she said. “On the mortgage front, I’ve been having to look at changing the amortization period from 25 years to 15 years — I’ve actively been trying to MacGyver myself a way into a better deal. It’s kind of been crappy.”

Back in Toronto, Sarvaiya was bracing for a new reality. The “madness” of bids $100,000 over asking is over, he said. “There are all these houses for sale right now and nobody’s buying, even if they reduced the price because the buyer lost confidence, thinking it will be a downward spiral,” he said.

Additional reporting by Marisa Coulton, Denise Paglinawan, and Meghan Potkins.

• Email: shughes@postmedia.com | Twitter:

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‘Drastic transformation’ of housing sector called for

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The projected construction of new homes by 2030 won’t be enough to solve Canada’s supply and affordability issues, the Canada Mortgage and Housing Corp. (CMHC) said in a report Thursday.

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In May, CMHC identified supply as “the biggest issue affecting housing affordability,” and that new housing starts have struggled to keep up with the population growth in some of Canada’s large cities.

To “restore affordability, Canada will need an additional 3.5 million units” on top of those already in the works, CHMC said Thursday.

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“Canada’s approach to housing supply needs to be rethought and done differently,” Aled ab Iorwerth, CMHC’s deputy chief economist, said.

“There must be a drastic transformation of the housing sector, including government policies and processes, and an ‘all-hands-on-deck’ approach to increasing the supply of housing to meet demand.”

The latest CMHC report projects that the housing stock will increase by 2.3 million units by 2030, reaching close to 19 million housing units, if current rates of new construction continue.

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However, that number “would need to climb to over 22 million … to achieve affordability for everyone living in Canada,” the report said.

“Put another way, we need the rate of housing starts to more than double,” ab Iorwerth said.

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The housing authority said two-thirds of the housing supply gap is in Ontario and British Columbia, which have experienced large declines in affordability in recent years.

Additional supply would also be required in Quebec, since affordability there has markedly declined during the past few years.

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“Over the last 20 years in Canada, housing supply has not responded to demand, especially in some of the country’s large urban areas, resulting in the loss of affordability,” CMHC said.

The affordability challenge is being exacerbated by labour and supply issues that could limit new supply, ab Iorwerth said, adding it is also an economic risk for large cities that rely on attracting skilled and highly skilled workers.

“We need to get faster and more efficient at building housing units,” he said. “This is one of the key questions that we hope will be addressed coming out of our report: It’s not a question of how much housing, but how do we actually do it?”

One of his suggestions is to convert underused retail or office space into residential units, something that would require cooperation amongst the various levels of government and the private sector.

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Increasing housing supply in both the rental and ownership market will be “critical” to achieving affordability, the CMHC report said.

Robert Hogue, a senior economist at RBC Economics, said the bank’s aggregate affordability measure surged 3.7 percentage points to 54 per cent in the first quarter of this year — the worst level of affordability since the early 1990s.

“Ownership costs rose in every market we track, though the degree of pain felt by buyers varies dramatically across the country,” he said in a note.

Hogue said the Bank of Canada’s “forceful” campaign of interest-rate hikes will further inflate ownership costs in the near term, putting RBC’s national affordability measure “on a path to worst-ever levels.”

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A looming price correction will, however, eventually bring “some relief to buyers,” he said, noting that property values are already slipping and are likely to fall more than 10 per cent in the coming year.

Douglas Porter, chief economist at BMO Financial Group, said he wonders if the CMHC’s estimated housing supply shortfall will be as large a year from now, given increasing interest rates and expectations that the housing market will have “cooled even more substantially.”

What’s more, he said, some skepticism should be attached to estimates of the supply shortfall, given that other tracking suggests there are scores of vacant homes in Canada.

Still, Porter said focusing on the supply side remains important, even though the housing market is calming down from the “blistering” levels of the past year.

“The drive to boost supply by 3.5 million by 2030 seems aspirational, but not realistic, given that it works out to roughly 440,000 new units per year,” the economist said, noting that the all-time high for starts in a single year is 273,00.

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“Moreover, the industry already seems to be running into its own supply constraints, whether that’s the lack of skilled workers, rising building material prices, or the cost of land,” he added. “It would seem that a ramping up of homebuilding activity would simply aggravate cost pressures on all of these fronts.”

Thursday’s CMHC report focused on the country’s long-term housing strategy and did not zero in on the “cyclical challenges we’re facing in the short term,” ab Iorwerth said.

“Housing issues are complex and housing supply alone won’t fix housing affordability challenges for everyone,” the report said, adding that continued government support for the most vulnerable will be needed to address “housing inequities” in the system.

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