With spring's arrival, the typically busy homebuying season got off to a rather slow start in Canada, as the combination of high asking prices and limited inventory continues to hamstring the market.
The number of residential real estate transactions at the national level rose roughly 1.3 percent in March compared to February, according to the Canadian Real Estate Association. On an unadjusted year-over-year basis, however, purchase activity plummeted, falling nearly 23 percent from 12 months prior.
Andrew Peck, president of the CREA, chalked up the rather moribund period for sales activity, in part, to stiffer mortgage lending rules implemented by the federal government.
"Government policy changes have made homebuyers and sellers increasingly uncertain about the outlook for home prices," Peck explained. "The extent to which these changes have impacted housing market sentiment varies by region."
Indeed, in several cities – particularly those in British Columbia and Ontario – home values skyrocketed, up more than 16 percent year over year in Greater Vancouver, 24 percent in Fraser Valley and close to 8 percent in Canada's capital city of Ottawa, the CREA reported.
Average home price down more than 10 percent
While prices remain elevated at the countrywide level, they're not as appreciable as they've been in the recent past. The national average residence in March – including single-family properties, townhouses and condominiums – sold for an unadjusted $491,000, according to the CREA. That was a dip of 10.4 percent from the same period in 2017. When prices in the Greater Toronto Area and Vancouver – the two cities where prices have shown the greatest growth – are excluded from the calculations the national average is a more reasonable $383,000.
Gregory Klump, chief economist at the CREA, said actions by the government have played a role in homebuying activity.
"Recent changes to mortgage regulations are fueling demand for lower priced homes, while shrinking the pool of qualified buyers for higher-priced homes," said Klump. "Given their limited supply, the shift of demand into lower price segments is causing those sale prices to climb."
Klump further stated how the rising home value trend is resulting in fewer low-cost properties for budget-minded buyers to choose from, and the same holds true for move-up buyers, resulting in the current logjam.
Starts barely budge
Meanwhile, despite the dramatic dip in buying activity, builders weren't able to make too much headway in shoring up the historically meager inventory situation. Construction firms broke ground on roughly 226,850 units in March, the Canada Mortgage and Housing Corporation reported. That's a slight uptick from February, when starts totaled 225,804.
Bob Dugan, CMHC chief economist, said that starts on single-family dwellings – the style of house most highly in demand – actually fell, particularly in city locations. Additionally, for the seventh quarter in a row, Canada's housing market is "highly vulnerable," meaning the existence of several imbalances that run contrary to what's been the historical norm for Canada's housing market.
"Our market assessment continues to show a high degree of vulnerability at the overall national level, due to moderate levels of price acceleration and overvaluation existing together," Dugan warned. "Regionally, there's a fair amount of variation, as we continue to see a high degree of vulnerability in major centers in Ontario and British Columbia while Prairie and Atlantic markets range from moderate to low."
Corroborating what the CREA has found, CMHC noted Toronto and Vancouver are among the most vulnerable homebuying markets in all of Canada, with prices in unaffordable territory for numerous would-be buyers, especially around urban localities. There have been pockets of price relief, however, more so in the GTA than the GVA, especially among single-detached dwellings.
Supply climbing slowly but surely
The ideal residential real estate marketplace is one where there's a roughly equivalent amount of people buying as there are properties up for sale. The national sales-to-new listings ratio in March was 53 percent, according to the CREA's analysis. Any figure between 40 percent and 60 percent is indicative of balanced market territory, with higher readings more favorable to sellers than buyers.
With 5.3 months of for-sale houses available in March, based on the CREA's analysis, inventory levels must be six months' worth or more for prices to decline at the national level. At the least, supply is moving in the right direction, as 5.3 months is Canada's highest inventory total since 2015.