The unlikely rebound of Canada’s real estate market continues, with home sales surging to 20% higher than pre-pandemic levels.
Home sales in August were up 33.5% compared to the same period in 2019, the Canadian Real Estate Association reported. Meanwhile, the average home price surged 18.5% to $586,149. Excluding the higher-priced markets of Toronto and Vancouver, the average price drops to $464,000.
“Many markets dealing with inventory shortages have been seeing fierce competition among buyers this summer; although, that was something that had been anticipated for 2020 prior to COVID-19,” said Costa Poulopoulos, Chair of CREA.
Inventory levels continued to drop in August, falling to just 2.6 months, meaning that’s how long it would take to liquidate current inventories at the current sales rate. That’s a fresh record low.
But for the first time since the rebound began, new supply is finally outpacing rising sales, CREA noted. The national sales-to-new listings ratio eased to 69.4% in August, down from 72.3% in July.
Here’s a look at how some individual housing markets performed in August:
· PEI: $288,302 (+30.7%)
· Ottawa: $517,800 (+19.9%)
· Halifax: $372,982 (+18.2%)
· Greater Montreal Area: $408,200 (+16.4%)
· Greater Toronto Area: $890,400 (+11.1%)
· Greater Vancouver Area: $1,038,700 (+5.3% year-over year)
· Victoria: $719,300 (+3.5%)
· Calgary: $414,100 (-0.8%)
How Long Can it Last?
“Canadian resale housing markets defied gravity again in August, with sales activity not just exceeding, but rocketing past the pre-pandemic pace,” wrote Brian DePratto, senior economist at TD Economics.”There are a number of reasons why this has been the case, including low borrowing costs, and the relative mix of employment/income losses, but it is clear that this strength is unlikely to last.”
DePratto points to the unseasonable strong summer picking up the lack of a spring market. As a result, sales activity is now in line with historic norms, “suggesting that much of this pent-up demand has been satisfied.”
He adds that fundamentals suggest “at least a partial retrenchment” over the remainder of the year.
Robert Hogue of RBC Economics agrees, writing, “The pandemic completely disrupted normal seasonal patterns by shifting activity from the spring to summer. With pent-up demand now largely exhausted, we see activity cooling later this fall. This should let some of the steam out of prices, though not to the point of causing outright declines on a large scale.”
What it Means for Mortgages
Rapidly rising prices across the country are going to require heftier minimum down payments from first-time buyers, and more for those hoping to avoid default insurance by putting at least 20% down. But just how much?
Average minimum down payments, which are 5% of the property value, have increased by about 36%, from $24,736 last year to $33,614 today. That’s according to mortgage expert Rob McLister of RateSpy.com, who worked out the math in a recent post.
For those wanting to avoid paying default insurance, the average 20% down payment has increased from $98,947 in 2019 to $117,229 today.
McLister notes that minimum down payments have risen disproportionately more because average prices are now breaking the critical $500,000 threshold. Federal rules require 5% down on the first $500,000, but 10% down payment on the portion above $500,000, up to $1 million.
“In PEI, where real estate is really on fire (up 30.7% year-over-year), the minimum uninsured down payment has soared by, you guessed it, 30.7% year-over-year,” he wrote.
Source: Steve Huebl