The real estate market – activity and intensity.
It’s weird being a real estate agent recently. Maybe other professions have changed quickly as well. Probably. The real estate market used to be fairly predictable but this year it is both good and bad, hot and cold, high and low. What’s going on? The amount of activity has decreased but the intensity has increased.
That pretty much sums it up.
Most of Canada’s real estate investors are Boomers
A recent study by the Canadian Housing Statistics Program (CHSP) revealed that the majority of real estate investors in Canada are baby boomers aged 55 and older. The study, conducted by Statistics Canada (Stat Can) in 2020, highlighted that younger investors are underrepresented in the market. This concentration of older households investing in real estate has created a challenge for young adults seeking affordable housing, as it contributes to a limited supply of available properties. The provinces with the highest shares of boomer investors were Nova Scotia and New Brunswick, followed closely by British Columbia, Manitoba, and Ontario. In these provinces, baby boomers accounted for almost one-third of all resident-owned investment properties.
What happened to Canada’s seasonal housing cycle?
In recent years, Canada’s housing market has deviated from its usual predictable annual cycle. Historically, home sales followed a pattern of being slow in winter, reaching a peak in May, remaining strong throughout the summer, and then declining in the fall.
Despite the subsiding of the pandemic and a return to normalcy, the housing market has continued to exhibit strange and unpredictable behaviour. The Canadian Real Estate Association’s data on existing home sales illustrates this. Seasonally-adjusted home sales peaked in the first quarter of 2021, then declined during the spring and summer months, only to rebound again towards the end of the year. However, as spring arrived in 2022, sales plummeted below pre-pandemic levels.
The explanation for these unusual patterns is rooted in Canada’s unique economic circumstances over the past three years. In 2020 and 2021, extremely low mortgage rates, implemented by the Bank of Canada to stimulate the economy during the pandemic, created a surge in housing demand. However, as inflation began to rise in 2021, the Bank of Canada reversed its course and interest rates increased. Mortgage costs followed suit, leading to a collapse in affordability and dampening the housing market in 2022.
These interest rate fluctuations have disrupted the traditional seasonal patterns observed in the housing market. Similar to how the pandemic erased the typical seasonal pattern in 2020, last year’s interest rate hikes “dominated” the market’s seasonal behaviour.
The Canadian housing market has made a positive shift.
The Canadian housing market has shown signs of improvement according to the national housing statistics released by the Canadian Real Estate Association (CREA) in April 2023. The increase in activity was attributed to two key factors: the belief that the Bank of Canada had finished raising interest rates and the release of data indicating that home prices had hit a bottom. The market has gained more certainty, which has prompted buyers to enter the market. The Senior Economist of CREA expects prices to continue rising, indicating that the dip observed in February and March was the best opportunity for buyers. The recovery in the housing market is seen as a positive for existing homeowners but exacerbates the ongoing housing crisis for many others. The next few months of housing data are anticipated to be attention-grabbing, and policymakers are urged to address the issue of supply shortage. In April, national home sales rose by 11.3% compared to March, a significant increase rarely seen in recent years. However, inventory levels remain low, and new listings are at a 20-year low. As a result, prices have reacted accordingly, with the national MLS® Home Price Index (HPI) showing a 1.6% increase in April compared to the previous month. This upward trend in prices was observed across most local markets, indicating a broad-based recovery.