2015 outlook: residential real estate market in Canada
Canada’s real estate market started with a solid rise in both prices and number of transactions despite the economic downturn. In fact, the weakened Canadian dollar has created favourable currency exchange conditions, encouraging more buyers from abroad despite property prices spiking this year. So, as agencies prepare for some of the biggest price tags and highest amount of transactions, here’s a quick look at what’s going on.
Selective price growth
There is a lot of hope on the market at the moment with some stakeholders predicting record sales like Royal LePage, Canada’s largest real estate agency. While growth is expected to continue nationwide, the spread is uneven in terms of property type and location, putting
By the end of 2015, prices in Toronto and Vancouver are expected to have grown 9.6% and 9.4% respectively with a Canadian average of 6.1%, according to Royal LePage experts.
“The robust national average home price increases that we have seen in the second quarter are heavily influenced by activity levels in Toronto and Vancouver. The housing industry in both cities is founded on prosperous labour markets driving demand for housing that is in limited supply. Above average price growth isn’t going away any time soon,” said Phil Soper, Royal LePage CEO.
This trend is particularly true
Even so, the Royal Bank of Canada is displaying less optimism, forecasting 3.8% average growth in 2015 and 1.6% in 2016.
Sales on the rise
Overall sales have been on the rise but market analysts are divided on how this trend will evolve. While they all agree that growth will be sustained throughout 2015, to what extent and for how long is yet to be determined due to the uncertainty surrounding the Canadian economy.
During H1 2015, there were 5.9% more property transactions than in H1 2014, setting a national record of 513,000 transactions according to the Canadian Real Estate Association (CREA). Their estimates also say transactions will grow 5.2% for 2015 overall, and that the biggest growth this year will be seen in Vancouver (27.6%), Toronto (7.2%), Montreal (5.4%) and Ottawa (4.3%).
However, Royal LePage and the Royal Bank of Canada are also in disagreement over sales figures and forecast 3.3% and 1.5% overall growth in transactions for 2015 respectively.
Stability on the rental market
Vancouver is the most expensive city for rental property in Canada. In April 2015, monthly rent for
The market is generally agreed to be steady. For Canada Mortgage and Housing Corporation (CMHC), this analysis is based on the statistically insignificant change in the vacancy rate: 2.9% in H1 2015 compared to 2.7% in H1 2014. To evaluate this, CMHC experts rank rental market growth against diverse tendencies in the Canadian economy and economic potential of the country’s provinces.
However, the overall stability is not without exceptions. Due to the falling oil prices, demand for rental property is declining in provinces with fossil fuel activities. Based on CMHC criteria,
Vacancy rates are also growing
Comparatively, occupancy in Ontario and British Columbia, provinces with strong employment opportunities for young people, has increased since 2014. Vacancy rates in Vancouver were 1.4% in H1 2015, compared to 1.9% a year before.
Falling interest rates
The Bank of Canada cut interest rates to 0.50% in July, its lowest since 2010, following a scaled downgrade from 1.00% to 0.75% in January 2015 as plummeting oil prices in H2 2014 took their toll on the country’s economy.
Reduction of the key interest rate triggered a chain reaction in the banking sector. Five major Canadian banks cut prime lending rates
Nonetheless, while this decision by the Bank of Canada affects the mortgage market, particularly
Uncertainty on the construction market
Housing construction is slowing down which experts attribute to current economic situation. There were 4.7% less new constructions in Q1 2015 according to the CMHC. They forecast a general decline of 4.1% for 2015 compared with last year, from 189,000 units to 181,000.
Investments in the sector have increased by 8.8% in Q1 2015 compared to last year according to Statistics Canada, the national statistics agency. This surge is expected to pay off during the second half of this year. The number of new constructions is to grow by 3.3% and 3.1% in Q3 and Q4 respectively according to the CMHC.
The construction business is expected to reaffirm itself in 2016, fuelled by lower mortgage rates and housing demand, encouraging the price rise to continue.
What to expect
Five key factors will influence the real estate market in Canada over the coming years.
– Interest rates: cheap mortgages fuel access and demand for housing so watch out for changes to the key interest rate set by the Bank of Canada.
– Employment: Canada has a diversified economy which shields it from the effects of the oil shock. It is still capable of creating employment, especially as the US economy improves. By the end of 2015, unemployment in Canada is forecast at 6.7%, compared to 7.1% in 2014 and employment rates are expected to grow by 1.3% in 2015 and another 1.9% in 2016.
– Demography: the share
– Supply: demand for property in Canada still exceeds supply even though this gap has been reduced since May 2013. The shortage will contribute to growth in housing prices. However, if supply outpaces growth, the market could enter a risky period. Nevertheless, Joe Oliver, the Minister of Finance, said there was no housing bubble in Canada.
2015 is on track to become the best year for Canadian property
Canada is capable overcoming problems in the oil sector thanks to economic diversification and employment growth combined with selective immigration should fuel persistent demand for real estate over the coming years.
Ivan Chepizhko, Tranio