Taking Stock of Canada's Housing Inventory

Taking Stock of Canada's Housing Inventory

Click the link above to read the full article. The article was published on February 9, 2023 and written by Rishi Sondhi, Economist at TD.

Housing market is always a hot topic. For most Canadians it is one of their largest assets, if not the biggest. In this report, Rishi provides a great overview of the market.

A few highlights from his report: 

During the current downturn in housing markets, Canadian new listings have dropped 19% on a peak-to-trough basis, with broad-based declines across provinces. This decline in supply has saved home prices from an even steeper drop.

Canadian homeowners have chosen to stay put in recent years, reducing the supply of houses for sale. Low supply of homes for sale helps to buoy prices.

After some near-term weakness, our forecast anticipates new listings climbing through much of 2023 and in 2024. However, rising demand should keep markets balanced and underpin positive growth in home prices, particularly in the second half.

There has been no shortage of uncertainty in the housing market the last year. Central banks increasing rates at a historically fast pace is a main cause. With central banks indicating they are pausing hikes or at least slowing down, this provides more certainty in the market. Certainty should allow homeowners to feel more comfortable knowing what they can afford and what the value of a home is.

There is some risk that supply grows more forcefully than anticipated as homeowners face the headwinds of record high debt servicing costs and economic weakness.

As more trigger rates are hit, variable rate mortgage holders being forced to increase payments, and homeowners with mortgages coming up for renewal after years of historically low rates, it may force people to sell. This would increase the supply of listing, which could drag prices down further, faster.

Just how dramatic is the decline in new listings? Canada new listings have declined from 2022 peak levels almost 20% with some provinces experiencing declines of over 40% (BC).

A strong labour market in Canada is a positive.

...homeowners should face less risk of job loss, limiting the potential for forced selling

With the sharp increase in rates, Canadians that purchased a pre-construction home/condo over a year ago are having a difficult time qualifying and closing. Will they be forced to sell? 

Evidence indicates that some buyers are struggling to close on the pre-construction units they purchased years ago, as higher rates and lower appraisal values for their units have made securing the financing required to close the deal more difficult to come by. These buyers may be forced to list their units on the assignment market, which is where a would-be owner sells their property before they take possession.

Another interesting point Rishi makes is to recognize the aging population in Canada. Jerry and I recently discussed this on Bantering Bosses Episode #6: Bad News is Good News? (click the link to go directly to the part). From an unemployment rate perspective an aging population has an effect there. From a housing perspective, Rishi points out: 

...an important structural factor placing downward pressure on listings is the fact that the Canadian population is aging, and an aging population tends to move less.

To conclude Rishi says,

Ultimately, the notion that the Canadian market will only retrace a portion of pandemic-era price gains, coupled with the challenge of building enough new units to house a robustly growing population, should keep affordability pressures bubbling and support elevated and growing prices over a longer-term horizon.

The article was published on February 9, 2023 and written by Rishi Sondhi, Economist at TD. Check out Rishi's LinkedIn profile here.

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