Home buyers and sellers took new COVID-19 outbreaks in stride last month.
Early signs suggest Canada’s housing market was as busy as ever. Home resales rose some 25% to 61% above year-ago levels in areas where local real estate boards have so far reported September results—including increases of 56% in Vancouver, 51% in Ottawa and 42% in Toronto. The pandemic however is driving diverging trends among housing categories. Activity is universally stronger for single-detached and other low-rise homes than it is for condos. And the number of condos put up for sale is rising much faster than the number of low-rise homes. The pandemic is altering the housing needs of many current owners, which simultaneously shifts demand from condo apartments to single-detached homes and other low-rise categories, and boosts the supply of smaller condos in core urban areas. These trends have put single-family home prices on accelerating trajectories. Condo prices continue to rise modestly for now in most markets but this may not last. At the rate demand-supply conditions are softening, we see condo prices losing ground in the coming year in some of Canada’s core urban areas.
The market came off August’s boil but was still red-hot overall in September. Strong demand—especially for low-rise homes in the 905 area—kept home resales 42% above year-ago levels. The modest 5.3% decline from August (on a seasonally-adjusted basis) did little to alter the fact the market was effectively running full-tilt going into the fall season. Tight supply was even likely a restraining factor for low-rise homes (newly listed single-detached homes grew 2.9% y/y, well short of the 55% increase in resales). This wasn’t the case for condo apartments, though, as new listings surged 90% y/y (six times the 15% rate of increase in resales). Home prices got a few degrees hotter overall. The aggregate MLS HPI accelerated to a three-year high rate of 11.6% y/y. Yet the heat was concentrated in low-rise categories. Condo prices cooled slightly on a month-to-month basis.
Home resales jumped 56% y/y in September, or more than 13% m/m on a seasonally-adjusted basis. Detached home transactions led the way, rising (77% y/y) and more than twice the rate of condos (up 37%). Detached home prices accelerated further to 7.8% y/y from 6.9% in August. A material rise in new listings (up 44% y/y) kept condo price increases steady at 4.5% y/y (unchanged from August). Demand-supply conditions have tightened considerably for single-detached homes as new listings rose ‘only’ 18% y/y. We expect prices to heat up even more in this market segment in the near term. We expect more plentiful inventories will do the opposite for condo prices.
There was a stark contrast among market segments with single-detached home resales surging 28% y/y and condos falling 0.8%. The supply side also diverged. New listings of detached homes dropped 2.3% y/y while they rose 16% for condo apartments. The end result has been a marked tightening in demand-supply conditions for single-detached and further loosening for condo apartments. Overall (benchmark) prices were still down on a year-over-year basis—Calgary’s MLS HPI was off 0.2%—though much of the weakness was concentrated in the condo segment. We expect relative strength in the single-detached segment to pull the aggregate benchmark into positive territory in the period ahead.
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Robert Hogue is a member of the Macroeconomic and Regional Analysis Group, with RBC Economics. He is responsible for providing analysis and forecasts for the Canadian housing market and for the provincial economies. His publications include Housing Trends and Affordability, Provincial Outlook and provincial budget commentaries.
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