SilverBeam Homes Blog

The housing market in Canada continues to surprise us for both buyers and sellers. Buyers have seen the highest prices and have heard about price corrections for home prices. But have we seen this? Is it possible that the new year will bring a change for you, so you can get your home?

Right now, the truth is, understanding the housing market is hard. But we can start prepping for the next year by thinking about some things. Supply is always a big factor in home prices, and sellers are nervous about what kind of returns they will be seeing for their assets. As such, some will hold off listing their homes when they can. 

Sellers never want to sell in a low market. But it is usually during this time that buyers are out in abundance. Included in this group are resellers. This would be the opposite of what we saw this past February. What this could mean is low housing prices all across Canada, which would drastically impact supply in a negative way. 

For Buyers 

First time buyers are frustrated, as there aren’t many potential homes on the market for them. Many of the houses currently going on the market have had the same owners for over 30 years, so buyers can see their budgets disappear, especially if they need renovations. Often potential buyers find something, but when they see the work that is required, they find themselves running into difficulties because their lender may not be able to finance and insure the property. 

For Seller’s

Sellers may be feeling less frustration than buyers, but that is until their properties are not selling. We can expect to see a shift in what it means to own property. Families are selling off their assets, and new generations are taking action towards homeownership. In the current housing market, there is really no perfect time to make a move. 

Those looking to sell need to find and work with an agent who can help them develop a strategy for bringing a home to market. They should put you on with a clear vision on the values for your area, and let you know of any barriers that may be present to make your property more desirable, as well as what could make it less desirable, so you can avoid that. 

Buyers may need to take a look at their options outside of buying a home. One option could be to build a home with us. Contact us to find out more about building your dream home from the ground up. 

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The soaring house prices we are currently facing are expected to drop sharply next year. But this price drop may still not make houses affordable since the Bank of Canada keeps raising interest rates. 

Near zero interest rates and already high prices in one of the hottest housing markets in the world will fuel the decline in prices. Average prices have risen this year by 10.3% but this is slower than the pace of the previous which was 11%. 

The hike in interest rates brought on by the bank of Canada in March has caused a 6% decline in prices. But it is expected to take years for affordability to set in. In 2023 we are expecting the average house prices to drop by 7.8%. This is a significant drop since the last prediction three months ago was 2.2%. If we actually see this decline, it will be the biggest decline since 2005. 

Price Drops Expected in Different Cities

The forecast for Vancouver and Toronto  predicts prices will drop by 7.3% and 8.5% respectively. While the pandemic is not over, the pandemic-era of the housing market boom is. The bottom is likely months away. 

The 100 basis point rate hike by the Bank of Canada on the 13th of July disqualified buyers from getting a mortgage. We expect the next two rate announcements to continue to cool things down. The only thing not cooling down is consumer price inflation. It is expected to remain high for some time reaching an almost 40 year high in June of 2022. 

The Disconnect Between Home Prices and Income

Home prices have been far disconnected from rent and income for quite a while. Even if there was a benchmark fall of 30% across the nation the pre-COVID prices which were not even affordable to begin with is where we would end up. But now, buyers are faced with higher interest rates than those of 2020. 

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The second quarter of 2022 has taken a new shift to the worse, according to a new report. Housing affordability is now at its worst in 41 years. The report in question was published last Tuesday by the National Bank Financial Markets. 

The information from the report shows data for 10 housing markets. Affordability was gauged by calculating a mortgage payment as a percentage of income. This compares the average home’s mortgage payment to the median income.  

Housing prices were rising in the second quarter, while affordability was deteriorating. While this was going on, mortgage interest rates were rising. The median home price across the areas in the report was at $810,985 in 2022’s second quarter. For a home of that type, the typical mortgage payment would be $4,166. This reflects an MPPI rate increase of 63.9%. This is the highest it has ever been since 1981. 

The increase from the previous quarter is 10.4% points, which is coming from 19.1% in the previous year. The average MPPI rate has been 40.7 % since 2000. There are a couple of the urban areas included in the study that have MPPI rates that are higher than 90%. 

What The Numbers Look Like in Different Areas

The MPPI here for non-condo homes was 121.2%. Condos has a MPPI of 51%. The combined MPPI is 96.9%. 

The capital of British Columbia is Victoria, and they showed similar numbers. The MPPI for here is 95.6%, with non-condos having an MPPI of 102.5% for non-condos and 52.9% for condos. 

In Toronto, the MPPI for non condos is 98.2%, whereas for condos it is 53.3%. The combined MPPI for the Greater Toronto is thereby 91%. 

In Hamilton, the statistics are close to the national Canadian average. MPI rates were 50.1% for condos and 71.1% for non-condos. 

Middle of the Pack

Montreal has a non condo MPPI of 50.1% and 33.9% for condos. 

Ottawa-Gatineau saw a 50.9% rate for non condo homes and 28.6% for condos. 

The Most Affordable Places to Buy a Home in Canada 

Quebec City and the Prairies are proving to offer the most affordable housing markets in Canada, according to the report. 

In Winnipeg, Edmonton, Calgary and Quebec City, the numbers are between 30 and 37 percent for non-condos. For condos, the MPPI’s are around 15 to 29%.  

Recent slowdown in the housing market is good news for those who are looking to purchase a home. This is because housing affordability is forecasted by the bank to improve, with a 10% decline in the price of homes in the coming months. There is also the benchmark that five-year mortgage rate stabilization will help to improve affordability before the end of 2022. 

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Interest rates in July took another huge toll, causing Canada’s housing correction to run far and wide. Housing markets across the country have seen a deepened downturn. This is quickly turning into the sharpest drop in the past 5 decades. 

With prices sliding fast, fear is fast replacing the exuberance many of us felt earlier this year, especially in Vancouver and Toronto. These cities saw outsize price gains and stretched affordability during the pandemic, and as such are at the highest risk. 

The Toronto pullback is already obvious, with the frenzy of last winter already gone. Housing activity is currently at its slowest pace in 13 years, except for April 2020 when we first had to live through lockdowns. 

Inventories that were previously rock-bottom have now risen to a year over year high of 58%. Since March of 2022, the composite MLS Home Price Index for Toronto has fallen by 13% to $1,160,000. 

Buyers Reactions 

It is expected that buyers will be on the defensive in the months to come. This, as they have rising interest rates and poor affordability to deal with. They may be able to get further price concessions, especially for properties in the 905 built, where prices had increased exponentially during the pandemic. In the city of Toronto, condos have continued to remain relatively resilient. 

Vancouver’s housing market has been repeatedly cooled off since this spring, with rising interest rates. This has caused a drop in activity of 40% in the last 4 months. Prices have started to weaken, and the composite MLS HPI has seen a decrease of 4.5% since April. 

The Royal Bank of Canada believes that the city’s correction is still at early beginnings, and that buyers in the region will have to face pressure with rising rates as expected affordability starts to become suffocating. Single-detached homes will feel most of the pain, while condos will remain resilient. 

What is Happening Outside of Vancouver?

Some buyers have seen a great reduction in their buying power, and this has caused many of them to back out of the market, or out of their house search. This downturn may be contained in just some parts of the country, but we cannot ignore it. 

In Calgary, for example, we have seen activity that is still above the pre-pandemic levels, but with property values now starting to ease, buyers may be able to get into the market there. With the higher interest rates, buyers have changed some of their needs or have decided to renege some of their wants. They are looking for more affordable options, like single detached homes and condos, etc. 

Sellers are hesitating too, and so supply is also dwindling. The composite MLS HPI for Calgary has dipped since its peak in May. The same course of action is expected in the near future with the RBC. Tight demand and supply will help to support prices offering positive demographic and economic fundamentals. 

Montreal 

Montreal is seeing activity moderated, with home sales standing at 17% below the pre-pandemic levels. Rising inventories and calmer environments have brought around some amount of balance in the market. 

Single family condos and homes have seen a fall in median prices month over month. Property values are expected to ease in the close future. The market will adjust to higher interest rates. The downturn is expected to intensify and spread further. Buyers are waiting to see what will happen with lending rates.  

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The construction industry and companies like SilverBeam Homes are currently pressured by the cement shortage. 

Cement, a necessary ingredient for concrete, currently in short supply, so we are seeing delays piling up. We are not the only ones behind right now. While we are waiting on deliveries, other like companies and providers are waiting too. 

When concrete contractors can’t keep up with the supply, we can’t get the tools we need to continue our construction projects. We have schedules to meet, and these delays impact our scheduled deliverables to our clients. 

What Is the Cause of the Concrete Shortage?

The ready mixed concrete Association of Ontario indicates that the culprits are:

1. Increased prices
2. Increased demand 
3. Labor shortages

With many cement plants having equipment breakdowns and malfunctions, there has been a disruption in supply. Some plants saw these issues in the beginning of July, causing projects to be delayed and some even canceled. 

With production slowed, it has been hard for us to stay up to task. With the issues of finding concrete, our project costs can change, which no customer wants to hear right now. The worst part, it seems we are still in the early stages of the shortage. 

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There are some consumer protections being entered into British Columbia that should help new homebuyers entering the housing market. They made it their objective to outline exactly what those protections looked like before they were released. 

The details of phase one were announced. The provincial minister made the announcement at a news conference in Vancouver on July 21, 2022. The measures she described are a definite first in the country. And definitely will protect home buyers from the higher risks of the housing market.  

Many home buyers feel like they need to waive all conditions when they are buying a home. But these new legal protections will come into effect on January 1st, 2023. This protection will provide home buyers with a non-waivable protection period after their offer is accepted. 

There are fees, so the seller is protected to some extent if the buyer chooses to back out. There is a rescission fee of 0.25% of the purchase price of the home. So the seller would get to keep some of the down payment for being inconvenienced. 

Introduction as a Cooling-Off Period

Anyone who doesn’t take advantage of this will only have 3 days to arrange financing, home inspection, and other things necessary to complete a home purchase. Buyers still have the ability to make offers, find financing, and schedule home inspections, but the protection period will give them some additional time to ensure they know what they are getting into if they are working with a condition free offer. 

The provincial government consulted with the British Columbia Financial Services Authority before creating their final plan. They also consulted with realtors, appraisers, inspectors, financial experts and legal experts.  

The BCREA’s Take on the Plan

Even with all the consultations, the plan is still being seen as controversial. This year, the British Columbia Real Estate Association called the plan ineffectual. They also indicated the plan was finalized without enough consultation. 

The British Columbia Real Estate Association’s CEO indicates their extreme disappointment in the policy. They indicate it goes against the advice recommended in May for consumer protection measures as a part of an overall package, instead of this a la carte style. 

They see this decision as one that undermines the independence and expertise of the regulator, and that the policy addresses concerns that have changed since the first time the cooling off period was brought up.

The BCREA doesn’t believe that the plan will stand up to the test of the market conditions which are ever changing. They additionally indicated that the best protections could not come from government interventions, but from the BCFSA’s research and decision-making. 

Without that, there is no real positive change to be expected, Koot said. The BCREA estimates that 10% increase in bids is caused because of this new system, and they indicate this will drive up prices. 

The Good and The Bad Of the Policy

One of the biggest failures of the policy is its failure to address housing affordability’s root cause. This is the lack of housing supply in the province. The plan does however give home buyers some peace of mind, and it does this will also protect the seller’s interest.   

Another good is that the province indicates they will be monitoring the impacts and will continue to study advice from the BCFSA. 

What’s your take on the policy? Are you excited about the change and the possible benefits to buyers and sellers?

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Just a week ago, the Canada Housing and Mortgage Corporation announced 260 new homes. Of the 260, only 86 of them were considered affordable. With 2 million Canadians currently priced out of the housing market, this announcement was nothing short of an insult. It seems the powers that be are more interested in protecting the status quo and are not focused on disrupting a dysfunctional market. 

This isn’t unfamiliar ground though. The last time the government invested a sensible amount into co-operative housing was in the early 1990’s. So a $1.5 billion dollar investment by the government is the biggest investment in 30 years. How far will this investment go? It will go into 6,000 new co-operative housing units. The truth is that City Councils in Vancouver, Montreal, and Toronto are refusing to end exclusionary zoning. 

Young Buyers Suffering the Most

Who is bearing the brunt of all this? Younger buyers who have put all their chips to the middle of the table. These young buyers are now experiencing rising mortgage payments and are watching as their equity disappears. Even those who were waiting for the market to get better find themselves getting behind, with rising rates crushing their ability to afford their potential home. 

First time homebuyers are not seeing too much of a break, and existing homeowners are realizing an erosion in their equity as much as 30%. 

It has been a long time since we have seen a major housing announcement that helps potential homeowners get into their home. What we can’t have is business as usual. Until our government is willing to accept lower prices in British Columbia and other key markets to lower housing prices. 

Until our government is willing to make the decisions that will be unpopular, you do have the option to build your own home. Here at SilverBeam Homes, we can help you with that. Give us a call today, and let’s see how we can help you make your dream of owning a home a reality. 

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It was the intention of the Bank of Canada to do a rate hike that would cool the housing market. While also curbing inflation. We are starting to see that these high interests are subduing some sales activity. But the pain for homebuyers is now starting, as well as for homeowners too. 

Interest rates are climbing, and inflation rates are climbing as well. Homebuyers are left to carry heavier financial burdens if they decide to go ahead with their goals of owning a home. Especially affected are first-time home buyers, since they are just entering the market with no equity coming in. 

The Double-Whammy Effect 

The situation is discouraging for many homebuyers. The interest rates are increasing, but the prices for homes are still high. This means down payments and mortgage payments are going to be higher. 

Many expected the higher interest rate to affect home sales. But even though there is a slight shift to more balanced conditions, sales are still at record levels and prices are above the 2022 expectations. 

Vulnerabilities for Homeowners

Some strategists expect to see a 0.75% increase in the policy rate by the Bank of Canada. But they are also not discounting the fact that there could still be a full-point hike. The most vulnerable Canadians are those with a Home Equity line of credit or HELOC. 

Many HELOCs have variable-rate interest rates, and so when interest rates rise, buyers may find themselves with higher payments out of nowhere. In these cases, the principal is sensitive to the rate hike. This is because a bank’s interest rate on HELOcs is tied to their prime lending rate. 

Even if the lender offers a specified period where they offer a fixed-term home equity loan. This is true regardless of the increase or decrease on the principal. 

New Stipulations 

In late 2023, it is expected that the Office of the Superintendent of Financial Institutions (OSFI) will need borrowers to pay principal and interest when they have a combined loan that is above 65% of the value of the home. 

Dividend Machine 

The real estate sector has been underperforming on the stock market with a 22.67% year to date. It is actually the 3rd worst performing sector, coming in after healthcare and technology. However, we are still seeing a popularity in income investigation, especially for choice properties. 

The 5.27% dividend is at $14.09 per share, and there has been the return to profitability of the $4.62 billion REIT in Q! Of 2022, thanks to positive leasing momentum and rent collections. The net income for the quarter was almost at $387 million, compared to a net loss of $62.2 million in Q1 of 2021. 

The core assets for this REIT are industrial and retail properties, but we see that the residential platform is seeing some amount of growth. Core assets and the development pipeline are or should be focused in the near term. 

Rate Hikes Have Consequences

The rules are being tightened by the OSFI. Some mortgage products are seeing this tightening to ensure that homeowners do not end up drowning in a debt that continues to place them into deeper debt. If we are to see a supersized rate hike soon, this could completely freeze the housing market and cause a decline in the value of homes on the market. 

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Vancouver and Toronto are some of the hottest markets in the country when it comes to real estate, but they have also been ranked some of the worst places in the country to make a purchase. 

The annual ranking done by Zoocasa Realty and MoneySense, which puts together the report “Where to Buy Real Estate in Canada”, lists 45 regions. Vancouver was marked as one of the most financially challenging housing markets in the country, and both prospective buyers and residents are not surprised. 

The data used in the report shows the average home price for last year at $1,230, 200.  This represents a 19% increase over a period of three years. The rankings looked at a number of factors. These include:

• Neighborhood characteristics
• Neighborhood economics
• Price growth over time
• Home prices
• Value and demand

Other Major Cities Considered Worst to Buy

In Ontario, the regions of Oakville and Milton received low ratings, as well as Mississauga and Burlington. Burlington buyers saw the most growth in three years, with the average home price seeing an increase of 67%. 

On the West Coast, the report showed that Victoria and Fraser Valley were both bad places to make a home purchase. Fraser Valley includes Abbotsford, which is a city in British Columbia. The numbers indicate that buyers are spending around 34% more than they were spending three years ago. These regions were given ratings of 1.5 and 1.7 stars respectively. 

In Calgary, the rating was 1.8 stars, even though there was only a 11% increase in the average price. 

Where Should Buyers Look? 

The report also indicated the top 10 communities to make a home purchase. Among the top ten were Ontario and New Brunswick. 

In New Brunswick, the Greater Moncton area is where buyers can purchase a home at a benchmark price of $302,400. Leading cities in New Brunswick include Fredericton and Saint John. The Ontario cities of Branford and Grey-Bruce Owen Sound areas were among the top 10 as well. This was leading areas in Ontario to include Quite West, North Bay, Huron, Perth, St. Thomas, London and Tillsonburg. 

Among the lowest ratings for cities when sorting the list by value were the cities of;

• Edmonton
• St. John’s 
• Winnipeg
• Regina

Chilliwack, Kamloops and Vancouver Island were in the middle with Halifax. Quebec City and Charlottetown did not make the list, neither were any territories included. 

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Seems each week a new report comes out, giving us hope about the housing market. And the most Desjardins report is in favor of a housing correction on the horizon. Their report covers what the future can look like, as well as how the Vancouver market may change. 

Like many other parts of Canada right now, it has become cheaper to live outside of a city. According to the British Columbia Real Estate Association (BCREA), there is an increase in home prices across the province. The places seeing more of an increase include 

• Powell River 
• Northern British Columbia
• Chilliwack
• Vancouver Island 
• Kamloops

The suggestion by Desjardins is that whatever goes up must come back down. And so they expect to see a correction of the housing market in short order. They caution though that there is no need to panic, as the price drops won’t be enough to be considered a collapse of the housing market. You can read up on their Canadian Residential Real Estate Outlook

When Bank of Canada Hiked Interest Rates

Before the interest rate hikes brought on by the Bank of Canada, there was a rush of people trying to purchase homes. Then when the costs of borrowing rose, many potential homeowners no longer wanted or could afford to purchase. This helped to quell the Canadian housing market somewhat. The rise in borrowing costs may even go up further, predicts Desjardins, as depicted by their graph below. 

Expectations for the Near Future

It is expected that housing prices will fall by about 15% in BC by the end of the year 2023. This estimated fall will still not match how much house prices rose during the pandemic. 

With renewed international immigration, Vancouver is expected to reap some positive results to the housing market. This is because the immigration will limit how hard the market correction hits. Interprovincial migration also plays a small factor, though it appears to affect other provinces more drastically than other provinces.

National average increases saw existing homes rising approximately $530,000 in price towards the end of 2019. At its peak in February 2022, this increase was a bit over $790,000, which is equivalent to a 50% increase in the span of just two years. 

In previous months, we have seen prices falling all across Canada, and they have fallen fast as well. In March, we saw a slide of 2.6%, and in April it was down by 3.8%. Even the prices of existing homes have dropped. In March, those declined by 5.9%, and then in April they went down a whopping 12.6%.  

Trends in Different Provinces

Every province sees a different trend, but those provinces that saw the biggest increases during the pandemic will likely see the largest corrections. There is however no expectation for prices to fall below what they were pre-Covid. 

We are by no means calling two months of data a trend, but we think this is a solid indication that the Canadian housing market is now at an inflection point. 

And of course, purchasing an existing home is not the only way to homeownership. Here at Silverbeam Homes, we can help you build your dream home. If you can’t find what you need in the current housing market, give us a call and let’s work it out.  

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