home prices affordability Q4-2018

National home prices rose 2.2 per cent in Q3

Tuesday, October 23, 2018

Home prices saw modest year-over-year gains in many regions across Canada in Q3-2018, according to the newly released Royal LePage House Price Survey and Market Survey Forecast.

The national trend was largely influenced by price appreciation in the Greater Vancouver Area (GVA), while property in the Greater Toronto Area (GTA) continued to experience year-over-year price declines, with modest gains in value when compared to Q2-2018. The Greater Montreal Area saw the highest year-over-year price appreciation rate of the three regions.

The Royal LePage National House Price Composite, which was gathered from property data in 63 of Canada’s largest real estate markets, showed that home prices in Canada climbed 2.2 per cent year-over-year to $625,499 in Q3-2018. When split into housing type, the average price of a two-storey home rose 1.4 per cent year-over-year to $736,337, while the average price of a bungalow rose 1.5 per cent to $519,886. Meanwhile, condominiums saw the largest price increase, climbing 6.7 per cent on an annual basis to reach an average price of $441,240.

Looking ahead, Royal LePage predicts a further increase in home price appreciation in Q4-2018, and is forecasting a 1.5 per cent increase in the aggregate price of a home over the next three months.

“Positive economic fundamentals, supported by a new agreement on trade, should bolster consumer confidence across Canada and stoke demand in the nation’s real estate market,” said Phil Soper, president and CEO of Royal LePage, in a press release. “Dangerously overheated regions have cooled considerably this year, while home prices have remained remarkably resilient. This is the soft landing that policy makers were hoping for.”

“I am concerned that the slower market will cause housing supply issues to be shuffled aside for other priorities. The return of runaway home prices in the country’s largest markets remains a real threat. Not this year, but in the near future,” continued Soper. “The large millennial cohort is putting increasing pressure on our limited new housing stock. It is imperative that all levels of government address looming supply shortages, particularly in affordable housing.”

After over a year of intense negotiations, the federal government reached a new agreement with the U.S. and Mexico on trade, called the USMCA, which is widely viewed as a good outcome for the Canadian economy. According to Soper, this has removed the veil of uncertainty that was deterring large purchase decisions.

“On the other hand, the trade deal paves the way for the Bank of Canada to raise interest rates,” said Soper. “Overall, this is a positive development for housing industries on both sides of the border.”

The Canadian economy is on solid ground, although 2018 is expected to see a lower expansion rate compared to 2017. Double-digit home appreciation has been removed from the GTA or GVA markets. Price appreciation in the Greater Montreal Area was strong at 5.4 per cent, but does not come close to what was experienced in the GTA or GVA. Condominium prices in Toronto and Vancouver have also moderated.

During the third quarter of 2018, Ontario continued to see a noticeable difference between appreciation rates in the GTA and surrounding Greater Golden Horseshoe and beyond. Despite some price relieve in the GTA, some buyers are looking at homes in other Southern Ontario cities in search of a more affordable purchase. This trend is consistent with the findings of the Royal LePage’s Peak Millennial Survey, which found that 52 per cent of people surveyed nationally would look to buy a home in the suburbs when purchasing a property, especially to raise a family (59 per cent), while 61 per cent said they would be willing to move to another city or suburb where property is more affordable.

Of the regions studied by the survey, Kingston and Windsor saw the highest appreciation rates in Ontario, climbing 14.6 and 14.4 per cent annually, respectively. Meanwhile, regions including Niagara/St. Catharines, London and Kitchener/Waterloo/Cambridge saw strong price gains of 8.4 per cent, 7.6 per cent and 6.0 per cent, respectively.

In contrast, over the same period, the aggregate price of a home in the GTA remained relatively flat on an annual basis, depreciating 0.4 per cent to $836,402. The City of Toronto maintained solid ground, increasing by 5.2 per cent, while nearly every suburban region monitored other than Mississauga posted annual price declines. However, when comparing quarters, the aggregate price of a home in the GTA climbed 1.3 per cent. By the end of Q4, Royal LePage expects the aggregate price of a home in the GTA to climb 2.0 per cent over Q3-2018 to reach $853,097.

“The GTA is emerging from a housing correction that was triggered by a combination of eroding affordability and government intervention,” added Soper. “The introduction of the mortgage stress test in particular slowed activity in Toronto’s ‘905’, bringing lower prices to the over-heated suburban region.  Quarter-over-quarter trends are pointing to the end of this correctional cycle and the beginning of a modest recovery in the region.”

In Quebec, the Greater Montreal Area’s housing market remained strong, supported by a resilient economy and high employment rate. In September, the unemployment rate in Quebec dropped 0.3 per cent to 5.3 per cent, which is well below the national average of 5.9 per cent. According to Soper, Montreal remains far more affordable than other major markets.

In Q3-2018, the aggregate price of a home in Greater Montreal climbed 5.4 per cent year-over-year to reach $396,909, which was a higher rate of appreciation than in both the GTA and GVA, and was well above the national aggregate percentage increase. During this period, the average price of a two-storey home in Montreal increased 6.5 per cent year-over-year to land at $500,021. Going forward, more moderate price increases are predicted for the region. The Greater Montreal Area aggregate home price is expected to increase 0.7 per cent quarter-over-quarter to $399,679 in Q4-2018.

British Columbia’s economy continued to outperform most other provinces in Q3-2018, due to technology, tourism and natural resources expanding at a healthy pace. The resulting upward pressure on B.C.’s real estate market was diminished by the 2018 mortgage stress test and provincial tax policy. Double-digit price increases are no longer the standard for the province, although affordable regions and condominiums are continuing to see sturdy year-over-year growth.

In Calgary, higher oil prices, energy activity and exports have all boosted the real estate market’s recovery as the average home price appreciated 3.4 per cent annually in Q3. Meanwhile, Edmonton’s home price appreciation was relatively flat, falling 0.9 per cent on an annual basis during the same period.

Despite rebounding oil and agricultural prices, Regina and Saskatoon’s real estate markets struggled to retain home values. The average home price in Regina climbed 1.8 per cent annually, while the average home price in Saskatoon fell 2.5 per cent over the same period.

In Manitoba, the economy continued its upward trajectory in Q3. The average home price in Winnipeg grew by 3.3 per cent year-over-year with standard two-storey homes experiencing the largest gains, climbing 5.7 per cent during the same period.

All Atlantic Canada regions monitored saw annual home price appreciation in Q3. Moncton and Charlottetown posted the largest home price growth, both seeing increases of 10.1 per cent year-over-year.

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