Are we facing a Housing Inventory Crisis?
Are Major Canadian Cities Faced with a Housing Inventory Crisis?
Housing inventory levels in major Canadian real estate markets have been decreasing over the last ten years or so. Active for sale listings in the month of July’ 22 were below the 10-year average in almost all markets surveyed based on Canadian Real Estate Association (CREA) data and insights from the RE/MAX network.
RE/MAX examined active listings for the month of July from 2013 to 2022 in eight major Canadian real estate markets including Hamilton–Burlington and the Greater Toronto Area. It found that housing inventory levels have fallen short of the 10-year average in seven of those markets in 2022.
In the Greater Toronto Area, supply was down by almost 7% from the 10-year average. Hamilton-Burlington was the only market to escape the trend and reported a 3.2% increase over the 10-year average.
“Supply was far more robust in the early 2000s in centres such as Greater Vancouver, the Greater Toronto Area and Hamilton-Burlington,” according to Christopher Alexander, President, RE/MAX Canada. “That stability lent itself to healthy sales and price appreciation year-over-year and provided an anchor for the Canadian housing market during the Great Recession. Population growth and household formation have played a significant role in depleting inventory levels from coast to coast over the most recent decade, triggering chronic housing shortages in large urban centres that resulted in mini ‘boom’ and ‘bust’ cycles. If we don’t move now to build more housing in the current lull, it’s expected that this same scenario will continue to resurface over and over again.”
According to Statistics Canada, Canada has witnessed double-digit population growth between the years 2006 and 2021. In fact, it is set for further growth with the government’s commitment to welcome 1.2 million immigrants into the country between the years 2021 and 2023, as well as growth in new international students.
Needless to state that the increase in new immigrants combined with demand from existing population is expected to intensify the shortfall further, particularly in the major urban markets of Vancouver and Toronto (and by default Mississauga and other parts of the GTA).
Find out which are the current Real Estate Hot Pockets in the GTA for buyers.
| Active Listings (July 2013 – July 2022) | |
|---|---|
| Time Period | GTA Listings |
| July 2013 | 20,514 |
| July 2014 | 19,549 |
| July 2015 | 16,673 |
| July 2016 | 11,346 |
| July 2017 | 18,751 |
| July 2018 | 19,725 |
| July 2019 | 17,938 |
| July 2020 | 15,018 |
| July 2021 | 9,732 |
| July 2022 | 15,335 |
| Total | 164,581 |
| 10 Year Average | 16,458 |
| % Change in Jul 2022 | -6.80% |
| Source: Canadian Real Estate Association (CREA) | |
Affordability & other issues add to the crunch
And it is not just housing inventory that is the need of the hour, affordable housing is equally important.
A recent report from the Canada Mortgage and Housing Corp. (CMHC) concluded that the country needs to build 3.5 million new homes by 2030 to tackle the affordability issue, yet Canada is averaging only 200,000 to 300,000 new units per year.
It is important to bear in mind that population growth is not the only reason contributing to the inventory challenge. New housing starts and purpose-built rentals continue to lag. The housing supply issue threatens to push even more buyers into the rental market, which already is under so much pressure.
The result is the possibility of even fewer listings of homes for sale hitting the already low markets. This is because some of the rentals come out of the homes and condos that may have hit the sellers market originally.
Inflation, rising interest rates, increased global supply chain interruptions, soaring construction costs, shortage of labour, high land acquisition costs and slow municipal approval processes are some of the ingredients of the soup that we find ourselves in.
Developer pullback
CMHC has noted a decrease in the seasonally adjusted annual rate of housing starts in Canada’s urban areas in July of 2022, driven by lower starts in the single-detached category.
According to the Q2-2022 Condominium Market Survey by real estate research firm Urbanation, approximately 35,000 new condo units were anticipated to launch for pre-construction sale in the GTA in 2022. In the first half of the year, close to 16,000 units launched. With less than 10,000 units expected during the remainder of 2022, it’s estimated that at least 10,000 new units will be put on the shelf.
Purpose-built rentals, new-home construction and policies that support residential building activity are crucial to address the inventory crunch impacting Canada real estate markets. Without action affordability will move further out of reach. A sustainable strategy is needed with an implementation plan that is fast-tracked.
A balance in the real estate market and affordability requires prioritization of residential building activity.
Housing Inventory Crisis in the Greater Toronto Area (GTA)
While active listings in July 2022, at 16,458 units, were almost 7% below the 10-year average for the month (2013-2022), they were considerably lower than the 10-year July average of 21,243 recorded between 2003 and 2012.
The average price of a home in the GTA was $1,074,754 in July, which is up just over 33% from $806,755 in July 2019. At a time when higher inventory levels would help keep housing affordable, increased development charges have been passed on to consumers, prompting developers to “landbank.”
Purpose-built rentals and condo starts have been shelved until 2023 throughout Toronto. At present, the buyers most active in the GTA market are those driven by life changes, like jobs, marriage, family and retirement in addition to new immigrants and work permit holders. This means first time buyers, move-up buyers and downsizers are all actively seeking a home or a condo in the market.
We are seeing some activity with even multiple offers. The difference now is that buyers will insert financing and home inspection conditions and offers may be at or only $5,000 over list. The highest level of activity is taking place at the $900,000 to $1.5 million price point.
Population in the GTA is up by 21% between 2006 and 2021, adding more than one million people. The number of single-person households has also climbed, up 37% since 2006, to 565,730.
It is evident that currently there is inadequate supply to accommodate future growth.
Content source: remax.ca
Our Advice to Buyers and Sellers in the Current Market
With the government’s commitment to add another 1.2 million immigrants to the country between the years 2021 and 2023, combined with a shortage of housing supply, this can only help fuel home prices up (even if interest rates rise). Home prices in the GTA are already 15 to 20 percent down from the February 2022 peak.
It is very hard to predict correctly what lies ahead in the future. So if you are a buyer, who can afford to pay little extra per month than what you are paying on rent, you should seriously consider buying in the next three to four months. Our team can help you figure out your monthly mortgage, property taxes and other expenses and refer you to top lenders who can approve you for a mortgage loan.
Sellers looking to upsize or downsize can call us to discuss the best strategies to deploy in a buyer’s market, which we currently are in. Note, that when you sell for less you can also end up buying for less, when comparing home prices at the peak of the market.
In the end, prices always go up and surpass the previous peak price. We have seen this during 2008 when prices dropped and then they were up within six to nine months. Same thing happened in 2017, the prices went down and it took almost two years to come back to where they were in 2017. It is very much possible that Feb 2022 peak prices can be surpassed by Feb 2024. This is just a best guess based on past performance, we don’t have a crystal ball!
