Written for Daily Hive Urbanized by Bryan Yu, the chief economist of Central 1.
The raging housing market bull is finally settling down after an unprecedented performance over the past 12 months, when buyers surprisingly flung themselves headfirst into market.
The uncertainty of the pandemic was no match for the allure of plunging mortgage rates and buyers looking for the calm comfort of home and space during a global health crisis that overnight converted living rooms into co-working spaces, daycares and schools.
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By now, the surge in demand is no secret, but still spectacular as sales surged to record high levels across the country. At its peak, Metro Vancouver sales levels before the pandemic commenced, while sales in Greater Toronto were 60% higher. This pattern has played out across the country as Canadians invest heavily in their homes.
Homeowners, both new and existing, have been handsomely rewarded; renters and aspiring owners have fallen further behind.
Benchmark MLS home values in Metro Vancouver have increased by 17% since February 2020, up by $163,200 to reach an eye-watering $1.13 million. Buyers flocked to detached homes and townhomes as space considerations dominated. Greater Toronto’s benchmark value rose 21% ($179,500) over the same period.
With the median family income sitting near $120,000 in Canada’s largest urban centres, many households are earning more tending their lawns than in their normal day jobs as prices for ground-oriented homes soared. These gains were by no means isolated to large centres; robust growth played out across the country, with even stronger relative gains in smaller urban markets.
Some sanity is returning to the market as high prices, exhaustion of the pool of potential buyers, and re-emergence of social activities temper demand and urgency to dive into the market.
July numbers pointed to further sales declines and flat prices — welcome news to those unsuccessful in the intensely competitive pandemic market.
That said, buyers looking for heavy discounting are likely to be disappointed. Just as sales have declined, there is also less choice for buyers as new listings and inventory remain exceptionally low. Lower Mainland active listings were 20% below a year ago and trending near five-year lows, and sellers still have the upper hand in negotiations.
This sideways market will likely play out through the summer as buyers and sellers focus on experiencing a “summer of wow” rather than lucrative real estate gains. More telling will be the fall market, when sellers look to test the market again and lift supply.
At the same time, there will be plenty of support for housing demand — both homeownership and investment. Economic activity is improving, and sectors like tech are continuing to expand. Mortgage rates will remain exceptionally low, while the resumption of stronger immigration, inflows of students back to campus, and tourists will likely drive condominium demand.
The pandemic bull market may have come to an end, but no bear has yet entered the picture.