TORONTO, July 14, 2015 – Against the backdrop of mixed economic signals at home and abroad, Canada’s real estate market remained healthy in the second quarter of 2015, with solid national average price appreciation across housing segments. Furthermore, the combination of high sales volumes and vigorous price appreciation in Canada’s largest cities has put the national residential real estate market on track for a record year in terms of total sales. With most Canadian real estate markets across the country advancing modestly, and some rapidly, Royal LePage advises that a further interest rate cut by the Bank of Canada could over-stimulate markets such as greater Toronto and Vancouver.
According to the Royal LePage House Price Survey and Market Survey Forecast released today, the average price of a home in Canada rose between 3.9 per cent and 7.5 per cent year-over-year in the second quarter. The detached bungalow segment had the highest national increase, rising 7.5 per cent year-over-year to $436,938, while standard two-storey homes appreciated 6.8 per cent to $471,002. During the same period, the average price of a condominium rose 3.9 per cent to $268,583. Looking ahead, Royal LePage forecasts that the average price of a home in Canada will increase 6.1 per cent for the full year when compared to 2014.
“The robust national average home price increases that we have seen in the second quarter are heavily influenced by activity levels in Toronto and Vancouver,” said Phil Soper, president and chief executive officer, Royal LePage. “The housing industry in both cities boasts a foundation of prosperous labour markets driving demand for housing that is in limited supply – above average price increases aren’t going away any time soon. Looking to Canada as a whole, 2015 is shaping up to be a record year for housing, despite the cloud of economic uncertainty caused by low oil prices and twitchy global economies.”
Some of the highest average price increases in the country were seen in Toronto and Hamilton, particularly in the detached home segments. In the second quarter of 2015, Toronto saw a 12.9 per cent year-over-year average price increase in detached bungalows and an 11.6 per cent increase in the price of standard two-storey homes. During the same period Hamilton saw 10.9 per cent and 13.0 per cent increases in the same two categories, respectively. Running parallel to this, Toronto gained approximately 69,000 jobs between June 2014 and June 2015 and saw a decrease of 1 full percentage point in the unemployment rate to 6.9 per cent, according to Statistics Canada[1]. Hamilton’s unemployment rate also declined, sitting at 5.2 per cent in June, down from 6.5 per cent in the same month last year, as the city gained approximately 5,600 new jobs. (All labour force figures refer to three month moving averages, adjusted for seasonality).
“Sales in residential real estate are firmly tied to consumer confidence,” said Soper. “This confidence is driven in large part by employment status and prospects. You can see this clearly in the Toronto-Hamilton region where positive full-time jobs trends, supported by the low interest rate environment, are encouraging home purchases in record numbers. We believe an additional interest rate cut, which has been discussed with increasing frequency in recent weeks, would be inappropriate policy at this time.”
“While the oil shock has been a troublesome drag on our economy this year, it seems premature to ring the recession alarm bells now, injecting further monetary stimulus,” continued Soper. “The country’s all-important real estate market simply does not need a rate cut. I worry that stoking this engine further could move us from a perfectly manageable major market expansion into a more difficult correction, as price levels decouple from more household incomes.”
In Western Canada, Vancouver saw significant year-over-year home price appreciation in the second quarter, posting 12.6 and 13.6 per cent price increases in the detached bungalow and standard two-storey home categories, respectively. In June, the city’s unemployment rate was 6.1, up 0.4 percentage points from its level a year earlier, but still lower than the national average and well within normal levels for the region. Meanwhile in the Calgary market, job losses have been lower than many expected in the wake of oil price declines. Although the June unemployment rate has edged up 0.7 percentage points over the past year to a still low 5.9 per cent, the city actually added 30,000 jobs during the period. Average home prices in the region remained relatively flat year-over-year in most segments, with the average price of a detached bungalow slipping 0.9 per cent, while the average price of a standard two-storey home decreased by 3.1 percent. The average price of a condominium rose 1.6 per cent.
“We believe the oil-shock adjustment to home values in Calgary has for the most part already taken place and expect stable to modestly declining prices through the second half,” said Soper. “Vacancy rates remain low in Calgary as individuals and families continue to be attracted to the vibrant city and those that have spent their careers in the energy sector shrug off declines as temporary and simply a characteristic of the industry’s cyclical nature.”
Threats to the health of Canada’s real estate market in the remaining months of the year include the continued drag from oil price declines and the risk of sharper regional home price corrections if oil fell further; further delay in anticipated export benefits from the lower Canadian dollar; a return to calamity in Europe if the tentative sovereign debt deal with Greece comes apart; and the potential for a brewing capital markets crisis in China.
“A recession now, if we have technically reached that point, appears to be more of a stiff breeze to the hurricane we battled at the end of the last decade. Further, it would seem prudent for Governor Poloz to hold some dry powder in reserve, should one of the seemingly endless geopolitical crisis situations broadside us,” concluded Soper.
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