(Photo credit: Alan Cleaver/Creative Commons)
Economists have been sounding the alarm for years that Canada’s housing market is set to crash and that our debt levels are at a worse state compared to US residents before their housing crash.
A recent report by CIBC says that Canada’s housing market isn’t comparable to the US situation since the amount of housing being built isn’t to the same degree of oversupply as our neighbours to the south.
“We purposely did not compare the current situation in Canada to the US market in 2006. That would be setting the bar too low,” writes CIBC economists Benjamin Tal and Andrew Grantham in the report. “Comparing Canada to the pre-crisis US market is not only wrong but also irresponsible.”
Currently, the ratio of housing starts to household formation sits near the typical average of 1.03. While places such as Ontario, Alberta and British Columbia all have higher rates of homebuilding, immigration helped curb a potential oversupply since many of these new immigrants are at the prime age for buying a home.
Many Torontonians and Vancouverites do see many cranes and condos being constructed around the city, but this offers affordability for first-time homebuyers.
“Due to the lack of availability in the low rise market, particularly in already highly concentrated centres such as Toronto and Vancouver, prices of already expensive homes have been rising faster than prices in low and mid-range brackets,” said the report.
“That limited the ability of many homeowners to move-up, and supported renovation activity with smaller homes being made bigger through additions and extensions.”
The report says the condo supply has acted as a stabilizing force in the housing market, which has also assisted the growing number of Canadians who are renting since they’re unable to buy a home. But it’s expected the demand for rental units in Toronto is moderating at a time when there continues to be increasing supply.
If you’re looking to invest in a property, you may want to rethink the idea since the lease-to-listing ratio has fallen to 64.3 per cent from 70 per cent a year ago. Also, it’s expected that the demand for rental units will be 12,000 units in 2015 to 2016, while the supply for rental units is expected to be 14,000 units. With a greater supply of rental units, this may also drive the cost of rent down, and there may be more rental vacancy rates in 2016. Many large developers also shifted their focus to offering purpose built rental buildings, which could lead to a huge bump in rental supply by 2017.
Canada’s housing market is facing very different trends provincially and even municipally. In some areas, a soft landing is already underway in the real estate market while others continue to see accelerating activity.
“he market will adjust, but given the many faces of the market, the adjustment will not be uniform,”said the report. “It will impact different segments at different intensity, and therefore on aggregate be smoother and take longer to fully unload.”
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