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Real estate market on track to break records


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Prices forecast to flatten in second half of 2022

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A record number of properties are expected to trade hands before the end of 2021 and thanks to an “unprecedented imbalance” of supply and demand, the year will also go down in history for an “historically large increase” in the average home price.

About 656,300 properties will be sold via Canada’s MLS systems this year – an increase of 18.8 per cent over 2020 – while the national average home price is forecast to rise by 19.9 per cent to $680,000 year over year, according to the Canadian Real Estate Association (CREA).

Greater Toronto Area (GTA) realtors reported 9,783 sales through Toronto Regional Real Estate Board’s MLS system in October – down 6.9 per cent compared to the October 2020 record of 10,503. A strong double-digit increase in condominium apartment sales mitigated annual declines in low-rise home sales.

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The number of new listings in the GTA was down by almost a third over the same period, with consistent declines across all major home types. The average selling price for all homes combined rose by 19.3 per cent year-over-year to $1.15 million

The low-rise market continued to drive price growth in October, but the annual price growth for condominium apartments was in the double digits as well.

So, what’s on the horizon? CREA expects “significantly fewer” MLS transactions in 2022 but still predicts the second-best year on record for Canadian home sales.

It expects national home sales will fall by 12.1 per cent to about 577,000 units next year. The urgency to buy a home to ride out the pandemic continues to fade but with supply at record lows, CREA expects the national average home price will rise by 5.6 per cent on an annual basis to about $718,000 in 2022.

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RBC Economics agrees. “Canada’s housing market run has more in the tank,” it says. In a clear deviation from a five-month cooling trend that kicked off in the spring, home resales and prices picked up slightly across the country in September, providing further evidence that pent-up demand – which it has dubbed “fuel in the market’s tank” – remains strong.

Senior economist Robert Hogue now expects prices to flatten in the second half of 2022 instead of the early part of the year as previously predicted.

CONDO SALES REBOUND

As 2021 draws to a close, “staggering gains” in detached housing sent condominium sales soaring throughout the first eight months of 2021 in major Canadian centres, according to a Re/Max Canada report released last month.

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“Affordability, coupled with availability, set the stage for the exceptional rebound in condominium sales across the country in 2021,” says senior vice president Christopher Alexander.

“Double-digit acceleration in detached housing values revived slumping condominium sales early in the year, with demand shifting into high gear as supply dwindled and prices accelerated.”

He credits younger buyers with pushing condominium sales. Why? Because most want to lock in low interest rates and buy before prices climb beyond their means.

After bearing the initial brunt of the pandemic’s impact on the Greater Toronto Area housing market, sales of apartments and townhomes climbed 71 per cent year-over-year to 30,383 units, up from 17,760. The average price has experienced a modest increase, with prices for apartments and townhomes up seven per cent to $688,138 year-over-year.

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MORTGAGE TRENDS

Record-low interest rates and strong housing market activity driven by a pandemic-fuelled demand for more space propelled residential mortgage debt growth during the first half of 2021 to levels not seen in a decade, according to Canada Mortgage and Housing Corporation (CMHC)’s annual Residential Mortgage Industry Report.

Uninsured new mortgage credit grew by 20 per cent, taking over an increasing share of the residential mortgage market. The most noteworthy increase was in the issuance of uninsured mortgages for purchases of property, which more than doubled the amount originated in the same quarter in 2020.

The large discount between fixed and variable rates, meanwhile, drove more borrowers to choose variable-rate mortgages. In fact, more than 40 per cent of new mortgage balances issued in the second quarter of 2021 have variable rates. New mortgage holders have also been opting for longer-term mortgages to take advantage of historically low interest rates.
Many economists predict mortgage rates will rise in 2022.

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Banking on mom and dad

A report by CIBC deputy chief economist Benjamin Tal found the share of first-time homebuyers that received help from family members was almost 30 per cent during the past year, up from about 20 per cent in 2015.

While the share of gift receivers didn’t rise amid the pandemic, the average gift reached a record high of $82,000 compared to $52,000 in 2015. The average gift in Toronto in the first three quarters of 2021 was estimated at more than $130,000 and in Vancouver, B.C., the number was $180,000. First-time buyers aren’t the only ones receiving gifts: just under nine per cent of mover-uppers also receive help.

The report found the average size of a gift is highly correlated with home prices. Over the past five years, growth in the average size of gift outpaced home price inflation, averaging 9.7 per cent per annum, which is two percentage points faster than growth in home prices. “Given the trend and the size of gifting, it is clear that this phenomenon is becoming an important factor impacting housing demand and therefore home prices in Canada,” says Tal.

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