CMI State of the Market: Canadian Home Sales See ‘V-Shaped’ Recovery as Nation Slowly Emerges from Lockdown

Canada’s housing market extended its recovery in June, as home sales and new listings rebounded sharply from their pandemic lows. Record low mortgage rates and the gradual lifting of shelter-in-place orders mean more Canadians are getting back into the real estate market. 

While sales remain below their pre-pandemic peak, transactions are back above the ten-year monthly moving average, according to the Canadian Real Estate Association (CREA).

Canada’s Housing Market: By Numbers

Real estate activity ended a volatile quarter on firm footing, as national home sales rose 63% in June. Sales were up 15.2% compared to the same time last year. All major metropolitan regions recorded a monthly increase in home sales.

CMI MIC Housing Market Update

Source: CREA

The number of newly listed properties rose 49.5% month-over-month. On an annual basis, actual new supply increased 4.8%. 

Home values also resumed their upward momentum, rising 6.5% annually. 

Canada Added Nearly 1 Million Jobs in June

June was another record-breaking month for the Canadian labour market, as employers added 953,000 workers to payrolls. The unemployment rate fell to 12.3% after hitting a record high of 13.7% in May. 

CMI MIC Housing Market Update

The Canadian economy lost over 3 million jobs in March and April amid COVID-19 lockdowns. | Source: Statistics Canada

Ontario saw the biggest gain in new jobs as the province played catch-up with the rest of the country on reopening the economy. Ontario was largely locked down until the beginning of June.  

Canada’s labour market recovery has been swift, but still has a long way to go. There are still 1.8 million fewer jobs in Canada than there were in February. 

Interest Rates Will Stay Low for Years: BOC

Monetary policy took an unconventional turn this year as the Bank of Canada (BOC) responded quickly to the Covid-19 crisis. Now, the central bank says interest rates will remain anchored near zero for the foreseeable future. 

Tiff Macklem, the BOC’s new governor, described the post-pandemic recovery as a “long climb out.” 

He added:

“We are being unusually clear that interest rates are going to be unusually low for a long time.”

Analysts say the BOC is unlikely to raise interest rates until at least 2023.

Mortgage rates, which are indirectly impacted by the BOC’s benchmark rate, could remain on a downward trend for the foreseeable future. By the end of June, some banks were offering 5-year fixed mortgages at a rate of 2% or less.

Investing During a Rebound 

Toronto’s benchmark TSX Index continues to climb in July, mirroring the rapid advance of U.S. markets. The benchmark is trading at more than three-month highs as investors continue to bet on a vaccine to treat Covid-19. 

Improving economic fundamentals and recovering oil prices have also propped up Canadian equity markets.

CMI MIC Housing Market Update

Risk sentiment is returning as TSX reaches its highest level since March. | Source: Barchart.com.

At the same time, investors are hedging their bets. Gold—one of the most reliable hedges against risk—soared to nine-year highs in July. The yellow metal peaked at $1,829.80 a troy ounce on the Comex division of the New York Mercantile Exchange.

CMI MIC Housing Market Update

Gold is in a bull market as demand for hard assets continues to surge. | Chart: barchart.com

Demand for hard assets is giving gold its newfound shine. Real estate could soon follow as investors look for alternative investment vehicles. Mortgage investing provides indirect exposure to real estate by allowing investors to capitalize on residential housing markets. 

CMI invests in residential mortgages through a dedicated Mortgage Investment Corporation (MIC). The MIC targets net annual returns of between 8% and 9%, and is comprised of highly liquid assets across multiple segments of Canada’s real estate market. 

The Bottom Line

Canada’s real estate market has shown resilience during the pandemic, a sign that housing could be one of the first segments to recover in the coming years. Although domestic demand remains strong, high unemployment and lower immigration could restrain market conditions in the immediate term. 

The gradual easing of pandemic restrictions will present both opportunities and challenges for investors, workers and employers. In the meantime, the federal government continues to rely on fiscal stimulus to support the economy.

What Happens Next? 

CMI will continue to analyze market changes and keep you updated on a regular basis. To learn more about our investment opportunities fill out the contact form below, and one of our Investment Managers will reach out to you within 24 hours.