CMI State of the Market: Canada’s Resilient Housing Market Sets New Records in September Ahead of Covid Surge

September was another record-setting month for Canadian real estate, as historic supply shortages drove sales and prices to new all-time highs. A rebounding labour market, stimulus relief from the Bank of Canada, the growth of private lenders, and pent-up demand during the pandemic continue to underpin the housing market. 

Canada’s Housing Market: By the Numbers

National home sales increased by 0.9% in September, with 60% of Canadian real estate markets reporting gains, according to the Canadian Real Estate Association (CREA). Ottawa, Greater Vancouver Island, Calgary, and Hamilton-Burlington registered higher sales during the month, while the Greater Toronto Area (GTA) and Montreal reported declines. Although GTA housing trends remain positive overall, the condo market is showing signs of weakness as more people flee the downtown core for larger, cheaper living arrangements. Whereas detached single homes continue to see hot demand, the condo vertical is coping with rising inventory and weaker price growth. This is partly due to shifting economic and labour market trends resulting from the pandemic. 

On a national basis, housing activity rose 45.6% annually in September, smashing the previous record by roughly 20,000 transactions.

Pent-up demand continues to underpin Canada’s real estate sector

Caption: Pent-up demand continues to underpin Canada’s real estate sector. September was another record-setting month for transactions. | Chart: CREA

Historic supply shortages and fierce competition among buyers, resulted in a 17.5% increase in the average annual Canadian home price. Of the 39 markets tracked by CREA’s Home Price Index (HPI), 37 reported gains in September. The number of newly listed homes declined by 10.2%, offsetting the previous month’s gain.

Labour Market Extends Recovery, but Renewed Lockdowns Threaten Progress

The Canadian economy added far more jobs than expected in September, raising optimism that the post-lockdown recovery was continuing. A total of 378,000 jobs were created last month, Statistics Canada reported. Unemployment declined for a fourth consecutive month, falling 1.2 percentage points to 9%. The jobless rate peaked at 13.7% in May. 

Analysts were expecting a net gain of 156,600 new jobs and an unemployment rate of 9.7% for September.

September marked the fifth consecutive month of job creation for the Canadian economy.

Caption: September marked the fifth consecutive month of job creation for the Canadian economy. The gain brings employment to within 720,000 of its pre-pandemic levels. | Source: Statistics Canada

The latest jobs data came after Quebec expanded its pandemic restrictions following a sudden surge in new virus cases—a decision that was later adopted by the province of Ontario. Both provinces announced partial 28-day lockdowns for their most heavily affected regions, including Montreal, Quebec City, Toronto, Peel, and Ottawa.

Partial lockdowns could impede the labour market recovery that has been building since May as more businesses shut down or limit operations. It remains to be seen just how severely the return to stage 2 will impact hiring trends. 

Housing Market Defies Dire Forecasts: TD Economics

TD Economics, a leader in evaluating real estate investing trends in Canada, estimates that national home sales hit 165,000 in the third quarter —smashing the previous high by 20%. Economist Rishi Sondhi cites six reasons why Canada’s housing market has defied the most bearish forecasts emanating from the Covid-19 pandemic:

  1. Pent-up demand has lifted sales. Many Canadians missed out on the spring buying season due to the lockdowns. They made up for it in a big way in the third quarter.
  2. The composition of job losses during the pandemic was skewed towards younger, low-wage workers. Older, wealthier Canadians—the type who buy homes and invest in private mortgages—weren’t nearly as affected by the shelter-in-place orders. 
  3. Record-low interest rates remain a driving force for homebuyers. With bond yields at historic lows, interest rates (and fixed-rate mortgages) are likely to remain suppressed for the foreseeable future. 
  4. Government programs like CERB and the newly expanded EI are providing direct support to Canadian households during the pandemic. As a result, aggregate income posted a record rise in the second quarter. 
  5. Prior to September, new listings had rebounded sharply from their pandemic lows. Even with the latest drop in listings, the supply of available homes remains well above where it was earlier in the year when full lockdowns were in effect. With more available homes for sale, more people are stepping up to buy.
  6. Other factors also kept housing demand afloat. Population growth has slowed, but not to the extent that many had feared. The lack of vacation options also kept people home, which increased opportunities for real estate transactions.

North American Stocks Recover

Wall Street and Canadian stocks recovered through the first half of October, as investors began to price in the possibility of an uncontested Biden presidency. Although markets are not inherently pro-Biden, they prefer a clear-cut winner in November. 

The “chances of a clear result have increased” based on recent polling, according to JPMorgan strategist Mislav Matejka. That is a “welcome relief for investors” who are concerned about a contested election that could drag on for months.  

Measures of implied volatility in the stock market for November and December have declined significantly, according to CBOE VIX futures contracts. The large-cap S&P 500 Index surged to more than one-month highs as a result.

After a rocky September, the TSX Composite Index appears to have regained its footing through mid-October

Caption: After a rocky September, the TSX Composite Index appears to have regained its footing through mid-October. | Chart: barchart.com

Since hitting its local bottom on September 23, Canada’s benchmark TSX Composite Index rebounded 4.7% in less than three weeks. 

Conclusion and Summary

Although Canada’s economy and housing recovery are on track, a resurgence in Covid-19 cases threatens to undermine months of progress on both fronts. Canada has seen a record surge in virus cases, with Ontario and Quebec shouldering the heaviest burden of new infections. Alberta and British Columbia have also recorded a sharp spike in cases. 

Canada is facing a second wave of Covid-19 infections, with Quebec and Ontario at the epicenter of the spike.

Caption: Canada is facing a second wave of Covid-19 infections, with Quebec and Ontario at the epicenter of the spike. | Source: CTV News

Even in the face of a pandemic, the markets for peer to peer lending and real estate crowdfunding remain strong, indicating robust demand for alternative lending solutions and real estate as a whole.  

What Happens Next?

CMI Group will continue to analyze market changes and keep you updated on a regular basis.

Learn more about investing in private mortgages.