Canada’s red-hot housing market showed further signs of stabilizing in June, as sales declined for a third consecutive month amid razor-thin inventories and rising prices. Despite posting consecutive declines, housing activity remains historically elevated, reflecting a strong post-Covid-19 recovery.
National Home Sales Decline in June
On a month-over-month basis, national home sales declined by 8.4% in June, according to the Canadian Real Estate Association (CREA). Sales are down a cumulative 25% from their recent peak. However, June sales still set a record for that month, with year-over-year transactions rising 13.6%.
Roughly 80% of local housing markets posted a decline in sales for June. However, sales activity remains well above the long-running average. | Chart: CREA
The number of newly listed properties—a key measure of housing supply in the market—rose 0.7% in June. The MLS Home Price Index climbed 0.9% on month and a whopping 24.4% annually.
Cliff Stevenson, the Chair of CREA, commented on the supply-demand balance in the market:
“While there is still a lot of activity in many housing markets across Canada, things have noticeably calmed down in the last few months […] There remains a shortage of supply in many parts of the country, but at least there isn’t the same level of competition among buyers we were seeing a few months ago.”
Labour Market Recovers—But With a Caveat
Following back-to-back months of sharp declines, Canada’s labour market rebounded in June, as employers welcomed back 230,700 workers. The sharp increase coincided with the gradual easing of Covid-19 restrictions.
Canada’s job market is turning a corner following a new wave of Covid-19 lockdowns. | Data Source: Statistics Canada
Despite the strong headline number, a closer examination of the data revealed that all the gains were attributed to part-time work. This category basically returned to pre-pandemic levels in June, while full-time jobs fell 33,200 month-over-month.
Overall unemployment fell to 7.8% from 8.2% in May as labour force participation increased 0.6 percentage points to 65.2%.
Housing Affordability Deteriorating: RBC
Canada’s post-pandemic housing boom has had a negative impact on affordability, according to a new analysis by RBC’s Robert Hogue. Affordability constraints are being especially felt in British Columbia, Ontario and Nova Scotia.
RBC’s national aggregate measure of housing affordability reached the “worst level in 31 years,” Hogue said, explaining:
“The ratio of ownership costs to household income—which constitutes RBC’s affordability measure—jumped 0.9 percentage points overall in Canada to 52.0% (a rise represents a deterioration in affordability).”
Elevated demand for single-family homes is expected to keep property values trekking upward in the immediate term. Big-city condo markets, which were negatively impacted by the first wave of the pandemic, are also seeing increased activity, which is driving prices higher there as well.
Stocks Extend Record Run
Wall Street and Canadian stocks extended their record-setting rally in early July, as investors continued to cheer the prospect of fiscal stimulus in the United States and signs of a broad economic recovery following the pandemic. Toronto’s benchmark TSX Composite Index peaked north of 20,400 on July 7. Despite moderating, the benchmark continues to trade above 20,000.
The TSX Composite Index maintains its bullish outlook as demand for risk assets remains high. | Source: Barchart.com.
In the United States, the Dow Jones, S&P 500 and Nasdaq Composite Index all reached new peaks. Notably, the S&P 500 closed at record highs in seven consecutive sessions, marking the longest such streak since 1997.
CMI Financial Group’s Mortgage Portfolio Expands in Q2
Funding grew considerably across CMI Mortgage Investments for the quarter ending in June. Total lifetime funding reached $826 million with assets under management of $377M as at June 30. Our lending footprint continued to expand across Canada with a strong focus on risk management and capital preservation. The arrears rate across the entire portfolio was below 1.54% and the loss rate was negligible at 0.072%.
CMI’s MIC portfolios continued to grow in the second quarter, reflecting strong investor demand for specialized mortgage investment solutions. CMI’s flagship Balanced Mortgage Fund saw total funding surge by over 39% between March and June, with assets under management growing nearly 46% over the same period. The number of investors participating in the fund also grew by nearly 30%. The Fund generated a net annualized yield of 8.43% for investors over the quarter.
The CMI Prime Mortgage Fund and the CMI High Yield Opportunity Fund also registered strong growth in terms of investor inflows and total mortgage value. The average annualized net yield for the Prime Mortgage Fund was 6.33% for the quarter, well within the target range. The High Yield Opportunity Fund generated a net annualized yield of 10.43% consistently throughout the quarter.
Conclusion and Summary
With Ontario joining other provinces in reopening its economy, Canada’s economic outlook is turning positive again. As of July 9, nearly 68% of the Canadian population had received at least one dose of a Covid-19 vaccine. That rate is as high as 77.7% for people aged 12 and up.
What Happens Next?
CMI Financial Group will continue to analyze market changes and keep you updated on a regular basis. Visit our website to learn more.
Learn more about investing in private mortgages.