Home Prices set to continue growing into Q3
Monday Jul 16th, 2018
According to the Royal LePage House Price Survey and Market Survey Forecast released today, home price appreciation slowed across Canada in the second quarter of 2018, marked primarily by softness in the Greater Toronto Area (GTA), where many regions have witnessed year-over-year price declines. In contrast, a number of surrounding cities in Ontario’s Golden Horseshoe and beyond are now seeing significant year-over-year home price gains as a result of migration from the GTA as buyers seek homes in more affordable regions. Meanwhile, the Greater Montreal Area and suburban Vancouver experienced some of the highest year-over-year price appreciation in the country in the second quarter.
The Royal LePage National House Price Composite, compiled from proprietary property data in 63 of the nation’s largest real estate markets, showed that the price of a home in Canada increased 2.0 per cent year-over-year to $613,968 in the second quarter of 2018. When broken out by housing type, the median price of a two-storey home rose 0.8 per cent year-over-year to $720,504, while the median price of a bungalow climbed 1.8 per cent to $512,979. At a national level, condominiums posted a significantly higher rate of appreciation when compared to the detached segment, rising 8.1 per cent year-over-year to $435,421. Looking ahead, Royal LePage is projecting an uptick in home price appreciation in the third quarter and forecasts that the aggregate price of a home in Canada will increase 1.9 per cent over the next three months.
“It was a spring market that never blossomed,” said Phil Soper, president and CEO, Royal LePage. “As anticipated in our original 2018 forecast, the new federal mortgage stress-test measures slowed the market to a standstill in much of the country, as some families adjusted their expectations in a world with lower borrowing capacity, and others not impacted by the OSFI regulations moved to the sidelines, adopting a ‘wait and see what happens to home prices’ approach.”
“The market has begun to absorb and adjust to the new realities; we expect an uptick in sales volumes and prices during the second half of 2018,” Soper continued. “The fundamentals have not changed. The economy is strong and unemployment is very low. We face shortages in our major cities, with many more people looking for homes than the market has available for purchase or rent. Upward pressure on prices will likely return to most markets during the third quarter.”
During the quarter, positive economic fundamentals remained supportive of Canada’s housing markets. The national unemployment rate is close to its lowest level in decades (6.0 per cent as of June) and there are positive trends in government and business investment. A number of factors could affect the market throughout the next three months of 2018, including whether or not the Bank of Canada decides to raise interest rates on July 11.
With NAFTA in negotiations and the possibility of a U.S.-initiated trade war, buyers whose employment would be directly affected have taken notice and have taken a cautious approach to home ownership.
“There is a cloud of uncertainty hovering over our economy and business environment,” concluded Soper. “Notwithstanding the economic drag that difficult American trade negotiations are creating, the national housing market is expected to remain in a long-term expansionary cycle, albeit at a slower pace than we have witnessed over the past couple years.”
In the second quarter of 2018, Ontario saw the most significant contrasts yet between home price appreciation rates in surrounding Golden Horseshoe cities and beyond compared to appreciation rates in central and suburban Toronto. This is the result of changing migration patterns in response to continued high home prices in many parts of the GTA. Factors include a combination of first-time and move-up buyers seeking more affordable detached homes further out, while retirees are selling their GTA homes and moving to less expensive regions. This trend was most prevalent in cities such as Windsor, Belleville/Trenton, Niagara/St. Catharines, Kingston, London, and Kitchener/Waterloo/Cambridge, which all saw double and high single-digit year-over-year home price increases in contrast to declines in the GTA. By the end of the third quarter, the aggregate price of a home in the GTA is expected to rise 2.1 per cent to $838,984 compared to the second quarter of 2018. Respectively, the aggregate price of a home in Ottawa is expected to increase, rising 2.2 per cent to $449,140 compared to the second quarter of 2018.
“Despite recent price relief in the GTA market, buyers have continued to look to other Southern Ontario cities for housing affordability,” said Soper. “Our experts on the ground are seeing an increasing number of young families that are willing to say goodbye to the big city life, uprooting from the GTA altogether and migrating to more affordable regions in the province.”
This trend is reflected in Royal LePage’s Peak Millennial Survey, which found that home ownership was so important to peak millennial respondents across Canada that they would be willing to relocate to another city to own a house. It is also worth noting that young families are attracted to the type of home that is financially accessible in smaller centres. Big city living in Canada, similar to the rest of the economically advanced world, is essentially a condominium lifestyle. However, 61 per cent of respondents said they would prefer to buy a detached home. This was particularly true for couples with or anticipating children. Over half (52 per cent) of those surveyed would look to the suburbs when purchasing a property, and 59 per cent were looking out of the city core when it came time to raise a family.
“When you add an inflow of baby boomer retirees who are drawn to the same smaller cities for their charm and quiet appeal, it’s not surprising that home price appreciation rates in Windsor, Belleville, Niagara and Kingston are among the highest in the country, noticeably outpacing those being seen in the GTA,” continued Soper.