Canadian home prices forecast to end year 13.5% higher than 2020
According to the Royal LePage House Price Survey released today, the aggregate¹ price of a home in Canada increased 14.1 per cent year-over-year to $749,165 in the first quarter of 2021, as strong demand continues to outpace supply in virtually every market across the country. More than two thirds of the regions surveyed (67%) saw year-over-year double-digit aggregate price gains, driven largely by the single-family property segment. Seventy-seven per cent of regions surveyed reported median price appreciation of standard two-storey homes of ten per cent or more.
The Royal LePage National House Price Composite is compiled from proprietary property data, nationally and in 64 of the nation's largest real estate markets. When broken out by housing type, the median price of a standard two-storey home rose 15.9 per cent year-over-year to $894,140, while the median price of a bungalow increased 14.1 per cent to $628,341, and the median price of a condominium increased 2.0 per cent year-over-year to $509,364. Price data, which includes both resale and new build, is provided by Royal LePage's sister company RPS Real Property Solutions, a leading Canadian real estate valuation company.
"2020 was a year like no other in Canadian real estate, with its unprecedented demand for homes, and month after month of record-setting sales and price appreciation," said Phil Soper, president and CEO of Royal LePage. "The usual winter slowdown was non-existent, and that momentum was carried forward through the first quarter of 2021."
Royal LePage is forecasting that the aggregate price of a home in Canada will increase 13.5 per cent to $805,000 in the fourth quarter of 2021, compared to the same quarter last year. The previous forecast, released in December, 2020, has been revised upward to reflect the current state of the market.
A return to pre-pandemic levels of immigration; the vaccine rollout's impact on economic stability and confidence in the labour market; and, continued low interest rates are supportive of home price growth through 2021. The Canadian government plans to welcome 401,000 new permanent residents in 2021². While home prices in Canada's largest urban areas continue to appreciate, growth in secondary cities is outpacing that of major centres.
"The winter of '20/'21 was one of the most imbalanced real estate markets in our country's history, with so many people wishing to improve their living conditions, and a pandemic-driven shortage of homes for sale," said Soper. "We expect this extreme seller's market to moderate as the year progresses. Some buyers will step away from the market in the face of sharply higher prices, and the supply of new listings should improve as people feel more confident that the health crisis is under control.
"It is important to note that the surge in housing demand over the past year was organic - buyers looking for family homes to live in. With borders closed, foreign investment was near non-existent, and speculative investment was very low. Yet new Canadians are beginning to arrive once more, and investors are regaining confidence and returning to the market. This should sustain the current real estate boom well into 2022," continued Soper. "This will be especially supportive of the condominium segment in our large urban centres."
Housing supply crisis
There is emerging consensus that Canada has nowhere near the housing supply necessary to provide shelter for our growing population now and over the decade ahead. Widespread housing shortages will drive prices higher, pushing home ownership out of reach for many.
"Fewer young Canadians will own their home in the future, and rental rates will climb rapidly, if we drag our heels in adopting public policy aimed at improving the speed of housing development and underlying regulatory costs of bringing on new projects," said Soper.
The median price of a condominium rose 14.7 per cent year-over-year in the first quarter of 2021 in the Greater Montreal Area, and 7.8 per cent in the Montreal core. The median price of a condominium in the City of Vancouver increased 5.2 per cent year-over-year compared to 2.3 per cent in the greater region during the same period. Comparatively, the median price of a condominium in the Greater Toronto Area increased slightly by 1.2 per cent year-over-year in the first quarter, while prices in the city centre decreased 0.6 per cent.
"A sweeping transfer of ownership occurred when renters left the major cities. Investors sold their condo units, making way for first-time buyers poised to take advantage of low mortgage rates. The timing of it all resulted in a significant boost in sales without having a huge impact on prices," noted Soper.
Geographical shift: affordability and larger homes
"During the first wave of the pandemic, we saw a massive shift from urban centres to small towns and suburban neighbourhoods. Across the country, the revival of these secondary cities has become a driving force of the market, attracting buyers of all ages," said Soper.
Windsor, Ontario, posted the highest year-over-year aggregate price growth in the country at 30.2 per cent in the first quarter of 2021. Elsewhere in the province, Oshawa, Pickering, Barrie, the Kitchener and Niagara regions, and London posted aggregate price increases of 25.2 per cent, 23.3 per cent, 22.6 per cent, 21.5 per cent, 21.4 per cent, and 20.2 per cent, respectively. During the same period in Quebec, Montreal's Northshore, Sherbrooke and Gatineau reported aggregate price increases of 24.0 per cent, 20.6 per cent and 20.0 per cent, respectively. In Halifax, Nova Scotia, the aggregate price of a home increased 18.1 per cent year-over-year in the first quarter. And, in Surrey, B.C., and Kelowna, the aggregate price of a home rose 15.6 per cent and 14.3 per cent, respectively, for the same period.
Greater Toronto Area
The aggregate price of a home in the Greater Toronto Area (GTA) increased 13.1 per cent year-over-year to $989,961 in the first quarter of 2021. Broken out by housing type, the median price of a two-storey home increased 13.6 per cent to $1,164,894, while the median price of a bungalow increased 15.3 per cent to $982,120, and the median price of a condominium increased 1.2 per cent to $598,819 during the same period.
In the city of Toronto, the aggregate price of a home increased 7.4 per cent year-over-year to $984,709 in the first quarter of 2021. During the same period, the median price of a two-storey home increased 11.8 per cent to $1,550,577, while the median price of a bungalow increased 14.7 per cent to $1,061,534, and the median price of a condominium dipped slightly by 0.6 per cent to $637,551.
"There is a persistent momentum in the market that continues to put upward pressure on prices," said Debra Harris, senior vice president, Royal LePage Real Estate Services Ltd. "Without an extended surge of inventory, that momentum is unlikely to relent. Homeowners who want to move are reluctant to list their homes before they buy because they are concerned there won't be anything available, and the cycle continues."
Harris added that sellers would feel more confident about securing their next home if the number of days on market were longer.
"Typically, we measure absorption - how long it would take to run out of inventory - in months. At the moment, we have an absorption rate in the GTA of about three and a half weeks. The number of new listings added each month is lower than the pace of sales, and that gap continues to widen," said Harris.
The anticipated return of immigrants and a more typical volume of students, both local and international, in the fall is expected to boost condo sales in Toronto and the surrounding areas, added Harris. She expects we will begin to see an indication of that demand by the middle of the second quarter.
Royal LePage is forecasting that the aggregate price of a home in the Greater Toronto Area will increase 11.0 per cent in the fourth quarter of 2021, compared to the same quarter last year. The previous forecast, released in December, 2020, has been revised upward to reflect the current state of the market.
The aggregate price of a home in Ottawa increased 16.1 per cent year-over-year to $589,240 in the first quarter of 2021.
Broken out by housing type, the median price of a two-storey home increased 18.6 per cent to $630,961 in the first quarter of 2021, while the median price of a bungalow increased 15.1 per cent to $604,931, and the median price of a condominium increased 5.2 per cent to $385,040 during the same period.
"Ottawa has a strong housing market bolstered by stable, healthy household incomes," said John Rogan, broker of record, Royal LePage Performance Realty. "We are continuing to see very low inventory across all housing types; about forty per cent less than this time last year. Unless interest rates increase dramatically, I don't anticipate the supply will be able to catch up with the growing demand."
Rogan added that in this type of market, the potential for borrowing costs to increase is enough to motivate buyers to act quickly. Low inventory remains a driving factor.
"Many local homeowners are reluctant to sell because the current market is so competitive. This is contributing to the supply shortage in Ottawa, along with continued migration from Toronto and huge pressure from first-time buyers," said Rogan.
Royal LePage is forecasting that the aggregate price of a home in Ottawa will increase 14.0 per cent in the fourth quarter of 2021, compared to the same quarter last year. This figure remains in line with Royal LePage's previous forecast, released in December, 2020.
¹ Aggregate prices are calculated using a weighted average of the median values of all housing types collected.
² Government of Canada, https://www.canada.ca/en/immigration-refugees-citizenship/news/notices/supplementary-immigration-levels-2021-2023.html
Source: Royal LePage Real Estate Services