Real estate prices keep growing in Canada because of restrained supply

The latest report by the Canadian Real Estate Association (CREA) shows that national housing prices were up in August from July for the first time since February because of extremely restrained supply.

The average home price reached $663,500 last month, marking an annual increase by 13.3% and a monthly gain by 0.5%. Such results followed four consecutive months of prices decreases.

Compared to March peak, the average prices were down by 7.4%. In case we exclude the expensive markets of the Greater Toronto and Vancouver areas, the average price will be $533,500.

According to CREA, there were 50,876 home sales in August, which is 14% lower than a year earlier, but still the second-best result for August on record.

“The national real estate markets seem to be stabilizing between pre-pandemic results and the pandemic peak, and it’s definitely sharply unbalanced,” – noted Shaun Cathcart, CREA’s Senior Economist.

This time, housing inventory (the time necessary for selling all existing listings) fell to as low as 2.2 months.

A housing analyst Ben Rabidoux, President of North Cove Advisors, sees this drastic supply drop as the big story in Canadian real estate market.

“We’ve seen the inventory levels going down by 60% from 2015 levels,” – he said at a recent webinar hosted by Mortgage Professionals Canada. “It’s an absurd and cruel decline, and it’s what Canada’s housing is facing now.”

In his opinion, the inventory levels need to more than double or home sales need to go down in half (or even both) in order to make the prices start decreasing.

“A balanced real estate market is so far away from us, that we can double the supply and we’ll still be in a seller’s market,” – he noted. “We have a chronic lack of supply.”

Here are regional and local housing market results for August 2021:

• Ontario: $834,932 (+15.1%)
• Quebec: $451,904 (+14.7%)
• B.C.: $899,173 (+16.8%)
• Alberta: $417,321 (+4.2%)
• Barrie & District: $739,200 (+35%)
• Greater Montreal Area: $497,800 (+21.7%)
• Victoria: $854,300 (+19.8%)
• Halifax-Dartmouth: $442,284 (+19%)
• Ottawa: $653,200 (+18.5%)
• Greater Toronto Area: $1,059,200 (+17.4%)
• Greater Vancouver Area: $1,176,600 (+13.2%)
• Winnipeg: $318,900 (+11.6%)
• Calgary: $446,500 (+10%)
• St. John’s: $286,200 (+7.6%)
• Edmonton: $343,100 (+5.8%)

CREA updated its annual forecast because of the tight supply conditions and growing home prices.

The association now predicts 656,300 home sales this year, which is almost 19% up from 2020, but still slightly below its previous forecast of 682,900.

In 2022, CREA expects home sales to go down by 12.1% to 577,000 units.

“Restrained supply and higher prices will probably slowdown the activity in 2022 compared to 2021, although a new wave in resale markets, caused by the COVID-related changes in people’s lives, will keep pushing activity,” – CREA added.

Moreover, a home price forecast for 2021 was raised from $678,000 to $680,000, which is 19.9% higher than in 2020.

CREA expects home prices to keep going up next year to $718,000, with an annual increase of 5.6%.