Housing affordability remains a huge political issue, and with the Department of Finance working on the upcoming budget, no doubt measures to reduce home prices will be front and center. With an election coming this spring in Ontario, Premier Ford’s Housing Affordability Task Force has made recommendations to step up homebuilding. Still, Ontario’s mayors are balking at some of their proposals. The task force report from the calls for “binding provincial action” to allow buildings up to four storeys tall and up to four units on a residential lot.
Ontario’s Big City Mayors group responded, saying, “Unilateral actions, absent municipal input, may have unintended consequences that slow down development and reduce the community support needed to continue to sustainably add housing.””While overcoming Not In My Back Yard-ism is essential to success, so is respect for local decision-making and the democratic process.” This is a roadblock to the aggressive and timely response.
We desperately need dramatic increases in new housing construction, which has been woefully constrained by local zoning, red tape and city planning issues. These are not under the auspices of the federal government. So instead, bandaid measures that do not directly address the fundamental issue of a housing shortage will likely be forthcoming in the spring federal budget.
Today the Canadian Real Estate Association (CREA) released statistics for January 2022 showing national existing-home sales rose edged higher on a month-over-month basis, constrained by limited supply. Excess demand pushed home prices up on the month by a record 2.9%, taking the year-over-year home price index up a record 28%.
Cliff Stevenson, Chair of CREA said, “The question is will that supply be overwhelmed by demand as it was last spring, or will we start to see the re-emergence of some of the many would-be sellers who have been hunkered down for the last two years?
“The ideal situation between now and the summer would be that a huge surge of sellers come forward looking to sell in the spring 2022 market,” said Shaun Cathcart, CREA’s Senior Economist. “If that were to occur, similar to 2021, we’d likely see a massive number of sales take place which would get a lot of frustrated buyers into homeownership, and we’d likely see some cooling off on the price growth side if those offers are spread across more listings. Those are all things this market needs. It really comes down to how many properties come up for sale in the months ahead.”
New ListingsIn January, the number of newly listed homes dropped by a whopping 11% m/m, with a pullback in the GTA accounting for more than half of the national decline (chart 1 below).
With sales up a bit and new listings down by double-digits in January, the sales-to-new listings ratio shot to 89.4% compared to 78.7% in December (chart 2 below). This was the second-highest level on record for this measure, only slightly below the record 90.2% set last January. The long-term average for the national sales-to-new listings ratio is 55%.
A record 85% of local markets were seller’s markets based on the sales-to-new listings ratio is more than one standard deviation above its long-term mean in January 2022. The other 15% of local markets were in balanced market territory.
There were only1.6 months of inventory on a national basis at the end of January 2022 — tied with December 2021 for the lowest level ever recorded. The long-term average for this measure is a little over five months.
Home PricesIn line with the tightest market conditions ever recorded, the Aggregate Composite MLS® Home Price Index (HPI) was up a record 2.9% on a month-over-month basis in January 2022. The gains were similar to those recorded in the previous three months.
The non-seasonally adjusted Aggregate Composite MLS® HPI was up by a record 28% on a year-over-year basis in January.
Looking around the country, year-over-year price growth is in line with the national figure at 28% in B.C., though it remains lower in Vancouver, close to on par with the provincial number in Victoria, and higher in most other parts of the province.
Year-over-year price gains are still in the mid-to-high single digits in Alberta and Saskatchewan, while gains are running at about 13% in Manitoba.
Ontario saw year-over-year price growth remain above 30% in January, with the GTA having now caught up with the pace of provincial gains. The rest of the province is a mixed bag, up in between 25% and 40% on a year-over-year basis, save for Ottawa where prices are running at 16% year-over-year.
Greater Montreal’s year-over-year price growth remains at a little over 20%, while Quebec City was about half that.
Price growth is running above 30% in New Brunswick (higher in Greater Moncton, lower in Fredericton and Saint John), 27% on Prince Edward Island, and Newfoundland and Labrador is now at 12% year-over-year.
While most developed countries have seen excess demand for housing over the past two years pushing home prices higher, Canada has the most significant housing shortage in the G7. This began in late 2015 when the federal government decided it would target the entry of much larger numbers of economic immigrants. Canada is “underpopulated” and celebrates a growing population, unlike many other countries. There are many job vacancies to be filled, and more people means more economic growth and prosperity for Canada.
But what the federal government forgot to do was provide housing for all new residents. Simply put, governments at all levels established no plan to provide any additional housing for all of these newcomers, let alone affordable housing.Canada’s net migration rate is 6.375 per 1,000 people, the eighth-highest in the world. Approximately 1.8 million more people were calling Canada home in 2021 than five years earlier, with four in five of these having immigrated to Canada since 2016.
This is not rocket science. The government can blame foreign buyers or investors for our housing shortage, but inadequate planning and antiquated processes and policies are the real culprits.
Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres
No Wonder The Bank of Canada Didn’t Hike Interest Rates Last Month
Statistics Canada released the January Labour Force Survey this morning, reporting a much more extensive than expected decline in jobs last month. The Omicron shutdowns and restrictions took a much larger toll in Canada than expected, as employment fell 200,100 in January and the unemployment rate rose 0.5 percentage points to 6.5%.
Ontario and Quebec drove January employment declines, and accommodation and food services was the hardest-hit industry. In January, youth and core-aged women, who are more likely than other demographic groups to work in industries affected by the public health measures, saw the most significant impacts. Goods-producing sectors recorded a gain, led by construction.
We did not expect the Bank of Canada to hike rates in January because of the risk that Omicron restrictions would batter the economy at least temporarily. If we see a reversal in these declines in February, rate hikes could well commence. The Bank of Canada’s next policy-decision date is March 2. But we won’t see the Labour Force Survey for February until March 11. This could postpone lift-off by the BoC until the next meeting on April 13, when we will have both the February and March employment reports. This would put the first rate hike in April, exactly when the Bank’s forward guidance initially told us the hikes would begin.
The timing of lift-off is subject to the incoming data. It is troubling that the US employment report, also released today for January, was surprisingly strong, in contrast. To be sure, the US did not impose Canadian-style Omicron restrictions last month, but the Omicron wave did depress US economic activity. It was expected to translate into weak hiring. It didn’t. 467,000 jobs were created in the US, and massive upward revisions suggest a fundamentally very strong US economy. With US companies desperate to hire and the most significant issue being the lack of qualified staff, wages are rising more sharply south of the border.
Canadian employment remains just over 30,000 above pre-pandemic levels, and the country has a strong track record of bouncing back after prior waves of the virus. Yet, today’s jobs numbers suggest a tough start for the Canadian economy in the first quarter. Hours worked — which is closely correlated to output — fell 2.2% in January, and the number of employees who worked less than half their usual hours jumped by 620,000. January also saw the first drop in full-time employment — down 82,700 — since June.
Average hourly wages grew 2.4% (+$0.72) on a year-over-year basis in January, down from 2.7% in November and December 2021 (not seasonally adjusted). The January 2022 year-over-year change was similar to the average annual wage growth of 2.5% observed in the five years from 2015 to 2019.
The concentration of January 2022 employment losses in lower-wage industries did not significantly impact year-over-year wage change, partly because employment in these industries experienced similar losses in January 2021 as a result of the third wave of COVID-19.
There remains uncertainty regarding when (not if) the Bank of Canada will begin to renormalize interest rates. Canadian swaps trading suggests markets are still expecting a hike on March 2, with five more hikes over the next year. Potential homebuyers are certainly anxious to get in under the wire.
Dr. Sherry Cooper Chief Economist, Dominion Lending Centres