The Weekly 411

TLDR:

📈 New Report Predicts Home Prices Will Return to Pandemic Peaks in 2024

🤝 Canada-Wide Home Sales Grew in December Despite Price Declines

🔄 Canada Caught in a Population Trap

🏗 Construction Costs in Toronto Surged by 40% 

🚧 New Housing Construction Lags Across Canada

📈 New Report Forecasts Home Prices Will Return to Pandemic Peaks in 2024

• Royal LePage's 2024 market survey predicts that home prices across Canada will return to pandemic peaks in 2024.

• Forecasted home prices in Canada are expected to rise by 3.3% in the 1st quarter of 2024.

• Single-family home prices are projected to rise by 6% in the fourth quarter of 2024 to reach $879,164, while condominium prices are expected to increase by 5% to $616,140

• Calgary is expected to experience the largest price gains in 2024, with aggregate home prices predicted to grow by 8%.

Why This Matters: The sustained shortage of supply in Calgary has prevented home prices from declining like in other cities across Canada. Canadians also recognize the end of the ultra-low interest rate era. The report emphasizes that by the end of 2024, home prices will have essentially returned to their pandemic peak levels reached in the first quarter of 2022.

🤝 Canada-Wide Home Sales Grew in December Despite Price Declines

• National home sales in Canada experienced an 8.7% increase in December compared to November, marking the first monthly increase since June.

• However, the home price index declined by 0.8% in December compared to November, marking the fourth consecutive month of price declines.

• New listings decreased by 5% from November to December, reaching the lowest level since June when the Bank of Canada raised interest rates.

• In 2023, 443,511 Canadian homes were sold, representing an 11% decrease from 2022, similar to the period after the 2007 U.S. housing crash and global recession.​

Why This Matters: The surge in activity is attributed to some sellers accepting lower prices after realizing they would not achieve the higher prices seen in early 2023. More data is needed to assess if this is a turning point for the housing market.

🔄 Canada Caught in a Population Trap

• Canada's population experienced a growth of 1.25 million or 3.2% over the 12 months, driven primarily by international migration.

• Economists suggest that annual population growth should not exceed 300,000 to 500,000, or else the nation may fall into a 'population trap'

• A population trap occurs when living standards cannot improve due to rapid population growth requiring all savings to maintain the capital-to-labor ratio.

Why This Matters: Canada lacks the necessary infrastructure and capital stock to absorb the current population growth and improve the standard of living. Home buyers, on the other hand, should be aware of the potential impact on housing availability and affordability as population growth continues.

🏗 Construction Costs in Toronto Surged by 40% 

• Toronto construction projects experienced a 40.5% increase in building costs from January 2020 to August 2023, attributed to COVID-19 supply chain disruptions.

• Construction costs for single-family and multi-family homes in Canada have climbed 51% since Q1 2020, driven by significant increases in concrete, structural steel, and lumber prices.

• Heightened borrowing costs and a shortage of labor, contribute to the upward trajectory of building costs.

• The current bidding process restricts open bidding to only a select few contractors, which keeps prices elevated

Why This Matters: Builders will need to adapt to this new pricing model by embracing new technologies, sustainable building methods, and innovative management techniques to thrive in this high-cost environment. This cost phenomenon is not unique to Toronto, with the nationwide rising cost including the raw materials, labor, and other building-related expenses.

🚧 New Housing Construction Lags Across Canada

• New housing construction starts across Canada fell by 7% in 2023 compared to 2022.

• The Greater Toronto Area (GTA) experienced a slight increase in housing starts, driven by condos. 

• Multi-unit urban starts witnessed a significant increase of 26%

• The government has introduced policies to encourage more housing supply, but high-interest rates have deterred developers from initiating new projects.

Why This Matters: The lack of new homes being built in the GTA is a cause for concern. The increase in rental costs and home prices is not in line with the increase in housing construction. Despite ambitious housing targets, many developers are waiting for interest rates to decrease before starting new projects.