Canadian Home Prices Set New Record High in January. Should We Be Worried?

It should come as no surprise that home prices continued their upward trajectory in January, setting a new all-time record.

The average price reached $621,525, a 22.8% year-over-year (not seasonally adjusted) gain from a year earlier, reported the Canadian Real Estate Association (CREA).

Home sales were also up 35.2% compared to January 2019, to an annualized rate of 736,452–well above CREA’s 2021 forecast for 583,635 sales this year.

“The two big challenges facing housing markets this year are the same ones we were facing last year–COVID and a lack of supply,” said Costa Poulopoulos, Chair of CREA.

Here are some other key stats for the month:

• Newly listed homes were down 13.3% year-over-year.
• The national sales-to-new listings ratio tightened to 90.7%–the highest level on record for the measure by a “significant margin,” CREA reported. The previous record was 81.5%, set 19 years ago, and well above the long-term average of 54.3%.
• There were just 1.9 months of housing inventory in January, a new record low. This is how long it would take to liquidate current inventories at the current sales rate. In Ontario, there are now 35 markets with less than one month of housing inventory, up from 29 markets in December.

“The problem with this time of year is that the buyers and sellers that will in time define the Canadian housing story of 2021 are mostly all still waiting in the wings,” noted Shaun Cathcart, CREA’s Senior Economist.

“The best-case scenario would be if we see a lot of sellers who were gun-shy to engage in the market last year making a move this year,” he added. “A big surge in supply is what so many markets really need this year to get people into the homes they want, and to keep prices from accelerating any more than they already are.”

Here’s a look at some regional and local housing market results from January:

• Ontario: $796,884 (+26.7%)
• Quebec: $408,061 (+20.7%)
• B.C.: $843,830 (+15.9%)
• Alberta: $421,903 (+9.1%)
• Halifax-Dartmouth: $433,308 (+30.7%)
• Barrie & District: $637,500 (+27.6%)
• Ottawa: $555,200 (+22.3%)
• Greater Montreal Area: $434,000 (+16.7%)
• Greater Toronto Area: $927,700 (+11.9%)
• Winnipeg: $293,500 (+10.3)
• Victoria: $742,600 (+5.6%)
• Greater Vancouver Area: $1,056,600 (+5.5%)
• Edmonton: $320,800 (2.2%)
• Calgary: $420,000 (+2%)

Should We Be Worried?

“Rock-bottom interest rates, changing housing needs, high household savings and perhaps nervousness that accelerating prices will crush affordability down the road continued to fuel huge buyer interest,” wrote RBC Economics’ Robert Hogue, noting that the ongoing run-up in prices could bring calls for policy intervention.

“With prices rising more than 20% from a year ago in virtually every small southern Ontario market, parts of Quebec and Atlantic Canada—and most still on an accelerating path—affordability issues will soon confront many Canadian communities. Pressure will build on policy-makers to ‘do something about it’,” he said.

Yet, there’s also reason for them to take a hands-off approach, according to BMO’s Robert Kavcic.

“For policy-makers, it doesn’t appear that there’s much interest in leaning against an area of the economy that is actually strong at this time, especially with years of tightening mortgage rules already in place.”

A notable ongoing trend is the faster pace of price acceleration in communities surrounding large urban areas, Kavcic added.

“…almost all of the country is seeing housing market strength…That said, the shift in strength from big urban markets (i.e., Toronto, Montreal, Vancouver) to perimeter cities is ongoing,” he wrote, pointing to the 11.9% annual increase in Toronto prices vs. 27% in Barrie and 26% in London.

But this rapid rise in prices in outlying areas is also easily explained.

“If a household sells a typical house in Toronto to buy one in Barrie, they could offer 10% over asking and still only pay 66% of what they’re selling for,” he continued. “With very limited supply, it’s easy to see how a lot of new buyers entering a particular region can be insensitive to prices, and therefore push them up quickly.”

So, what can anxious homebuyers expect in the months ahead?

“We expect the dearth of supply—including in smaller markets—will soon restrain activity but keep the heat intense,” says Hogue.

Even the condo market is once again starting to see increased demand, wrote Rishi Sondhi of TD Economics.

“Also notable was that benchmark condo prices grew for the first time in several months in Toronto. Although supply remains elevated, conditions are becoming tighter than what we saw last fall. This suggests that further gains are in store.”