Disparity, erosion, feast, famine. You’d be forgiven if these words reminded you of high school English class (think Of Mice and Men or The Grapes of Wrath). Turns out, however, these are the very terms used by one of Canada’s largest real estate brands to describe our country’s varied property market.
“The disparity in home price appreciation between Canadian regions has never been greater than that seen in 2016, with rates ranging from double-digit extremes in some cities to negative growth in others,” said Royal LePage President and CEO, Phil Soper. He adds: “This economic drama put real estate at the forefront of everybody’s mind last year, from the Prime Minister to the recent grad.”
Soper explains that in the last eight years Canada’s real estate markets have been divided—with Ontario and B.C. leading a steady expansion, while other markets continued their relatively standard growth and still others experienced major declines. “In the last two years, these extremes within the Canadian real estate market really became pronounced and appears to have come to a head in 2016.”
Perhaps this is why 2017 will be the year to change all this; the year where we move away from regional extremes and away from “real estate feast and famine.”
Based on the Royal LePage National House Price Composite data, here’s what to expect across Canada in 2017:
No. 1: Price gaps will narrow
The price appreciation gap between regions will start to narrow and thin out in 2017—moving towards more historical norms. This trend towards a reversion to the norm will be led by a predicted home price correction in the Greater Vancouver region—an area that has seen continuous price growth well into the double-digits. According to Royal LePage forecasts, home prices in the GVA will depreciate to levels not seen since April 2016. However, Soper is convinced the Vancouver market and its surrounding areas won’t face a crash.
“If prices were to decline by 8.5% in Montreal, year-over-year, we could consider that a market crash,” explained Soper, “but that same price decline in Vancouver’s Lower Mainland and it’s really just a rollback to spring 2016 prices. So a high single-digit or even low double-digit price correction in B.C. really won’t hurt anybody, except maybe house flippers.”
Still, the narrowing of regional price gaps won’t be solely based on hot markets continuing to cool in 2017. Activity is expected to pick up again in areas hit by resource sector price slumps, and this will also help diminish the regional differences that have defined Canadian real estate for the last decade.
No. 2: B.C. housing prices will drop
British Columbia led the country in economic growth in 2016, supported by a particularly strong year in manufacturing and housing. As a result, housing statistics continued to be strong for this western province.
According to Royal LePage statistics, the aggregate price of a home in Greater Vancouver increased 25.6% year-over-year to just over $1.23 million in the fourth quarter of 2016. West Vancouver, North Vancouver and the city of Vancouver saw increases of 32.8%, 28.0% and 25.6% (to $3.57 million, $1.39 million and $1.51 million, respectively). The surrounding suburbs, including Richmond and Langley, saw similar rates of appreciation with the aggregate prices of homes in these regions increasing 27.6% and 25.7%, respectively.
“Eroding affordability in B.C.’s Lower Mainland has reached unsustainable ground. This, coupled with recently introduced public policy measures and lower sales volumes, has put visible downward pressure on home prices. While the cost of a home in Greater Vancouver will remain the highest in the country, a modest price reset will provide much needed relief in the Lower Mainland and help reignite overall buyer activity in the region,” continued Soper.
Going into 2017, the Conference Board of Canada believes Vancouver will once again have the strongest economic growth among Canadian cities, with activity led by construction, finance, insurance, transportation, warehousing and real estate. This will help mitigate the impact slowing demand has had on this province’s housing stock. “Starting in April 2016, we began to see a reduction in demand for housing in Lower Mainland, B.C.,” said Soper. “As we know from the past, a change in transactional volumes is a leading indicator of which way prices will go, it just takes time.”
It’s worth noting that a trending slowdown in prices was already underway on a quarter-over-quarter basis in 2016. As a result, Soper expects Greater Vancouver’s housing market to see a high single-digit price correction in 2017.
No. 3: No relief in the GTA
Then there’s Canada’s other hot real estate market: The GTA.
By the end of 2016, the real estate market that made up the Greater Toronto Area experienced an aggregate price increase of 16.1% year-over-year, to $720,761.
“Like Greater Vancouver, the Greater Toronto Area markets we studied in our House Price Composite are seeing double-digit year-over-year home price appreciation across the board. However, these two regions, often grouped together as Canada’s booming real estate markets, are on divergent paths,” explained Soper. “Unlike Vancouver where a price correction is underway, there is no relief in sight for the GTA.”
One reason prices won’t drop in the GTA in 2017 is that market fundamentals—job growth and housing demand from intra-provincial and immigration—are strong and steady. “It’s pure momentum pushing it forward,” said Soper, who noted that a large percentage of the 80,000 new jobs in 2016 were located in Ontario. “Add low interest rates to Ontario’s expanding economy and you won’t see this housing market train slow down in 2017.”
Soper adds that another reason why Ontario housing remains strong is, relatively speaking, it’s still quite a bit cheaper than B.C.’s lower mainland. Only surrounding suburbs of Toronto began to push closer to Vancouver-like prices, with Richmond Hill, Oshawa, Whitby and Vaughan seeing increases of 30.1%, 26.9%, 21.3% and 19.9% to $1,138,826, $471,957, $610,658 and $927,371, respectively.
With the Bank of Canada refraining from matching U.S. interest rate hikes, the Canadian dollar is expected to stay relatively weak, supporting the province’s export sectors.
Other Ontario markets also saw strong home price increases as the quest for affordability spread to regions beyond the GTA. As a result, Ontario’s major housing markets are expected to see continued price appreciation in the year to come, led by double-digit home price increases in the GTA.
Unless, of course, there are exceptional circumstances. “If the new U.S. administration starts a trade war or local governments start reacting to housing with a heavy hand, then this train might just derail,” said Soper.
No. 4: Alberta will see an upswing in markets
With oil prices stabilizing, new capital spending commitments underway and an energy friendly administration taking office in the U.S., there is a growing sentiment that the worst is over for the Alberta economy.
“The real estate market in Alberta, particularly in Calgary and Edmonton, was hit tremendously hard when the price of oil fell in late 2014,” said Soper. “There was probably a 20% decline in the normal number of transactions and this really impacted housing and the home building portion of the economy.” Still, prices didn’t plummet in the province, primarily because homeowners just withdrew their listings. “While demand has been down for the last two years, so was supply, as people simply took their homes off the market,” said Soper. “For that reason the value of the housing stock in Alberta held, despite the economic hits. We feel that the end of 2016 was the bottom for Alberta’s housing market, which will make a modest recovery in 2017.”
Royal LePage data shows the aggregate price of a home in the province’s largest city, Calgary, slipped just 1.0% year-over-year in the fourth quarter of 2016, while the price of a home in Edmonton fell 2.1 per cent to $378,247. “We base modest recovery outlook not on a sharp increase in the value of oil, but upon maintaining a $50/barrel floor, allowing the energy industry to move into modest growth mode,” said Soper.
No. 5: Farming replaces oil and helps Saskatchewan
In Saskatchewan, a relatively solid year for agriculture partially offset the negative impacts of the energy downturn. The province’s unemployment rate sat at 6.5% as of December, but remains below the national average. Despite economic challenges, home prices in the fourth quarter remained stable in the province’s largest cities, with the aggregate price of a home in Saskatoon down 0.4% year-over-year to $366,933, while the aggregate price of a home in Regina increased 2.6% to $340,684. Economic growth in the region is likely to be positive in 2017, but slightly below the Canadian average, with home prices expected to remain relatively flat in the province’s two largest cities.
No. 6: Manitoba on track for another solid year
In the fourth quarter of 2016, the aggregate price of a home in Manitoba’s largest city, Winnipeg, rose 2.8% to $289,017. The province remains on track for economic expansion in 2017, supported by strong manufacturing, wholesale and retail trade along with residential and commercial construction activity. The province is expected to track closely to national economic growth levels in the year to come, further supporting the housing sector in the region, which is forecasted to see low single-digit house price appreciation in 2017.
No. 7: The same for Quebec
Quebec’s economy showed sound growth in 2016, with momentum expected to continue into 2017.
Quebec has been more successful than most provinces in eliminating its deficit, which may result in stimulus spending in the next few years, providing an additional positive boost for the economy.
Over the twelve months ending in December 2016, Quebec’s unemployment rate fell to 6.6%. Supported by continued economic momentum, Montreal and Quebec City posted healthy housing market gains in the fourth quarter of 2016. The aggregate price of a home in the Greater Montreal Area rose 6.5% to $371,085, while the price of a home in Quebec City increased 5.8% to $307,008.
The Conference Board of Canada has forecasted that in 2017 the economies of Montreal and Quebec City will expand more quickly than the national average for the first time since 2009. In addition, Montreal is expected to start a number of new infrastructure projects in 2017. This includes the Réseau électrique métropolitain (REM) led by the Caisse de dépôt et placement du Québec, a transit network that will connect downtown Montreal, the South Shore, the West Island, the North Shore and the airport, and which will contribute to the region’s economic development and employment over many years. Coupled with this, the city’s 375th anniversary is expected to attract tourism throughout the year, particularly in the downtown core. In the coming year, the city is expected to see healthy home price gains in the mid-single-digit range as economic strength in the region continues.
No. 8: Atlantic Canada still working through disparity issues
In Atlantic Canada, the Newfoundland and Labrador economy was hit hard in 2016 by energy price declines, with the provincial government expecting the province to contract in real terms in 2017. Despite economic woes, the aggregate price of a home in St. John’s only fell a modest 1.5% year-over-year in the fourth quarter to $334,782. During the same period, New Brunswick, Nova Scotia and Prince Edward Island saw home price increases in all major cities. Fredericton and Saint John posted by far the highest home price increases in the region at 10.4% to $257,092 and 13.4% to $230,405, respectively, while Moncton prices remained relatively flat, rising 0.3% to $191,678. During the same period, Halifax and Charlottetown saw healthy home price increases, with the aggregate price of a home in Halifax increasing 4.3% year-over-year to $310,656, while the aggregate price of a home in Charlottetown rose 3.2% to $228,706. In contrast to Newfoundland and Labrador which is projected to see further economic and home price declines in 2017, New Brunswick, Nova Scotia and Prince Edward Island are expected to achieve economic growth in the coming year, along with continued residential housing market gains.
Concerns over misplaced intentions
For the Canadian real estate market, 2016 was marked by a slew of new public policy initiatives at national, provincial and municipal levels. New regulations included federal measures to tighten mortgage insurance rules, expand stress tests, and improve tax fairness around capital gains exemptions as well as changes to the Canada Mortgage and Housing Corporation’s securitization programs; B.C.’s new 15% land transfer tax on foreign nationals in Metro Vancouver and introduction of the Home Owner Mortgage and Equity program to provide interest-free loans to first-time buyers, along with Vancouver’s introduction of a tax on vacant homes; and Ontario’s doubling of the land-transfer tax rebate for first-time buyers, combined with a tax increase on homes over $2,000,000.
“While efforts to address deteriorating affordability in Ontario and B.C.’s largest metropolitan areas are well-intentioned, too many new taxes and regulations, by too many levels of government, introduced within such a short timeline and with perceivably little research and consultation, have caused confusion and triggered drops in consumer confidence, risking the long-term health of Canada’s housing market,” said Soper.
Rather than focus on price appreciation disparities, Soper suggests that political leaders should turn their attention to housing shortages caused by a serious lack of supply. “What is at the heart of the matter is the supply side of the equation. Housing shortages have put immense upward pressure on prices, particularly in the country’s hottest housing markets,” he adds. “The real question that must be answered is how do we bring more homes into Canada’s most vibrant and fastest growing cities.”