Supply may cool red-hot housing market
April 27, 2021
As long predicted by Canada’s home builders, supply could cool one of the hottest housing markets the country has ever seen.
Even Chrystia Freeland, Canada’s Finance Minister, has recognized that the law of supply and demand includes housing.
"Something that we want to work with provinces, municipalities on is really finding more and more creative ways to increase housing supply in Canada," Freeland said during a Vancouver event in April following her release of the 2021 federal budget.
It appears to be happening already.
In March, Canadian housing starts soared 21.6 per cent compared with March 2020 expectations to hit a new high, according to Canadian Mortgage and Housing Corporation (CMHC).
The seasonally adjusted annualized rate of housing starts rose to 335,200 units in March, well ahead of analyst forecasts for 250,000 starts—a record high for any month on record.
Much of the gain was on multiple urban starts, which jumped 33.8 per cent to 222,358 units. Single-detached urban starts rose 3.6 per cent to 78,615 units.
The effect is being seen in Metro Vancouver, where starts rocketed up 115 per cent to 3,711 units in March compared to a month earlier.
A number of developers who had delayed projects when the pandemic started are now rushing to get shovels in the ground, said Kush Panatch, president of residential developer Panatch Group of Vancouver.
At the same, the supply of resale homes on the market increased to 10,301, up 10 per cent from a month earlier to one of the highest monthly levels in history.
Panatch said the market exuberance of the last 10 months—characterized by multiple offers and homes selling for well over the asking price—was based largely on a shortage of homes and buyers’ psychological fear of missing out.
He believes sales are now cycling into a “gentle market downturn” that will likely continue for some months as more supply floods into the market.
“In Vancouver, you have already missed out,” said Panatch.
For the first time in 10 months, Greater Vancouver sales in April were tracking lower than in the previous month—down nearly 10 per cent from March—according to two-week data from the Real Estate Board of Greater Vancouver.
Panatch said more supply will cool price increases but he doubts prices will fall.
Canada's average home price soared an eye-popping 31.6 per cent year-over-year in March—reaching a new high as sales also climbed to an all-time record, the Canadian Real Estate Association (CREA) reported.
New listings also surged in March across Canada, which, coupled with record starts, suggests a more balanced market could be coming, analysts say.
"While the market will need a long stretch of supply growth to have a meaningful effect on prices, the March numbers are a solid start," noted Shelly Kaushik, an economist with BMO Capital Markets.