Housing markets self-corrected in April, but they could get hotter as summer approaches

Some industry observers believe that only sizable regulatory interventions by governments can put brakes on what they say is a runaway housing market train. But moderating housing sales and average prices during April in numerous markets across Canada suggest that some stability has been restored without any such intervention at all.

The modest declines in sales and price growth, relative to March, in both large and small housing markets, need an explanation. Could it be that homebuyers suddenly became wise or risk-averse and showed restraint? Or did the stay-at-home orders, which restrict mobility, and heightened health-related concerns prevent some homebuyers from engaging the market?

Our review of the sales activity suggests that a definitive answer to what contributed to the April slowdown is likely to evade us. Still, a glance at the data provides some helpful context in envisioning possible scenarios for the next few months.

Canada’s largest housing market, the Greater Toronto Area, recorded an unprecedented 13,663 sales in April. This is the largest number of transactions recorded in April since 2016, when demand was significantly robust. However, it fell short of the 15,655 sales recorded in March. Hence, the steady month-over-month increase in the number of transactions observed over the past few months took a surprise, yet welcome, break.

But the year-over-year comparisons for April 2021 sales might not be constructive, given that all commercial and social interactions almost froze a year ago because of the initial lockdown restrictions following the onset of the pandemic.

A comparison with April 2019 could be more meaningful, and that shows that last month’s sales were 50 per cent higher. Similarly, average housing prices in the GTA in April were up 33 per cent relative to prices observed in April 2019. Interestingly, housing prices were almost flat between April 2019 and April 2020.

The Toronto housing market last month also provided further evidence of increasing demand for suburban dwellings, a trend repeatedly observed during COVID-19. Housing sales and average prices continued to grow faster in suburban areas than those in the core city. The average price of detached homes, a sought-after housing type in Toronto, grew by 37 per cent year over year in the city compared to a 44 per cent increase observed in the suburban markets.

Housing market statistics in Ottawa paint a similar picture. Average housing prices and transactions were significantly higher in April in a year-over-year comparison. However, April 2021 sales were only 19 per cent higher than the sales recorded in April 2019 and 2018.

Victoria’s relatively smaller housing market also mimicked the market trends observed in more populous cities. Whereas April 2021 housing sales increased by 289 per cent year over year, they were still lower than sales in March. Furthermore, the April 2021 home price index benchmark value in Victoria increased by a mere 2.9 per cent relative to the month before.

Some industry observers believe that once the stay-at-home restrictions are eased or lifted, prospective homebuyers will return en masse, thereby creating a subsequent peak in demand in late spring or early summer. Others point out that there is a finite pool of potential homebuyers, some of whom have already advanced their purchases to benefit from favourable lending conditions. Hence, the odds of a subsequent peak in demand later might be low.

The stay-at-home restrictions may have also dissuaded many sellers from listing their homes. The real estate sector is deemed essential and allowed to operate, but sellers still might prefer to wait for mobility restrictions to lift in order to get maximum exposure for their dwellings. In Victoria, for instance, fewer active listings were recorded in April 2021 than a year ago.

Once mobility restrictions are lifted, an increase in listings during the summer months might come to pass. The increase in supply could have an additional moderating effect on prices during the summer months. One can also foresee an increase in demand during the coming months as more people are vaccinated and a larger pool of immigrants is allowed to enter later in the year.

With such an abundance of moving parts, predicting housing market activity is full of risk and uncertainty. A lot depends on the drivers of demand and supply and the remote chance of government intervention. The likely scenario is a modest increase in prices and a return to a typical summer housing market activity.

Murtaza Haider is a professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website hmbulletin.com .

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