CANADA - In Ottawa, home prices continue to rise. They are up 8% since last year. Ottawa has seen housing prices rise faster than the average compared to other Canadian cities. The price of freehold homes took 23 days to sell, while condos took 29 days. In the last month, 3,333 residential properties were listed for sale. Of these, 2,757 were freehold, and 576 were condos.
Montreal, Ottawa, and Victoria could see their housing prices rise faster than Toronto, Calgary, and Vancouver
While the GGH region's housing prices are rising, potential buyers look outside the region for investments. Despite this, the Montreal housing market has remained strong. In 2020Q1, the Montreal housing market was up 8.0% year-over-year. Prices rose across all housing sectors, but new and resale condominiums saw the largest increases. The price of new houses rose 7.5%, and prices for resale houses rose 6.8%.
Desjardins has lowered its housing market forecast to show a slight correction by 2023. This is a significant reduction from its previous forecast of a 15 percent drop in national average home prices. However, the firm sees the market recovering after the correction.
Inflation and the lack of housing supply are contributing factors in this problem. The demand for rental housing is outpacing the supply, driving prices. In addition, some renters may hold off on a move until prices are lower again. While Canada has a $10 billion plan to address these problems, it will take time before these measures are fully realized.
The affordability problem has also spread to other areas. While Toronto and Vancouver were already experiencing the greatest price increase, the situation in smaller towns is even direr. The correction in Toronto, Calgary, and Vancouver was more severe than in other areas, and the correction in Ontario and British Columbia has been more severe. Immigration and increased affordability will reduce the rate of price increase in the provinces.
In Montreal, a recent report revealed that the city's average rent increased by nearly 4 percent yearly. Rents increased faster than supply, with the vacancy rate remaining low at 0.8 percent. Despite the relatively low vacancy rate, the rental demand in downtown Montreal remains strong. The average rent for a two-bedroom apartment in downtown Montreal is $932 a month, while the average rent for an apartment in the suburbs is $1420 per month.
Other regions of Canada are expected to see modest increases in house prices, such as Saskatchewan and Manitoba. Meanwhile, the average house price in British Columbia will rise minimally compared to other provinces, with an average annual increase of 0.3%.
In the meantime, several construction projects in these areas have been delayed, contributing to higher rents in 2023. Quebec's economic rebound has been stronger than other regions of the country, with job postings rising faster than elsewhere. Meanwhile, data on new permanent residents in Montreal has been strong. As a result, the vacancy rate should rise in the next few years, which will prevent a double-digit increase in housing prices.
The provincial government should take the lead in streamlining the permitting process and standardizing development requirements across the province. Many Ontario municipalities charge developers steep developer fees, which hinder supply. Ontario municipalities charge 30 to 50 percent more than other cities. The province could subsidize these developer fees and infrastructure costs, easing the financial strain on municipalities and developers.
A new study from TD Bank suggests that rising interest rates could impact the Canadian housing market. While the current pandemic has passed, monetary policy has not. The Bank of Canada's Overnight Lending Rate (OLR) has risen three times since March. This now stands at 1.5%, up from 0.25% during the pandemic. The rise in the OLR has impacted the affordability of home loans. Some consumers can no longer qualify for mortgages with a high LTV.
As Canadian housing prices have surged in recent years, some cities are seeing faster increases than others. The Alberta housing market has seen a massive increase in recent years, making it a popular destination for end-user homebuyers and investors alike. Benchmark prices in this province range between $400,000 and $600,000. This is still lower than Vancouver and Toronto's $1 million-plus mark. Meanwhile, other Canadian provinces can expect a smoother ride, supported by strong population growth and a tight seller's market. While the Alberta housing market continues to grow, rising rates are a risk, as they may impact affordability.