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RBC on how Canadian home sales activity is shaping up
Home sales activity is now gradually stabilizing in most Canadian markets after substantial decelerations through the spring and summer amid the central bank’s interest rate hikes, according to RBC Economics.
“Nationwide activity even picked up slightly on a month-to-month basis for the second time in three months in December (up 1.3%),” RBC said in its new analysis. “Activity is levelling off in the majority of local markets, including Victoria, Vancouver (and the rest of Lower Mainland BC), Calgary, Edmonton, Toronto (and the rest of southern Ontario) and Atlantic Canada.”
“Only a few pockets in the Prairies and Quebec maintained a lower trajectory in the latter stages of 2022. But for Regina and Saskatoon, home resales remain solid despite the softening, still tracking well above pre-pandemic levels.”
The trends are consistent with RBC’s predictions that “a cyclical bottom” is just beyond the horizon, “likely in early-2023.”
However, home prices – despite declining for the 10th consecutive month with a 1.6% drop in December – will not likely stabilize as quickly.
“We think it will continue to slide until spring at the earliest as poor affordability continues to weigh heavily on buyers,” RBC said. “Another likely rate hike from the Bank of Canada later this month could make things even more challenging for some. Still, we think the pace of price declines will continue to ease gradually thanks to stable demand-supply conditions.”
At the same time, more listings are likely to pop up in the very near future.
“Higher interest rates may also press a number of current owners to sell if mortgage payments become unmanageable,” RBC warned.
Economists forecast rates will jump by another half percentage point next week — cooling Canada’s housing market even more
The Bank of Canada is widely expected to hike interest rates again next week as part of an ongoing effort to curb consumer prices and cool Canada’s overheated housing market.
With inflation reaching a 31-year high of 6.8 per cent in April, Bay Street analysts broadly expect that governor Tiff Macklem and his team of economists will raise the central bank’s overnight interest rate by another 0.5 of a percentage point on Wednesday, increasing the current rate from one per cent to 1.5 per cent.
Those rates may seem tame relative to historical standards — the central bank’s interest rates typically sat above two per cent until the 2008 financial crisis — but the pace at which rates are being hiked is the fastest in more than two decades, part of an aggressive campaign to slow consumer demand and control inflation.
In April, the Bank of Canada increased its prime interest rate from 0.5 per cent to one per cent — the largest hike since 2000.
Already, the impact of the bank’s tightening campaign can be seen in the housing market, where prices fell about 12 per cent in April, according to the Canadian Real Estate Association.
The higher the rates, the harder it is to borrow money, meaning prospective homebuyers will find it harder to get financing for down payments while current homeowners pay more on their mortgages.
“The expected rate hike will have a further cooling effect on both the number of real estate transactions and prices across the country,” said James Laird, co-founder of ratehub.ca.
The central bank is also expected to continue hiking rates for the rest of the year, but at a slower pace if central bankers see inflation cooling.
“The Bank of Canada is laser-focused on inflation right now but once monetary policy gets toward a more neutral level they’ll have to strike more of a balance between prolonging the economic cycle and getting inflation quickly back to target,” said Nye.
“Anyone with a variable rate mortgage should understand what their payment will be with a 50-basis-point increase next week, and they should budget for additional rate increases totalling one to two per cent for the remainder of the year,” said Laird.
According to ratehub.ca, their mortgage payment calculator shows a homeowner who put a 10 per cent down payment on a $750,000 home with a five-year variable rate of 1.90 per cent, amortized over 25 years, has a monthly mortgage payment of $2,913.
Should the central bank announce a 0.5 per cent increase next week, that homeowner’s variable mortgage rate will increase to 2.40 per cent, and their monthly payment will increase to $3,083.
This means that the homeowner will pay $170 more per month, or $2,040 per year, on their mortgage payments.
Wealthier clients crowding out first-time buyers
In its latest earnings report, Royal Bank of Canada said that a major driver of its strong fiscal Q2 performance was the growing proportion of its higher-earning clients.
However, this seems to be to the detriment of the country’s hopeful home buyers, according to Neil McLaughlin, head of RBC’s personal and commercial banking unit.
“We’re seeing the overall income and net worth of a mortgage buyer increase over time,” McLaughlin said in a conference call with analysts.
With this trend emerging as “a bit of a systemic issue,” McLaughlin said that first-time buyers are “becoming less and less a part of our portfolio.”
Read more: First-time buyers in Canada – will the landscape improve in 2022?
Despite the national home price index ticking down by 0.6% to $866,700 in April, benchmark prices in Toronto and Vancouver significantly exceeded $1.3 million during the month, representing five-year increases of 65% and 40%, respectively.
“It is a bit of a sad commentary in terms of young people being able to get into some of these markets,” McLaughlin said.
RBC reported net income of $4.3 billion for the quarter ending April 30, representing an annual increase of $238 million (6%).
“We remain well-positioned for future growth, and to deliver differentiated long-term value for our clients, employees and shareholders. At a time when geopolitical tensions, inflationary pressures and global supply chain issues are creating an uncertain macroeconomic backdrop, I’m proud of how RBC employees continue to drive positive change in our communities and deliver trusted advice and insights for those we serve,” said Dave McKay, president and chief executive officer of RBC.
Federal government will pay up to $5,000 if you make your home more energy efficient
The government of Canada is launching a new program today that offers Canadians grants of up to $5,000 to pay for energy-saving home upgrades.
Prime Minister Justin Trudeau and Natural Resources Minister Seamus O'Regan rolled out the Canada Greener Homes Grants program today — worth about $2.6 billion over seven years — to help homeowners upgrade heaters, install solar panels and replace windows and doors.
"As a country, every effort counts to keep our air clean and our environment healthy," Trudeau said Thursday. "We know that these retrofits can sometimes be out of reach, so our government is now making them more affordable for Canadians."
Homeowners will be able to receive grants of up to $5,000 to make energy efficient retrofits to their primary residences, and up to $600 to help with the cost of home energy evaluations.
Trudeau said the grants will help 700,000 homeowners lower their bills and keep their houses warmer in the winter.
People across the country are able to apply online starting today (the government says the landing page for applications was down earlier today due to high demand). An application starts with an energy evaluation by a certified adviser. That adviser visits an applicant's home and determines which energy-saving measures would qualify for reimbursement.
If the homeowner chooses to proceed, a licensed contractor would then be hired to conduct the retrofits. After an inspection of the completed work, the homeowner would be reimbursed.
It's estimated that private homes and buildings are among the largest sources of carbon emissions in Canada, contributing about 18 per cent of the country's emissions.
Last week, the federal government announced it's providing up to $10 million to recruit, train and mentor 2,000 people to conduct energy audits.
WATCH | Prime minister unveils $2.6 billion home retrofit program