Off the charts: How Canada’s real-estate market defied expectations in the COVID-19 pandemic

When the pandemic hit last March and lockdowns started, many assumed the economic downturn would hammer real estate. People would be thrown out of work, default on their mortgage payments, maybe even lose their homes.

The federal housing agency, Canada Mortgage and Housing Corp., forecast home prices could drop as much as 18 per cent in the worst case scenario. The exuberant housing market would surely fizzle out.

And it did, for a minute. But then, it came roaring back.

After a lull in March and April, sales activity and prices set new records month after month. With interest rates at historic lows, homeowners sick of their living arrangements upscaled to roomier digs in the cities, the suburbs and rural areas. The cost of detached homes rose fastest of all in most markets, with momentum accelerating into this year, with new records for sales and prices yet again.

But alongside this unlikely, unpredicted boom, there were other shifts under way. Prices have skyrocketed in cottage country while demand for condos has cratered. Meanwhile, the debt used to finance these new homes no longer seems quite so worrisome – at least, for now. The following charts, statistics and dollar figures offer a snapshot of the Canadian real estate market today, in all of its prediction-defying glory.

A brief lull – then back up

Monthly national average home price (left scale)

Year-over-year change in average price (right scale)

30%

$650,000

600,000

550,000

500,000

-5

450,000

-10

Jan.

2020

Mar.

May

July

Sept.

Nov.

Jan.

2021

THE GLOBE AND MAIL, SOURCE: CREA

A brief lull – then back up

Monthly national average home price (left scale)

Year-over-year change in average price (right scale)

30%

$650,000

600,000

550,000

500,000

-5

450,000

-10

Jan.

2020

Mar.

May

July

Sept.

Nov.

Jan.

2021

THE GLOBE AND MAIL, SOURCE: CREA

A brief lull – then back up

Monthly national average home price (left scale)

Year-over-year change in average price (right scale)

30%

$650,000

600,000

550,000

500,000

-5

450,000

-10

Jan.

2020

Mar.

May

July

Sept.

Nov.

Jan.

2021

THE GLOBE AND MAIL, SOURCE: CREA

People rush to the country

Steve Ferguson, the mayor of Prince Edward County, says the biggest complaint he gets from newcomers is the spotty internet service. “We are trying to address it as quickly as possible, lobbying federal and provincial governments to improve internet access throughout eastern Ontario,” he said

A two-and-a-half hour drive from Toronto, Prince Edward County has long been a popular spot for city dwellers looking for a vacation property or a summer home. Now, with the pandemic forcing people to work from home – and causing them to rethink their living arrangements – it has seen a real estate surge.

“People are fed up with the density of the city and they just want to get out. They can do whatever they did in Toronto remotely. So why stay in the city?” Mr. Ferguson says.

Remote work motivated some to buy second properties in cottage country, or sell their homes in the city and buy cheaper places in smaller cities and towns. Home resales in 2020 reached record highs in more than a dozen regions in Ontario, including Orillia, Welland, Kingston, Haliburton, Cambridge, Timmins and Sault Ste Marie.

The same was true in vacation spots across the country. Prices in the Okanagan Valley and Sunshine Coast outpaced gains in the Vancouver area. There were big price jumps in Alberta’s Wabamun Lake and Lac Ste. Anne, Saskatchewan’s Christopher Lake and Emma Lake, Manitoba’s Lac Du Bonnet and Quebec’s Eastern Townships and Les Laurentides, according to Royal LePage.

Cottage country’s big surge

Average home prices in select markets,

thousands of dollars

Jan. 2020

Jan. 2021

550

+29% change

+35%

500

+29%

450

+33%

400

350

300

Kawartha

Lakes

Lakelands

Simcoe and

District

Quinte and

District

THE GLOBE AND MAIL, SOURCE: CREA

Cottage country’s big surge

Average home prices in select markets,

thousands of dollars

Jan. 2020

Jan. 2021

550

+29% change

+35%

500

+29%

450

+33%

400

350

300

Kawartha

Lakes

Lakelands

Simcoe and

District

Quinte and

District

THE GLOBE AND MAIL, SOURCE: CREA

Cottage country’s big surge

Average home prices in select markets, thousands of dollars

Jan. 2020

Jan. 2021

550

+29% change

+35%

500

+29%

450

+33%

400

350

300

Kawartha

Lakes

Lakelands

Simcoe and

District

Quinte and

District

THE GLOBE AND MAIL, SOURCE: CREA

The steepest price increases came in Ontario, where competition for properties was intense. The home price index, which adjusts so expensive transactions don’t distort the overall picture, jumped around 30 per cent year-over-year in Woodstock-Ingersoll, as well as summer vacation spots including Quinte & District, Lakelands, Simcoe & District and Kawartha Lakes. The trend continued in January.

Quinte & District, which includes Prince Edward County, had record home resales last year. Its home price index rose 31 per cent to $421,700 – and the market shows no signs of slowing down. Active listings dropped 63 per cent in the twelve months to January, indicating less available stock and sending prices flying last month as more Torontonians scrambled for the opportunity to buy a retreat property or move to the region permanently.

“It’s not panic buying, but it’s an acute sense of urgency and almost nothing is listed for sale,” said Treat Hull, a real estate broker who has sold houses in the county for nearly a decade. “There are plenty of buyers. There are people who would have never thought of moving here in a million years.”

... as mortgages rise and other debts fall

Cheap money is the rocket fuel of the real estate boom. Record low mortgage rates have made borrowing easier, increased competition for houses and inflated residential values. And they have Canadians piling on mortgage debt at a pace not seen since the years following the Great Recession.

There was a time when that would have been cause for great concern. Before the pandemic, as house prices rose, Canadians were spending more and more of their disposable income to service their debt, especially those in the suburbs surrounding Toronto, Vancouver and Edmonton. The country’s debt service ratio, or the amount households spend to service their debt, was climbing and there were warning signs that if interest rates rose, Canadian households would hit a financial crisis.

But now, even as household mortgage debt increased 7.6 per cent to $1.67-trillion in the twelve months up to December – a pace not seen since 2010 – Canada’s household debt to income ratio has fallen. It hit its lowest level in 10 years, though has started to climb again, and the debt service ratio, a measure of financial vulnerability, fell to its lowest level in sixteen years.

That’s because people paid off other debts. With the pandemic halting travel, entertainment and costly commutes, and government support programs propping up incomes, Canadians took the opportunity to pay down credit card balances, bank loans and the like.

They took advantage of the low interest rates to refinance and consolidate higher interest debt. Non-mortgage debt fell in 2020 for the first time on record.

Remarkably, as Canadian households have piled on huge amounts of mortgage debt they have become, in aggregate terms, less financially vulnerable.

“We are seeing reduced spending (borrowing) on credit cards and less borrowing for necessities due to government money. We also see optimization of credit with people transfer debt to lower interest rate products. We’re also starting to see increased level of mortgage refinancing with people switching to lower rates,” said Benjamin Tal, deputy chief economist with CIBC.

The improved position for homeowners is also bolstered by data that show banks’ mortgage arrears remained around 0.25 per cent throughout most of the pandemic so far. Most homeowners who received temporary loan deferrals have resumed payments.

Whether this is just a blip, or the concerns about a debt crunch re-emerge depends on the strength of the economy, interest rates remaining low and how much home prices continue to spike.

But it takes longer to save for a down payment

A 'sold' sign stands by a home in Hamilton, where prices are rising faster than the national average.Glenn Lowson/The Globe and Mail

Hamilton once seemed like an affordable alternative for Torontonians and first-time buyers seeking cheaper homes still within a one-hour commute of the larger city (without traffic).

That demand had been pushing prices up in Hamilton, with house prices now topping $700,000.

The pandemic’s low interest rates have boosted prices across the country, making it much harder to save for a down payment. “There has never been a worse time to accumulate the minimum down payment,” said Kyle Dahms, economist with National Bank of Canada and co-author of the bank’s quarterly housing affordability monitor.

In Hamilton, where home prices are rising faster than the national average, affordability eroded during the pandemic.

As of the fourth quarter of 2020, it took 63 months to save for the minimum down payment on a house valued at $718,569, according to the bank’s most recent report. That is the highest level on record and up from 54 months in the period before the pandemic started. It also became harder to save for a down payment in Toronto, Vancouver, Victoria, Montreal and Ottawa, where house prices have skyrocketed.

The bank examines 10 of the country’s major cities and determines affordability using two metrics: The months required to save for a down payment if the savings rate is 10 per cent of the median household income; and the share of the city’s median household income used to make monthly mortgage payments.

On both metrics, Hamilton has become less affordable. Although low interest rates initially made it easier for homeowners to make their monthly mortgage payments, the increase in house prices has overshadowed those gains. With home prices continuing to soar, Mr. Dahms said “affordability is likely to deteriorate” further.

Meanwhile, people are flocking to Atlantic Canada

The remote work trend has helped spark a real estate boom on the East Coast.

Nova Scotia and New Brunswick hit record numbers in both sale and prices, and though PEI sales were below record levels, the average price set a new high-water mark. Resource-dependent Newfoundland and Labrador reversed years of declines brought on by the commodities crash of 2015.

More Ontarians and Albertans migrated to Nova Scotia during the first three quarters of last year than in all of 2019, drawn in part by house prices that are still well below those in major urban centres, particularly in Toronto. “The freedom to work from anywhere, accelerated their plans to move,” said Wendy Luther, chief executive with Halifax Partnership economic development agency.

Ms. Luther said the health crisis highlighted her province’s advantages over large urban centres: No density, low COVID-19 case rates and cheaper housing.

The average selling price of a home in Nova Scotia was $331,429 last year (a record high), with the price just below $400,000 in Halifax. In New Brunswick, the average selling price was about $200,000 with similar prices in larger cities like Saint-John and Fredericton. In the Toronto region, meanwhile, the average selling price was nearly $930,000 and on track to top $1-million this year.

It’s a similar story in New Brunswick. “The pandemic has motivated people to take advantage of the flexibility,” said Jeff Cyr, director with Greater Saint John’s economic development agency.

Travel restrictions also pushed up demand for vacation properties. The average selling price in Prince Edward Island jumped above $300,000, and in Newfoundland and Labrador, homeowners sought different living arrangements and people bought cabins, cottages in rural areas after travel bans thwarted their vacation plans.

As well, residents from bigger cities like Toronto sold their condos and moved to Newfoundland, where they could buy bigger properties with ocean views. “It’s not just Barrie and London that are getting the exodus from Toronto. They are also going other places,” said Bill Stirling, CEO of Newfoundland and Labrador’s real estate association.

... while fleeing condos

Condo prices tumble in the City of Toronto

Average monthly condo selling price (left scale)

Year-over-year price change (right scale)

$800,000

20%

750,000

700,000

650,000

-5

600,000

-10

Jan.

2020

Mar.

May

July

Sept.

Nov.

Jan.

2021

THE GLOBE AND MAIL, SOURCE:

TORONTO REGIONAL REAL ESTATE BOARD

Condo prices tumble in the City of Toronto

Average monthly condo selling price (left scale)

Year-over-year price change (right scale)

$800,000

20%

750,000

700,000

650,000

-5

600,000

-10

Jan.

2020

Mar.

May

July

Sept.

Nov.

Jan.

2021

THE GLOBE AND MAIL, SOURCE:

TORONTO REGIONAL REAL ESTATE BOARD

Condo prices tumble in the City of Toronto

Average monthly condo selling price (left scale)

Year-over-year price change (right scale)

$800,000

20%

750,000

700,000

650,000

-5

600,000

-10

Jan.

2020

Mar.

May

July

Sept.

Nov.

Jan.

2021

THE GLOBE AND MAIL, SOURCE: TORONTO REGIONAL REAL ESTATE BOARD

After years of condo hype, 2020 was the year the tiny homes in the sky lost their appeal.

Condos with no outdoor space became undesirable in places where the buildings are packed together and the surrounding amenities were closed or restricted.

Over all, the value of condos across the country rose at a slower pace than houses. The price index for condos was up 4 per cent year over year, while it climbed 16 per cent for houses, according to CREA.

In most of the major cities, demand waned as the supply of condos increased. Nowhere was it more pronounced than in downtown Toronto. Condos in the city were the only type of property to lose value in Toronto and its surrounding region. New listings flooded the market, with investors trying to offload condos, owners moving to bigger properties and Airbnb hosts putting their units up for sale after tourism vanished. By December, the average selling price was down 4.7 per cent compared with the same month in 2019. In January, the price was 8 per cent lower. The lower prices have lured investors back into the space; resales jumped over the past two months.

Meanwhile, active listings in Vancouver increased for condos and decreased for houses. The price index rose 3 per cent for condos but 10 per cent for detached houses.

It was a similar story in the city of Montreal, where active condo listings persistently rose in the latter half of the year and steadily fell for houses.

Vancouver and Montreal saw a spike in condo listings – but not buyers

Year-over-year percentage change from 2019 in condo and house listings

Vancouver

Condos

Detached houses

Montreal

Condos

Detached houses

60%

-20

-40

Jan.

2020

Mar.

May

July

Sept.

Nov.

THE GLOBE AND MAIL, SOURCE: REAL ESTATE BOARD OF GREATER VANCOUVER; QUEBEC PROFESSIONAL ASSOCIATION OF REAL ESTATE BROKERS

Vancouver and Montreal saw a spike in condo listings – but not buyers

Year-over-year percentage change from 2019 in condo and house listings

Vancouver

Condos

Detached houses

Montreal

Condos

Detached houses

60%

-20

-40

Jan.

2020

Mar.

May

July

Sept.

Nov.

THE GLOBE AND MAIL, SOURCE: REAL ESTATE BOARD OF GREATER VANCOUVER; QUEBEC PROFESSIONAL ASSOCIATION OF REAL ESTATE BROKERS

Vancouver and Montreal saw a spike in condo listings – but not buyers

Year-over-year percentage change from 2019 in condo and house listings

Vancouver

Montreal

Condos

Detached houses

Condos

Detached houses

60%

-20

-40

Jan.

2020

Mar.

May

July

Sept.

Nov.

THE GLOBE AND MAIL, SOURCE: REAL ESTATE BOARD OF GREATER VANCOUVER; QUEBEC PROFESSIONAL ASSOCIATION OF REAL ESTATE BROKERS

And renters vacated downtown apartments

It’s no surprise that demand for rental units declined with people leaving their downtown condos for more space, and job losses within the service industries.

Toronto, Montreal and Vancouver – the country’s major job centres – saw apartment vacancy rates more than double during the pandemic. Vacancies rose at quicker pace in the cities versus the surrounding suburbs, with the highest rates downtown, according to data from CMHC.

In Montreal, the downtown apartment vacancy rate was 10.2 per cent versus 2.7 per cent across the wider metropolitan area. In the city of Toronto, it was 7.3 per cent compared with 3.4 per cent in the wider region. In Vancouver, it was 6.3 per cent versus 2.6. For comparison, the national apartment vacancy rate was 3.2 per cent.

Apartment vacancy rates

Oct. 2020

2.5

5.0

7.5

13%

No data

TORONTO

Toronto

(central)

7.3%

Toronto

(west)

6.2%

VANCOUVER

Downtown

6.3%

Land around

University of

B.C. 13%

Southeast Vancouver 5.4%

MONTREAL

Downtown

Montreal

10.2%

MURAT YÜKSELIR / THE GLOBE AND MAIL,

SOURCE: CMHC

Apartment vacancy rates

Oct. 2020

No data

2.5

5.0

7.5

13%

TORONTO

Toronto

(central)

7.3%

Toronto

(west)

6.2%

VANCOUVER

Downtown

6.3%

Land around

University of

B.C. 13%

Southeast Vancouver 5.4%

MONTREAL

Downtown

Montreal

10.2%

MURAT YÜKSELIR / THE GLOBE AND MAIL, SOURCE: CMHC

Apartment vacancy rates

Oct. 2020

No data

2.5

5.0

7.5

13%

TORONTO

Toronto (central)

7.3%

Toronto (west)

6.2%

VANCOUVER

Downtown

6.3%

Land around

University of

British Columbia

13%

Southeast

Vancouver

5.4%

MONTREAL

Downtown

Montreal

10.2%

MURAT YÜKSELIR / THE GLOBE AND MAIL, SOURCE: CMHC

In Toronto, the average monthly rental rate for a two-bedroom apartment fell to $2,440 in October of last year from $2,476 in the same month in 2019, according to CMHC. In Montreal, the rental rate rose to $1,277 from $1,274 over the same time period.

It wasn’t just because office workers were leaving. Apartment renters in low-paid industries such as retail, accommodation and food services lost their jobs and could no longer pay the rent after government-mandated lockdowns closed businesses. And border restrictions meant postsecondary students had no need to live in the city when their schools went virtual.

But perhaps the bigger impact on rentals was the slowdown in immigration. New immigrants tend to head to major urban centres and often start off as renters. In 2020, immigration plunged 46 per cent to 184,370 new permanent residents – the lowest level in more than two decades.

Immigration plunges in major cities

Permanent resident admissions in thousands

2019

2020

120

100

-48% change

-43%

-40%

-46%

-49%

-38%

Toronto

Montreal

Edmonton

Vancouver

Calgary

Ottawa

THE GLOBE AND MAIL, SOURCE: IRCC

Immigration plunges in major cities

Permanent resident admissions in thousands

2019

2020

120

100

-48% change

-43%

-40%

-46%

-49%

-38%

Toronto

Montreal

Edmonton

Vancouver

Calgary

Ottawa

THE GLOBE AND MAIL, SOURCE: IRCC

Immigration plunges in major cities

Permanent resident admissions in thousands

2019

2020

120

100

-48% change

-43%

-40%

-46%

-49%

-38%

Toronto

Vancouver

Montreal

Calgary

Edmonton

Ottawa

THE GLOBE AND MAIL, SOURCE: IRCC

Toronto has long been the destination for the largest share of new immigrants, followed by Vancouver, Montreal and Calgary. (Typically their numbers are about one-third to one-fifth of Toronto’s.) New permanent residents to Toronto dropped 48 per cent to 60,000 over the previous year. Vancouver, Montreal and Calgary all saw new permanent residents drop by at least 40 per cent over the same period.

To compensate for last year’s shortfall, Ottawa has increased immigration targets over the next three years. This year’s goal is 401,000 new permanent residents and the following year 411,000. Although 2021 got off to a slow start with border restrictions still in place and more contagious strains of COVID-19 spreading, the economy is expected to slowly reopen and immigration is expected to pick up later in the year.

Real estate developers are banking on a surge in immigration, figuring it can help both the rental and the condo markets. “This has been a big driver to our market, especially in the downtown core,” said Cara Hirsch, founder of Hirsch + Associates, which helps real estate companies develop and sell their preconstruction condo buildings. “Immigration definitely influences condo, apartment rental as a lot of people coming into our city are looking for a place to stay that is close to their new job and many rent as a temporary solution until they get adjusted and purchase a property,” she said.