CMHC 2024 Housing Market Outlook
Spring 2024
Today, we received an email from the Canada Mortgage and Housing Corporation (CMHC) containing a copy of their Housing Market Outlook.
DV Capital is active in 3 Canadian Provinces: Ontario, British Columbia and Nova Scotia, so we’ll focus on Toronto, Vancouver and Halifax.
Highlights:
A decline in housing starts: primarily due to high construction and financing costs. In other words, margins are too thin for most developers to commence construction, reducing the introduction of supply to the market). An expected slight increase in ground-oriented housing starts (detached, semi-detached and row-homes) between 2024-2026 due to a gradual decrease in mortgage rates and a limited supply of existing homes. Reportedly, ground-oriented development is expected to respond more positively to reduced interest rates as the planning and construction period is generally shorter than apartment development.
Increase in MLS Prices: the CMHC projects an increase in the average MLS price based on reduced interest rates, anticipated population growth and their expectation of economic improvements. Following a decline in 2023, Toronto’s average MLS price is anticipated to rebound, with continued growth in 2025 and 2026. They’ve noted that condominium units, prevalent in the City of Toronto and its downtown core, should experience balanced market conditions and subdued price growth due to cash-flow challenges for tenanted units, which might trigger listings and several anticipated condominium completions. CMHC believes ground-oriented housing will propel the average MLS price based on households seeking more living space paired with a limited supply.
The CMHC anticipates the rental market will remain tight due to high immigration and challenges in homeownership affordability. However, they’ve noted they expect a slight vacancy rate increase for numerous reasons, such as an anticipated demand decrease due to a recent policy implementation regarding international students. Also, anticipated interest rate decreases might propel sideliners to execute and purchase real estate, including relocating outside of Toronto to seek more ‘affordable’ housing options.
Potential risks to the outlook can be summarized quite easily. Upside risk includes a lack of underlying supply due to aggressive population growth. Downside risk includes listings potentially hitting the market due to affordability issues with higher interest rates, especially at renewal, and overall affordability issues based on the cost of living.
Highlights:
Resale activity outlook: the CMHC expects resale activity to rebound in 2024 and rise until 2026, potentially beneath peak levels. Aggressive immigration and a stable economy will boost demand and house prices.
Rental market demand: the CMHC believes that an existing high rental demand will continue to drive up rents constrain vacancy rates and cause pain for renters.
decline in new home construction: the CMHC anticipates a slight decline in new home construction due to financing costs affecting the multi-family sector. However, they expect a robust recovery in years to come. They note that rental construction has gained traction in recent years despite financing conditions and believe that purpose-built rental construction steers demand, with developers focusing on lower-land cost regions such as Coquitlam, Port Coquitlam, Port Moody, Maple Ridge, Surrey, Delta, Langley and within the North and South Fraser regions.
Price declines will reverse as homebuyers’ budgets are expected to rebound: the CMHC expects resale activity to pick up in 2024 across metro Vancouver, the average resale price will grow in 2025, and by 2026, the average resale price in the Lower Mainland will surpass all-time highs last seen in early 2022 (the market peak, according to most people). Signs of stronger resale activity at the end of 2023 paired with price stabilization and homes sitting on the market for fewer days than the peak at the end of 2022. They believe that higher interest rates over the past couple of years may have delayed first-time home buyers naturally targeting lower-priced homes.
Risks to the outlook: high immigration inflows, earlier or larger than expected immigration inflows, and new policies to encourage development. However, prolonged periods of elevated interest rates and population-reducing policies may constrain the resale market.
Highlights:
CMHC expects home prices, sales and starts (mainly multi-unit rental real estate) to increase during 2024-2026 and will receive support from population growth and the likely easing of interest rates. Multi-unit rental units under construction should help ease rental market pressure once completed but will trigger rent increases.
CMHC acknowledges that a record number of apartment building developments commenced in 2023 due to financing secured before interest rates increased. However, record population growth and low vacancy rates have caused aggressive demand for new rental housing in Halifax. They anticipate construction activity to increase even more during 2025-2026 when interest rates begin to decrease. Trade labour shortages and construction costs are two important factors that prohibit said growth and cause developers to rethink large projects. Construction costs for single-family real estate increased over 10% in Halifax in 2023, the fastest growth among major cities in Canada. This translates to record-high new home prices, however, high rates have reduced buyers’ borrowing ability. It is worth noting that Nova Scotia’s employee compensation increased 8% in 2023. Even based on the foregoing, interest rate increases affected the housing market. Halifax still presents a more ‘affordable’ landscape for out-of-province homeowners. Sales are expected to rebound in 2024 with lower interest rates and improving economic conditions. Halifax’s population is continuing to grow at unprecedented levels, particularly, first-time homebuyers. Anticipated interest rate decreases and home value stabilization should incentivize sideliners. However, similar to what we’ve seen in major cities in Ontario and British Columbia, if prices increase too much, due to pent-up demand, there could be downward pressure on sales.
CMHC expects vacant rates to remain low from 2024-2026. A growing population and low home affordability will fuel the rental market, but new supply should provide some relief, with thousands of units coming to market over the next 2-3 years, however, not enough supply to offset demand.
In Summary -
There appears to be one major theme. A lack of supply that will not healed by anticipated housing starts, based on immigration targets. Make no mistake - I understand the importance and beauty of immigration. Simply, are there enough homes to support targets? Are there enough homes to support existing residents?
It’s as if Canada will take one step forward and two steps back and cannot adequately provide for its existing and future residents.
Canada introduced dirt-cheap interest rates amid a rising housing market - of course, there will be a shock to the system of many homeowners, especially those who entered the market or budgeted for homeownership at significantly lower rates and payments. The cost of living, which seems to continuously increase, isn’t helping matters.
Affordability issues are wiping out many people’s ability to purchase a home, maintain homeownership and rent and without serious intervention, this might continue to affect future generations.
These are simply thoughts based on my interpretations.
Your thoughts and comments are most welcome.
Yours respectfully,
Daniel Vyner
Principal Broker, DV Capital
t. 416-839-5874
tf. 1-866-839-5874
e. dvyner@dvcapitalcorp.com
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