What’s new in the Ontario housing market for April?

Housing Demand: “Canadians are living longer, so they are occupying their homes longer!”

As April showers start and we put away our snowshoes and skis and tune up our bikes and golf swing, let us turn our attention to the new home buyer.

Immigration and Migration

With one million plus new immigrants coming to Canada in 2022 — including permanent residents and refugees — we expect continued demand for housing across the country.

I am not advocating against immigration, as Canada requires immigration for population growth and to fill our demand for workers. 

I have always promoted immigration to be 2% of Canada’s population as our population growth reaches 40 million in the next year or so.

We also expect the trend of interprovincial migration to continue to provinces such as Saskatchewan, New Brunswick, Newfoundland, and Nova Scotia (outside Halifax) as these are Canada’s most affordable housing markets. If you wish to stay in Ontario, we recommend Sudbury, Elliott Lake, Timmins, and some rural markets such as Hanover, Markdale, Paisley, Listowel, and similar areas as they remain affordable for new home buyers.

Bank of Mom and Dad and Grandparents

Zolo is reporting that in 2022 almost half of all Canadian home buyers relied on financial support from family members with 47% receiving money from family to boost their downpayment. This trend has not changed since 2020 when we wrote a blog on the same topic.  “The Housing Market is a Changing — Mortgage Trends for 2022 Part 2”.

Notwithstanding the above, we are experiencing increased mortgage applications for new home buyers in recent weeks with almost all receiving gifted down payments as the intergenerational transfer of wealth continues. The reality is that a gifted downpayment to a non-spouse family member is more tax efficient than leaving the money to a family member through an inheritance (for further tax advice see a tax accountant).

Higher Rents

With high student loan debt and wages staying moderate, young people and their families have no choice but to rent if home ownership is not a reality.

Higher immigration is also influencing higher rents and it is no surprise that the “Y and Z Generation” feels between a rock and a hard place between high cost of rent and home ownership.

Buying Trends

Generation Z is turning to social media with 49% browsing properties on Instagram, while boomers and Gen X used Real Estate Listing websites as their primary source.

Housing Demand

By 2025, Canada will have 1.45 million new home buyers. Currently we have 240,590 new housing starts in 2022 and 255,735 are forecasted in 2023. If that trend continues, we will have a shortfall of 700k+ homes by 2025. “Where are the people going to live?!” CMHC is reporting that an additional 3.5 million affordable housing units are needed by 2030.

At the same time, the average size of a home in Canada is 1948 sq. ft. containing anywhere from 3 to 6 bedrooms with an average of 2.3 people living in them. Based on the 2016 Canadian Census, we have 12.3 million vacant bedrooms across Canada — a condition of ‘being over-housed’ compared to the 2.09 million bedrooms needed to help solve under housing.

The problem of being “over-housed” is not foreign buyers who leave their homes empty. The problem is that it is empty nesters who are over-housed. There are 2 million spare bedrooms in Toronto and 5 million in the Golden Horseshoe according to Canada Centre for Economic Analysis.

In Canada in 2023 the average life expectancy is 83 years of age, up 2 years from 2010 and 11 years from 1970 when Baby Boomers came of age. This is 5 years longer than an American at 77.3 years — likely due to health care, a lower homicide rate and better survival rates for the poor. Canadians are living longer; therefore, using their homes longer. (Sidenote: Canada ran its 1st large fiscal deficit in 1976 when the Canadian Dollar was a 7% premium to the USD). With Boomers living 10 years longer and being the largest Demographic Cohort of the last two centuries, it should be no surprise that there is increased demand on housing.

Canadian Interest Rates

There is no anticipation on our part that interest rates will change at the Bank of Canada Rate announcement on Wednesday April 12. We do not share the view with those who believe that rates will decrease by the end of 2023. We believe interest rates will decrease in the first half of 2024. This is supported by the strong job market in March with a net 34,700 jobs added and a net increase in jobs since September of 383,000 with the Canadian Job Market showing no signs of slowing. This job data as well as food inflation over 10% will have inflationary impact on Canada. In addition, contractor prices and building material prices remain high due to skilled labour shortages and commodity price costs.

According to Mortgage Professionals Canada 2022 Year-End Consumer Survey, 69% of mortgage holders had fixed rates in 2022 up from 61% in 2021.

We have not taken an opinion on whether Canada will see a recession in the next two years and the degree of this potential recession. We are concerned with tighter lending conditions in US Commercial Real Estate that have resulted from the Bankruptcy of Silicon Valley Bank and the financial troubles of other banks. There is also some evidence of tighter lending conditions in Canada with several institutions not renewing mortgages for their clients cited in the Globe and Mail on April 7th.

Canadian Mortgage activity in the 4th quarter of 2022 was down 38.5% year-over-year, according to data from Equifax.