Moving Away from the Regional Extremes of Real Estate Feast and Famine
National home price appreciation experiences significant growth in the fourth quarter of 2016
Greater Vancouver projected to see a home price correction in 2017, while double-digit price appreciation expected to
continue in the Greater Toronto Area
TORONTO January 12, 2017 – Canada’s residential real estate market saw significant year-over-year price appreciation in the fourth quarter of 2016, supported by considerable gains in the Greater Toronto Area (GTA) and Greater Vancouver, according to the Royal LePage House Price Survey and Market Survey Forecast released today. Looking ahead, Royal LePage expects the regional extremes in house price appreciation that characterized the national real estate market in 2016 to narrow in 2017. This trend is anticipated to be driven primarily by a price correction in the Greater Vancouver housing market, strong but moderating price appreciation in the GTA, and welcomed upward price trends in Quebec, Atlantic Canada and Alberta.
The Royal LePage National House Price Composite, compiled from proprietary property data in 53 of the nation’s largest real estate markets, showed that the price of a home in Canada increased 13.0 per cent year-over-year to $558,153 in the fourth quarter of 2016 – the highest year-over-year national home price increase recorded in over a decade. The price of a two-storey home rose 14.3 per cent year-over-year to $661,730, and the price of a bungalow increased 12.5 per cent to $481,460. During the same period, the price of a condominium increased 7.4 per cent to $356,307. Looking to the year ahead, Royal LePage forecasts that the aggregate price of a home will increase 2.8 per cent in 2017 when compared to year-end, 2016.
“The disparity in home price appreciation between Canadian regions has never been greater than that seen in 2016, with rates ranging from double-digit extremes in some cities to negative growth in others,” said Phil Soper, President and CEO, Royal LePage. “This economic drama put real estate at the forefront of everybody’s mind last year, from the Prime Minister to the recent grad. In 2017, we anticipate a movement away from the regional extremes of real estate feast and famine – and that is a very good thing.”
Royal LePage expects the price appreciation gap between regions to narrow in 2017, with a trend toward historical norms as some overheated markets slow, while activity levels in a number of cool markets begin to pick up. This trend will be led most notably by a projected home price correction in the Greater Vancouver region – which has seen continuous price growth well into the double-digits – where Royal LePage is forecasting that home prices in the market will depreciate to levels last seen in April 2016.
“Eroding affordability in B.C.’s Lower Mainland has reached unsustainable ground. This, coupled with recently introduced public policy measures and lower sales volumes, has put visible downward pressure on home prices. While the cost of a home in Greater Vancouver will remain the highest in the country, a modest price reset will provide much needed relief in the Lower Mainland and help reignite overall buyer activity in the region,” continued Soper.
Meanwhile in the fourth quarter, the GTA market witnessed double-digit aggregate home price increases in all sub-regions studied, with the aggregate price of a home in the region rising 16.1 per cent year-over-year.
“Like Greater Vancouver, the Greater Toronto Area markets we studied in our House Price Composite are seeing double-digit year-over-year home price appreciation across the board. However, these two regions, often grouped together as Canada’s booming real estate markets, are on divergent paths,” explained Soper. “Unlike Vancouver where a price correction is underway, there is no relief in sight for the GTA – forward momentum and supporting fundamentals in the region are that strong. And it is worth noting, Toronto area home prices are much lower that those on the west coast.”
In central Canada, the number of homes trading hands in Alberta has been sharply lower than long-term norms since the 2014 oil crisis began. Albertans have lost very little equity in their homes, however, as supply softened to match lower demand. Royal LePage data shows the aggregate price of a home in the province’s largest city, Calgary, slipped just 1.0 per cent year-over-year in the fourth quarter of 2016.
“Our outlook for Alberta may surprise the many who are anticipating another dire year for the region. While we don’t anticipate a strong housing rebound, we are calling 2016 as the bottom for this correctional phase of the cycle. We base our outlook not on a sharp increase in the value of oil, but upon maintaining a $50/barrel floor, allowing the energy industry to move into modest growth mode,” suggested Soper.
Newest government policies send mixed messages, remiss in addressing housing supply issue
For the Canadian real estate market, 2016 was marked by a slew of new public policy initiatives at national, provincial and municipal levels. New regulations included federal measures to tighten mortgage insurance rules, expand stress tests, and improve tax fairness around capital gains exemptions as well as changes to the Canada Mortgage and Housing Corporation’s securitization programs; B.C.’s new 15 per cent land transfer tax on foreign nationals in Metro Vancouver and introduction of the Home Owner Mortgage and Equity program to provide interest-free loans to first-time buyers, along with Vancouver’s introduction of a tax on vacant homes; and Ontario’s doubling of the land-transfer tax rebate for first-time buyers, combined with a tax increase on homes over $2,000,000.
“While efforts to address deteriorating affordability in Ontario and B.C.’s largest metropolitan areas are well-intentioned, too many new taxes and regulations, by too many levels of government, introduced within such a short timeline and with perceivably little research and consultation, have caused confusion and triggered drops in consumer confidence, risking the long-term health of Canada’s housing market,” said Soper.
“Price appreciation disparities between regions have created a quandary for policymakers who have tried to tame overheated housing markets, while supporting slower ones. What our leaders have been slow to address, and what is at the heart of the matter, is the supply side of the equation in the country’s hottest markets. Housing shortages have put immense upward pressure on prices,” he concluded.
Provincial and City Summaries and Trends
British Columbia led the country in economic growth in 2016, supported by a particularly strong year in manufacturing and housing. In the fourth quarter of 2016, the aggregate price of a home in Greater Vancouver increased 25.6 per cent year-over-year to $1,230,718, while West Vancouver, North Vancouver and the city of Vancouver saw increases of 32.8 per cent, 28.0 per cent and 25.6 per cent to $3,573,148, $1,391,197 and $1,506,498, respectively. Meanwhile, surrounding suburbs including Richmond and Langley saw similar rates of appreciation, with the aggregate prices of homes in these regions increasing 27.6 per cent and 25.7 per cent, respectively.
According to the Conference Board of Canada, Vancouver will have the strongest economic growth among Canadian cities in 2017, with activity led by construction, finance, insurance, transportation, warehousing and real estate. However, actions by the federal and provincial governments designed to cool the housing market are expected to be felt in both the housing sector and the broader economy in the year to come. It is worth noting that a trending slowdown in prices is already underway on a quarter-over-quarter basis. Royal LePage expects Greater Vancouver’s housing market to see a high single-digit price correction in 2017.
With oil prices stabilizing, new capital spending commitments underway and an energy-friendly administration taking office in the U.S., there is a growing sentiment that the worst is over for the Alberta economy. Some forecasters are projecting a return to positive growth for the province in 2017 which will be supportive to the province’s residential housing sector. The year-over-year aggregate price of a home in Calgary declined 1.0 per cent to $460,837 in the fourth quarter of 2016, while the price of a home in Edmonton fell 2.1 per cent to $378,247. However, prices have commenced an upward trend on a quarter-over-quarter basis, pointing to a resurgence in home prices in 2017.
In Saskatchewan, a relatively solid year for agriculture partially offset the negative impacts of the energy downturn. Although at 6.5 per cent as of December, the Saskatchewan unemployment rate remains below the national average and employers have been reluctant to add to their payrolls in light of continued economic uncertainty. Despite economic challenges, home prices in the fourth quarter remained stable in the province’s largest cities, with the aggregate price of a home in Saskatoon down 0.4 per cent year-over-year to $366,933, while the aggregate price of a home in Regina increased 2.6 per cent to $340,684. Economic growth in the region is likely to be positive in 2017, but slightly below the Canadian average, with home prices expected to remain relatively flat in the province’s two largest cities.
In the fourth quarter of 2016, the aggregate price of a home in Manitoba’s largest city, Winnipeg, rose 2.8 per cent to $289,017. The province remains on track for economic expansion in 2017, supported by strong manufacturing, wholesale and retail trade along with residential and commercial construction activity. The province is expected to track closely to national economic growth levels in the year to come, further supporting the housing sector in the region, which is forecasted to see low single-digit house price appreciation in 2017.
Ontario remains neck-and-neck with British Columbia racing to be Canada’s fastest growing province and is well-placed to gain from an expanding U.S. economy. With the Bank of Canada refraining from matching U.S. interest rate hikes, the Canadian dollar is expected to stay relatively weak, supporting the province’s export sectors. Ontario employment grew by 1.2 per cent in 2016. This labour market strength has translated into consumer income growth that is supporting the continued rapid expansion of the province’s housing market – particularly in the GTA.
In the fourth quarter of 2016, the aggregate price of a home in the GTA rose 16.1 per cent to $720,761. The aggregate price of a home in the City of Toronto proper rose 12.4 per cent to $720,029, while some surrounding suburbs such as Richmond Hill, Oshawa, Whitby and Vaughan saw “Vancouver-like” increases of 30.1 per cent, 26.9 per cent, 21.3 per cent and 19.9 percent to $1,138,826, $471,957, $610,658 and $927,371, respectively. Other Ontario markets also saw strong home price increases as the quest for affordability spread to regions beyond the GTA. In Hamilton, the aggregate price of a home increased 14.5 per cent to $445,249, while Kitchener/Waterloo/Cambridge and Niagara/St. Catharines saw price increases of 12.9 per cent to $390,715 and 10.0 per cent to $311,577, respectively. Ontario’s major housing markets are expected to see continued price appreciation in the year to come, led by double-digit home price increases in the GTA.
Quebec’s economy showed sound growth in 2016, with momentum expected to continue into 2017. Quebec has been more successful than most provinces in eliminating its deficit, which may result in stimulus spending in the next few years, providing an additional positive boost for the economy. Over the twelve months ended in December 2016, Quebec’s unemployment rate fell by 1.3 percentage points to 6.6 per cent. Supported by continued economic momentum, Montreal and Quebec City posted healthy housing market gains in the fourth quarter of 2016. The aggregate price of a home in the Greater Montreal Area rose 6.5 per cent to $371,085, while the price of a home in Quebec City increased 5.8 per cent to $307,008.
The Conference Board of Canada has forecasted that in 2017 the economies of Montreal and Quebec City will expand more quickly than the national average for the first time since 2009. In addition, Montreal is expected to start a number of new infrastructure projects in 2017. This includes the Réseau électrique métropolitain (REM) led by the Caisse de dépôt et placement du Québec, a transit network that will connect downtown Montreal, the South Shore, the West Island, the North Shore and the airport, and which will contribute to the region’s economic development and employment over many years. Coupled with this, the city’s 375th anniversary is expected to attract tourism throughout the year, particularly in the downtown core. In the coming year, the city is expected to see healthy home price gains in the mid-single-digit range as economic strength in the region continues.
In Atlantic Canada, the Newfoundland and Labrador economy was hit hard in 2016 by energy price declines, with the provincial government expecting the province to contract in real terms in 2017. Despite economic woes, the aggregate price of a home in St. John’s only fell a modest 1.5 per cent year-over-year in the fourth quarter to $334,782. During the same period, New Brunswick, Nova Scotia and Prince Edward Island saw home price increases in all major cities. Fredericton and Saint John posted by far the highest home price increases in the region at 10.4 per cent to $257,092 and 13.4 per cent to $230,405, respectively, while Moncton prices remained relatively flat, rising 0.3 per cent to $191,678. During the same period, Halifax and Charlottetown saw healthy home price increases, with the aggregate price of a home in Halifax increasing 4.3 per cent year-over-year to $310,656, while the aggregate price of a home in Charlottetown rose 3.2 per cent to $228,706. In contrast to Newfoundland and Labrador which is projected to see further economic and home price declines in 2017, New Brunswick, Nova Scotia and Prince Edward Island are expected to achieve economic growth in the coming year, along with continued residential housing market gains.
Aggregated regions and the Royal LePage National House Price Composite:
About the Royal LePage House Price Survey
The Royal LePage House Price Survey provides information on the three most common types of housing in Canada, in 53 of the nation’s largest real estate markets. Housing values in the House Price Survey are based on the Royal LePage National House Price Composite, produced quarterly through the use of company data in addition to data and analytics from its sister company, Brookfield RPS, the trusted source for residential real estate intelligence and analytics in Canada. Commentary on housing and forecast values are provided by Royal LePage residential real estate experts, based on their opinions and market knowledge.
About Royal LePage
Serving Canadians since 1913, Royal LePage is the country’s leading provider of services to real estate brokerages, with a network of over 17,000 real estate professionals in more than 600 locations nationwide. Royal LePage is the only Canadian real estate company to have its own charitable foundation, the Royal LePage Shelter Foundation, dedicated to supporting women’s and children’s shelters and educational programs aimed at ending domestic violence. Royal LePage is a Brookfield Real Estate Services Inc. company, a TSX-listed corporation trading under the symbol TSX:BRE.
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 Aggregate prices are calculated via a weighted average of the median values of homes for reported property types in the regions surveyed