2020 Was a Blockbuster Year for Housing

The increase in national sales activity from November to December was driven by gains of more than 20% in the Greater Toronto Area (GTA) and Greater Vancouver.

On a year-over-year basis (y-o-y), activity rocketed upward by 47.2% as interest rates hit record lows, housing needs changed owing to the pandemic, and supply was insufficient to meet demand. The housing boom occurred despite the fall in population growth, reflecting the dearth of new immigration. The yearly change in population growth in Canada nosedived in 2020 after climbing powerfully in the prior four years. Despite this headwind, for 2020 as a whole, 551,392 homes traded hands over Canadian MLS® Systems – a new annual record. This is an increase of 12.6% from 2019 and stood 2.3% above the previous record set in 2016.

“The stat to watch in 2021 will be new listings, particularly in the spring – how many existing owners will put their homes up for sale?” said Shaun Cathcart, CREA’s Senior Economist. “We already have record-setting sales, but we know demand is much stronger than those numbers suggest because we see can see it impacting prices. On New Year’s Day, there were fewer than 100,000 residential listings on all Canadian MLS® Systems, the lowest ever based on records going back three decades. Compare that to five years ago, when there was a quarter of a million listings available for sale. So we have record-high demand and record-low supply to start the year. How that plays out in the sales and price data will depend on how many homes become available to buy in the months ahead. Ideally, we’d like for households to be able to find and acquire the homes that best suit their needs and for housing to remain affordable, but the fact is we’re facing a major supply problem in 2021.”

The number of newly listed homes climbed by 3.4% in December, led by more new listings in the GTA and B.C. Lower Mainland, the same parts of Canada that saw the biggest sales gains in December.

With sales up by more than new supply in December, the national sales-to-new listings ratio tightened to 77.4% – among the highest levels on record for the measure. The long-term average for the national sales-to-new listings ratio is 54.2%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 30% of all local markets were in balanced market territory in December, measured as being within one standard deviation of their long-term average. The other 70% of markets were above long-term norms, in many cases well above.

There were just 2.1 months of inventory on a national basis at the end of December 2020 – the lowest reading on record for this measure. At the local market level, 29 Ontario markets were under one month of inventory at the end of December.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose by 1.5% m-o-m in December 2020. Of the 40 markets now tracked by the index, only one was down between November and December.

The non-seasonally adjusted Aggregate Composite MLS® HPI was up 13% on a y-o-y basis in December – the biggest gain since June 2017 (see chart below).

The largest y-o-y gains – above 30% – were recorded in Quinte & District, Simcoe & District, Woodstock-Ingersoll and the Lakelands region of the Ontario cottage country (see the table below for details).

Y-o-y price increases in the 25-30% range were seen in Bancroft and Area, Grey Bruce Owen Sound, Kawartha Lakes, North Bay, Northumberland Hills and Tillsonburg District.

This was followed by y-o-y price gains in the range of 20-25% in Barrie, Hamilton, Niagara, Brantford, Cambridge, Huron Perth, Kitchener-Waterloo, London & St. Thomas, Southern Georgian Bay and Ottawa.

Prices were up in the 15-20% range compared to last December in Oakville-Milton, Peterborough and the Kawarthas, Montreal and Greater Moncton.

Meanwhile, y-o-y price gains were in the 10-15% range in the GTA and Mississauga, Quebec City, and the 5-10% range across B.C., and in Regina, Saskatoon, Winnipeg and St. John’s NL.

Alberta still lagged owing to the still-negative oil market scene, where home prices were up only 1.5% and 2.7% in Calgary and Edmonton, respectively.

The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in sales activity mix from one month to the next.

The actual (not seasonally adjusted) national average home price was a record $607,280 in December 2020, up 17.1% from the same month last year.

Housing strength is largely attributable to record-low mortgage rates and strong demand for more spacious accommodation by households that have maintained their income level during the pandemic. The hardest-hit households are low-wage earners in the accommodation, food services, non-essential retail and tourism-related sectors. These are the folks that can least afford it and typically are not homeowners.  

We end 2020 with the national average home price up 17.1%–a dramatic surge rather than the 9-18% decline forecast by CMHC last March. Moreover, 2021 is likely to be another strong year for housing.  It would not surprise me if annual sales reached a new high in 2021, especially in the first half of the year. There will, however, be cooling signs as the year progresses and especially into 2022. Firstly, supply constraints are a major factor as new listings remain low relative to demand. As well, the pandemic-induced changes in housing needs will have a waning effect over time. As vaccine injections rise across the country and we return to a new normal, interest rates will creep up moderately. This along with higher home prices will slow the pace of activity as affordability erodes.

There will be mitigating factors in 2022: the number of new immigrants is slated to rise to roughly 500,000 that year and demand for short-term Airbnb rentals will rise sharply as tourism revives.

Canadian Jobs Market Tanked in December

The jobless rate rose a tick to 8.6%–well below the peak of 13.7% in April–but still three percentage points above its pre-pandemic level.

However, there were some bright spots as several sectors churned out small gains (see second chart below).  Among them were finance, insurance and real estate, as well as scientific and tech services. Manufacturing rose 15,400, and public administration reported solid gains.

On a positive note, full-time jobs actually rose 36,500, and average wages pushed back up and are now 5.6% higher than one year ago. This outsized gain, in part, reflects the loss in so many low-wage jobs.

Part-time jobs were down sharply in December, led by losses among workers aged 24 and under and those aged 55 and older. Also, the number of self-employed workers fell by 62,000, its lowest point since the pandemic began.

The December loss of jobs left employment down 571,600 (or -3.0%) from year-ago levels, the deepest annual decline since 1982–but far better than the April reading of -15% y/y. The 2020 job loss in Canada of -3.0% is also a relatively mild downturn compared to today’s US job market release for December, which reported a -6.2% y/y drop in employment. In Canada, the 332,300 y/y loss in accommodation and food services employment alone accounted for 58% of our annual job loss.

It certainly doesn’t appear that the lockdowns will be lifted anytime soon. We keep hitting new records in the number of Covid cases, and the more contagious Covid variant is upon us. What’s more, the rollout of the vaccine has been disturbingly slow. So until winter is behind us, there is unlikely to be a meaningful opening of the economy. All things considered, Canada’s economy has been relatively resilient. That’s not surprising given the government income support–the most generous in the G7 countries. Moreover, financial conditions are extremely accommodative.

Although no one is coming through the pandemic unscathed, most of the employment losses have been lower-paying jobs. Many higher-income earners continue to work from home. And even though the pandemic is worsening, many of Canada’s housing markets recorded their strongest December ever. Rock-bottom interest rates, high household savings and changing housing needs turned 2020 into a spectacular year for housing activity.

According to local real estate boards, December resales were surprisingly strong for what is typically a quiet month. Existing home sales surged between 32% y/y in Montreal, Ottawa and Edmonton and 65% y/y in Toronto based on early results. More distant suburbs attracted many families looking for more space with less concern about long commutes when jobs can be conducted at home. Property values continued to appreciate at accelerating rates in most markets. Downtown condo prices still bucked the trend due to ample inventories in Canada’s largest cities—the downturn in the rental market has prompted many condo investors to sell. That said, softer condo prices are now drawing more buyers in. Existing condo sales soared virtually everywhere in December.

Housing is likely to continue to cushion the blow of the pandemic on the overall economy. And while not everyone is sharing in this windfall, it will ultimately help pave the way to better employment gains in the spring.

However, no question that the bright light at the end of the very dark pandemic tunnel is a widely dispersed vaccine. PM Trudeau reasserted this week that the vaccine will be available to all who want it by September 2021. At the pace, it is now getting into people’s arms, that will not happen. Just over 0.6% of Canada’s population was vaccinated as of Thursday, January 7. By comparison, the US had vaccinated 1.8% of its population by that date, and Israel had inoculated nearly 20%, according to Our World in Data, a nonprofit research project at the University of Oxford. The U.K. had vaccinated about 1.9% of its population by Jan. 3, the latest date for which vaccination numbers were available (see the chart below).