Show Transcript
Canadian housing prices are continuing to rise despite the broader economic impact of the COVID-19 pandemic. Scarce supply and low interest rates are helping to fuel the gains. But as tougher lockdowns are considered, could the housing sector start to lose momentum? Anthony Okolie speaks with Rishi Sondhi, Economist, TD Bank Group about the state of Canadian housing.
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- Rishi, let's start with the big picture. The latest Canadian housing market data shows home sales easing in the month of October, but are still surprisingly strong despite all the disruption from the pandemic. Rishi, what's your take on the latest data?
- Yeah, I think you hit the nail on the head, Anthony. The data did show a little bit of a dip in October in terms of home sales, but overall, it was quite strong. It was still a record month for October itself. So really it was just easing from an extremely strong September level. So it really indicates that there's still a lot of demand in the market for housing across most provinces. So it was quite a strong report from sort of a sales and a demand perspective.
- And you mentioned that certainly, most provinces did see some strong demand. But what are some of the weaknesses that you're seeing in the latest housing data?
- Sure. So the October data, as I mentioned before, home sales dipped a little bit, a little bit less than 1% they were down. But still quite a robust level. Now in terms of across the provinces, the clients were only concentrated or only seen in four provinces, most prominently Ontario and BC. So sales were off a little bit in those jurisdictions. But even if you look within those jurisdictions, the declines weren't very broad-based. Only 5 of the 12 major real estate boards in BC saw sales decline in October.
And in Ontario, sales were actually up in Toronto. So it was really Ottawa and a smattering of smaller jurisdictions that drove the decline in that province. So even in the provinces where there were drops, the drops weren't very widespread. So that sort of mitigates some of the top line weakness that you saw in the headline number.
- And talk to us about housing prices. What's happening there?
- Sure. So they've dipped 1% month-on-month in October. But we can't glean much from that number, because they were still up 15% year-on-year. So home price growth is still extremely, extremely robust. So again, even thought they dropped month-on-month, home price growth is still quite strong. Six of 10 provinces have seen annual home price growth in the double digits. So the price gains are robust and they're quite broad based across most provinces. And even those provinces that don't have double digit gains are still seeing positive price growth. So it's really, really a frothy price environment going on right now.
- Have you seen any impact on the housing activity as the mortgage deferral programs are ending?
- Well, no, we don't think so. There's been some data that's come out that's indicated that of people that took deferrals, only 6% of those individuals deferrals are still having those deferrals. So that means that 94% of people who took out deferrals initially have resumed repayment. So that risk of a flood of supply hitting the market from the end of the deferral programs has diminished significantly.
- And given what we know today, particularly with the pandemic, what's your outlook for the housing market over the next few quarters?
- Sure. So as I mentioned before, sales, they dipped a little bit in October, but the level was still extremely strong. And what that means is that sales levels are still quite divorced from levels that would be more supported by economic fundamentals like population, employment, and even interest rates, even though they're extremely low. So given that sales are so far above levels that would, again, be normally consistent with fundamentals that we're seeing, we expect to see some moderation in sales activity moving forward. So sales did drop in October and we would anticipate that trend to continue into November and December.
Now in terms of prices, markets are quite tight, as I mentioned before. Prices are growing at about a 15% year-on-year pace. So again, markets are tight. And there's still a demand for bigger housing, more expensive housing that's keeping prices elevated. So we think that dynamic will maintain through the fourth quarter such that we see positive price growth in the fourth quarter overall. And this is remarkable, because in the third quarter, prices grew by about 18% quarter-on-quarter, which was a record.
It hadn't happened in the history of the data spanning back to the early '80s. So it's really a remarkable huge increase in prices that we saw in the third quarter. And we think that the fourth quarter is going to build upon that massive gain. So it's really a very robust price environment.
Now that said, prices can't continue to grow at a 15% year-on-year pace forever. Incomes aren't growing at that rate and will not grow at that rate. So that rate of price growth is unsustainable. So eventually, affordability pressures will begin to bite. And we think that sales-- or I'm sorry, excuse me-- prices will be in for a bit of a cooling in 2021 just, again, as those affordability pressures begin to bite.
- Rishi, thank you very much for your time.
- Thank you, Anthony.
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- Yeah, I think you hit the nail on the head, Anthony. The data did show a little bit of a dip in October in terms of home sales, but overall, it was quite strong. It was still a record month for October itself. So really it was just easing from an extremely strong September level. So it really indicates that there's still a lot of demand in the market for housing across most provinces. So it was quite a strong report from sort of a sales and a demand perspective.
- And you mentioned that certainly, most provinces did see some strong demand. But what are some of the weaknesses that you're seeing in the latest housing data?
- Sure. So the October data, as I mentioned before, home sales dipped a little bit, a little bit less than 1% they were down. But still quite a robust level. Now in terms of across the provinces, the clients were only concentrated or only seen in four provinces, most prominently Ontario and BC. So sales were off a little bit in those jurisdictions. But even if you look within those jurisdictions, the declines weren't very broad-based. Only 5 of the 12 major real estate boards in BC saw sales decline in October.
And in Ontario, sales were actually up in Toronto. So it was really Ottawa and a smattering of smaller jurisdictions that drove the decline in that province. So even in the provinces where there were drops, the drops weren't very widespread. So that sort of mitigates some of the top line weakness that you saw in the headline number.
- And talk to us about housing prices. What's happening there?
- Sure. So they've dipped 1% month-on-month in October. But we can't glean much from that number, because they were still up 15% year-on-year. So home price growth is still extremely, extremely robust. So again, even thought they dropped month-on-month, home price growth is still quite strong. Six of 10 provinces have seen annual home price growth in the double digits. So the price gains are robust and they're quite broad based across most provinces. And even those provinces that don't have double digit gains are still seeing positive price growth. So it's really, really a frothy price environment going on right now.
- Have you seen any impact on the housing activity as the mortgage deferral programs are ending?
- Well, no, we don't think so. There's been some data that's come out that's indicated that of people that took deferrals, only 6% of those individuals deferrals are still having those deferrals. So that means that 94% of people who took out deferrals initially have resumed repayment. So that risk of a flood of supply hitting the market from the end of the deferral programs has diminished significantly.
- And given what we know today, particularly with the pandemic, what's your outlook for the housing market over the next few quarters?
- Sure. So as I mentioned before, sales, they dipped a little bit in October, but the level was still extremely strong. And what that means is that sales levels are still quite divorced from levels that would be more supported by economic fundamentals like population, employment, and even interest rates, even though they're extremely low. So given that sales are so far above levels that would, again, be normally consistent with fundamentals that we're seeing, we expect to see some moderation in sales activity moving forward. So sales did drop in October and we would anticipate that trend to continue into November and December.
Now in terms of prices, markets are quite tight, as I mentioned before. Prices are growing at about a 15% year-on-year pace. So again, markets are tight. And there's still a demand for bigger housing, more expensive housing that's keeping prices elevated. So we think that dynamic will maintain through the fourth quarter such that we see positive price growth in the fourth quarter overall. And this is remarkable, because in the third quarter, prices grew by about 18% quarter-on-quarter, which was a record.
It hadn't happened in the history of the data spanning back to the early '80s. So it's really a remarkable huge increase in prices that we saw in the third quarter. And we think that the fourth quarter is going to build upon that massive gain. So it's really a very robust price environment.
Now that said, prices can't continue to grow at a 15% year-on-year pace forever. Incomes aren't growing at that rate and will not grow at that rate. So that rate of price growth is unsustainable. So eventually, affordability pressures will begin to bite. And we think that sales-- or I'm sorry, excuse me-- prices will be in for a bit of a cooling in 2021 just, again, as those affordability pressures begin to bite.
- Rishi, thank you very much for your time.
- Thank you, Anthony.
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