May 2022

Current Events around Economics, Mortgage Rates and Trends

Here’s the latest on the current events around economics, mortgages and trends you need to know.

Key highlights from the federal budget

This year’s federal budget was all about tackling the affordability of real estate – or lack thereof. On the demand side of the equation, the government will be doing the following:

  • A two-year ban on foreign homebuyers.
  • A new Tax-Free First Home Savings Account to help first-time homebuyers save a down payment sooner.
  • A Home Buyer’s Bill of Rights.
  • If you buy a sell a property within a year, you would be considered a “flipper” and subject to taxation on all your profits (as opposed to just being taxed on your capital gains).

On the supply side of the equation, the feds are proposing the following:

  • The federal government has promised to double the annual rate of new home construction from 200,000 to 400,000.

What Canadians Need to Know

Canada is below average when it comes to homes on a per capita (per person) basis. Canada has 427 homes per 1,000 people, according to the OECD. This compares to the OECD average of 468. European countries like France, Italy and Germany far outpace Canada.


With setting the ambitious goal of welcoming over 400,000 immigrants per year until at least 2024, many of them will need places to live. This means that doubling the annual rate of new home construction may not have as much of an impact as the federal government wants.


The Home Buyer’s Bill of Rights sounds great, but until we know the full details and until it is implemented, it’s hard to say what impact it will have on home prices if any. If it’s watered down like Ontario’s optional open bidding process, it is not likely to have much of an impact at all.


Mortgage Rates

On the fixed rate side, Government of Canada bond yields, on which the pricing of fixed rate mortgages is based, don’t seem to be slowing down on their upward climb.


The Canada 5-Year Bond Yield reached levels we haven’t seen in over a decade. The Canada 5-Year Bond Yield is currently at 2.75% at the writing of this article. You’d have to go all the way back to January 2010 to see a similar level, when bond yields reached a high of 2.997. Until bond yields slow down, fixed mortgage rates will keep rising.


On the variable rate side, the Bank of Canada’s next interest rate announcement is scheduled for June 1st. There’s much speculation that we could see another jumbo rate hike. Many economists are predicting another large increase of 0.50%.


The size of the rate hike will largely depend on key economic indicators, mainly inflation. Inflation hit a 31-year high in March, reaching 6.7%.



Overall Real Estate Performances Across Canada


Greater Toronto Area

The GTA real estate market continues to be strong but signs of a slowdown are happening as sales decline when compared to last year. According to TREB, average home prices reached close to $1.2M in April, up 15% year over year. However, that’s down from $1,334,328 in February 2022, a sign that higher interest rates could be slowing down the market.

Despite this, real estate brokerage Royal LePage has revised its forecast upward. It believes that home prices will be up 15% by the end of the year, up from its initial forecast of 10.5%. Despite higher interest rates, it expects the average price of a home in the GTA to surpass $1.3M by the end of 2022.


Greater Vancouver Area

Higher mortgage rates seem to be showing some signs of a slowdown as April data is down 25.6% from March 2022 sales. Home sales year over year are also down 34.1% compared to April 2021 according to the Real Estate Board of Greater Vancouver.

That doesn’t seem to be affecting home prices. The average price of a home is going for close to $1.37M which represents an increase of 18.9% compared to the same month in the year prior.


London, Ontario

London is trending towards a more balanced market with April home sales on par with 10-year average and April’s sales-to-new listings ratio at 54.5%. 877 properties were sold in the area for April which is 172 less than March. The average home price is at $771,682 which is still much higher than April 2021’s $643,835 and makes London one of the more affordable cities in Ontario to own a home.


Calgary, Alberta

Calgary housing market saw a record number of sales in March 2022 with a 41% increase in transactions compared to March 2021 and an average 6% increase in sales price which is currently at $538,000. Market conditions remain tight there, with only a month of supply in the market but higher sales and a lower inventory will continue to show increased competition for buyers.


Edmonton, Alberta

Edmonton market continues to see strong sales and low inventory. New listings in March were up 28% and prices were up 9.4% compared to previous March last year. The average home price in Edmonton was about $415,000.


Regina, Saskatchewan

Limited supply caused Regina housing prices to rise in March with benchmark prices at $271,000 which is a 4% growth compared to the same month in 2021. House sales in Regina slowed in March compared to 2021 but the city still recorded 351 sales for March 2022.


Final Note

The impact of the Bank of Canada rate increases seems to have shown a general slowdown in the real estate market across most of the country with lower overall transactions being recorded. The next big announcement comes on June 1st when most economists have already priced in a 50bps rate hike which will continue to affect variable rate borrowers. Note the spread between the best fixed and variable rates continue to be quite large at an average of 1.50% so there is still quite a lot of value in holding out on the variable side for many especially as many economists forecast a drop in rates end of 2023 as inflation normalizes.



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