Even though housing prices have decreased in many markets across Canada, housing costs remain elevated and affordability is “significantly worse today than what it was a year ago”, according to John Pasalis, president and broker at Realosophy Realty Inc.
In an interview with Bloomberg Markets on Thursday, Pasalis said homeownership still remains out of reach for many Canadians and it’s not getting better anytime soon.
“It's actually significantly worse [housing affordability] than what it was when rates were low and the reason is, even though prices have declined in many markets across Canada and around 20 per cent in the Toronto area; the fact is when you look at housing costs today, even though prices are lower with rates where they are it's actually more expensive today than if you bought at the peak of the market,” he said.
“So it's more expensive to actually buy a home [now] and of course rents have surged, so housing affordability is actually significantly worse today than when it was even a year ago.”
As elevated home prices and high-interest rates keep many Canadians priced out of the housing market, several individuals have turned to renting.
But high demand and prices in the rental market aren’t much better, said Pasalis.
“The rental market is unbelievable and part of that was driven by, you know, people hitting pause on their home search, but a lot of that more recently is this big boom in both immigration and non-permanent residents, and many of them tend to go to the rental market first. You know, not everyone's rushing out to buy a home,” he explained.
“This is really pushing rents up, I mean in Toronto, rents are probably up about 20 per cent, per year, and we're seeing similar rates across the country as well.”
Amid high demand for rental units, some apartment companies are increasing rent turnover. The country’s largest apartment landlord, Canadian Apartment Properties Real Estate, reported record rent turnovers in its latest quarter, up 24.3 per cent.
Rent turnover is the price that companies increase rent by for the next tenant, after the previous resident moves out.
As many Canadians struggle to find a home, Pasalis said the country’s immigration policy and housing market construction are “completely disconnected.”
“You have a federal government and provincial government, really driving up population through immigration and non-permanent residents without coordinating with the housing sector,” he said.
Pasalis explained that the country’s largest province Ontario needs up to 2.5 million homes over the next 10 years to keep up with demand and new residents.
But he added that Ontario needs to build three times more homes than it's actually creating right now.
“So this is the challenge and this is why we've been seeing both rapid growth not just in rents, but in house prices over the past few years,” Pasalis said.
TIGHT HOUSING MARKET
While many Canadians may be waiting for the housing bubble to pop, Pasalis said “we haven't seen a lot of people exiting the market, and this has actually been putting pressure on the housing market,” especially in the Greater Toronto Area (GTA).
“Typically in down markets you expect to see investors exit the market quickly, they're usually the first ones to list their properties for sale and we haven't seen that in the GTA, in the Toronto area,” he said.
“That has actually kind of kept a ceiling on the number of listings hitting the market and has actually made the housing market in Toronto right now quite competitive, even with sales at 20-year lows. That's because new listings are at 20-year lows and that's the most interesting dynamic we're seeing in the resale market right now.”