CMHC and BoC's contradictory views on housing both fueling home prices: Real estate broker
Amid a hot housing market in major Canadian cities that has pushed ownership further out of reach for young first-time prospective home buyers, there are increasing calls for the government to address the issue – starting with the tone from the top.
John Pasalis, founder and president at Realosophy Realty, a Toronto-based brokerage firm, often hears from parents concerned about whether or not their children will be able to afford a home one day. It’s a mounting anxiety he felt isn’t properly addressed or acknowledged by governmental bodies.
“The most important thing right now, I believe, is their narrative needs to change…” Pasalis told BNN Bloomberg, “These trends are not ‘just fine’… We need to see, in some ways, more concern from Ottawa rather than just casual indifference, which is kind of what we’re hearing about right now.”
Last week, Bank of Canada Governor Tiff Macklem said the bank was seeing early signs of “excess exuberance”, though added the problem is not as dire as the price increases from 2016 and 2017. The bank argued that home prices were supported by fundamental demand.
The average Canadian home price was up 9.6 per cent year-over-year in January, according to the Teranet–National Bank National Composite House Price Index. That marked the strongest 12-month rise since October 2017, though gains were largely driven by markets in central and eastern Canada.
While prices have proven surprisingly resilient through the pandemic, there were initial worries skyrocketing unemployment could have the opposite effect. The Canada Mortgage Housing Corporation (CMHC) was concerned during the outset of the pandemic that house prices would drop between 9 and 18 per cent. CMHC CEO Evan Siddall recently acknowledged in a series of tweets that in reality, the trajectory of house prices had since gone in the opposite direction as savings rates surged and renters decamped for the suburbs, where they were more easily able to buy a home of their own.
The surge in house prices sent the average price of a home in both Toronto and Vancouver north of $1 million and was largely attributed to record-low interest rates and the desire for many Canadians to own more space outside the city centre. Pasalis acknowledged that raising interest rates during a recession would be a challenge, though curbing speculative investment would be more effective in pumping the brakes on hot housing markets.
Pasalis added the conversation must go beyond traditional supply and demand dynamics.
“In the context of today’s market, I don’t buy the supply argument,” Pasalis said, pointing to the double-digit growth in new listings year-over-year. “The issue is not that people aren't selling houses or people aren’t moving inventory; the issue is, when you have a market when sales are going up 50 plus percent year-over-year… you're never going to be able to build enough, you can't build enough fast enough to address these demand shocks.”
Fed up with constant bidding wars in this high-demand market, young house hunters are putting down increasingly large offers to secure a home. Steve Saretsky, a Vancouver-based realtor at Oakwyn Realty Ltd. and author of the Saretsky Report, explained in a television interview that more houses are selling for hundreds of thousands of dollars overasking.
Saretsky added that the run-up in mortgage credit and the government’s decision to “double-down on housing to get through this recovery” has consequences.
“I think the by-product of that is a lot of these young buyers are going to be priced out of the market for potentially a very long time…” Saretsky said. “It's kind of been a situation of the rich getting richer and those that aren’t holding real estate already are finding it harder and harder to get into the market.”
There is also a communication problem between separate arms of government, according to Alex Avery, author of “The Wealthy Renter”.
“It's extremely difficult. In part, because you have different levels of government responsible for different policies that impact different parts of the housing market,” Avery said.
Avery broke it down into governmental bodies and their priorities in the housing conversation: the federal government’s focus has been to encourage population growth through immigration, the CMHC and the department of finance have house-price inflation in their scope, and provincial and municipal governments are focused on regional issues like rent control and zoning policies.
“Without significant coordination between all levels of government, the housing market ends up getting whipsawed by the policy moves of each individual party.”
The manic demand for home ownership among young professionals may also hinge on the country’s attitudes toward home ownership and how it’s promoted.
“It's a fine line between whether [housing is] deeply ingrained in the culture or whether it's just heavily promoted,” Avery said. “Everyone from real estate agents to lenders to the government all promote homeownership and portray it as a very safe and secure way to build wealth and indeed, it has been for a long time. There are many exceptions, but most people believe that it's a good path to creating wealth.”
“I think probably what's missing is the balance to the promotion. There's very little in the way of people promoting renting as an alternative or looking at alternative wealth creation strategies.”