New data shows the average national home price continued to climb in March, led by Vancouver and Toronto, a trend that is leading to affordability concerns and more apartment construction.
The Ottawa-based Canadian Real Estate Association, which represents 100 boards across Canada, said Wednesday that the national average sale price was up 9.4 per cent in March from a year ago to $439,444.
On day a when the Bank of Canada announced it would not be raising rates, meaning the prime rate will stay at 2.85 per cent at most banks, realtors were touting the low-interest rate environment for driving the market which saw sales up 4.1 per cent in March from February.
“Low mortgage interest rates are good news for affordability as we head into the spring home buying season,” said Pauline Aunger, president of CREA in a release.
But statistics from Toronto-based condominium research firm Urbanation Inc. point to a huge surge in apartment construction that some say is being driven by demand from millennials who have been turned off home ownership.
Urbanation says that, in Canada’s largest city, the current development pipeline for units, either under construction or proposed, is up 75 per cent compared to the number of purpose-built units constructed over the past 10 years.
The research firm said it decided to conduct the survey of construction because of “growing interest for purpose-built development,” which has been driven by investor demand from income from pension funds and other institutional investors in today’s low-interest rate environment.
Two transactions in Toronto earlier this year caught many in the high-rise sector by surprise, as two institutional buyers swooped in and made offers to condo developers for entire buildings, squeezing out all the small-time investors.
The demand for rental units comes as prices in Toronto have reached record levels, driving some first-time buyers away from home ownership. Household ownership is at about 70 per cent and some industry participants at a real estate conference put on by Queen’s University in Toronto in March complained openly that millennials have turned to renting.
Canada Mortgage and Housing Corp. has said the construction of new rental buildings in Ontario is at a 20-year high. Nationally, apartment construction is also up 2.7 per cent from October 2013 to October 2014.
The push comes as apartment rents for units built after 2005 show they can compete with luxury condo buildings with the average index rent for those apartments $2.38 per square foot per month in the first quarter of 2015, says Urbanation. Condos being rented averaged $2.37 per square foot during the same quarter, a 1.1 per cent increase from a year ago.
“Record levels of rental demand are helping to keep overall rents stable and market conditions balanced, although some moderate downward adjustments to rents have been noted in a few key areas of high supply growth,” said Shaun Hildebrand, senior vice-president of Urbanation, in a release.
Overall, the average monthly rent was down 1.8 per cent from a year ago to $1,790 — the lowest in three years — but that’s largely because condo units continue to shrink. The average condo was 756 square feet in the first quarter, 22 square feet smaller than a year ago.
CREA cautioned that the Toronto market, as well as Vancouver, is not representative of Canada as whole. “[Those two cities] are really the only two hot spots for home sales and prices in Canada,” said Gregory Klump, chief economist with CREA in a statement.
“Price gains in these two markets are being fuelled by a shortage of single-family homes for sale in the face of strong demand. Meanwhile, supply and demand for homes is well balanced among the vast majority of housing markets elsewhere across Canada.”