Is Canada experiencing the Baby Boom all over again? Yes and no.

According to new data from Statistics Canada, the Canadian population increased by more than one million people, growing at a 2.9 percent clip, the highest since the 1950s. This eclipsed every other G7 nation by wide margins.

Canada’s population stands at a little more than 40 million, and experts predict it will double in the next 25 years.

However, the exponential population growth does not result from more people having families. Instead, 98 percent of the increase was driven by immigration (permanent and temporary) and non-permanent residents, including refugees and international students, arriving in Canada. In 2022 and 2023, Ottawa accepted approximately 1.13 million immigrants, the highest on record.

Andrew Griffith, a former director general at the federal Immigration Department, recently told The Toronto Star that while Ottawa maintains a well-managed immigration system, this is unsustainable and weighing on the nation’s infrastructure.

“We have to have an integrated immigration plan that actually looks at both the permanent residents and the temporary residents, given that the temporary residence is largely uncontrolled and has been increasing at a very high rate,” Griffith said. “If you look at its explosive growth over the past few years, the past 20 years, that obviously contributes to all the pressures on housing, health care, infrastructure and the like.”

Indeed, the Canadian real estate market, which had already faced tremendous affordability challenges before the immigration boom, is one of these areas that could become even more vulnerable to bolstered demand.

How is Supply in the Canadian Housing Market?

The Canadian housing industry has grappled with diminishing inventories across the country.

According to the Canadian Real Estate Association (CREA), the number of months of inventory clocked in at 3.4 at the end of August 2023, up from 3.2 in the previous month. While this gauge has improved, it is below the second half of 2022 and under the long-term average of roughly five months (in 2013, it was 6.1 months). This is a vital statistic because it measures the number of months it would take to exhaust current stocks at the present rate of sales activity.

In addition, new housing construction activity has slowed. Data from the Canada Mortgage and Housing Corporation (CMHC) show that housing starts tumbled by one percent month-over-month in August, totalling 252,787 units. Since early 2021, housing starts have been on a downward trajectory.

A recent paper by the Canadian Centre for Policy Alternatives (CCPA) warned that Canada’s developers are constructing fewer homes than they did at the height of the coronavirus pandemic as the Bank of Canada’s higher interest rates and above-trend inflation weigh on the housing market.

“If you have to take out a loan to engage in a type of economic activity, higher interest rates matter,” David Macdonald, a senior economist at the CCPA, wrote in the report. “This means that higher interest rates increase carrying costs for businesses looking to build things like residential housing or consumers looking to buy those houses.”

Since the spring of 2022, the central bank has raised interest rates by about 500 basis points, sitting at a target rate of five percent. Additionally, since monetary policy operates with a lag, the broader economy has yet to feel the full effects of a rising-rate climate.

Will Supply Keep up with Demand?

The CMHC recently estimated that Canada needs approximately 5.8 million new homes by 2030 to restore housing affordability.

A separate February 2023 report from economists at Desjardins suggests that Canada needs to build 50 percent more housing to support the federal government’s immigration targets without significant increases to home prices. In 2023 and 2024, more than 200,000 homes need to be built.

“Increasing the housing supply beyond the typical demand response would also take pressure off prices but requires extraordinary policy intervention and resolve,” the authors wrote. “Indeed, we estimate that housing starts would have to increase immediately by almost 50 percent nationally relative to our baseline scenario and stay there through 2024 to offset the price gains from the increase in federal immigration.”

The Ontario government intends to construct 1.5 million new homes by 2031, which could provide a “disproportionate offsetting impact on the average home price in Canada.” The problem? Over the last five years, the nation’s two most populous provinces – Ontario and British Columbia – have received the largest share of immigrants.

Desjardins economists note that it is a catch-22 situation for public policymakers. On the one hand, lowering immigration to 2018-2021 levels would slightly reduce residential property prices. But on the other hand, boosting immigration totals would address the labour shortages ubiquitous throughout the Canadian economy.

“Rather than being considered a reason to curb immigration, it should instead be a catalyst for reducing barriers to building more housing. The contribution of immigrants to the Canadian economy well outweighs their impact on the housing market,” the report stated.

A Mountain of Challenges

The Canadian real estate market is grappling with a mountain of challenges: ballooning construction costs, two-decade-high interest rates, a skilled worker shortage, a scarcity of housing affordability options, and elevated inflation that is not keeping up with wages. The situation is even more perilous in some of the major urban centres, like Toronto and Vancouver, that have taken in a large share of newcomers. Aside from eliminating red tape and updating zoning laws, industry experts aver that there is no easy and quick fix to the Canadian housing industry’s dilemma.

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Bank of Canada maintains policy rate, continues quantitative tightening. The Bank of Canada has maintained its target for the overnight rate at 5% and is continuing quantitative tightening. The global economy is slowing, and inflation has decreased.

In the United States, growth remains strong, but it is expected to weaken in the coming months due to past policy rate increases. The euro area has experienced weakened growth and lower energy prices, impacting inflation.

Oil prices are $10-per-barrel lower than assumed in the previous report.

Canada's economic growth stalled in 2023, with a 1.1% contraction in the third quarter. Higher interest rates are constraining spending, leading to minimal consumption growth.

The labor market is easing, and despite rising wages, the overall economic data suggests no excess demand.

The slowdown in the economy is reducing inflationary pressures, contributing to a drop in CPI inflation to 3.1% in October. Shelter price inflation has increased due to faster growth in housing costs.

The Bank's preferred measures of core inflation have been around 3.5-4%. With signs that monetary policy is moderating spending and alleviating price pressures, the Bank has decided to hold the policy rate at 5% and continue normalizing the balance sheet.

The Governing Council remains concerned about inflation outlook risks and is prepared to raise the policy rate further if needed. The focus is on sustained easing in core inflation, balancing demand and supply, inflation expectations, wage growth, and corporate pricing behaviour.

The Bank is committed to restoring price stability for Canadians, with the next rate target announcement scheduled for January 24, 2023.

Read Full Report

When you’re in the process of selling in Canada, it can be confusing to navigate an offer on your house and figure out whether any are worth accepting. Assessing offers on a house involves carefully considering various components to ensure the best outcome for the seller. Whether you are in the vibrant cities of Toronto and Vancouver or the tranquil landscapes of rural Canada, our guide can help you secure an offer that meets your financial and real estate goals.

Assess Financial Components

The financial components of the offer are the first thing sellers look at when considering an offer. This step involves a detailed examination of the offered price, the earnest money deposit, and any additional financial considerations that might impact the transaction.

Evaluate the Offer Price – The offer price is often the most immediately scrutinized component of an offer. Compare the offered price with your property’s appraised value and the insights gained from your Comparative Market Analysis (CMA). This comparison will help you determine how the offer aligns with your expectations and the current market conditions.

Weigh Against Financial Goals and Needs – Beyond market comparisons, assess how the offer on your house aligns with your financial goals and needs. Consider the net proceeds from the sale after accounting for closing costs, agent commissions, and any outstanding mortgage or liens on the property. Reflect on whether the offer meets your financial objectives and accommodates your plans.

Assess the Buyer’s Commitment – The deposit reflects the buyer’s commitment to the transaction. A larger down payment typically signifies a serious buyer, reducing the risk of the deal falling through. Some buyers might even include a deposit cheque or personal letter indicating they are just as interested in buying the home as you are in selling it.

Analyze Offer Conditions

Analyzing the conditions within an offer is a crucial step, as these stipulations can significantly impact the progress and finalization of the transaction. Conditions are clauses within the offer that must be fulfilled for the sale to proceed, and they often include aspects related to financing, inspections, and additional terms that can be deal-makers or deal-breakers.

Buyer’s Mortgage Pre-Approval and Financing Stability – Evaluate the buyer’s financial readiness by reviewing any financing conditions. A buyer with a mortgage pre-approval is generally more reliable, as this indicates a lender’s preliminary commitment to lend. Assess the stability of the buyer’s financing, considering factors such as the down payment amount, type of loan, and the lender’s reputation.

Home Inspection Conditions – Home inspection conditions are standard in most offers. Anticipate potential issues that might arise during the inspection, such as necessary repairs or system upgrades. Be prepared to address these concerns by negotiating price adjustments or agreeing to undertake repairs before closing.

Closing Date – Evaluate whether the proposed closing date aligns with your relocation plans, giving you ample time to move out and ensuring a smooth transition to your next residence. While a sooner closing date might be tempting for quicker access to funds, it’s essential to balance convenience with practicality. Assess your ability to meet the proposed closing date and consider whether a more flexible timeline might benefit both parties, reducing stress and allowing for unforeseen delays or complications.

Accept, Reject, or Counteroffer?

After meticulously evaluating the offer, understanding your property’s value, analyzing financial components, and dissecting various conditions, you reach a critical juncture: deciding whether to accept, reject, or counter the offer.

Accepting the Offer – If the offer aligns well with your expectations and needs, communicate your acceptance promptly and clearly. Ensure that all parties are informed and that acceptance is documented in accordance with local and provincial regulations.

Crafting a Counteroffer – If some aspects of the offer are not satisfactory, identify areas for negotiation. Be clear about your requirements and what adjustments are needed to reach an agreement, whether it’s the price, closing date, or specific conditions.

Rejecting the Offer – If the offer falls significantly short of your expectations and there is little room for compromise, it may be in your best interest to reject it. Communicate your decision diplomatically, providing clear reasons for the rejection and, if possible, offering guidance on what would make the offer acceptable.

Navigating through the intricacies of assessing an offer on your house in the Canadian real estate market is a journey that requires knowledge, diligence, and strategic thinking. Professional guidance from a RE/MAX real estate agent can be invaluable as you sell your home. Reach out to learn more.

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The Canadian real estate market is facing new realities. The Bank of Canada’s (BoC) rising interest rates have made purchasing a residential property more expensive. Higher immigration levels will likely exacerbate the supply-demand imbalance. Rising inflation, higher borrowing costs, and growing labour shortages have made housing construction activity a bit more subdued. As a result of these new market realities, many households today are searching for different types of housing, particularly value-added properties and communities.

“Today’s purchasers are focusing on value-added properties and communities, given new market realities,” said Elton Ash, the executive vice president of RE/MAX Canada.

“Listings that offer a short or long-term benefit – be it a basement apartment that allows homeowners to offset their mortgage costs now or homes that hold long-term potential in a future renovation or sale to a builder—are most sought-after. Location, while still an important aspect, has been replaced by value and necessity. A growing number of buyers are willing to travel further afield to get the best bang for their buck.”

Considering how high rents have become in the last couple of years, even a modest discount on a basement apartment’s rent can support homeowners’ mortgage payments.

A Look at the Numbers

The latest shift in consumer demand helps explain why detached home sales climbed up to nearly 45 per cent in the first half of 2023 in the Greater Toronto Area (GTA) housing market and close to 30 per cent in the Greater Vancouver Area (GVA) real estate market, according to new data compiled by RE/MAX.

Whether they bought at the beginning of the coronavirus pandemic when the central bank slashed rates to nearly zero, or families who took advantage of the modest correction during the BoC’s tightening cycle at the start of spring 2022, homebuyers will enjoy the long-term benefit of higher home prices because of the additional value found inside these residential properties.

To further support this supposition, the York Region housing market enjoyed a significant boost in detached home sales in the second quarter, skyrocketing 104 per cent from the previous quarter. As demand continues to increase and supplies fail to keep up, home valuations will likely maintain their general upward trajectory.

But the state of communities is essential, too. Whether it is amenities or the neighbourhood’s fabric, everything outside of a residential property can support prices. For homebuyers, it is a balancing act: the arts and culture of a major urban centre or the large shopping malls and large chain restaurants in these smaller communities.

And then there is the issue of taxes, especially the municipal land transfer tax.

While detached homes situated in areas outside Toronto enjoy slightly lower prices, they are not subjected to the municipal land transfer tax, something that provides enormous savings for homebuyers.

Remember, a recent Leger survey found that more than one-quarter of Canadians (28 per cent) say that the land transfer tax has affected their decision to dip or not to dip their toes in the Canadian real estate market.

Meanwhile, shifting back to the major urban centre, a handful of neighbourhoods in Toronto that possess long-term potential are bucking the national trend of sliding detached home sales.

Bathurst Manor-Clanton Park is considered the most affordable and undervalued area of North America’s fourth-largest city. Detached housing values are a little more than $1.7 million, representing the lowest average price point in the downtown core, which explains the robust homebuying activity in the first six months of 2023 compared to the same time a year ago.

H2 Investors Versus First-Time Homebuyers

There is little doubt that value-added properties are exceptional investments. The challenge, however, is that there is fierce competition between investors and first-time homebuyers.

According to Statistics Canada, housing markets that possess the largest percentage of investor-owned housing are Toronto (22 per cent), Georgina (18 per cent), East Gwillimbury (15 per cent), Richmond Hill (15 per cent), and Mississauga (14 per cent).

So, this creates a barrier to entry for households acquiring a detached home in either Toronto Central or municipalities outside Canada’s largest city.

“In Ontario, businesses owned 74,485 condominium apartments for investment purposes,” Statistics Canada stated in its report. “Most condominium apartments used as an investment in both Ontario and Manitoba were owned by in-province investors.”

Whatever the case may be, it is clear that shrinking inventories and robust demand will add to Canadian real estate market prices, be it in British Columbia or Ontario. Don’t believe it? Not even the Bank of Canada raising interest rates put a major dent into home prices this past year.

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During the pandemic-era housing boom, many homebuyers purchased residential properties at rock-bottom mortgage rates. In response to the national economy’s pressures, the Bank of Canada (BoC) slashed interest rates to near zero, allowing prospective homeowners to obtain greater purchasing power and acquire a detached house, townhome, or condominium suite that might have exceeded their initial budgetary limits.

Now that rates are at their highest levels in 16 years and the average five-year fixed mortgage rate is close to six percent when these homeowners renew their mortgages, they will need to be prepared for higher monthly payments. It might be a couple of hundred dollars, or it might be a couple of thousand dollars. It all depends on the size of the mortgage and the rate.

Before diving into the steps of renewing the mortgage, it is essential to become acquainted with the basics of mortgage renewals.

Mortgage Renewal: A Primer

So, what do you need to know about a mortgage renewal?

The term of their mortgage expires between one and five years, and you need to renew your mortgage to continue borrowing from the lender. When a mortgage term ends, you can modify the terms of the original mortgage, including changing the length of the term, from a three-year term to a six-year term, for example. Or you may adjust the amortization period or payment frequency.

What You Need to Know About Requalifying

Now, what about requalifying for a mortgage?

Borrowers need to requalify if they switch mortgage lenders. At the same time, considering how high interest rates are today, this would be pretty challenging to requalify for some. The process can be a lot easier if borrowers renew with the current mortgage lender and refrain from negotiating better terms and conditions. However, once mortgage holders attempt to shop around for a different lender, they must requalify. This could leave them in a difficult situation: it would be tougher to renew, and subsequently, homeowners might be left without a lender, forcing them to sell their home. Of course, the other option is to meet with a private lender and pay significantly higher interest rates.

H2 Steps to Mortgage Renewal

Mortgage renewal is a crucial decision that should be carefully considered. You must view current market conditions, evaluate your financial goals, and consult with mortgage professionals to ensure the renewed mortgage aligns with your goals. In addition, the process will involve renegotiating the terms and conditions of an existing mortgage loan, which affirms that a decision must be well-planned.

Here are six steps to follow when renewing a mortgage:

#1 Start the Process Before the Current Mortgage Expires

Beginning the renewal process a few months before your current mortgage term expires is vital. This will give you time to study the market, compare offers from different lenders, and negotiate the best terms. The renewal process can be initiated through your lender or mortgage broker.

#2 Clearly Understand the Terms of Your Current Mortgage

Mortgage agreements can be complex, and you should read the fine print before you start the renewal process. Therefore, you must carefully assess the current mortgage agreement, including the interest rate, remaining balance, repayment terms, and, most importantly, any applicable fees or penalties you may have to pay if you terminate the mortgage early.

This step lets you identify the changes or improvements you want in the renewed mortgage.

#3 Check the Market and Get Competitive Rates

Renewing your mortgage allows you to explore other lending options. Your goal should be to secure the most favourable terms. For this, you will need a clear idea about current interest rates, different mortgage products, and terms offered by other lenders. Many borrowers are not well-versed in these things, so consulting with a mortgage broker can simplify this process.

#4 Always Negotiate the Terms

When you have collected sufficient information about competitive rates and the different types of mortgages, you should first negotiate with your existing lender unless your goal is to find a new one altogether.

If your existing lender is not offering you the best terms, you can turn to potential new lenders and consider two other components:

• Evaluate each offer according to the improvements you seek in the new mortgage agreement.
• Ensure you receive better terms in the renewed deal regarding the interest rate, repayment schedule, amortization period, and prepayment options.

#5 Ensure All Documentation is Complete

The process of getting a mortgage (or renewing one) is intricate. One area that requires a bit more due diligence is documentation, as lenders will request a lot of paperwork:

• Proof of income
• Employment verification
• Bank statements
• Other documents that can help lenders determine your financial stability.

Indeed, this is a critical step, so ensuring all documents are accurate and provided to the lenders without delay is imperative.

#6 Review the New Agreement Carefully

Lastly, the final step during your renewal process is to review the terms and conditions of the new mortgage agreement. As a result, be sure to check the interest rate and payment schedule and ensure they align with your goals. If you need help understanding something, seek clarification from an industry professional. Ultimately, you should only sign the mortgage renewal agreement if you are delighted with the terms or have no better option.

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CMHC