Bank of Canada holds benchmark interest rates steady, updates its economic outlook

Economic Insights Raymond Walia 10 Jun

This morning, in its fourth announcement of 2021, the Bank of Canada left its target overnight benchmark rate unchanged at 0.25%. As a result, the Bank Rate stays at 0.5%. It also provided somewhat encouraging thoughts on the state of, and outlook for, the Canadian and global economies and updated its outlook on inflation. Here is a summary:

Canadian economic conditions

  • Economic developments have been broadly in line with the Bank’s outlook published in the April Monetary Policy Report
  • First quarter GDP growth came in at a robust 5.6% and while this was lower than the Bank originally projected, “the underlying details indicate rising confidence and resilient demand”
  • Household spending was stronger than expected, while businesses drew down inventories and increased imports “more than anticipated”
  • Economic activity so far in the second quarter has been dampened, largely as anticipated, due to renewed lockdowns associated with the third wave of COVID-19 and recent jobs data show that workers “in contact-sensitive sectors” have once again been negatively affected


  • CPI inflation has risen to around the top of the Bank’s 1-3% inflation-control range, due largely to base-year (2020) effects and much stronger gasoline prices
  • Core measures of inflation have also risen, due primarily to temporary factors and base year effects, but by much less than CPI inflation
  • While CPI inflation will likely remain near 3% through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure

Global conditions

  • With COVID-19 cases falling in many countries and vaccine coverage rising, global economic activity is picking up
  • The US is experiencing a strong consumer-driven recovery and a rebound is beginning to take shape in Europe, while a resurgence of the virus is hampering the recovery in some emerging market economies
  • Financial conditions remain highly accommodative, reflected in broadly higher asset prices

Looking forward

Despite progress on vaccinations, there continues to be uncertainty about the evolution of new COVID-19 variants. However, with provincial containment restrictions on an easing path over the summer, the Bank still expects the Canadian economy to rebound strongly, led by consumer spending. Growth in foreign demand and higher commodity prices should also lead to a solid recovery in exports and business investment, according to the Bank.

With respect to the housing market, the Bank’s only comment was that “activity is expected to moderate but remain elevated.” In April, the Bank opined that housing construction and resales were at historic highs, “driven by the desire for more living space, low mortgage rates, and limited supply” and noted that it would continue to monitor the potential risks associated with the rapid rise in house prices.”

Policy measures

The BoC’s Governing Council noted that there remains considerable excess capacity in the Canadian economy, and that the recovery continues to require “extraordinary monetary policy support.”

Accordingly, the Bank said it remains committed to holding its policy interest rate at what it calls the effective lower bound until economic slack is absorbed and its 2% inflation target is “sustainably achieved.” This may happen sometime in the second half of 2022.

As well, the Bank reiterated that it would continue its Quantitative Easing program – at a target pace of $3 billion per week – to keep interest rates low across the yield curve. It also added that: “Decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.”

The bottom line

Today’s announcement falls under the heading no news is good news. The benchmark rate is unchanged, the economic recovery appears to be unfolding largely as expected and bond buying activity will continue to provide monetary policy support in the near term.

All of this suggests now is a good time to borrow but also with a view toward developing mid to long-term financing strategies that will address future conditions including the potential for policy interest rate increases next year. First National is here to help.

Published by: First National

Residential Market Commentary – Bank of Canada steps up to the bully pulpit

Economic Insights Raymond Walia 26 May

In its latest look at the threats to the country’s financial system, the Bank of Canada puts household debt and imbalances in the housing market at the top of the list.

The Bank says these are not new problems, but they have intensified during the pandemic.  Consumer debt has actually dropped in the past year or so, but rising mortgage debt has more than offset that decline.  At the end of last year Statistics Canada reported that the household debt-to-income ratio stood at 170.7, or $1.71 of debt for every $1.00 of disposable income.

The housing boom has been supporting the overall economy in the short-term but it is also adding to the vulnerability of the economy and financial system.  The BoC is also expressing concerns about the declining quality of mortgage borrowing during the pandemic.

The key concern is that any significant economic shock that leads to loss of employment, a drop in income, or a sharp reduction in home prices would force “overstretched” households to cut other spending in order to make their mortgage payments.  That, in turn, would curtail the economy as a whole, and could put significant stress on the financial system.

Just because the central bank says there could be a problem, does not mean there will be a problem.  There are a number of market watchers who see the Bank using its annual Financial System Review as a bully pulpit in an effort to talk down overly exuberant market expectations that might lead to trouble.

Other key concerns include cybersecurity, too much reliance on cheap credit and the possibility of a premature withdrawal of pandemic support for businesses

Published by – First National Financial LP

Residential Market Commentary – Hot market to persist

Economic Insights Raymond Walia 12 May

Canada Mortgage and Housing Corporation does not expect the country’s housing market to come off the boil until sometime in 2023.

In its Spring Housing Market Outlook CMHC projects the national average price of a home could climb as much as 14% this year, putting the high end of the agency’s estimates at nearly $650,000.

It is forecasting an average price of nearly $705,000 by the end of 2023.  Those numbers may seem low, given that the Canadian Real Estate Association put the national average price at nearly $717,000 back in March.

The big “BUT” in all of CMHC’s estimates is, of course, the COVID-19 pandemic.  The agency notes that the disease remains volatile and the economic recovery is uneven and uncertain.  It says delays in rolling-out vaccines could prolong that uncertainty.

The agency also sees remote working arrangements as a key variable.  If employers insist on bringing workers back to the office it could have a significant effect on the pandemic migration out of major centres to larger homes and properties in the suburbs and outlying communities.

CMHC cites rising mortgage rates as having a cooling effect on the market.  It is holding its forecast for those increases to 2023.  The Bank of Canada has brought its date forward into 2022.  But U.S. interest rates are a key factor in the setting of Canadian rates and the Federal Reserve has indicated it does not foresee any increases until 2024.


Published by: First National Financial LP

Residential Mortgage Quarterly Review – Q1 2021

Economic Insights Raymond Walia 12 Apr

As we head into the 2nd quarter Canada’s Realtors are forecasting another year of records, while the country’s housing agency continues to call for caution.

Market risk remains moderate

In its latest Housing Market Assessment, Canada Mortgage and Housing Corporation is maintaining its overall vulnerability assessment at moderate.

High demand, low supply

The key concern is “overheating”, which CMHC defines as demand outpacing supply in the resale market.  It is a reality that realtors have been pointing out for the past several months.  The housing agency also cites ongoing concerns about price acceleration and overvaluation, being driven by high demand, especially in eastern Canada.

Quarter-over-quarter assessments have not changed much for individual markets, but CMHC is noting evidence of heightened vulnerabilities.  A number of these risks have not crossed CMHC’s “critical thresholds”, but they continue to increase.  There are now five centres classed as high risk, up from just two in the previous HMA report.

Continuing – albeit slower – immigration, government income supports during the pandemic, and declining real mortgage rates are all listed as mitigating factors by CMHC.

Realtors forecast more records

The Canadian Real Estate Association cites these factors, along with the sudden lifestyle changes brought on by the pandemic, as it predicts record-setting sales and increasing price acceleration.

CREA expects to see more than 700,000 properties change hands in 2021, with double-digit sales growth in every province.  The association is forecasting that the national average home price will rise by 16.5% to $665,000.

Demand & urgency diminish

The Realtors do not expect the growth to persist though.  CREA is forecasting a return to more typical levels moving into 2022.  That prediction backs up concerns about real estate speculation being driven by irrational expectations of ongoing, increasing price growth, expressed by the Bank of Canada.

CREA projects sales activity will decline by nearly 13% in 2022, with price acceleration slowing to about 2.0%, for a national average price of $679,000.

COVID conundrum

The COVID-19 pandemic continues to be the greatest variable in these reports.  Both CREA and CMHC see the vaccine roll out improving, case numbers dropping and restrictions loosening.  These are all factors that will likely take anxiety and urgency – real or imagined – out of the market and restore more typical conditions.

Technical note

CMHC has altered some of the language in its Housing Market Assessments.  “Overbuilding” is now being called “Excess Inventories”.  It is hoped the change will clarify that CMHC is monitoring unoccupied units (vacancies) rather than excess construction activity.

Published by: First National Financial LP

Residential Market Commentary – Eyeing inflation and interest rates

Economic Insights Raymond Walia 12 Apr

Market watchers are keeping a close eye on inflation and the bond market.

Bond traders believe inflation is going to be rising over the coming months and have been demanding increased bond yields.  That has led to increasing interest rates for bonds and, consequently, increasing rates for the fixed-rate mortgages that are funded by those bonds.

The traders say the COVID-19 vaccine rollout and plans for vast infrastructure spending – particularly in the U.S. – are boosting expectations of a broad recovery and an increase in inflation. Better than expected GDP growth in Canada and shrinking unemployment in the U.S. would tend to support those expectations.

This, however, puts the traders at odds with the central banks in both Canada and the United States.

The Bank of Canada and the U.S. Federal Reserve also expect inflation will climb as the pandemic fades and the economy reopens.  There is a pent-up demand for goods and services, after all.  The central banks see that as transitory, though, and appear to be looking past it.  The U.S. Fed has gone so far as to alter its inflation target from 2% to an average of 2%, over time, thereby rolling any post-pandemic spikes into the bigger, longer-term calculations.

The Bank of Canada and the Fed have committed to keeping interest rates low, probably through 2023.  Both say inflation will have to be sustained before interest rate moves are made to contain it.  The integrated nature of the Canadian and American economies means it is unlikely the BoC will move on interest rates before the U.S. Fed.

Published by: First National Financial LP

Bond Yields Surge, Mortgage Rates Rising in Response

Economic Insights Raymond Walia 30 Mar

Canadian bond yields hit their highest level since April in recent days, and a number of lenders have responded by starting to raise some of their mortgage rates.

CMLS, MCAP and First National were among the non-bank lenders to increase at least some of their rates, with their broker rates rising 10-30 bps.

The 5-year bond yield, which leads fixed mortgage rates, closed at 0.67% on Monday, a 10-month high. As funding costs rise, lender margins get squeezed to the point they can no longer absorb the increase without passing it on to borrowers.

What’s Driving Yields Higher?

There are a number of domestic factors contributing to the run-up in bond yields, but much of the impact is coming from south of the border, according to Dave Larock of Integrated Mortgage Planners.

“The current surge in bond yields is really a U.S. story, with GoC bond yields taken along for the ride…” he writes. “Simply put, the recent run-up is a response to the growing consensus belief that U.S. inflationary pressures will rise more quickly than previously expected.”

North of the border, sentiment is largely positive on the expectation that COVID-19 vaccines will finally spell the end of the pandemic and its restrictive lockdown measures. Not to mention, the economic impact of the Government of Canada’s own proposed $100 billion of post-pandemic stimulus spending.

Will Mortgage Rates Continue to Rise?

Nothing is certain, of course. Bond yields also jumped back in November 2020 on news of Pfizer’s COVID-19 vaccine proving effective in trials, which caused some at the time to suggest rates would start rising. Instead, they continued to fall, right up until last week.

“For my part, I continue to believe that the current run-up in bond yields will be temporary, and it is worth remembering that nothing goes up or down in a straight line,” Larock wrote. But he also acknowledged rates won’t remain low indefinitely.

“The only thing that has been holding lenders back is stiff competitionno one wants to be the first to move higher,” he said. “Regardless, the dam will break very soon.”

Rob McLister, founder of and mortgage editor at RATESDOTCA, sees this rise in yields as more sustained, saying mortgage rates have “turned the corner.”

“Expect further hikes,” he wrote, noting that bond yields have soared roughly 30 bps since February 1. “There’s still no sign of increases from the big guns (major banks), but if this yield climb persists, it’s just a matter of time [that they will follow].”

How Should Mortgage Shoppers Respond?

For those with a mortgage closing in the next few months and who are considering a fixed mortgage, the experts offer two words of advice: lock in.

“It’s rate-hold time if you’re closing a mortgage between now and the end of June (since most rate guarantees last only 120 days or less),” McLister said.

“Some lenders will milk their current low rates for all they’re worth in order to keep the volume flowing…But don’t bet on that lasting long…unless there’s a further derailment of our economy, which is possible, but less probable the further we get into 2021.”

For those leaning towards a variable rate, those aren’t currently at imminent risk of rising, since they are priced based on prime rate, which rises or falls depending on the Bank of Canada’s overnight target rate movements.

At its last rate decision in January, the Bank of Canada said its overnight target rate of 0.25% will likely remain unchanged until 2023, providing assurances to borrowers that now is still a good time to purchase a home.

Another point to remember is that, despite any small to moderate increases in the 5-year fixed rate, Larock notes that borrowers will still have to qualify based on the government’s 4.79% mortgage stress test.

“So, an increase in real rates won’t have any impact on the amount they can actually borrow,” he wrote. “If you’re in the market for a mortgage today, the usual tips apply. If you will want a fixed rate, which is likely, lock in a pre-approval to guard against rising rate risks.”

Published by: Mortgage Broker News 

Residential Market Commentary – Canadians remain committed to home ownership

Economic Insights Raymond Walia 30 Mar

In a year that gave many market watchers whiplash Mortgage Professionals Canada finds that, at the end of the day, nothing really changed very much, particularly when looking at consumer sentiment.

MPC’s annual “State of the Mortgage Market” collected nearly 2,000 responses to its online survey earlier this year.  Using a 10 point scale, respondents indicated whether they agreed, or disagreed, with each in a series of statements.  A response of 10 indicates complete agreement.  A one indicates complete disagreement.

  • There continues to be a high level of agreement that real estate in Canada is a good, long-term investment, rating 7.29 out of 10, down marginally from the long-term average of 7.34.
  • Mortgage debt is “good” debt, maintains a high level of agreement at 6.98, down slightly from the average of 7.04.
  • 6.93 believe they are in a good position to weather a downturn in housing prices, slightly higher that the 6.87 average.
  • 6.44 agree that they can manage an increase in interest rates, up from 6.36 last year (the first year the question was included).
  • 6.68 agree that low interest rates have encouraged home purchases by those who probably should not be homeowners.While this is the lowest level in the 11 year history of the survey, it just slightly below the average of 6.93.
  • At the same time just 3.62 out of 10 expressed regret about the size of the mortgage they took on.That’s down from the long term average of 3.75.

The responses to the last two statements seem to indicate that Canadian home buyers have confidence in their own decisions but question the wisdom of others.

Mortgage arears remain remarkable low at just 0.22%, down from 0.23% last year.

More than half (55%) of borrowers continue to get their new mortgages from one of the big banks, while 31% of all outstanding mortgages were arranged through a mortgage broker.  That jumps to 40% for mortgages obtained in 2020.

Respondents to the survey breakdown as follows:

  • 45% homeowners with mortgages
  • 29% homeowners without mortgages
  • 20% renters
  • 5% others

The full, 75-page, report is available here.


Published by: First National Financial LP

Forward thinking with Thomas Kim

Economic Insights Raymond Walia 26 Mar

The first two months of 2021 have revealed an interesting dichotomy. While many parts of Canada remain in the grips of a pandemic lockdown, real estate and capital markets are running hot as a result of growing optimism due to the roll out of COVID-19 vaccinations. It is in this context that we asked Thomas Kim, Vice President and Managing Director, Capital Markets at First National to share his perspectives on recent economic and market developments and what they may mean for the future. This interview was recorded in early March 2021.

Thomas, what do you make of the state of the housing market today? It’s almost supercharged at a time when the economy is still struggling.

I take the view that the market is the market. By that I mean volumes and prices are set by the market and it’s hard for anyone to second guess these developments and decide whether they are correct or acceptable based on some sort of theoretical framework. Canada is a desirable place to own property and a magnet that draws people from around the world and for the foreseeable future it will continue to be so. Prices also reflect a supply challenge.

What do you mean?

It’s difficult to bring new supply of housing stock onto the market and that’s true in just about every jurisdiction and certainly in our largest cities. When there is a demand-supply imbalance, prices will be affected.

What about interest rates? Is there an expectation that they will move upward this year?

We’ve already had a big change in bond yields. Five and 10-year Government of Canada bond yields are up about 60 basis points and the bulk of those moves has happened just in the past few days. It’s been an amazing rise. This change is a reflection of optimism that the economy and employment will be quite a bit stronger on the other side of the pandemic and that the roll out of vaccines will allow a return to something more normal pretty quickly. Since bond yields move through everything, we will see this reflected in mortgage rates, no question. In fact, we already have and notably, the central bank had nothing to do with it. The BoC’s overnight rate is unchanged.

What about inflation?

There is a concern about inflation down the road because of extraordinary monetary and fiscal actions to date. But what’s notable is that all of the liquidity that has been added to the system has really gone into financial assets. It hasn’t yet translated into what you would think of as GDP transactions, which is where inflation of the kind that would concern central bankers shows up. There is still slack capacity in the quote unquote real economy.

It was just about a year ago that the pandemic was declared. In hindsight, did conditions in the capital markets turn out as you originally expected?

Back then, I was hoping certain economic supports would be offered by the various departments in Ottawa. I never imagined just how vigorous the response would be from everybody involved…the Bank of Canada, CMHC and the Department of Finance. At all levels, the support was far more dramatic than just about anyone thought likely or possible. There will always be critics, but you can’t argue with the results. These actions prevented a collapse in the economy and in the market.

Was there anything that you thought would happen that didn’t?

Yes, last February/March, I thought the lockdown would be far more severe, almost more militaristic in an effort to keep the infection rate down. It was fortunate for the economy that it didn’t happen that way. But I think society went from being pretty blasé about COVID-19 in February to being extremely concerned by the second week of March 2020 and then by the fall, back to being almost casual about it. After the initial shock, the attitude was pretty sanguine.

Capital markets were also relatively calm, until recently.

Correct. Although it seems completely unrelated to Canadian real estate and mortgages, the whole GameStop saga has given way to a period of volatility and market distortion. We also see this in bitcoin prices and in bond yields now exploding as I mentioned. It’s not so much the fact that these things are rising, it’s the speed with which they are rising. Big moves like this are an indication that something is going on. It’s just not possible to say what that something is.

As optimism grows and more vaccines arrive, we may see governments begin to withdraw support. Is that cause for concern?

It’s difficult to tell everyone to stay home if there isn’t some sort of support in place. Similarly, on the business side, you can’t tell an owner to shut down and stay closed without providing assistance. So it’s a short run concern for sure and a challenge for policymakers to get the timing right on the wind down.

How has the pandemic changed or challenged First National’s Treasury Department and your strategies?

There is no direct link between the course of the pandemic and what we do in our jobs. We’re always focused on helping First National grow and setting up the company for a successful year.

Is there anything positive that has come out of the pandemic in terms of how you do your jobs or how the capital markets function?

The positive is that we’ve discovered we can work from home, as can our business partners and bond traders, and still get the job done. A year ago, people would have scoffed at that idea and said it was impossible. They were wrong. We’re also a lot better at working from home than we were 12 months ago and a lot of that is due to learning how to collaborate and communicate using technology. We have to be a lot more deliberate about this because it’s not currently possible to have conversations around the water cooler or in the hallway.

How is work from home likely to affect demand for commercial office space?

The world is never going back to normal, but that does not mean we need less office space. Even technology companies that are at the leading edge of remote work are still building massive amounts of office space all over the world.  They are investing in the future because it is important to have a physical location. It’s all the unseen stuff, the cultural clues, that go missing without office space.

Do you see a new direction or outlook emerging this spring?

I think as we go into the spring and summer, it will be a little like last year when everything got a little easier and COVID case counts dropped. Certainly, all the economic forecasters and the bulge-bracket banks are expecting that we are going to come out of the current malaise quickly. In the market, everybody is simply looking past the next few months to better times ahead.

Any other thoughts for 2021?

We’re certainly focused on securitization and doing more of it this year and generally being a good partner. I’d like to think that all of our various customers…mortgage brokers, borrowers and investors will see First National as a very stable and trusted partner based on what we achieved together in 2020. When I look back, I’m proud of the fact that we didn’t make any sudden moves, we didn’t shut anything down or scale anything back. We were a constant partner, a company to be counted on.

Published by: First National Financial LP

Residential Market Commentary – The return of concern about a housing bubble

Economic Insights Raymond Walia 26 Mar

The “B” word has started floating back into discussions about Canada’s housing market.  The latest numbers from the Canadian Real Estate Association help to explain why worries about a bubble are on the rise.

Sales activity in February jumped nearly 40% compared to a year earlier, setting a new record.  Sales rose nearly 7% compared to January.  The national average price surged by 25% year-over-year.  New listings rebounded month-over-month in February but inventories remain at record lows.  Nationally there is just 1.8 months of supply.

The Bank of Canada has expressed concerns about overheating.  Governor Tiff Macklem has noted that there are signs that real estate speculation is on the rise.

“What we get worried about is when we start to see extrapolative expectations, when we start to see people expecting the kind of unsustainable price rises we’ve seen recently go on indefinitely, and they’re basing their decision on those kinds of assumptions,” Macklem warned earlier this month.

Other market watchers point to less “bubbly” factors.

“I think part of it is demand that built up as a result of regulatory changes in the years leading up to COVID that is playing out now.  Part of it is demand that is being pulled forward from the future either in search of a home base to ride out the pandemic, or to lock down a purchase amid rapidly rising prices while securing a record low mortgage rate,” said Shaun Cathcart, CREA’s Senior Economist.

Tsuriel Somerville, a professor of urban economics at the University of British Columbia, believes demographic factors could be pushing the market.  He also believes COVID-19 may have accelerated some transactions that would have happened anyway, but over a more extended period.  Somerville says millennials – who are said to be happy with renting and living in a sharing economy – will eventually get into the ownership market when their demographics dictate.

Published by: First National Financial LP

Housing Continued to Surge in February

Economic Insights Raymond Walia 15 Mar

Today the Canadian Real Estate Association (CREA) released statistics showing national home sales hit another all-time high in February 2021. Canadian home sales increased a whopping 6.6% month-on-month (m-o-m), building on the largest winter housing boom in history. On a year-over-year (y-o-y) basis, existing home sales surged an amazing 39.2%. As the chart below shows, February’s activity blew out all previous records for the month.The seasonally adjusted activity was running at an annualized pace of 783,636 units in February. CREA’s revised forecast for 2021 is in the neighbourhood of 700,000 home sales. Strong demand notwithstanding, sales may be hard-pressed to maintain current activity levels in the traditionally busier spring months absent a surge of much-needed new supply. However, that could materialize as current COVID restrictions are increasingly eased and the weather starts to improve.

The month-over-month increase in national sales activity from January to February was led by the Greater Toronto Area (GTA) and several other Ontario markets, along with Calgary and some markets in B.C. These offset a considerable decline in Montreal’s sales, where new listings have started 2021 at lower levels compared to those recorded in the second half of last year.

In line with heightened activity since last summer, it was a new record for February by a considerable margin (over 13,000 transactions). For the eighth straight month, sales activity was up in the vast majority of Canadian housing markets compared to the same month the previous year. Among the eight markets that posted year-over-year sales declines in February, minimal supply at the moment is the most likely explanation.

“We are right at the start of the first undisturbed (by policy or lockdown) spring housing market in years, and we also have the most extreme demand-supply imbalance ever by a large margin. So, the question is, what is going on? I think part of it is the demand that built up due to regulatory changes in the years leading up to COVID that is playing out now. Part of it is the demand that is being pulled forward from the future either in search of a home base to ride out the pandemic or to lock down a purchase amid rapidly rising prices while securing a record low mortgage rate,” said Shaun Cathcart, CREA’s Senior Economist. “But maybe the biggest factor here is the emergence of existing owners with major equity, prompted by the great shake-up that is COVID-19 to pull up stakes and move. First-time buyers, which we have a lot of, are now having to compete with that as well.”
New ListingsThe number of newly listed homes rebounded by 15.7% in February, recovering all the ground lost to the drop recorded in January. With sales-to-new listings ratios historically elevated at the moment, indicating almost everything that becomes available is selling, it was not surprising that many of the markets where new supply bounced back in February were the same markets where sales increased that month.

With the rebound in new supply outpacing the gain in sales in February, the national sales-to-new listings ratio came off the boil slightly to reach 84% compared to the record 91.2% posted in January. That said, the February reading came in as the second-highest on record. The long-term average for the national sales-to-new listings ratio is 54.4%.

Based on a comparison of sales-to-new listings ratio with long-term averages, only about 15% of all local markets were in balanced market territory in February, measured as being within one standard deviation of their long-term average. The other 85% of markets were above long-term norms, in many cases well above. The first two months of 2021 and the second half of 2020 have seen record numbers of markets in seller’s market territory. For reference, the pre-COVID record of only around 55% of all markets in seller’s territory was set back at the beginning of 2002.

There were only 1.8 months of inventory on a national basis at the end of February 2021 – the lowest reading on record for this measure. The long-term average for this measure is a little over five months. At the local market level, some 40 Ontario markets were under one month of inventory at the end of February.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) jumped by 3.3% m-o-m in February 2021 – a record-setting increase. Of the 40 markets now tracked by the index, all but one were up on a m-o-m basis.The non-seasonally adjusted Aggregate Composite MLS® HPI was up 17.3% on a y-o-y basis in February – the biggest gain since April 2017 and close to the highest on record.

The largest y-o-y gains – above 35% range – were recorded in the Lakelands region of Ontario cottage country, Tillsonburg District and Woodstock-Ingersoll.

Y-o-y price increases in the 30-35% were seen in Barrie, Niagara, Bancroft and Area, Grey-Bruce Owen Sound, Kawartha Lakes, London & St. Thomas, North Bay, Northumberland Hills, Quinte & District, Simcoe & District and Southern Georgian Bay.

This was followed by y-o-y price gains in the range of 25-30% in Hamilton, Guelph, Cambridge, Brantford, Huron Perth, Kitchener-Waterloo, Peterborough and the Kawarthas and Greater Moncton.

Prices were up in the range from 20-25% compared to last February in Oakville-Milton and Ottawa, 18.8% in Montreal, 16.1% in Chilliwack, in the 10-15% range on Vancouver Island, the Fraser Valley and Okanagan Valley, Winnipeg, the GTA, Mississauga and Quebec, the 5-10% range in Greater Vancouver, Victoria, Regina and Saskatoon, in the 3.5% range in Calgary and Edmonton, and 2.6% in St. John’s.

Detailed home price data by region is reported in the table below.

Bottom Line

We all know why the housing boom is happening:

  • Employment in higher-paying industries has actually risen despite the pandemic, supporting incomes among potential homebuyers.
  • Mortgage rates plumbed record lows and, while they’re backing up now, they’re still below pre-COVID levels, while many buyers are likely still on pre-approvals with rates locked in.
  • There’s been a dramatic shift in preferences toward more space, further outside major urban centres (commuting requirements are down and probably assumed to remain down).
  • Limited travel has created historic demand for second (recreational) properties, and households have equity in existing properties to tap.
  • Younger households are likely pulling forward moves that would have otherwise happened in the years ahead.
  • There has to be some FOMO and speculative activity in the market at this point. In January, 6% of all houses listed for sale in Toronto’s suburbs had been bought in the previous 12 months, up from 4% a year earlier, according to brokerage Realosophy.

On the flip side, there is precious little supply to meet that demand, at least in segments that the market wants.

In a separate release, Canadian housing starts pulled back to 245,900 annualized units in February, a still-high level following a near-record print in the prior month. This is not a winter wonder. Starts on a twelve-month average basis are running at 227k annualized, the strongest such pace since 2008, and over the past six months, starts are averaging 242k, the highest since at least 1990. Both single- and multi-unit starts declined in the month, as did all provinces but British Columbia.

Published by: Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres