Canada's Housing Market Continues to Expand in Third Quarter in the Face of Regulatory Headwinds

In a tepid economy, the healthy real estate sector attracts taxation and regulation

TORONTO, Oct. 13, 2016 /CNW/ - Canada's residential real estate market continued to grow in the third quarter of 2016, posting a double-digit year-over-year aggregate house price increase, according to the Royal LePage House Price Survey¹ released today. The Government of British Columbia's new 15 per cent property transfer surtax on foreign nationals and foreign-controlled corporations, introduced early in the quarter, has contributed to slower sales activity but has had little impact to-date on Greater Vancouver home prices, which led the country in appreciation with year-over-year home prices increasing by 30.6 per cent in the quarter. While Ontario considers implementing a similar tax, over the same period house price increases in the Greater Toronto Area (GTA) also remained strong, increasing 13.6 per cent.

The Royal LePage National House Price Composite, compiled from proprietary property data in 53 of the nation's largest real estate markets, showed that the price² of a home in Canada increased 12.0 per cent year-over-year to $545,414 in the third quarter of 2016.  The price of a two-storey home rose 13.7 per cent year-over-year to $649,635, and the price of a bungalow increased 11.0 per cent to $459,481. During the same period, the price of a condominium increased 5.8 per cent to $360,679.

"In what may be a final hurrah for this expansionary cycle, Greater Vancouver posted another quarter of unsustainably high price appreciation," said Phil Soper, president and chief executive officer, Royal LePage. "Our widely followed house price composite showed that the median value of homes in the tiny West Vancouver suburb increased by nearly forty per cent – or an astonishing million dollars – year-over-year. That said, relief appears to be on the way. For months, the number of homes trading hands has been slowing on eroding affordability. And, slower sales volumes lead to moderating prices."

"Nationally, our real estate markets remain healthy, with home values showing modest to strong (yet rational) price appreciation in almost every Canadian city," Soper continued. "Even in the hardest hit oil patch regions, prices have held up well, with small single-digit declines, year-over-year." 

On October 3, 2016, Federal Finance Minister Bill Morneau announced new measures specifically designed to cool the country's housing market and curtail foreign buying activity. These measures are meant to bring consistency to mortgage insurance rules by standardizing eligibility for high- and low-ratio insured mortgages, expanding stress tests, and improving tax fairness by removing the ability of non-residents to claim capital gain exemptions, which are only applicable to properties identified as principal residences.

"Consumer confidence suffered a direct hit when the federal government introduced new, more restrictive regulations in early October," said Soper. "While it is too early to say definitively, it appears Canadian homebuyers are adjusting quickly, and that fears of a hard correction were unwarranted. While the changes are significant, major lenders may already be using similar criteria when writing mortgages in sensitive regions like Alberta and B.C., so the additional drag on the market resulting from the new legislation won't be as great as it appears on the surface."

The federal government's October 3 announcement comes less than a year after it increased the down payment required on residential properties selling for more than $500,000 to 10 per cent, and a month after the Office of the Superintendent of Financial Institutions imposed new capital requirements for mortgage insurers. On March 22, 2016, the federal government allocated $500,000 to Statistics Canada for research into the role of foreign buyers in Canada's housing market; however, all of these policy decisions have been made before the organization completes its year-long project.

In addition to the B.C. surtax, policy makers are reportedly considering introducing a "vacancy tax" to be levied against owners of unoccupied homes. This second tax would be especially punitive, given that property taxes pay for services those homeowners do not use, such as schools, public transit and waste removal services. Federal government policy makers, along with local politicians, have expressed concerns about rising home prices in Toronto, and the role foreign buyers might be playing in driving values higher.

"Vancouver continues to attract foreign interest, and we do not expect to see an automatic migration of capital to Toronto in the wake of the new tax imposed in Metro Vancouver," said Soper. "It is important to remember that most people buy houses for the location, lifestyle and family needs, and not simply upon financial investment criteria."

Provincial and City Summaries and Trends

British Columbia's economy is leading Canadian growth in 2016, further supporting the house price appreciation we have seen in the region. However, within the Greater Vancouver business community, a noted counter-challenge is that high housing costs are having a slightly negative impact on enterprises; business owners have noted that real estate costs are making it difficult to attract skilled employees to the region. New government taxation and regulations within the region have also introduced a great deal of uncertainty into the market, as purchasers have begun to take a wait-and-see approach, putting downward pressure on sales activity. While this did not significantly impact year-over-year home prices during the third quarter, it could very well result in a more balanced market moving forward. In the third quarter of 2016, Vancouver posted an aggregate year-over-year house price increase of 34.1 per cent to $1,464,507, while West Vancouver posted a year-over-year price increase of 39.6 per cent to $3,411,578. As house prices in Greater Vancouver continue to increase, there is a growing trend of migration toward cities like Victoria and Kelowna, which showed year-over-year increases in aggregate house prices of 8.8 per cent to $537,228 and 10.9 per cent to $554,289 respectively.

Alberta continues to face a slowdown in the energy sector. The majority of economic forecasters watching the province have predicted that the Alberta economy will contract by approximately two percentage points in 2016, making it one of the most significant downturns in the province's history. The economic drop in the region has directly impacted housing prices in the province's key markets, however, not nearly to the degree many observers anticipated.  Looking ahead, some speculate that the province has withstood the worst of the decline and the relative low cost of housing compared to other major centres is anticipated to be a supportive factor in the long run.  Aggregate house prices dropped slightly year-over-year in Calgary by 1.6 per cent to $457,044 and in Edmonton by 3.1 per cent to $374,712.

Saskatchewan is similar to Alberta in that it is an energy-dependent province being hit by the downturn in the sector. Effects can be observed in the employment sector, as the province lost 6,500 jobs in September when compared to the same period in 2015. Employment insurance recipients are up, earnings are falling and payroll employment is down. Despite the traditionally negative effects of a poor economy on the housing market, the region's home prices have remained relatively stable; aggregate house prices in Regina increased year-over-year by 0.6 per cent to $332,540.

As expected, the economy in Manitoba is relatively strong and remains on track for expansion through 2017. This is favouring well with the housing marketing in Winnipeg, as the aggregate price of a home in the region increased 2.3 per cent year-over-year to $291,426. Forecasting strong population increases for the coming years, the City of Winnipeg announced recently that it projects it will exceed the one-million resident mark by 2035 and that demand for housing will grow as a result.

Second only to British Columbia, Ontario continues to be one of the fastest growing economies in Canada. Concerns about the fate of the U.S. economy have kept employers cautious about hiring, ultimately slowing the economic gains expected for the region. However, in the Greater Toronto Area, house values continue to climb. Aggregate house prices in Toronto grew year-over-year by 12.1 per cent to $714,002. House prices in surrounding region Kitchener/Waterloo/Cambridge are also appreciating, posting a year-over-year increase in aggregate house price of 9.1 per cent to $371,474. Hamilton, which stands above the provincial average in retaining and attracting millennials, had year-over-year growth in its aggregate house price of 10.3 per cent to $419,830. The aggregate house price in Ottawa saw moderate year-over-year growth of 3.6 per cent to $411,654.

Quebec continues to maintain a steady economy, despite export volumes coming in below expectations. Recent reports show that Quebec's economy is ahead of its targets, with provincial Finance Minister Carlos Leitao announcing last month an unexpected budget surplus and Quebec's plans to allocate additional spending to education, health care and economic development. Furthermore, Quebec's unemployment rate in September sat below the national average and the province has recently been showing solid job growth. The province continues to attract international interest, further supported by Air China's introduction last year of a direct Beijing-Montreal flight, and Air Canada's recent announcement to add a daily direct Shanghai-Montreal service in February 2017. These factors remained supportive of the residential housing sector in the third quarter, with the aggregate house price in the Greater Montreal Area increasing by 4.9 per cent year-over-year to $352,798.

Atlantic Canada saw mixed results, with Newfoundland and Labrador conceivably falling into recession as a result of challenges associated with the energy sector downturn. The issues stem not only from low oil prices, but also fewer job prospects for the province's "fly-in, fly-out" workforce that had been a substantial source of economic stability in the region. As a result, St. John's was the only city studied in the Royal LePage Composite to decline in Atlantic Canada, with the aggregate home price dropping 3.2 per cent to $332,597 year-over-year. Meanwhile, Moncton and Halifax showed slight year-over-year increases in aggregate house prices of 1.5 per cent to $182,529 and 0.8 per cent to $308,017, respectively. Similarly, aggregate house prices in Charlottetown and Fredericton increased year-over-year by 2.3 per cent to $224,219 and 2.9 per cent to $246,696, respectively.

Aggregated regions and the Royal LePage National House Price Composite: 

National and Metropolitan Area Aggregates		Two-Storeys			Bungalows			Condominiums			Aggregate
Market	Province	Q3 2015	Q3 2016	Year-Over-Year % Change	Q3 2015	Q3 2016	Year-Over-Year % Change	Q3 2015	Q3 2016	Year-Over-Year % Change	Q3 2015	Q3 2016	Year-Over-Year % Change
53 City Composite		$571,229	$649,635	13.7%	$413,766	$459,481	11.0%	$340,946	$360,679	5.8%	$486,849	$545,414	12.0%
Greater Montreal Area	QC	$419,467	$443,239	5.7%	$278,239	$287,198	3.2%	$285,356	$300,089	5.2%	$336,327	$352,798	4.9%
Greater Toronto Area	ON	$707,885	$812,990	14.8%	$593,687	$688,813	16.0%	$363,748	$381,963	5.0%	$610,308	$693,154	13.6%
Greater Vancouver	BC	$1,182,309	$1,578,601	33.5%	$965,979	$1,288,520	33.4%	$459,788	$528,388	14.9%	$914,705	$1,194,653	30.6%

Royal LePage National House Price Composite		Two-Storeys			Bungalows			Condominiums			Aggregate
Market	Province	Q3 2015	Q3 2016	Year-Over-Year % Change	Q3 2015	Q3 2016	Year-Over-Year % Change	Q3 2015	Q3 2016	Year-Over-Year % Change	Q3 2015	Q3 2016	Year-Over-Year % Change
St. John's	NL	$389,739	$376,553	-3.4%	$315,626	$309,895	-1.8%	$297,106	$257,876	-13.2%	$343,587	$332,597	-3.2%
Charlottetown	PE	$238,153	$247,235	3.8%	$191,180	$189,751	-0.7%				$219,243	$224,219	2.3%
Halifax	NS	$327,480	$330,081	0.8%	$249,744	$250,080	0.1%	$298,085	$305,771	2.6%	$305,682	$308,017	0.8%
Fredericton	NB	$281,438	$294,293	4.6%	$205,651	$211,024	2.6%				$239,777	$246,696	2.9%
Moncton	NB	$183,236	$187,163	2.1%	$174,830	$176,586	1.0%				$179,868	$182,529	1.5%
Saint John	NB	$228,812	$248,880	8.8%	$182,551	$191,037	4.6%				$205,510	$220,428	7.3%
Gatineau	QC	$268,251	$289,062	7.8%	$232,871	$236,101	1.4%	$237,128	$214,919	-9.4%	$250,723	$258,988	3.3%
Laval	QC	$389,066	$401,949	3.3%	$284,988	$298,406	4.7%	$237,303	$242,084	2.0%	$314,049	$325,481	3.6%
Montreal Centre	QC	$523,943	$561,105	7.1%	$383,194	$391,945	2.3%	$330,242	$357,466	8.2%	$402,790	$431,894	7.2%
Montreal East	QC	$467,371	$496,855	6.3%	$309,884	$307,032	-0.9%	$274,558	$273,606	-0.3%	$362,508	$374,121	3.2%
Montreal West	QC	$427,957	$434,044	1.4%	$329,418	$332,339	0.9%	$261,223	$261,229	0.0%	$377,914	$382,271	1.2%
Montreal Northshore	QC	$347,038	$361,943	4.3%	$251,682	$259,492	3.1%	$206,305	$199,860	-3.1%	$277,431	$285,747	3.0%
Montreal Southshore	QC	$369,241	$397,323	7.6%	$268,274	$279,942	4.3%	$231,568	$247,311	6.8%	$305,988	$325,313	6.3%
Quebec City	QC	$326,590	$328,106	0.5%	$263,268	$266,524	1.2%	$246,959	$254,399	3.0%	$271,085	$274,877	1.4%
Sherbrooke	QC	$268,426	$271,398	1.1%	$208,970	$205,128	-1.8%				$234,068	$233,680	-0.2%
Trois-Rivières	QC	$184,708	$207,238	12.2%	$163,964	$173,742	6.0%				$173,906	$188,914	8.6%
Ajax	ON	$522,199	$586,303	12.3%	$416,855	$500,309	20.0%	$259,551	$266,656	2.7%	$509,017	$572,803	12.5%
Belleville/Trenton	ON	$228,084	$241,415	5.8%	$245,163	$259,375	5.8%				$235,032	$248,461	5.7%
Brampton	ON	$528,146	$591,846	12.1%	$440,992	$506,306	14.8%	$249,802	$259,430	3.9%	$508,483	$569,510	12.0%
Hamilton	ON	$398,811	$438,846	10.0%	$343,240	$385,814	12.4%	$249,392	$232,959	-6.6%	$380,624	$419,830	10.3%
Kingston	ON	$318,338	$321,833	1.1%	$294,187	$303,770	3.3%				$304,089	$310,266	2.0%
Kitchener/Waterloo/Cambridge	ON	$356,474	$392,169	10.0%	$322,233	$341,857	6.1%	$217,377	$234,436	7.8%	$340,348	$371,474	9.1%
London	ON	$296,123	$321,786	8.7%	$239,230	$251,576	5.2%				$270,659	$294,387	8.8%
Markham	ON	$812,881	$939,338	15.6%	$798,312	$946,861	18.6%	$341,911	$365,255	6.8%	$755,347	$870,353	15.2%
Milton	ON	$573,832	$635,929	10.8%	$474,144	$512,134	8.0%	$304,446	$314,274	3.2%	$555,534	$613,759	10.5%
Mississauga	ON	$635,486	$695,086	9.4%	$533,069	$633,700	18.9%	$281,894	$290,524	3.1%	$555,883	$609,266	9.6%
Niagara/St.Catharines	ON	$294,231	$331,120	12.5%	$260,337	$279,176	7.2%				$278,099	$306,397	10.2%
Oakville	ON	$820,978	$951,140	15.9%	$648,112	$743,631	14.7%				$775,559	$894,696	15.4%
Oshawa	ON	$374,016	$478,845	28.0%	$335,543	$407,087	21.3%	$198,551	$193,274	-2.7%	$360,359	$453,975	26.0%
Ottawa	ON	$414,026	$429,788	3.8%	$386,679	$402,844	4.2%	$310,594	$313,612	1.0%	$397,161	$411,654	3.6%
Pickering	ON	$557,440	$661,533	18.7%	$502,247	$598,482	19.2%	$291,230	$300,415	3.2%	$533,822	$630,965	18.2%
Richmond Hill	ON	$919,900	$1,155,020	25.6%	$764,517	$1,001,369	31.0%	$330,514	$384,924	16.5%	$854,800	$1,074,829	25.7%
Scarborough	ON	$624,091	$704,515	12.9%	$573,829	$667,325	16.3%	$262,138	$279,761	6.7%	$516,064	$583,760	13.1%
Toronto	ON	$887,964	$1,023,128	15.2%	$664,894	$755,720	13.7%	$397,899	$416,887	4.8%	$637,116	$714,002	12.1%
Vaughan	ON	$814,117	$927,500	13.9%	$712,238	$809,168	13.6%	$367,730	$398,511	8.4%	$745,621	$846,481	13.5%
Whitby	ON	$496,490	$604,342	21.7%	$466,235	$560,810	20.3%	$278,964	$337,826	21.1%	$486,294	$590,921	21.5%
Windsor	ON	$171,961	$188,120	9.4%	$170,518	$201,887	18.4%	$129,702	$140,152	8.1%	$168,609	$188,796	12.0%
Winnipeg	MB	$307,791	$322,313	4.7%	$270,625	$271,427	0.3%	$223,184	$212,067	-5.0%	$284,991	$291,426	2.3%
Regina	SK	$392,028	$408,126	4.1%	$301,505	$298,584	-1.0%	$276,027	$253,880	-8.0%	$330,545	$332,540	0.6%
Saskatoon	SK	$420,705	$407,573	-3.1%	$362,224	$360,187	-0.6%				$392,734	$384,909	-2.0%
Calgary	AB	$507,832	$502,213	-1.1%	$465,592	$458,933	-1.4%	$304,710	$287,986	-5.5%	$464,707	$457,044	-1.6%
Edmonton	AB	$444,003	$430,232	-3.1%	$372,863	$359,843	-3.5%	$242,562	$237,128	-2.2%	$386,829	$374,712	-3.1%
Red Deer	AB	$377,716	$398,499	5.5%	$351,190	$330,239	-6.0%				$357,714	$354,999	-0.8%
Burnaby	BC	$1,141,310	$1,457,817	27.7%	$1,019,884	$1,370,315	34.4%	$411,714	$431,254	4.7%	$796,447	$994,518	24.9%
Coquitlam	BC	$882,261	$1,141,244	29.4%	$764,574	$960,283	25.6%	$331,380	$347,310	4.8%	$748,103	$945,260	26.4%
Kelowna	BC	$572,771	$647,810	13.1%	$470,800	$504,943	7.3%	$305,445	$339,321	11.1%	$499,977	$554,289	10.9%
Langley	BC	$664,949	$827,175	24.4%	$536,171	$681,878	27.2%	$211,028	$228,796	8.4%	$610,974	$763,642	25.0%
North Vancouver	BC	$1,276,416	$1,644,619	28.8%	$1,163,884	$1,506,161	29.4%	$429,005	$476,710	11.1%	$1,036,550	$1,319,272	27.3%
Richmond	BC	$1,044,484	$1,461,161	39.9%	$965,908	$1,340,507	38.8%	$392,671	$429,799	9.5%	$797,119	$1,070,145	34.3%
Surrey	BC	$702,203	$850,650	21.1%	$571,632	$750,807	31.3%	$233,812	$244,540	4.6%	$626,365	$763,410	21.9%
Vancouver	BC	$1,882,707	$2,620,732	39.2%	$1,087,827	$1,481,223	36.2%	$535,009	$641,000	19.8%	$1,091,817	$1,464,507	34.1%
Victoria	BC	$637,897	$750,617	17.7%	$505,246	$549,719	8.8%	$388,542	$384,421	-1.1%	$493,739	$537,228	8.8%
West Vancouver	BC	$2,746,622	$3,905,308	42.2%	$2,191,428	$2,941,881	34.2%	$974,758	$1,171,069	20.1%	$2,444,371	$3,411,578	39.6%

*Data presented in the tables above may not match same period data reported previously due to subsequent market updates.

About the Royal LePage House Price Survey
The Royal LePage House Price Survey provides information on the three most common types of housing in Canada, in 53 of the nation's largest real estate markets. Housing values in the House Price Survey are based on the Royal LePage National House Price Composite, produced quarterly through the use of company data in addition to data and analytics from its sister company, Brookfield RPS, the trusted source for residential real estate intelligence and analytics in Canada.  Commentary on housing and forecast values are provided by Royal LePage residential real estate experts, based on their opinions and market knowledge.

About Royal LePage                                       
Serving Canadians since 1913, Royal LePage is the country's leading provider of services to real estate brokerages, with a network of over 17,000 real estate professionals in more than 600 locations nationwide. Royal LePage is the only Canadian real estate company to have its own charitable foundation, the Royal LePage Shelter Foundation, dedicated to supporting women's and children's shelters and educational programs aimed at ending domestic violence. Royal LePage is a Brookfield Real Estate Services Inc. company, a TSX-listed corporation trading under the symbolTSX:BRE.

For more information visit: www.royallepage.ca.

__________________________
¹ Powered by Brookfield RPS
² Aggregate prices are calculated via a weighted average of the median values of homes for reported property types in the regions surveyed

SOURCE Royal LePage Real Estate Services

Image with caption: "Canada's Housing Market Continues to Expand in Third Quarter in the Face of Regulatory Headwinds (CNW Group/Royal LePage Real Estate Services)". Image available at: http://photos.newswire.ca/images/download/20161013_C6123_PHOTO_EN_794881.jpg

Ray McIlroy, Kaiser Lachance Communications, 647-725-2520 ext215, [email protected]