Vancouver Skyline by Markyeg

Today we’ve prepared a real estate comparison of major Canadian cities, Vancouver, Toronto, and Calgary. It is quite informative to look into the numbers behind the real estate market in these cities and reveal the impact of the effects of the major disruption to the financial markets in the European Union, U.S., Japan, and the very influential Chinese market. We have to learn not only to look at the values for rents, average prices of different types of units, and investments in new homes, but also to identify future behaviour. Let’s start with the highlights from the whole Canadian market to get a broader picture then work our way to the individual cities.

What Are the Key Factors Influencing the Canadian Real Estate Market?

• Employment – In the past year, employment has grown by 1.1 per cent (197,200 jobs). Full-time employment rose by 1.3 per cent and part-time only by 0.5 per cent. Unemployment hasn’t moved from 7.2 per cent. The Canada Mortgage and Housing Corporation (CMHC) anticipates 1.3 per cent growth this year and almost 2.0 per cent in 2013. Importantly, positive numbers in employment also bring good news to the housing sector.

• Income – Despite the global market collapse, Canada’s not floundering in terms of salaries, so we can expect a slow but steady increase in incomes — more good news for the real estate sector.

• Net Migration – In the medium to long term, we might expect an increase in migration into the country. This is based on the Canadian economy, which is performing quite well compared to most of the European, African, and Asian countries, but also the U.S. Increased migration results in increased need for housing.

• Mortgage Rates – If mortgages remained at these historically low levels for the rest of the year, it would have boosted the housing activity through the roof. In June, Finance Minister Jim Flaherty unveiled major changes to the limits of what the Canada Mortgage and Housing Corporation is allowed to insure, using new mortgage rules to effectively pump the brakes on the housing industry, which many experts worry has become too hot.

• Vacancy Rates – Net vacancy rates are seemingly stable, since the increased demand from migration met the expanding rented condo market; however, the stability of vacancy rates will only last if the condo market cools down continually and doesn’t burst.

• Resale Market – The CMHC expects conditions to be balanced throughout 2012 and 2013, meaning slightly increased housing starts and moderate demand for new homes.

Regional Outlook Overview

• Flag of Alberta by Wikimedia Commons

  Alberta – Net capital investment expenditures in Alberta are expected to rise due to vast oil sand development. Higher oil prices will also continue to support regional economies. Unemployment is expected to drop by 0.5 per cent from 5.5 per cent, and weekly earnings have already risen by almost 5 per cent since the beginning of the year. The overall economic development and over 3 per cent increase in employment is likely to attract more immigrants, as we’ve seen in 2011 when numbers doubled compared to 2010. Alberta’s activity on the rental market will presumably tighten, and the new home and resale sectors should expect major demand.

• British Columbia – B.C.‘s predictions don’t show any steep movement; however, sometimes it’s better to advance slowly. The increase on its job market focuses mainly on the full-time sector, with average weekly wages increasing by 3.5 per cent since the beginning of the year. The demand on the housing market comes mainly from international immigrants, in Vancouver. Residential building permits’ value increased compared to last year and according to the CMHC housing market outlook report, it is likely to continue doing so in the coming months.

• Ontario – Lower interest rates seem to have a positive effect on housing activity, as the numbers showed in the beginning of this year. U.S. market stabilization also influenced Ontario very positively, enhancing its exports and approaching pre-recession levels. The immigration in the region,that’s been driving new housing activity also settled to a moderate increase, after the region secured job prospects.

Finally, let’s take a closer look at the individual cities. So far, we’ve established the most influential factors on the real estate market and how these factors influenced the outlook for Ontario, Alberta, and British Columbia.

Affordability in Major City Markets

Vancouver by Glockkid

The pressure on the Vancouver market is gradually increasing on low affordability. Home prices experienced a rebound compared to the last year, making it very challenging to own a home in Vancouver. The Royal Bank of Canada recorded up to a 3 per cent increase. Monthly resales dropped by 17 per cent compared to the ten-year average.

Calgary on the other hand offers a very different story. The resale activity in the city rose by almost 7.5 per cent. The provincial economy’s stability is supporting even stronger interest of local investors in resales. Despite the high interest, home prices haven’t risen by much.

Most figures stand 14 per cent above the ten-year average, rising to the highest levels in past two years in Toronto. For now, it seems that affordability is not an issue, having even increased by 1.3 per cent, but it is very likely for the market to experience some tightening, causing affordability to drop.

Private Apartment Average Vacancy Rates (Percentage)

In spring of 2012, the Vancouver market remained between 2 and 3 per cent, reaching 2.3 per cent for bachelors, 2.5 per cent for 1-bedrooms, 2.9 per cent for 2-bedrooms, and 2.4 per cent for 3+-bedrooms in April.

The Toronto market reached an average of 1.5 per cent, reaching 1.4 per cent for bachelors, 1.7 per cent for 1-bedrooms, 1.3 per cent for 2-bedrooms, and 1.7 per cent for 3+-bedrooms in April.

Calgary market, unlike Toronto’s and Vancouver’s, varied quite extensively, reaching 0.5 per cent for bachelors, 2.3 per cent for 1-bedrooms, 2.8 per cent for 2-bedrooms, and the overall average of 2.5 per cent in April.

Private Apartment Average Rents ($)

Calgary Downtown by Naserke

Calgary was the cheapest of all three cities concerning rent per month in late spring. You’d pay $715 for a bachelor, $924 for a 1-bedroom, $1,113 for a 2-bedroom, and $1,078 for a 3+-bedroom apartment. The average price reached $1,004. In a town of 10,000+ in Alberta, you’d pay $961 on average.

Toronto and Vancouver offered similar rent per month in late spring. In Toronto, you’d pay $808 for a bachelor, $1,009 for a 1-bedroom, $1,164 for a 2-bedroom, and $1,389 for a 3+-bedroom apartment. The average price reached $1,086. In a town of 10,000+ in Ontario, you’d pay $959 on average — almost the same as in Alberta.

In Vancouver you’d pay $854 for a bachelor, $965 for a 1-bedroom, $1,210 for a 2-bedroom, and $1,357 for a 3+-bedroom apartment. The average price reached $ 1,013. In a town of 10,000+ in British Columbia, you’d pay $929 on average — the lowest of all three cities.

Private Row (Townhouse) and Apartment Vacancy Rates (Percentage)

In spring of 2012, the Vancouver market varied between 2 and 3 per cent, similar to private apartments, reaching 2.3 per cent for bachelors, 2.6 per cent for 1-bedrooms, 2.9 per cent for 2-bedrooms, and 2.6 per cent for 3+-bedrooms in April. The average added up to 2.6 per cent.

The Toronto market also stayed around 1 per cent, just like private apartments, reaching 1.4 per cent for bachelors, 1.7 per cent for 1-bedrooms, 1.3 per cent for 2-bedrooms, and 1.7 per cent for 3+-bedrooms in April. The average added up to a mere 1.5 per cent.

Private Row (Townhouse) and Apartment Average Rents ($)

In Vancouver you’d pay $855 for a bachelor, $965 for a 1-bedroom, $1,219 for a 2-bedroom, and $1,407 for a 3+-bedroom apartment. The average price reached $ 1,025. In a town of 10,000+ in British Columbia, you’d pay $936 on average — $30 less than in Toronto.

In Toronto, you’d pay $808 for a bachelor, $1,009 for a 1-bedroom, $1,164 for a 2-bedroom, and $1,382 for a 3+-bedroom apartment. The average price reached $1,092. In a town of 10,000+ in Ontario, you’d pay $966 on average.

Mortgage Rates and Labour Market Indicators

Mortgage rates are identical for all three cities — the percentage for a five-year term at 5.24 per cent and 3.2 per cent for a one-year term. Both indicate decreased mortgage rates compared to the beginning of the year.

I’ve already explained how crucial it is to follow numbers on the labour market, since these are one of the key factors influencing development on the real estate market.

In Calgary, the unemployment rate has been steadily decreasing, reaching 4.8 per cent in June. The participation rate reached 75.1 per cent, and average weekly earnings reached $1,037.

In Vancouver, the unemployment rate has been decreasing as well, reaching 6.4 per cent in June — almost a 1 per cent drop compared to the same time last year. The participation rate reached 66.7 per cent, and average weekly earnings reached $853.

Toronto by John Vetterli

In Toronto, the unemployment rate has been slightly increasing, reaching 8.6 per cent in June compared to 8.3 per cent from the same time last year. The participation rate reached 66.9 per cent and average weekly earnings reached $910.

Residential Activity in the Second Quarter of 2012

Vancouver

• Number of Sales – 8,132
• Year/Year (%) – -18.8 (from 10,018)
• Number of New Listings – 19,085
• Average Price ($) – 724,319
• Year/Year (%) – -11.5 (from 818,721)

Calgary

• Number of Sales – 8,534
• Year/Year (%) – 26.7 (from 6,733)
• Number of New Listings – 13,669
• Average Price ($) – 422,400
• Year/Year (%) – 2.2 (from 413,303)

Toronto

• Number of Sales – 30,622
• Year/Year (%) – 4.4 (from 29,319)
• Number of New Listings – 52,292
• Average Price ($) – 514,534
• Year/Year (%) – 7.2 (from 479,830)