Canada’s booming housing market is driving demand for a range of new products and services from mortgage lenders to property management companies, house builders and software developers. Buyers are prioritizing affordable single-family detached houses, as well as condominiums, townhouses and apartment buildings.
While homeownership remains an aspirational goal for many Canadians, the country’s growing economy and low unemployment rate are spurring demand across all demographics. First-time buyers who plan to live in their homes for at least five years are increasingly seeing purchasing a home as an investment that will increase in value over time.
The average price of a Canadian home rose by more than 20 percent between January 2022 and January 2021. According to a report published by Statista Research Department in 2021, the national average sales price of single-family detached properties was close to C$700,000.
Read on to learn about the ins and outs of Canada’s housing market.
What are the biggest factors driving Canada’s housing market?
There are a wide range of factors driving Canada’s housing market. The real estate sector is expected to continue to be a major economic driver for the Canadian economy, with house prices in metropolitan areas expected to grow by between 10 and 15 percent each year on average.
A key factor is Canada’s low unemployment rate; it was 5.4 percent in August 2022 – one of the lowest rates among G7 countries. This has made Canadians more confident about their finances and looking for ways to invest their money, increasing demand for housing.
Canada’s housing market also benefits from its proximity to the United States, which remains a popular destination for Canadian migrants and American expatriates seeking to buy homes in Canada.
There have been concerns that the influx of foreign buyers could drive up property prices and impact affordability further, but recent research suggests that such fears may be overblown.
Demand for rental housing is on the rise
Canadian housing demand has increased at a rapid pace. The number of residents in Canada’s three largest cities – Toronto, Montreal, and Vancouver – increased by 2.6 percent from 2021 to 2022. In response to the growing demand for rental units, developers and investors are building apartments, condominiums and townhouses left and right to meet this need.
In particular, two-person households are seeing more interest in renting accommodation rather than buying property like a single-family detached home.
The key drivers in this market are low vacancy rates as well as high income growth across all demographics.
The latter is driven by a strong economy and low unemployment rate that has led people to take on more risk in the pursuit of greater gains. This trend is expected to continue into 2022 and beyond as Canada’s economy continues to grow
Buyers want new construction
Houses are selling quickly, and buyers are asking for new construction. Condos, townhouses and apartment buildings are selling much faster than single-family detached houses.
It is estimated that only about 2 percent of the nation’s inventory is available for sale in the form of single-family detached houses. Condominiums, townhouses and apartment buildings are also selling at a rate that outstrips the number of homes being built in Canada.
This means there is a growing demand for new construction products and services from developers, builders and lenders.
In cities like Toronto, Vancouver and Montreal the cost of housing has increased so much that it takes longer to save up for a down payment on an affordable home; this change in market dynamics has led to an increase in interest in condominiums as a housing option.
Investors are taking an interest in real estate
As Canada’s housing market continues to boom, investors are taking an interest in the real estate market. Investors are attracted to Canada’s low-risk housing market and strong economy, which is expected to create more demand for homes across all demographics.
While rising property values have been a boon for first-time buyers, renters may see their rent increase as landlords increase rates to offset the cost of real estate investments.
The overall population is growing, and this growth is expected to continue into the future
The Canadian population increased by close to two million people between 2016 and 2021, according to Statistics Canada. By 2036, the country is projected to be home to 39 million people.
The growth in the total population is driving demand for housing, particularly single-family detached houses in Toronto and Vancouver.
Canadians are increasingly prioritizing affordable housing options that allow them to live near their jobs or families.
In the last five years, low-rise condo buildings have been replacing older high-rise buildings in major Canadian cities. This shift is expected to continue as Canada’s economic climate improves and more Canadians look for affordable housing options closer to where they work or live.
With this growing demand for affordable multi-family dwellings comes a range of new products and services from mortgage lenders, property management companies, house builders and property software developers.
Interest rates are low and likely to stay that way for a long time
Low interest rates are a boon for Canadian homeowners. This means that Canadians who have been saving up for a home purchase can now borrow at lower costs, which allows them to spend less on their mortgages and more on renovations or other home improvements.
But low interest rates have also had a side effect: they push down mortgage costs relative to property values, making it much easier to buy a home or renovate an existing one. For example, in Toronto the average price of single-family detached homes is C$1,210,000 (USD$823,000). However, with an interest rate of 2.53 percent, annual payments amount to C$7,948 (USD$5,798) – only 29 percent of the average cost of owning that home over five years.
Lenders are stepping up their game to meet the demand from buyers
The number of people who applied for a mortgage in Canada increased by 3.2 percent year over year to 7.8 million in April 2018 and the average amount borrowed from a lender by buyers rose to C$275,964 (USD$216,000) – an increase of 15 percent since 2017. In spite of this, the Canadian real estate market remains stable as housing affordability levels remain strong and the number of homes on the market is increasing steadily.
The availability of land is one reason why housing demand has not been sufficient to keep pace with home supply; however, new development is driving the need for more construction workers, an area where Canada has been able to capitalize on its competitive advantage over many other countries due to its skilled workforce and lower cost of labor.
Also, developers are shifting from single-family detached houses to multi-unit properties that are cheaper to build and easier for first-time buyers to afford.
Presales are becoming more common
Presales provide an alternative to the search and appraisal processes for first-time homebuyers. They’re a convenient, fast and cost-effective way for buyers to secure a property before it hits the market.
First-time homebuyers can find properties that meet their criteria on websites such as Zolo or Zoocasa. These websites usually allow potential buyers to filter listings by price range, location and other parameters such as whether the property is newly built or preconstruction.
Potential homeowners can view photos of the homes in their preferred neighbourhood or area, learn about nearby schools and bus routes, get estimates about how much their mortgage payments will be and even contact professional house hunters who are willing to help them find a suitable home.
Using these sites is also convenient because they give potential buyers an idea of what properties are available at various stages in the presale process – from listings just posted online with no offers yet to those that have multiple offers (and indicate which ones are still under consideration).
For first-time homebuyers who don’t have time to take part in lengthy searches but want to make sure they find a property that meets their needs while they’re looking at options without having to travel around the country, this might be worth considering.