The COVID housing boom

[Music] welcome to episode four of panomics a series exploring the economic impact of covid-19 and what the coming months May hold for Canadians my name is Steven marce and I'm the editor of Scotia Bank perspectives today we're going to be talking about everybody's favorite topic which is real estate and I will be talking to Mark dormo senior Economist at Scotia Bank Mark thanks for joining me today thanks for having me Stephen it's my pleasure to be here during the pandemic I'd say home is not only where the heart is but it's also where the office is and where the school is and if you're lucky enough to have a backyard it's maybe where the playground is and I don't know if those things are one of the drivers of of what we've seen in the real estate market which I think it's safe to say has been behaving in a decidedly non- pandemic kind of way we've seen record numbers of sales we've seen record prices in many jurisdictions across the country and not just the usual suspects of Toronto and Vancouver so maybe we can start looking at some of those numbers can you walk us through some of the highlights of the most recent figures from the Canadian Real Estate Association just to get a get a sense of this booming housing market that we seem to be seeing in the middle of a pandemic well the strength of the Canadian housing market has been one of the more Curious results during the pandemic we've seen other economic indicators contract at a rate really not witnessed before but this housing market in particular has been very strong especially since we reopened just to give you a bit of perspective on some of the numbers Canada wide existing home sales were 21% higher than in February as of September February being the last month before which we saw lockdowns for the pandemic record highs in three consecutive months at the national level and also it's not just a national level story it's been quite broad-based we actually at scoa bank economics track sales and listings data for 31 metropolitan areas of in Canada and as of September 30 of them were above February levels that's just on the sales front listings have also recovered quite nicely most centers about half of the centers actually have recovered fully and we've seen some very strong Home Building activity year-to-date housing starts almost 213,000 higher than the rate we saw all of last year and the 262,000 starts in August were the fourth highest monthly result ever recorded So this has really been a good news story in terms of the Canadian economy this year where as I mentioned uh jobs being lost across the country businesses closing investment activity plunging amid all of that during this Global pandemic the housing Market's been a bit of a bright spot for the Canadian economy in some of those numbers you were comparing it to to February levels and I would guess in terms of sales tell me if I'm wrong that September would normally be a higher month than February anyway but I think the numbers even year-over-year uh the most recent Korea numbers were showing numbers that were above even September of 2019 that these it's not just within this weird year of 2020 but that that the numbers are quite outstanding in their own right and you mentioned a couple of records that were broken in terms of starts as well yeah well the numbers I was mentioning were seasonally adjusted and that allows us to compare specific months within a reference year because as you mentioned you know there are seasons to this September sales activity is going to be different than February so by doing that seasonal adjustment we can make that comparison and you know a fifth higher than before the pandemic three consecutive months ly uh Records for sales I mean these really point to a lot of strength in the market as a whole in Canada but also across some of those local markets most of those local markets and we'll get into some of the why and what next in a couple of minutes but maybe you can talk a little bit more about some of those uh some of those Regional numbers because we're we're very used to seeing crazy numbers in Montreal or rather in Toronto and Vancouver Montreal has been doing pretty well for the last couple years also but it it seems to be somewhat of a national phenomen phenomenon and it's not all centers but some unusual places Windsor Ontario and St John New Brunswick and places like that it's a bit of a national phenomenon in the economics Department we track sales and listings data for 31 metropolitan areas within Canada in September 30 of those areas had recovered from from the the downturn that was witnessed during the pandemic back up above February levels nine centers were up more than 30% versus February and there were particularly strong gains in the southern BC kind of area Vancouver Victoria uh Okanagan Mainline Fraser Valley all up over 40% versus February levels that was an area with some some strong gains in particular but also gains in the 20% to 25% across much of Ontario's greater Golden Horseshoe glomeration ottawa's been particularly strong since February Windsor you mentioned uh some growth in Saskatchewan as well Regina and Saskatoon have bounced back nicely from where they were in March at and and in April during the peak lockdown period and it's not just sales I mean we look at listings as well there's been a pretty strong increase across the board 15 of our 31 centers have recovered and you know in fact when we look at Supply demand balances so uh sales versus listings in in September 22 of the 31 centers we cover were in sellers Market territory and what that means is that demand is represented by sales activity outstripped Supply and that suggests that well as I said demand is stronger than Supply in in more recent months and implies that we could be seeing more price appreciation in the coming months right so I guess there's probably several factors that are contributing to that to the to the growth that we've seen whether it's just we wouldn't have had a spring selling season that we normally would have had so there's people who maybe would have been in the market and and haven't yet and Rebound in some of the labor market and of course of course low interest rates you might want to touch on that would you think those are sort of the key factors at least in the sort of bounce that we're seeing now that we saw in September maybe even in the couple months before that yeah well there's a couple of points I would I would refer to I mean the Canadian economy has rebounded quite nicely since the downturn since the low point of economic activity that was witnessed in April at the height of lockdowns uh business and consumer indicators a number of them have returned to where they were in February so the strength of the rebound has been stronger than I think a lot of people anticipated our labor market we look at full-time employment it's 96% of where we were in February you know so it's been a very strong third quarter in the Canadian economy much as it is across most of the world so that certainly is something that could be contributing to demand and Supply balances becoming tighter uh in addition to that interest rates are very very low all indications are that they will remain very low until the mid 2020s that's the guidance we've receiv received from central banks it'll be an effort to try and support the economy as it continues to recover from this downturn related to covid but then one of the other things that's struck us is just how persistent this strength in sales and building activity has been you know again one interpretation of not only the strength but the Persistence of the strength in the summer months is that the demand side of the market was so strong before the pandemic that we had some pent up demand during the lockdown which is now continuing to be released even a few months after reopening is is largely complete so there's a few factors uh that might expl exp laain the uh the strength of the the recovery the strength of the the bounce back in sales activity and and the robust construction Activity one is just the sheer strength of the recovery in the overall Canadian economy since lockdowns another is that borrowing costs remain extremely low and then the third is just the strength of the demand side of the market job creation population growth before the pandemic which appears to still be contributing to the demand side of the market across Canada even after we've reopened much of the economy speaking of the reopening I I'll ask you about the sustainability of this kind of growth that we've seen in just a second but I just want a little uh a side question which is something that you see mentioned I think sort of anecdotally in news stories and so on is some sort of alleged flight to the suburbs that I guess people are looking for more space and remote work becoming the norm is there evidence is that a real thing the flight to the suburbs is there evidence of that well it's still fairly early in this process in in the recovery from covid-19 in terms of having data on people's preferences post lockdown so I'm hesitant at this point to definitively call make a call one way or the other on that but there is some evidence of uh a shift in consumer preferences especially when we look at what appears to be a strong preference for single family homes since we opened up from the lockdowns in in April give you a few numbers you know um on aggregate across Canada single family homes the MLS home price index was up nearly 12% year-over-year in September that was the steepest climb since June 2017 whereas the Rises for Town Homes and Apartments kind of smaller unit types were a little bit weaker still going still going up but um you know the strength in prices among those larger single family home categories that suggests more preference for larger homes with more space which might be a reflection of people wanting more space when they're working from home more uh that's been witnessed across a lot of the major centers Toronto Vancouver not so much of a a preference for the single family homes in Ottawa and Montreal but those are two markets that are really in the midst of some of the the most frothiness they've seen in years so there's kind of a broad-based increase in prices and demand uh there now the other thing I think I would point to is looking at specific cities and you know within Toronto for instance the Toronto numbers that we typically cite are for uh a region and the city of Toronto the composite home price index was in September up 9% year-over-year whereas some of the adjacent centers you know the Halton region Peele region 12 to 14% Durham and duffen counties Simco County we're looking at 15 to 20% so the stronger price gains in the areas outside of the city center suggest that there may be some people who are interested in moving a little bit further a field to try and get more space during the work from home kind of movement but it is still pretty early and you know you look at the city of Toronto up 9% that's still pretty strong so it still points to kind of broad-based uh strength across the housing market similar story in Vancouver Greater Vancouver MLS home price index as of September was up 1.4% some of the adjacent areas kitum north Vancouver Squamish Whistler we were looking at 3% 5% 6% so there's some evidence to support this in some cities but again we're still early in this event and given that price appreciation is present across unit types in most centers it suggests that we're still seeing a broad-based robustness and demand let's talk about the sustainability of all this so there were there have been a couple of some somewhat more pessimistic outlooks there was one from from Moody's not too long long ago even samhc which I think in May was predicting fairly Hefty decline in prices in 20121 and I think recently stood by those projections uh in spite of the numbers that we're seeing so how do you view that is this especially as we go into a second wave but right now are we just catching up with that pent up demand and it'll start to go away or do you see this as an ongoing phenomenon maybe given the the demand outstripping the supply and the supply is not going to come into place quickly enough probably to meet all that demand well in our last forecast update our position was that we're transitioning into a slower phase of the recovery reopening is now largely complete across most of the country new lockdowns are in place in some parts of the country where covid-19 case loads are rising so you know uh in our view the the third quarter growth was was unsustainable uh it reflected a one-time Boost from reopening and it was off of a lower base that followed the lockdowns now as we move into that slower phase of recovery it suggests that there will not be quite as much upward pressure on prices tightness in in local markets um so that's that's certainly something that we we might that might be expected over the the coming months um but you know ultimately all of this is going to be determined by the evolution of covid-19 how do businesses and households respond to it you know how severe do lockdowns get if there is a spread um so there's potential downside in that respect on the other hand again looking at covid-19 there's potentially some upside if we get some advancements around treatments or vaccines and those come earlier that may enable us to open up uh and move past the lockdown period a little more quickly than we might expect okay um there is so much to talk about on this subject that uh Mark has kindly agreed to come back for a uh for a Repeat Performance so that we can cover some of the some of the areas that we haven't covered that we didn't talk about including you know the impact in the the changing numbers of the reduction in the numbers of uh new Canadians of immigrants coming in and what impact if any of that has on the market uh where the condo Market's going what the impact of fewer International students might have and we might talk a little bit about uh issues around commercial real estate because there are lots of questions around that as well so we will have Mark back uh I think um hopefully next week Mark I want to thank you for joining us today that was really interesting it's my pleasure Stephen anytime great so hopefully mark back next week and next week I guess what everybody will be watching or little over a week from now I guess no next week uh will be the US election and we will have uh Scot bank's Chief economist John franois Peru uh back after the dust has settled on that to talk about what the implications of all of that might be uh but back next week with more real estate and Mark desarmo senior Economist at sco bank thank you for joining us today if you're enjoying panomics please subscribe on Apple podcast and tell your friends thanks for listening and we will see you next week