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Increased competition, low inventory to blame for escalating housing prices

Until a 'real solution' to the chronic housing supply shortage is implemented, prices will continue to rise, says real estate expert

The average price of a home in Canada has increased 25.3 per cent since the same time last year, according to a Royal LePage survey released earlier this week.

According to the survey, 89 per cent of the regions surveyed saw year-over-year double-digit aggregate price gains, driven largely by increases in the single-family detached property segment.

In Barrie, that has resulted in a 2.7 per cent increase to the median price of a single detached home quarter-over-quarter  and a 34.2 per cent change year-over-year, from $606,000 in the second quarter of 2020 to $807,500.

Locally, the aggregate price of a single-family home in the city has increased 3.7 per cent quarter-over-quarter and 34.2 per cent year-over-year.

The level of competition that has resulted in the jump in prices, however, is beginning to slow.

“After a year of record growth in the Canadian housing market, we appear to have passed the peak of price appreciation,” said Phil Soper, president and CEO of Royal LePage. “While current home price gains are expected to be sustained due to chronically low inventory and new demand from growing household formation, investors and newcomers, the torrid pace of home price appreciation has begun to moderate.” 

Royal LePage is forecasting that the aggregate price of a home in Canada will increase 16 per cent to $771,500 in the fourth quarter of 2021, compared to the same quarter last year. The previous forecast, released in April 2021, has been revised upward to reflect the current state of the market. While the rate of price appreciation is decelerating, a boost in demand is expected in the fall from foreign students, newcomers and investors as pandemic-era restrictions are lifted and the effects of the global health crisis wane. 

“Over the past six months, soaring prices and intense competition for the limited supply of homes for sale have left many Canadians frustrated with their inability to improve their housing situation," Soper said. "As home prices stabilize, many of these potential buyers, who will have had time to build up a larger down payment, should have an opportunity to transact." 

With COVID-19 cases on the decline and rates of full immunization rapidly rising, a return to pre-pandemic life seems imminent, which will likely result in a boost in immigration, the return of jobs in the hospitality and tourism industries, and the return of foreign students. 

“Household formation will undergo another major shift before the end of the year, with many young Canadians who chose to move in with parents during the lockdowns looking for their own places to live," Soper said. "As the hospitality industry reopens and employment opportunities abound, new sources of housing demand will emerge.

"Finally, we will welcome back hundreds of thousands of foreign students and a new wave of immigration. All of these people need to put a roof over their heads, which will encourage a wave of entrepreneurial landlords  investors eager to provide rental accommodation.“

These new sources of demand should sustain the housing market at buoyant levels through the all-important spring market in 2022, Soper noted, adding a systemic housing supply shortage remains the biggest threat to Canadians’ dreams of home ownership, or even a decent home to rent. 

Driven by the country’s ambitious economic growth plans, the population will continue to expand and a lack of housing inventory in markets from coast to coast will likely result in continued competition for available properties as well as a continued climb in prices, he added.

“Policy-makers in this country have struggled for years to address our housing supply crisis,” Soper said. “All too often our political leaders fall into the ‘quick-fix’ trap, throwing new taxes or regulations at the housing economy which do little but temporarily push people to the sidelines, creating pent-up demand. That temptation looms large now. Yet, what Canadians do not need are pandemic-era policies in a post-pandemic economy.

"We need to address the fundamental flaws in our development approval processes, so we may someday have the homes our people require. It is our only hope to address housing affordability.” 

Until a 'real solution' to the chronic housing supply shortage is implemented, prices will continue to rise, added Karen Yolevski, chief operating officer with Royal LePage Real Estate Services. 

“We may see a slight slowdown over the summer, but demand is expected to rise again in the fall with the return of students to in-person learning, the revival of the tourism and hospitality industries, and an increase in immigration. That demand will increase competition and continue to push prices upward.” 

Yolevski added that while the pandemic has driven demand in the suburbs and rural areas, the return to normal socialization habits will once again draw Canadian home buyers to city centres. 

“Young people will always be drawn to the downtown core. The walkability, access to restaurants and entertainment, and the diversity of different neighbourhoods will once again become top priorities for potential buyers once the fear caused by the pandemic diminishes," she said.