The Canadian Housing Market is About to Flip...

Griffin Milks

7 Sept 202410:33

Summary

TLDRThe Canadian housing market faces significant challenges, with affordability remaining a major concern. Despite recent price corrections, rising interest rates, immigration, and limited housing supply continue to put pressure on the market. Building 3.5 million homes by 2030, as recommended by the Canadian Mortgage and Housing Corporation, seems unlikely due to insufficient housing starts. While interest rates are starting to drop, sparking potential demand, the supply shortage persists. The shift towards multifamily properties, like apartments, over single-family homes further complicates the future of affordable homeownership in Canada.

Takeaways

🏡 The Canadian housing market has remained challenging for prospective buyers despite recent price corrections.
📉 Rising interest rates and limited housing supply continue to drive affordability concerns for many Canadians.
🌍 Immigration plays a large role in increasing housing demand, contributing to rising rent and home prices, though the issue is complex.
🏘️ The Canadian Mortgage and Housing Corporation (CMHC) estimates that 3.5 million new homes need to be built by 2030 to restore housing affordability.
🔨 Meeting this goal of 500,000 homes per year is highly unlikely, with the highest historical housing starts reaching only 271,000 in 2021.
🏙️ The majority of new constructions are multi-family properties, such as apartments, which makes single-family homes scarcer and more expensive.
📊 Interest rates have been steady at 5% for the last two years, but recent cuts by the Bank of Canada may stimulate more demand from sidelined buyers.
💸 Although lower interest rates could increase purchasing power, many Canadians may still struggle with financial hardships and high monthly expenses.
🏗️ The future of Canadian housing is uncertain, with high demand, supply constraints, and economic factors making single-family homes increasingly rare and costly.
📈 The housing market could see renewed price increases due to lower interest rates and persistent demand, though it remains a difficult trend to predict.

Q & A

What are some of the main challenges currently facing the Canadian housing market?
-The Canadian housing market faces multiple challenges, including affordability concerns due to rising interest rates, limited housing supply, and socioeconomic impacts from the pandemic. Immigration, employment levels, and the cost of construction are also contributing factors.
Why is it difficult to implement one-size-fits-all housing policies across Canada?
-Canada is geographically vast with distinct housing markets in different provinces and municipalities. Each region has unique challenges, making it impossible to apply uniform housing policies effectively. Tailored solutions are needed to address each region's specific needs.
How has immigration contributed to the rising housing demand in Canada?
-Immigration has led to increased demand for housing, as the influx of new residents has intensified competition in the market, driving up rent and home prices. This is a basic economic principle of supply and demand, where a surge in demand and limited supply leads to higher prices.
How many homes does Canada need to build by 2030 to restore housing affordability?
-According to the Canadian Mortgage and Housing Corporation (CMHC), Canada needs to build roughly 3.5 million homes by 2030 to restore housing affordability. This is based on the percentage of household income required to purchase a home, aiming to bring housing costs in line with levels seen in 2004.
Is building 3.5 million homes by 2030 a realistic goal?
-No, building 3.5 million homes by 2030 is unlikely. Historical data shows that Canada has not come close to the required number of housing starts and completions needed. The highest number of starts in recent years was 271,000 in 2021, which is only about half of what is needed annually.
What types of housing construction have increased in recent years in Canada?
-Most new housing constructions in recent years have been multi-family properties such as apartments. In 2021, 70% of the 271,000 new housing starts were for multi-family units, which accommodate renters but do not address the long-term homeownership demand for single-family homes.
How have interest rates impacted the Canadian housing market?
-Higher interest rates have made it more expensive for builders to construct homes and for buyers to purchase them, which has slowed down the housing market. Recently, the Bank of Canada has lowered interest rates, which could increase buyers' purchasing power and potentially lead to higher demand.
What is the potential effect of further interest rate cuts on the housing market?
-Further interest rate cuts could trigger increased demand for homes as buyers gain more purchasing power. However, this could also lead to higher home prices, which may be unaffordable for many Canadians despite lower interest rates.
What kind of housing is expected to remain scarce and expensive in Canada?
-Single-family homes are expected to remain scarce and expensive due to the focus on building multi-family units like apartments. As the demand for long-term homes grows, the limited supply of single-family homes will continue to drive up their prices.
What are the long-term implications of building mostly multi-family units in Canada?
-While building multi-family units addresses the immediate need for affordable rentals, it limits the availability of long-term homes like single-family houses. As renters eventually seek to transition to homeownership, the scarcity of such homes could drive up prices further, exacerbating housing affordability issues in the long term.

Outlines

00:00

🏡 Canadian Housing Market: Challenges and Trends

This paragraph discusses the continued challenges in the Canadian housing market, highlighting affordability issues due to rising interest rates and limited supply. It notes that while home prices have corrected since the highs of 2022, buying a home remains difficult for many Canadians. Factors such as immigration, employment levels, and construction costs all contribute to the current housing crisis, creating a landscape where homeownership is increasingly out of reach for many. The geographic diversity of Canada's housing markets complicates the development of one-size-fits-all policies, as different provinces face distinct challenges.

05:01

📊 Immigration's Role in Rising Housing Prices

This section focuses on the complex role immigration plays in the Canadian housing market. While newcomers contribute to housing demand, leading to rising rents and home prices, the issue is multifaceted. The influx of immigrants has created additional competition in the housing market, particularly in major cities. Between 2018 and 2021, over 1.63 million new citizens arrived in Canada, with a large portion coming from India, the Philippines, and China. The government’s recent rollback of immigration policies, including the foreign worker program, is a response to growing concerns about housing affordability and other socioeconomic strains.

10:02

🏘️ Can 3.5 Million Homes Solve the Affordability Crisis?

Here, the script discusses the Canadian Mortgage and Housing Corporation's (CMHC) estimate that 3.5 million homes need to be built by 2030 to restore housing affordability. However, the possibility of reaching this goal is slim. Historical housing starts and completions have consistently fallen short, with the highest being 271,000 starts in 2021—far less than the 500,000 homes needed annually. Additionally, most new builds in recent years have been multi-family properties (apartments), which serve renters but limit the availability of single-family homes, further driving up prices for those looking to own a home in the future.

📉 Interest Rates and Housing Market Forecast

This paragraph explores how recent interest rate cuts by the Bank of Canada have the potential to revive housing demand. After holding steady at 5% for two years, the Bank of Canada recently lowered rates by 75 basis points, with more cuts expected through 2025. Lower interest rates could increase buying power, encouraging more sidelined buyers to reenter the market. However, while reduced rates may lead to a renewed increase in home prices, many Canadians may still struggle to afford homes due to rising financial hardships. The future of the housing market remains uncertain, with single-family homes likely to become even more expensive.

🎥 Conclusion and Call to Action

In the final paragraph, the speaker invites viewers to share their thoughts on the Canadian housing market, particularly regarding the recent interest rate cuts. They also promote their real estate and stock market content, including a free Skillshare course on stock market investing, which has gained significant popularity with nearly 3,000 students. The speaker thanks the audience for watching and encourages them to check out more content on the channel.

Mindmap

Keywords

💡Housing Affordability

Housing affordability refers to the proportion of household income required to purchase a home. In the video, it is defined by the Canadian Mortgage and Housing Corporation (CMHC) as the goal to restore housing costs to more manageable levels, similar to what they were in 2004. The video's central message highlights the struggle many Canadians face due to rising house prices and stagnant income growth.

💡Interest Rates

Interest rates are the cost of borrowing money, typically set by central banks like the Bank of Canada. In the video, rising interest rates have made homes more expensive for both buyers and builders, leading to fewer housing starts. However, recent cuts in interest rates may encourage more buyers to enter the market, potentially driving demand and prices even higher.

💡Housing Supply

Housing supply refers to the number of homes available for sale or rent in the market. The video explains that Canada's housing market suffers from a significant supply shortage, contributing to higher prices. To meet affordability goals by 2030, Canada would need to build 3.5 million homes, but current construction levels fall far short of this target.

💡Immigration

Immigration refers to the movement of people into a country to live. The video notes that immigration has been a key factor in driving up housing demand in Canada, especially with the influx of over 1.6 million new citizens since 2018. The increased demand from newcomers, combined with limited housing supply, has contributed to rising home and rent prices.

💡Multifamily Properties

Multifamily properties are buildings designed to house multiple families, such as apartment buildings. The video highlights that 70% of new construction in Canada in recent years has been multifamily properties, which cater mostly to renters. While this helps meet immediate housing needs, it has reduced the availability of single-family homes, which remain in high demand.

💡Homeownership

Homeownership refers to the state of owning a home rather than renting. The video describes how rising housing costs and limited supply have made homeownership increasingly unattainable for many Canadians. The high bar set for homeownership has led to a housing landscape where affordability challenges are growing, pushing more people into renting.

💡Housing Starts

Housing starts refer to the number of new homes on which construction has begun. The video states that Canada has not come close to the required 500,000 housing starts per year to meet its goal of restoring affordability by 2030. In 2021, for example, there were only 271,000 housing starts, less than half of what is needed.

💡Pandemic Impact

Pandemic impact refers to the socioeconomic changes brought about by the COVID-19 pandemic. The video mentions that the pandemic exacerbated issues in Canada's housing market, creating long-lasting effects such as higher demand for homes and increased pressure on supply. These impacts have intensified existing affordability challenges.

💡Bank of Canada

The Bank of Canada is Canada's central bank, responsible for setting monetary policy, including interest rates. In the video, the Bank of Canada's recent decision to lower interest rates is discussed as a potential driver of increased housing demand, as lower rates can make monthly mortgage payments more affordable, leading more buyers to re-enter the market.

💡Foreign Worker Program

The foreign worker program allows non-citizens to work in Canada temporarily. The video discusses how this program, while helpful in recovering from the pandemic, has been linked to rising housing costs, strains on healthcare, and youth unemployment. The Canadian government's recent decision to roll back the program is a response to these concerns.

Highlights

Despite price corrections, the Canadian housing market remains challenging due to rising interest rates and limited housing supply.

The Canadian housing market has been in a tough situation since the pandemic, creating long-lasting socioeconomic impacts.

Factors impacting the housing market include interest rates, immigration, supply and demand, employment levels, and construction costs.

Canada's housing markets are diverse, with unique challenges across provinces and municipalities, making one-size-fits-all policies difficult to implement.

Immigration is a major factor contributing to rising home and rent prices as increased demand outpaces housing supply.

Canada has welcomed 1.63 million new citizens since 2018, with a significant impact on housing market demand.

The Canadian Mortgage and Housing Corporation (CMHC) estimates that 3.5 million homes are needed by 2030 to restore housing affordability.

Housing affordability is measured by the percentage of household income required to purchase a home, with 2004 used as a benchmark for comparison.

The highest number of housing starts in recent years was 271,000 in 2021, far below the 500,000 homes per year required to meet the CMHC target.

70% of new construction in 2021 was for multi-family properties, such as apartments, which limits the availability of single-family homes.

The scarcity of single-family homes increases demand and prices, making homeownership harder for Canadians.

Interest rates have been stable at 5% for the past two years, but recent cuts by the Bank of Canada could revive the housing market.

Lower interest rates increase purchasing power, which may lead to increased demand and home price growth.

The Canadian government is retreating from open-border immigration policies, which were blamed for increasing housing costs.

Despite lower interest rates, Canadians may struggle with financial hardships, affecting their ability to bear rising home prices.