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CANADIAN HOUSING HEALTH CHECK
Adjusting to policy measures in Ontario keeps near-term
housing risks elevated in Canada
Local housing risk indicators still show unusually high risks and vulnerabilities in
Toronto and other southern Ontario markets but the recent easing of upward price pressure has been a positive development. Risk profiles in other markets generally
continued to improve.
Nation-wide, the probability of a steep and widespread housing downturn in Canada
over the next 12 months remains low, although it has increased slightly because of the
potential for overreaction to policy action in Ontario and for further policy tightening.
Housing policy: Reaction to Ontario’s Fair Housing Plan announced on April 20 has
been swift. Home resales have dropped sharply and listings have surged in the Great-
er Toronto Area. The plan appears to be having some success at reining in price ex-
pectations for both buyers and sellers in the area, although the process of adjustment
has yet to run its course fully.
Tax on foreign buyers in Vancouver: The Vancouver market has adjusted in an
orderly fashion to the 15% tax on home purchased by foreign nationals. Its dampen-
ing effect on homebuyer demand may be waning, however.
Escalating prices in Canada’s hot markets: Affordability-related vulnerabilities
remain high in Toronto (where they continued to increase recently) and Vancouver
(where they have decreased modestly since the fall).
Interest rates: Interest rate risks are still contained but have increased recently. The
Bank of Canada raised its overnight rate by 25 basis points in early July and signaled
that there may be more to come. The news sparked a run-up in bond yields. While we
expect yields to drift higher, the odds of a spike in rates are low in the short term.
Energy sector downturn: Oil prices’ renewed softness in recent months has turned
the focus on this risk factor again in oil-producing provinces. Any further decline in
oil prices could jeopardize the burgeoning recovery in Alberta’s housing market.
Unemployment: Labour market-related risks have generally continued to ease. In
particular, there was notable improvement in Alberta where the unemployment rate
has declines markedly from decade-high levels late last year.
July 2017
Largest four housing markets
Toronto — Elevated risks and vulnera-
bilities persist while the market transi-
tions toward a cooler state in the
wake of policy action. Prices are likely
to decline m/m for a period of time.
Sharp shifts in market psychology al-
ways raise the odds of overreaction.
But slower home resale activity and
increased supply of homes for sale
have been positive developments.
Montreal — Upward momentum con-
tinued to build so far in 2017. Sales
are growing and inventories declining.
Prices have picked up their pace but
still within very reasonable range,
although affordability is starting to
become a little stretched. The mar-
ket’s risk profile is quite positive over-
all at this point.
Vancouver — Despite further improve-
ments this year, extremely poor af-
fordability is still a major vulnerabil-
ity. Policy measures to address hous-
ing risks have contributed to cooling
the market down, although the effect
of these measures may be waning. The
recent tightening of demand-supply
conditions has dimmed the risk of a
sharp price decline in the near term.
Calgary — Growing signs of an eco-
nomic recovery have improved the risk
profile. High condo and rental invento-
ries are still sources of concerns. The
recent softening in oil prices also rais-
es risks. A drop in condo construction
and an improving trend for home re-
sales have been positive develop-
ments.
Canada Vancouver Calgary Toronto Montreal
Affordability
Resale market balance
Rental market balance
Interest rates
Labour market
Demographics
New home inventory - singles
New home inventory - multiples
Homes under construction - singles
Homes under construction - multiples
Significantly outside historical norms and posing much higher risk than usual
Modestly outside historical norms and posing moderately higher risk than usual
Within historical norms or not posing any immediate threat
Monitoring dashboard
Craig Wright
Chief Economist
(416) 974-7457
Robert Hogue
Senior Economist
416-974-6192
CANADIAN HOUSING HEALTH CHECK | JULY 2017
2
Background
Canadian Housing Health Check provides RBC Economics’ assessment of key indicators of Canada’s housing market that are
deemed to offer early warning of potential imbalances. This monitoring exercise is one of the tools used regularly by RBC Econom-
ics to follow developments in this important sector of the Canadian economy. The report focuses on indicators that have been closely
correlated (leading or coincident) with housing downturns and significant home price declines during housing cycles in the past three
decades or so. While we believe that housing affordability and the sales-to-new listings ratio (and months’ inventory) are the best
indicators of market stress and price pressure, respectively, no single indicator provides perfect and accurate early warning signals of
impending trouble. Accordingly, Canadian Housing Health Check emphasizes a ‘dashboard’ approach to convey the point that trou-ble in the housing market can arise from many directions and that it is imperative to monitor the situation broadly. This approach is
complemented by a detailed review of individual indicators that includes a graphical depiction of the current situation within a his-
torical context and a brief discussion of the rationale of our assessment.
About the graphics and risk ‘zone’ system The dashboard graphics display the current values of the indicators (dark blue bar) within zones that we consider safe (green), con-
cerning (yellow) or dangerous (red). The width of each graphics represents the range of values posted by the indicator during the past
30 years (or period of time available). The far left corresponds to the safest measure ever recorded and the far right, to the most ex-
treme imbalance reached historically. For most indicators, the left corresponds to low values but for some (sales-to-new listings ratio
and net immigration) to high values.
The yellow and red zones appearing in dashboard graphics and individual indicator charts generally were determined by analyzing past housing downturns and constitute our estimations of thresholds above (or, in some cases, below) which market imbalances and
significant home price declines occurred at the national level in Canada. The yellow zone comprises a range of values that, histori-
cally, have been mostly associated with imbalances but not always with housing downturns (i.e. sustained price declines). In other
words, these values give somewhat ambiguous and sometimes ‘false’ signals. The red zone, however, comprises values that repre-
sent imbalances much more clearly and of larger magnitude. An indicator in the red zone should be considered a source of worry.
The farther to the right in the red zone in the dashboard graphics are the values, the more extreme is the imbalance, the more intense
is the stress exerted on the market and, ultimately, the more severe the potential correction.
The specific rules at the national level are as follows:
RBC Affordability Measure for the aggregate of all housing types: yellow threshold = 41.5% (0.3 standard deviations above
the long-term mean); and red at 45.1% (1.0 standard deviations above the mean).
Sales-to-new listings ratio: yellow threshold = 0.40; and red = 0.35.
Months of inventory: yellow threshold = 7.0; red = 8.5.
Rental vacancy rate: yellow threshold = 3.2% (long-term mean); and red = 3.7% (0.5 standard deviations above the mean).
Real 5-year bond yield relative to trailing 12-month average: yellow threshold = 1.0 percentage point (1 standard deviation
above the mean); red = 2.0 percentage points (2 standard deviations).
Unemployment rate relative to trailing 12-month average: yellow threshold = 0.41 percentage points (0.6 standard deviation
above the mean); red = 0.9 percentage points (1.5 standard deviations).
Net immigration per 1,000 population: yellow threshold = 6.5 (0.5 standard deviations above the mean); red = 5.0 (0.4 stand-
ard deviations below the mean).
Completed and unoccupied units per 1,000 population, singles and semis: yellow threshold = 0.29 (0.3 standard deviations
above the mean); red = 0.36 (1.3 standard deviation above the mean).
Completed and unoccupied units per 1,000 population, multiples: yellow threshold = 0.36 (the mean); red = 0.47 (0.9 stand-
ard deviation above the mean).
Housing under construction per 1,000 population, singles: yellow threshold = 2.11 (0.5 standard deviations from the mean);
red = 2.33 (1 standard deviation from the mean).
Housing under construction per 1,000 population, multiples: yellow threshold = 3.93 (0.5 standard deviations from the
mean); red = 4.58 (1 standard deviation from the mean).
The areas shaded in grey in the indicator charts correspond to housing downturns – i.e., periods during which home prices (as de-
fined as average prices of homes sold on the MLS system) fell by more than 5% from monthly peak to trough. It is important to note
that the precise timing of these downturns can vary depending on the home price measure used. The grey shaded areas, therefore,
should be seen as broad guidelines.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
3
CANADA
Affordability
Near-term: neutral
Medium-term: negative
Existing home market balance
Near-term: positive
Medium-term: negative
Near-term: positive
Medium-term: negative
Near-term: positive
Medium-term: positive
Demand fundamentals
Near-term: neutral
Medium-term: neutral
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Supply fundamentals
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: negative
Risk implications
RBC affordability measure- aggregate
Low High
Sales-to-new listings ratio
LowHigh
Months of inventory
Low High
Change in real 5-Year bond yields
Low High
Low High
Housing under construction per capita - singles
Low High
YellowHousing under construction per capita - multiples
Low High
Yellow
Rental vacancy rate
Change in the unemployment rate
Low High
Yellow
LowHigh
Yellow
Net immigration rate
Low High
YellowCompleted and unsold units per capita - singles and semis
Low High
YellowCompleted and unosold units
per capita - multiples
CANADIAN HOUSING HEALTH CHECK | JULY 2017
4
Affordability
CANADA
Existing home market balance
20
25
30
35
40
45
50
55
60
65
70
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
RBC affordability measure - aggregate
Source: RBC Economics Research, Brookfield RPS, Statistics Canada, Bank of Canada, Royal LePage
Ownership costs as % of household income, Canada
In our view, affordability is the most meaningful indicator of underlying
market stress. Other traditional metrics such price-to-income and price-to-rent
ratios can be useful guides of market imbalance under many circumstances;
however in the current environment, affordability is a superior gauge because
it explicitly takes into account interest rates (the other measures don’t), which
have been—and, in the near term, expected to remain—abnormally low.
The most recent reading of RBC’s aggregate housing affordability meas-
ure (45.9% in Q1 2017) suggests the presence of greater-than-average
market stress for buyers in Canada with the situation steadily deteriorat-
ing since the spring of 2015. Affordability is most stretched for single-
detached home in Canada’s largest markets. Condo affordability (37.2%)
is generally closer to its historical norms, which implies less stress in this
category.
We estimate the ‘danger zone’ for the aggregate measure to be above 45.0%
nationally.
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Monthly, S.A.
Sales-to-new listings ratio
Source: RBC Economics Research, Canadian Real Estate Association
Monthly, S.A., Canada
Sales-to-new listings ratio
Buyer's market
Balanced market
Seller's market
The sales-to-new listings ratio is a reliable gauge of the degree of slack or
tightness in the resale market. When the ratio approaches, or is above 0.60,
the market favours sellers and prices typically rise rapidly. When the ratio
approaches, or is below 0.40, the market favours buyers and prices come
under intense downward pressure. Anything in between is considered a bal-
anced market and prices tend to rise modestly.
Canada-wide, the sales-to-new listings ratio fell back within the range
consistent with balanced market conditions after climbing into seller’s
market territory in 2016. Home resales dropped sharply in May and
June, 2017, in Canada after trending upwardly since 2013. New listings
rebounded strongly this spring after plummeting late last year. Extreme-
ly tight markets in Ontario earlier this year have rebalanced in recent
months.
Historically, the largest price declines occurred when the ratio fell below
0.35.
0
1
2
3
4
5
6
7
8
9
10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Long-term average
Monthly, S.A., Canada
Months of inventory
Source: RBC Economics Research, Canadian Real Estate Association
The total number of homes for sale expressed as the number of months it
would take to sell them at the current pace of sales is another resale market
balance indicator. Historical correlation with prices is difficult to establish
with precision, however, because the Canadian Real Estate Association has
been publishing this indicator only since 2004.
Nonetheless, based on what track record is available, we estimate that down-
ward pressure on prices start to build at levels between 7.0 and 8.5 months,
and that severe pressure emerges at levels exceeding 8.5.
The sharp rebound in new listings this spring boosted the number of
months’ inventory in Canada to 5.1 in June, just slightly below the long-
run average of 5.3. This level is consistent with continued price increases.
Demand-supply balance indicators for the existing home market, there-
fore, continue to suggest little in the way of any imminent drop in prices
in the national market.
0
1
2
3
4
5
6
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Long-term average
Rental vacancy rate
Annual:1988-2010; Semi-annual: 2011-currentSource: RBC Economics Research, CMHC
%, total CMAs, purpose-built apartment buildings of three units or more, Canada The rental vacancy rate has not correlated very closely with prices historical-
ly. However, we believe that the Canadian housing story will be very sensi-
tive to the supply of new units into the marketplace, much of which (almost
entirely condos) will be directed toward the rental market. Therefore, this
gauge of market absorption in the rental segment should be monitored close-
ly.
A main drawback of the vacancy rate as a monitoring tool is that it is pub-
lished only once a year (in October) by CMHC.
The latest data for October 2016 shows further marginal increase from
3.3% in October 2015 to 3.4% at the national level, which slightly ex-
ceeds the long-term average (3.0%). The rise since 2014 primarily reflect-
ed large increases in Alberta and Saskatchewan.
We would consider a vacancy rate above 3.5% as a sign of oversupply in the
rental space.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
5
Demand fundamentals
CANADA
Supply fundamentals
-4
-3
-2
-1
0
1
2
3
4
5
6
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Percentage points, Canada
Real 5-year bond yields relative to trailing 12-month average
Source: RBC Economics Research, Bank of Canada, Statistics Canada
Surges in interest rates have been strongly associated with market downturns
and price declines in several housing cycles in the past 30 years in Canada.
A 100 basis-point rise relative to the trailing 12-month average would apply
intense downward pressure on the market and a 200 basis point surge would
likely destabilize it and potentially cause a significant price decline.
The yield on the five-year Government of Canada bond surged in June
to its highest level in 30 months, although the yield is still low from a
historical perspective. The real yield was up 116 basis points from its 12-
month trailing average in June, which posed some risk to the market.
RBC’s base case interest rate forecast calls for the overnight rate to rise
by another 25 basis points in 2017, followed by two additional hikes of
similar size in 2018. RBC expects longer-term rates to continue to drift
modestly higher. This scenario would present only moderate risks to the
housing market over the short term.
-2
-1
1
2
3
4
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Percentage points, Canada
Unemployment rate relative to trailing 12-month average
Source: RBC Economics Research, Statistics Canada
Similarly, spikes of unemployment have been associated with housing down-
turns in the past 30 years, although they have tended to lag price declines
rather than lead them.
We estimate that a 0.25 percentage point increase in Canada’s unemployment
rate relative to the trailing 12-month average would stress the market moder-
ately, but that a full percentage-point surge would threaten its stability.
The unemployment rate has trended downwardly since the beginning of
2016 and continued to do so in 2017. It reached an eight-year low of
6.5% in April and June. The rate has been below its trailing 12-month
average since May 2016.
Labour market conditions pose little risk nationally at this point. Some
areas of the country show a higher degree of risk; however, there has
been easing of such in Alberta so far in 2017 with that province’s unem-
ployment rate dropping noticeably.
1
2
3
4
5
6
7
8
9
10
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Trailing 4-quarter sum, Canada, per 1,000 population
Net immigration rate
Source: RBC Economics Research, Statistics Canada
Net immigration into Canada is another indicator that has not correlated
closely with housing downturns or price declines historically; however, given
the boom in condo construction in major Canadian cities, any sign that the
strong inflow of immigrants is slowing would be concerning.
The rate of net immigration in Canada (measured per 1,000 population)
has surged since late-2015, after falling between late 2014 and mid-2015.
After reaching a multi-decade high at the end of 2016, the eased back some-
what to 8.9 in Q1/17, still very comfortably above the 6.5 threshold signal-
ling some degree of vulnerability.
The rate is likely to remain elevated in light of the federal government
maintaining a high target (300K) for new permanent residents in the
country in 2017.
0.0
0.1
0.2
0.3
0.4
0.5
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Canada, n.s.a.
Completed and unsold units - singles and semis
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
A telltale of an overbuilt market is the number of units recently completed but
remaining unsold.
We segment the Canadian market into singles and multiples to identify poten-
tial sources of trouble.
On the single-family homes side, the stock of unsold units has dipped
slightly since the summer of 2016 to 0.21 units per 1,000 population by
May, thereby resuming a downward trend after stabilizing between mid-
2014 and mid-2016. There continues to be no signs of any excess supply
of new single-detached units in Canada at this stage. If fact, the opposite
is the case in several markets where single-detached are in short supply.
We would consider the situation concerning at 0.29 units and dangerous at
0.36 units.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
6
Supply fundamentals
CANADA
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Canada, n.s.a.
Completed and unsold units - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
On the multi-unit dwellings side, market absorption has been solid
throughout 2016 and early-2017 amid slower completions compared to
2015 (when a spike in condo completions in Toronto occurred early in the
year). This helped to draw down the inventory of unsold units in Canada.
The rate of unsold units eased to 0.32 units per 1,000 population in May
2017, down from a 19-year high of 0.41 units in May 2015.
The latest read of this indicator was slightly below the long-term average
(0.36) and well below the 0.48 threshold that would signal a high degree
of excess.
Overall, the inventory of completed but unsold condos evolved construc-
tively in the past two years in Canada, thereby muting oversupply risks.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Canada, n.s.a.
Housing under construction - singles
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
The object of much concern in recent past has been the number of housing
units under construction in Canada.
We continue to find that little concern of overbuilding is warranted in the
single family home segment, where levels remain well below historical
averages (when measured on a per 1,000 population basis) with the trend
even declining slightly in the past several years, although a slight uptick
appears to have taken place since the late stages of 2016.
In some of Canada’s largest markets, demand for single family homes
significantly outstrips supply.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Canada, n.s.a.
Housing under construction - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
On the multiples side, however, there are record-high levels of condo
units under construction in Canada.
There were 6.0 multi-unit dwellings per 1,000 population under construc-
tion in Q2/17.
Strictly speaking, this level is well into the ‘high risk zone’ (4.6 units or
higher). Yet in the context of tight demand-supply balances in markets
such Vancouver and until recently Toronto, strong construction should
be seen as being part of the solution to restrain price increases.
Most of the units being built are in the Toronto (31% of total) and Van-
couver (19%) areas.
Strong condo construction in large part reflects structural changes that
arose from policy (e.g. rules limiting urban sprawl) and affordability
(condo apartments are the more affordable housing type) considerations,
and therefore, represents a market share gain over single-family homes.
Nonetheless, the prospects for high levels of condo completions in the
period ahead potentially entail a fair degree of absorption risks over the
medium term.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
7
GREATER TORONTO AREA
Affordability
Near-term: negative
Medium-term: negative
Existing home market balance
Near-term: neutral
Medium-term: negative
Near-term: positive
Medium-term: negative
Near-term: positive
Medium-term: positive
Demand fundamentals
Near-term: neutral
Medium-term: neutral
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Supply fundamentals
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Near-term: neutral
Medium-term: neutral
Risk implications
Change in real 5-Year bond yields
Low High
RBC affordability measure- aggregate
Low High
Sales-to-new listings ratio
LowHigh
Months of inventory -
OntarioLow High
Low High
Yellow
Rental vacancy rate
Change in the unemployment rate
Low High
Yellow
LowHigh
Yellow
Population growth
Low High
YellowCompleted and unsold units per capita - singles and semis
Low High
YellowCompleted and unsold units per
capita - multiples
Low High
Housing under construction per capita - singles
Low High
YellowHousing under construction per capita - multiples
CANADIAN HOUSING HEALTH CHECK | JULY 2017
8
Affordability in the GTA has been on a deteriorating trend since 2012
with the pace of deterioration accelerating since 2015. RBC’s measure is
now in a zone that historically has been associated with a high risk of an
ensuing negative outcome.
Most of the affordability pressure is concentrated in the single-family
home side of the market; however, stress has increased in the condo seg-
ment as well lately, with condo prices escalating rapidly in the past year.
Stretched affordability may become a more pressing issue now that the
Toronto-area market has started to cool.
Sky-rocketing prices earlier this year posed a substantial risk to the fu-
ture stability of the market.
The Toronto-area market would be more sensitive to a substantial rise in
interest rates than most markets in Canada due to its high prices.
Demand-supply conditions swung sharply in favour of buyers this spring
after becoming extremely tight at the start of 2017. From a 31-year high
of 0.94 in January 2017, the sales-to-new listings ratio plummeted to 0.39
by June, marginally below the 0.40 threshold marking conditions favour-
ing buyers. Earlier tight market conditions fueled strong price increases
for all types of housing and in all areas within (and outside) the GTA.
The sudden swing in market conditions is signaling a significant easing in
upward price pressure and raises the potential for a period of outright
price declines.
Indeed, the average price of homes sold on the MLS system has fallen by
14% between April and June. Benchmark prices, however, have softened
by less than 1% in June.
A moderate, controlled decline in prices should seen as a positive devel-
opment that would bring some much needed affordability relief.
Affordability
GREATER TORONTO AREA
Existing home market balance
0
1
2
3
4
5
6
7
8
9
10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Long-term average
Monthly, S.A., Ontario
Months of inventory
Source: RBC Economics Research, Canadian Real Estate Association
The easing of earlier demand-supply tightness is also apparent in the rise
in inventories of homes for sales (active listings), which had plummeted
to historically low levels at the start of this year.
Although CREA data is available only at the provincial level, the number
of months’ inventory in Ontario rose to 2.7 in June from its lowest point
(1.5 months in March 2017) since records have been published by the
Canadian Real Estate Association (2003).
Separate data from the Toronto Real Estate Board shows that the num-
ber of months of inventory in the Toronto area was 1.2 in June 2017, up
from 1.0 in March but still down from 1.5 a year earlier and 2.2 at the
end of 2014.
Concerns that Toronto’s condo boom would flood the rental market and
cause vacancies to rise have not materialized to date.
The rental vacancy rate in the GTA has remained low in recent years. In
fact, it fell slightly in October 2016 to 1.3% from 1.6% a year earlier.
Toronto Real Estate Board statistics showed that condo rental activity
was strong Q2/17 but flat relative to a year earlier due to a drop in the
number of units listed for rent (down 3.1%) which restrained supply.
Average rent continued to rise at a brisk pace (by almost 9% y/y for a
one-bedroom apartment).
So far, there is little evidence that condo investors who rent out their
units have overestimated rental demand.
20
30
40
50
60
70
80
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
RBC affordability measure - aggregate
Source: RBC Economics Research, Brookfield RPS, Statistics Canada, Bank of Canada, Royal LePage
Ownership costs as % of household income, Toronto
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Monthly, S.A.
Sales-to-new listings ratio
Source: RBC Economics Research, Canadian Real Estate Association
Monthly, S.A., Toronto
Sales-to-new listings ratio
Buyer's market
Balanced market
Seller's market
0
1
2
3
4
5
6
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Long-term average
Rental vacancy rate
Source: RBC Economics Research, CMHC
%, purpose-built apartment buildings of three units or more, Toronto
CANADIAN HOUSING HEALTH CHECK | JULY 2017
9
Labour market conditions in the GTA continue to be generally support-
ive for the area’s housing market.
Toronto’s unemployment rate remains on a seven-year long downtrend,
easing to 6.7% in June which just shy of the eight-year low of 6.5% rec-
orded in July 2016.
Labour market-related risks remain low at this point.
Demand fundamentals
GREATER TORONTO AREA
Supply fundamentals
-2
-1
1
2
3
4
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Percentage points, Toronto
Unemployment rate relative to trailing 12-month average
Source: RBC Economics Research, Statistics Canada
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Y/Y % change in the 15+ population, Toronto
Adult population growth
Source: RBC Economics Research, Statistics Canada
Solid demographic fundamentals have long supported GTA’s housing
market.
Those fundamentals improved since early 2016, following a period of
softening in 2014-2015.
The rate of growth in adult population picked up from 1.6% in mid-2015
to 1.9% most recently, thereby matching GTA’s long-term average.
A rate below 1.5% would be a source of concern.
GTA home builders are responding to a dearth of single-family homes in
the area, with single-starts rising 16% in both 2015 and 2016 (from his-
torically low levels in 2014).
This is as a positive development that will help address the tightness issue
in this housing category.
Inventories of newly completed and unsold the single-family continue to
be historically low despite trending slightly higher in the past four years.
There is no indication of overbuilding of single-family homes in the area
at present.
The inventory of recently completed and unsold condo units last year
ceased to be a concern in the Toronto area.
Absorption of newly built condos has been brisk in the GTA since late
2015 and stocks of unsold units have come down considerably.
The unabsorbed inventory fell from a 22-year peak of 0.58 units per
1,000 population in May 2015 to 0.14 units in May 2017, which is well
within the ‘safe zone’—i.e., below the 0.27 threshold signalling the poten-
tial for mild excess supply.
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Toronto, n.s.a.
Completed and unsold units - singles and semis
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Toronto, n.s.a.
Completed and unsold units - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
CANADIAN HOUSING HEALTH CHECK | JULY 2017
10
Supply fundamentals
GREATER TORONTO AREA
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Toronto, n.s.a.
Housing under construction - singles
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
Single-detached starts picked up in both 2015 and 2016, and boosted the
number of such units under construction; still, the increase has not been
excessive as the most recent level roughly equaled the long-term average
for the area when measured in per 1,000 population terms.
The current pace of construction activity therefore does not signal any
impending wave of single-unit supply that might cause trouble for the
market.
Policy to reduce urban sprawl and favour higher density urban develop-
ment contributed to a significant slowdown in single-detached home
construction since the mid-2000s.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Toronto, n.s.a.
Housing under construction - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
The number of multi-unit dwellings under construction continues to be
historically high, although it has moderated in the last two years.
Expressed on a per 1,000 population basis, multi-unit construction re-
mains in a high risk zone; however, the potential threat to the market is
tempered by the healthier unsold condo inventory and very strong de-
mand in the existing home market.
The main risk of high levels of construction is that many units could
reach the completed stage at once, thereby flooding the condo resale and/
or rental markets. So far, both of these markets have absorbed the in-
creased supply quite handily.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
11
GREATER MONTREAL AREA
Affordability
Near-term: neutral
Medium-term: neutral
Existing home market balance
Near-term: positive
Medium-term: positive
Near-term: neutral
Medium-term: neutral
Near-term: neutral
Medium-term: neutral
Demand fundamentals
Near-term: neutral
Medium-term: neutral
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Supply fundamentals
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Near-term: negative
Medium-term: negative
Risk implications
Change in real 5-Year bond yields
Low High
RBC affordability measure- aggregate
Low High
Sales-to-new listings ratio
LowHigh
Months of inventory -
QuebecLow High
Low High
Yellow
Rental vacancy rate
Change in the unemployment rate
Low High
Yellow
LowHigh
Yellow
Population growth
Low High
YellowCompleted and unsold units per capita - singles and semis
Low High
YellowCompleted and unsold units per capita - multiples
Low High
Housing under construction per capita - singles
Low High
YellowHousing under construction per capita - multiples
CANADIAN HOUSING HEALTH CHECK | JULY 2017
12
Affordability
GREATER MONTREAL AREA
Existing home market balance
Existing home supply expressed as number of months’ inventory shows a
declining trend in Quebec since early 2015 from elevated levels. This
metric was at the edge of the mild-risk zone in June.
This is consistent with the modest but steady firming in marked condi-
tions in Montreal.
A wave of condo completions in 2014 (+18%) increased competition for
purpose-built apartment buildings, which has translated into higher
rental vacancy rates in 2015.
The opposite then occurred, whereby a sharp drop in condo completions
in 2015 (-28%) contributed to a slight easing in the vacancy rate from
4.0% in October 2015 to 3.9% in October 2016.
Such a rate continues to signal some mild degree of oversupply in the
rental market.
20
25
30
35
40
45
50
55
60
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
RBC affordability measure - aggregate
Source: RBC Economics Research, Brookfield RPS, Statistics Canada, Bank of Canada, Royal LePage
Ownership costs as % of household income, Montreal
Affordability deteriorated slightly in the Montreal area since early 2016
after showing an improving trend in the previous six years. Despite the
recent erosion, affordability does not pose any unusual stress for buyers
at this point.
RBC’s aggregate measure was 43.0% in Q1/17, up 1.6 percentage points
from a year ago and within a range consistent with moderate risk.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Monthly, S.A.
Sales-to-new listings ratio
Source: RBC Economics Research, Canadian Real Estate Association
Monthly, S.A., Montreal
Sales-to-new listings ratio
Buyer's market
Balanced market
Seller's market
Demand-supply conditions in the Montreal area have tightened steadily
since 2014. The sales-to-new listings ratio continued to drift higher in
2016 and the first half of 2017, reaching 0.62 in May, which was the high-
est point in seven years.
Home resales were up by 8% in the second quarter of 2017. Robust sales
activity took place amid a continued decline in the number of homes put
out for sale each month, which resulted in a significant drawdown in
inventories, especially in the single-detached segment. Condo invento-
ries—which had been a significant issue earlier—also fell, although they
remain quite plentiful in the area.
The upward trend in the sales-to-new listings ratio suggests that the rate
of price increases may strengthen in the period ahead, and do not point
to any imminent risk of a sharp decline.
0
2
4
6
8
10
12
14
16
18
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Long-term average
Monthly, S.A., Quebec
Months of inventory
Source: RBC Economics Research, Canadian Real Estate Association
0
1
2
3
4
5
6
7
8
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
long-term average
Rental vacancy rate
Source: RBC Economics Research, Statistics Canada
%, purpose-built apartment buildings of three units or more, Montreal
CANADIAN HOUSING HEALTH CHECK | JULY 2017
13
Montreal’s job market has been very strong since mid-2016. The unem-
ployment fell impressively by 1.3 percentage points in the past 12
months. It stood at 6.5% in June, its lowest level in 10 years.
The drop offered further support for the housing market and therefore
was a significantly positive development from a risk point of view.
Demand fundamentals
GREATER MONTREAL AREA
Supply fundamentals
Following a two year-long period of easing growth, Montreal’s adult
population has grown at a faster rates since mid-2015, and returned to its
long-term average of 1.0% most recently.
Overall demographics currently pose little risks for the market.
-2
-1
1
2
3
4
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Percentage points, Montreal
Unemployment rate relative to trailing 12-month average
Source: RBC Economics Research, Statistics Canada
0.0
0.4
0.8
1.2
1.6
2.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Y/Y % change in the 15+ population, Montreal
Adult population growth
Source: RBC Economics Research, Statistics Canada
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Montreal, n.s.a.
Completed and unsold units - singles and semis
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
There continues to be very few newly completed single-family homes that
are unsold in the Montreal area.
We see no evidence of an overbuild in this market segment.
0.0
0.4
0.8
1.2
1.6
2.0
2.4
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Montreal, n.s.a.
Completed and unsold units - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
On the multi-unit dwelling side, conditions improved noticeably since
2015 with the stock of unabsorbed units declining markedly. The stock
fell from 0.91 units per 1,000 population in August 2015 to 0.64 units by
May 2017—marginally below the long-term average.
This suggests that the earlier surplus of multi-unit dwellings has been
largely resolved in the Montreal market.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
14
Supply fundamentals
GREATER MONTREAL AREA
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Montreal, n.s.a.
Housing under construction - singles
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
The risk of any overbuilding of single-family homes in the short term is
extremely remote.
Current levels of units under construction are significantly below long-
run averages and well within the ‘safe zone’.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Montreal, n.s.a.
Housing under construction - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
A noticeable increase in multi-unit dwelling starts since mid-2016 has
pushed the number multi-unit dwellings under construction higher in the
Montreal area in recent months.
In per 1,000 population terms, that number rose from 4.9 in July 2016 to
6.1 in May 2017, a new all-time high.
The number of multi-unit dwellings under construction, thus, remains
historically elevated and still poses a potential risk of overbuilding.
Strong condo construction activity in the past decade partly reflected a
structural shift toward multiples supported by urban development policy
and affordability advantage relative to single-family homes.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
15
GREATER VANCOUVER AREA
Affordability
Near-term: negative
Medium-term: negative
Existing home market balance
Near-term: positive
Medium-term: neutral
Near-term: positive
Medium-term: neutral
Near-term: positive
Medium-term: positive
Demand fundamentals
Near-term: neutral
Medium-term: neutral
Near-term: positive
Medium-term: positive
Near-term: negative
Medium-term: negative
Supply fundamentals
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: positive
Near-term: neutral
Medium-term: neutral
Near-term: positive
Medium-term: negative
Risk implications
Change in real 5-Year bond yields
Low High
RBC affordability measure- aggregate
Low High
Sales-to-new listings ratio
LowHigh
Months of inventory - BC
Low High
Low High
Yellow
Rental vacancy rate
Change in the unemployment rate
Low High
Yellow
LowHigh
Yellow
Population growth
Low High
YellowCompleted and unsold units per capita - singles and semis
Low High
Completed and unsold units per
capita - multiples
Low High
Housing under construction per capita - singles
Low High
Housing under construction per capita - multiples
Change in real 5-Year bond yields
Low High
RBC affordability measure- aggregate
Low High
Sales-to-new listings ratio
LowHigh
Months of inventory - BC
Low High
Low High
Yellow
Rental vacancy rate
Change in the unemployment rate
Low High
Yellow
LowHigh
Yellow
Population growth
Low High
YellowCompleted and unsold units per capita - singles and semis
CANADIAN HOUSING HEALTH CHECK | JULY 2017
16
Affordability
GREATER VANCOUVER AREA
Existing home market balance
The firming of market conditions tightness in recent months is also visi-
ble at the provincial level where the inventory of homes available for sale
measured in number of months of sale eased again in recent months after
rising slightly last year. The inventory remains historically low.
This indicator suggests the presence of upward price pressure in the
province.
While clear signs have emerged that demand-supply conditions are eas-
ing in the home ownership market, conditions remain very tight in Van-
couver’s rental market.
The area’s rental vacancy rate continued to decline in 2016, reaching a
eight-year low of 0.7% in October. This is one of the lowest vacancy rates
in Canada.
Vancouver’s rental market, therefore, shows no evidence of any looming
surplus that would cause concerns for the home ownership market.
20
30
40
50
60
70
80
90
100
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
RBC affordability measure - aggregate
Source: RBC Economics Research, Brookfield RPS, Statistics Canada, Bank of Canada, Royal LePage
Ownership costs as % of household income, Vancouver
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Monthly, S.A.
Sales-to-new listings ratio
Source: RBC Economics Research, Canadian Real Estate Association
Monthly, S.A., Vancouver
Sales-to-new listings ratio
Buyer's market
Balanced market
Seller's market
Despite some improvement at the end of 2016 and beginning of 2017,
extremely poor housing affordability continues to pose a major risk for
the Vancouver-area market.
Affordability stress is found in both single-family and condo apartment
categories; however, it is far more intense in the former.
At 79.7% in Q1/17, RBC’s aggregate affordability measure for the area
remained close to the worst level on record.
Poor affordability is likely among the factors that contributed to a signif-
icant moderation in home resales in the area since a peak was reached in
the winter of 2016. Policy changes—including the surprise implementa-
tion of a new tax on purchases made by foreign buyers last August—also
likely contributed significantly.
After easing during a brief period last fall, demand-supply conditions in
the Vancouver area firmed up again this year—although nowhere close
to the degree of tightness that prevailed in early 2016.
The sales-to-new listings ratio pushed back up into sellers’ market terri-
tory, reaching 0.65 in June 2017. This level suggests the presence of up-
ward pressure on prices.
Prices have picked up slightly this spring. Provincial government statis-
tics show that some (although not all) foreign buyers had returned to the
area by the late stages of 2016 after moving to the sidelines following the
introduction of the foreign buyer tax.
0
2
4
6
8
10
12
14
16
18
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Long-term average
Monthly, S.A., British Columbia
Months of inventory
Source: RBC Economics Research, Canadian Real Estate Association
0
1
2
3
4
5
6
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Long-term average
Rental vacancy rate
Source: RBC Economics Research, CMHC
%, purpose-built apartment buildings of three units or more, Vancouver
CANADIAN HOUSING HEALTH CHECK | JULY 2017
17
The job situation in Vancouver has been positive in 2016 and the first
half of 2017 with the jobless rate continuing to hover around the 5%
mark.
Labour market developments do not pose any immediate threat to the
housing market. On the contrary, they offer substantial support current-
ly.
Demand fundamentals
GREATER VANCOUVER AREA
Supply fundamentals
Adult population growth has slowed in the past year from 1.9% y/y in
March 2016 to 1.4% in June 2017. The rate of growth has dipped mar-
ginally below the threshold (1.5%) signaling the presence of elevated
risks.
Any sustained period of slower-than-usual growth in population could
cause some issues for the high levels of housing construction in the area.
-2
-1
1
2
3
4
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Percentage points, Vancouver
Unemployment rate relative to trailing 12-month average
Source: RBC Economics Research, Statistics Canada
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Long-term average
Y/Y % change in the 15+ population, Vancouver
Adult population growth
Source: RBC Economics Research, Statistics Canada
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Long-term average
Units per 1,000 population, Vancouver, n.s.a.
Completed and unsold units - singles and semis
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
Absorption of single-detached and semi-detached units has been quite
strong since early 2014, although there has been some modest easing
lately. The number of recently completed and unsold units has risen
moderately from 0.31 units per 1,000 population in May 2016 to 0.44 in
May 2017—still well into the ‘safe zone’ and below the long-range aver-
age of 0.60 units.
With singles and semi-detached completions now trending slightly down-
wardly, the Vancouver-area market shows few signs of being overbuilt at
this point or becoming so in the near term.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Vancouver, n.s.a.
Completed and unsold units - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
Similarly, the situation on the multi-unit dwelling side of the market
remains safe.
The number of completed and unsold units has trended lower since early
2014, reaching a nine-year low in August 2016 and staying flat since then.
Moderate levels of apartment completions in 2014 and 2015 limited the
flow of new supply into the market, and declining completions over the
latter half of 2016 and early-2017 reinforced this trend this year.
The Vancouver condo market does not appear to be overbuilt at this
point.
-2
-1
1
2
3
4
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Percentage points, Vancouver
Unemployment rate relative to trailing 12-month average
Source: RBC Economics Research, Statistics Canada
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Y/Y % change in the 15+ population, Vancouver
Adult population growth
Source: RBC Economics Research, Statistics Canada
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Vancouver, n.s.a.
Completed and unsold units - singles and semis
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
CANADIAN HOUSING HEALTH CHECK | JULY 2017
18
Supply fundamentals
GREATER VANCOUVER AREA
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Vancouver, n.s.a.
Housing under construction - singles
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Vancouver, n.s.a.
Housing under construction - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
Builders’ response to the shortage of single-family homes in the Vancou-
ver area became more vigorous in 2016 with starts rising by 12% from
2015. The sharp slowing in resale activity for single-detached homes
during the latter half of last year elicited a concomitant retrenchment in
single-detached starts in the fourth quarter (down 3.2% y/y) and first
quarter of 2017 (down 27% y/y). Nonetheless, strong starts prior to that
point drove the number of units under construction its highest level in 23
years in May.
On its own, the rising number of single-family homes under construction
suggest an increasing (albeit moderate) risk of oversupply in the period
ahead; however, low inventories of unsold single-detached homes helps to
mitigate that risk.
Fueled by very strong housing starts in 2016, the number of multi-family
units under construction (on a per 1000 population basis) rose to a new
record level in recent months, thereby signaling a greater-than-usual risk
of imbalance in this market segment.
Such risk is tempered by the tight market conditions in the resale market
and low inventories of newly built and unsold units.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
19
CALGARY AREA
Affordability
Near-term: positive
Medium-term: positive
Existing home market balance
Near-term: positive
Medium-term: positive
Near-term: neutral
Medium-term: neutral
Near-term: negative
Medium-term: negative
Demand fundamentals
Near-term: neutral
Medium-term: neutral
Near-term: positive
Medium-term: positive
Near-term: negative
Medium-term: negative
Supply fundamentals
Near-term: positive
Medium-term: positive
Near-term: negative
Medium-term: negative
Near-term: positive
Medium-term: positive
Near-term: positive
Medium-term: neutral
Risk implications
Change in real 5-Year bond yields
Low High
RBC affordability measure- aggregate
Low High
Sales-to-new listings ratio
LowHigh
Months of inventory -
AlbertaLow High
Low High
Yellow
Rental vacancy rate
Change in the unemployment rate
Low High
Yellow
LowHigh
Yellow
Population growth
Low High
YellowCompleted and unsold units per capita - singles and semis
Low High
Completed and unsold units per capita - multiples
Low High
Housing under construction per capita - singles
Low High
YellowHousing under construction per capita - multiples
CANADIAN HOUSING HEALTH CHECK | JULY 2017
20
Affordability
CALGARY AREA
Existing home market balance
The overall inventory of homes for sale in Alberta rose again this spring
after easing at the start of 2017. The number of months’ inventory
climbed to 6.5 in June after reaching a low of 5.2 in February. The latest
reading suggest moderate risk for the market
The Calgary Real Estate Board reported that active listings in the area
were up by 11% in June relative to a year earlier; however, the average
number of days it took a property to sell fell from 47 to 38 over the same
interval.
The recent uptick in active inventory, if sustained, may rekindle down-
ward pressure on prices in the near term.
Calgary’s rental market appears to be over-supplied.
The rental vacancy rate surged to a record high of 7.0% in October 2016,
up from 5.3% in October 2015 and just 1.4% the year before that.
Such elevated vacancy rate raises significant downside risks for rent
values in the area and revenue prospects for condo investors.
Indeed, CMHC figures show that average apartment rent fell between
2.2% and 6.4% in 2016 depending on the size of the unit.
20
30
40
50
60
70
80
90
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
RBC affordability measure - aggregate
Source: RBC Economics Research, Brookfield RPS, Statistics Canada, Bank of Canada, Royal LePage
Ownership costs as % of household income, Calgary
Housing affordability continues to be a generally constructive factor for
the Calgary-area market, remaining quite stable in the past year slightly
under 40% for RBC’s aggregate measure.
Calgary still faces a number of tough issues; however, there is no evi-
dence to suggest that affordability is one of them.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Monthly, S.A.
Sales-to-new listings ratio
Source: RBC Economics Research, Canadian Real Estate Association
Monthly, S.A., Calgary
Sales-to-new listings ratio
Buyer's market
Balanced market
Seller's market
After weakening considerably in 2015, demand-supply conditions im-
proved in 2016 and the first half of 2017 on the back of a slight recovery
in home resales since spring last year (from a historically low base) and a
reduction in new listings.
The sales-to-new listings ratio—which rose from 0.41 at the end of 2015
to an average of 0.52 in the second quarter of 2017—would suggest that
the Calgary market is balanced; however, there continues to be a hefty
inventory of active listings (3.7 months’ worth of supply in the Calgary
region according to the Calgary Real Estate Board), especially for condo
apartments.
Signs of a progressive recovery in homebuyer demand have emerged in
the past year. Despite a softening of activity late in the spring, home re-
sales are up 12% above year ago levels in the first half of 2017.
0
2
4
6
8
10
12
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Long-term average
Monthly, S.A., Alberta
Months of inventory
Source: RBC Economics Research, Canadian Real Estate Association
0
1
2
3
4
5
6
7
8
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Long-term average
Rental vacancy rate
Source: RBC Economics Research, Statistics Canada
%, purpose-built apartment buildings of three units or more, Calgary
CANADIAN HOUSING HEALTH CHECK | JULY 2017
21
Calgary’s labour market has improved significantly since the middle of
2016. Employment rose by a solid 4.9% over the 12 months ending in
June 2017 and the jobless rate has fallen by 1.3 percentage points since
November 2016 to 8.9% in June.
The speed with which labour market conditions improved in the past
several months constituted, in effect, a ‘positive shock’ to the market,
thereby sharply tempering risks for the housing market.
With evidence of economic recovery springing across Alberta, Calgary’s
labour market is likely to continue to perk up during the remainder of
2017—assuming that the recent soft patch in oil prices does not derail
confidence.
Demand fundamentals
CALGARY AREA
Supply fundamentals
Past deterioration in job prospects contributed significantly to a slow-
down in Calgary’s adult population growth—from a recent cyclical high
of 4.0% in early 2014 to a 23-year low of 1.4% in June 2017.
Calgary’s 2017 Civic Census showed a small increase in net migration
following a net loss in 2016 for only the second time in the past quarter
century. Total population growth remained weak at 0.9% in 2017.
Demographics-related risks have risen in the Calgary area.
That being said, evidence of a turnaround in Calgary’s labour market
bode well for reversing the recent deterioration in demographic trends.
-2
-1
1
2
3
4
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Percentage points, Calgary
Unemployment rate relative to trailing 12-month average
Source: RBC Economics Research, Statistics Canada
0.0
1.0
2.0
3.0
4.0
5.0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Y/Y % change in the 15+ population, Calgary
Adult population growth
Source: RBC Economics Research, Statistics Canada
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Calgary, n.s.a.
Completed and unsold units - singles and semis
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
There are few signs of overbuilding of single-detached homes in Calgary.
The number of unsold single-detached and semi-detached has trended
lower after 2000 and stabilized at historically low levels since early 2015
(on a per 1000 population basis).
Despite the turbulence in the resale market in the past three years, sta-
bility of the unsold inventory has been achieved by drastic curtailment of
new single-family home construction. Single-family home starts plum-
meted by 36% in 2015 and again by 16% in 2016.
Such builder restraint substantially minimizes overbuilding risks in this
category.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Calgary, n.s.a.
Completed and unsold units - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
The situation is quite different in the multi-unit segment where the num-
ber of unabsorbed units has surged since the spring of 2015 (when Calga-
ry arguably had a supply shortage) to record-high levels since late-2016.
The stock of unsold units was driven higher by sharp increases in condo
apartment completions (up by 39% in 2015 and 8% in 2016) at a time
when demand turned cold.
The completed and unsold inventory rocketed past the long-term average
(on a per 1000 population basis) for the area and deep into the high risk
zone. There is strong evidence of surplus in this segment of the market in
Calgary, which may threaten its stability.
CANADIAN HOUSING HEALTH CHECK | JULY 2017
22
Supply fundamentals
CALGARY AREA
0
1
2
3
4
5
6
7
8
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Calgary, n.s.a.
Housing under construction - singles
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
The dramatic scaling back of single-detached home starts contributed to
a steady decline in the number of units under construction since 2015 to
historically low levels.
Such subdued levels of construction pose minimal risks of destabilizing
the market.
0
2
4
6
8
10
12
14
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Long-term average
Units per 1,000 population, Calgary, n.s.a.
Housing under construction - multiples
Source: RBC Economics Research, Statistics Canada, Canada Mortgage and Housing Corporation
After reaching very high levels in 2014 and 2015, there has been a sharp
drop in the number of units under construction moderation on the multi-
unit side of the market in 2016. Much of the wave of condo starts in 2014
has now exited the construction ‘pipeline’.
Current levels therefore signal a return to a more subdued pace of condo
completions in the period ahead, which is good news considering the
state of oversupply at present in this segment of the market.
Sharp drops in condo apartment starts in 2015 (down 15%) and 2016
(down 36%) suggest that further moderation is likely ahead.
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