Last year, national home sales fell 11.1%—and given that economic spinoff activity from a single sale averages $64,000—that could reverberate through the economy.
That’s one finding from the Economic Impacts of MLS Systems Home Sales and Purchases in Canada and the Provinces, prepared by Altus Group on behalf of the Canadian Real Estate Association.
“On the surface, when you have a transaction, there’s not a lot of visible economic activity that takes place, but what we try to show in the research is when you try to account for components of economic activity that do take place—lawyers, realtors, movers and stuff in the community like buying furniture—it starts to add up to a little over $60,000,” said Peter Norman, vice president and chief economist at Altus Group.
“From a policy standpoint, if you try to stimulate more sales, you get a positive spinoff cycle that happens, but a bit of a downturn in the number of transactions for one reason or another will have negative spinoff. If a home sale doesn’t take place, it’s activity that presumably wouldn’t happen and it’s a direct negative impact on the GDP.”
There were 460,000 sales in 2018, down from 515,000 a year earlier, and the lost spinoff activity isn’t negligible.
“That’s a difference of nearly 60,000 sales,” said Norman. “This research would say that as a result of that annual decline between 2017 and 2018, we saw something like $3.5 billion of spinoff activity disappear from the economy.”
According to another report from Marcus & Millichap, interest rate hikes—a few of which are expected through 2019—and the B-20 mortgage qualification rules are dissuading a growing number of Canadians from purchasing their homes and instead directing them to the rental market. The trend began in 2018 and is expected to become more pronounced this year.
However, it will come with its own set of problems.
“It’s going to continue,” said Marcus & Millichap’s Vice President and Broker of Record Mark Paterson. “People will continue to rent rather than deal with residential mortgages. The rental market right now can barely keep up with the vacancy rate being around 1% in Toronto.”
Exorbitant price points, too, will keep homeownership prohibitive in Vancouver, according to the Marcus & Millichap’s 2019 Multifamily Investment Forecast Report.
“The benchmark price [of a detached home in metro Vancouver] exceeded $1.5 million at the end of 2018, despite a downturn in pricing last summer, well beyond the means of many residents. Renting remains the preferred choice as single-family affordability continues to be a major concern, holding the market vacancy near historical lows.”