Canada’s economy is once again buoyant, if a little uneven this time around, and recovery is expected to continue through the remainder of 2022, a webinar from Altus Group reported.
The country’s GDP declined dramatically in the wake of the COVID-19 pandemic, languishing through 2020 before turning a corner last year, Altus said. But, really, Canada’s GDP practically fell off of a cliff compared to its much larger neighbour to the south. Although the Canadian economy is now performing well, overall, certain sectors are still reeling, namely the service industry, which has been operating below normal capacity due to COVID strictures, while other sectors have too much labour competition. Altus nevertheless expects Canada’s the pace of economic growth to start normalizing this year through 2024.
The job market is uneven in that younger and older Canadians are overrepresented among the nation’s unemployed, Altus Groups Vice President and Chief Economist Peter Norman said. In fact, younger Canadians’ labour struggles haven’t much changed since the pandemic’s inception, indicating they’re concentrated in the service and hospitalities sectors.
“Stress in our labour force comes from components of the labour force not being back online, sectors of the economy that can’t find adequate labour, and sectors of the economy with too much labour, which is where unemployment is,” Norman said.
There’s an obverse relationship in how badly sectors were hit in the early days of the coronavirus crisis and their recoveries. Alberta’s labour force was rocked badly but strong energy prices signal propitious times ahead, while Quebec and Ontario, which respectively led economic growth last year, are slated for normal paces of growth through the next couple of years.
Retail sales are coming back strong—unsurprising considering COVID restrictions precluded opportunity for major non-essential outlays—but Altus Group noted that it remains to be seen how that henceforward plays out for brick and mortar retail, adding that hospitality remains in the doldrums.
Inflation Will Return to Normal Levels By 2023
Last month, inflation was its highest since September 1991, reaching 5.1%. Unfortunately, diminution to normal levels, according to Altus Group’s analysis, isn’t anticipated until 2023, and Norman warned that inflation concerns among the general public could become “endemic” in their behaviour.
“When inflation is a problem, it becomes endemic in decisions. Workers ask for higher wages, which begets the need for higher prices of goods,” Norman said. “Volatility will continue but things are normalizing. This is what we expect to see over 2022.”
The Bank of Canada is slated to hike its overnight interest rate March 2, but its 18-month hiking campaign isn’t going to be anything out of the ordinary, Norman says, adding that it will return to the historical five- to seven-year average. Moreover, fixed-rate mortgage rates have already risen commensurately with bond yields, and while variable-rate mortgagees have, with good reason, been more popular, there’s little evidence to suggest overnight interest rate increases will turn the balance.
Moreover, Altus Group is confident that supply chain bottlenecks -- which have inflamed inflation -- are “episodic.”
“My outlook on inflation is more sanguine,” Norman said. “It will normalize as we move into next year, but it will remain elevated this year as a whole, and next year we will return to the 2% range.”
Single-Family Sales Dropped in 2021, But Don’t Be Fooled
Inflation and lopsided economic recovery or not, housing demand, especially for single-family homes, hasn’t waned during the COVID-19 pandemic, and in a rock-bottom interest environment, that should surprise no one.
However, major market sales decreased in 2021, according to Altus Group, in spite of the fact that exurban areas within a couple of hours of Toronto and Vancouver remain very much in demand. The simple explanation is that inventory has fallen -- which STOREYS reported in January could be the result of asset leveraging amid surging home equity -- dissuading prospective single-family homebuyers from relinquishing their primary residences.
Last year, single-family homes sales in the Greater Toronto Area declined by 20% annually to roughly 13,700, and by the beginning of 2022, there were only 770 single-family lots available on the resale market, down from about 2,300 in 2020 and more than 5,000 in 2019. Although supply was in declivity last year, demand wasn’t, and prices continued surging, with the benchmark price for a single-family home hovering around $1.8M.
In Greater Vancouver, there were 5,300 single-family sales, but by the end of 2021 there were only about 600 lots on the resale market, markedly decreasing from roughly 1,400 a year prior. Naturally, amid faltering inventory, prices rose.
Townhouses have, resultantly, become somewhat affordable options, and there are more to be found outside Toronto and Vancouver urban cores, although purchasing a townhome doesn’t always necessitate moving further afield to exurbs like it does for single-family abodes.
Condominium Sales Are (Almost) Stronger Than Ever
While it isn’t quite 2016 in Vancouver and 2017 in Toronto -- respectively record years -- affordability is forcing buyers to compromise. With ground-related homes becoming financially prohibitive -- not to mention the wide spread between low- and high-rise living -- condominiums traded frenetically last year. Moreover, with mass COVID-19 inoculation and federal government-mandated population growth targets, the investor market was suffused with confidence not seen before pandemic.
“In Toronto in 2021, apartment sales were just below 33,000 units, just below the all-time high in 2017. A lot of these sales are investor sales and continue being driven by fairly strong demand for rental apartments,” Norman said. “Much larger projects are starting to be launched now, allowing for an opportunity for larger sales, and a larger variety in unit size.”
Additionally, Norman says, in Toronto there’s a rush from developers to beat Inclusionary Zoning regulations, supplying the market with even more preconstruction options.
Greater Vancouver’s condo sales, too, soared to over 19,000 last year, indicating that affordability, as well as rental demand outpacing availability, is an outsized factor for purchasers, whether end users or investors.
New Condo Prices Top $1M in Toronto in 2021
New condo price tags averaged $1,164,150, averaging $1,220 per square foot.
In Vancouver, new condo prices averaged $819,925, or $1,075 per square foot.
Hamilton followed at $568,350, or $638 per square foot, followed by Kitchener-Waterloo new condo prices averaging $631,050, or $591 per square foot.
Calgary’s averaged $511,775, or $467 per square foot, and Montreal -- Canada’s second largest city, and perhaps unexpectedly -- had new condo prices averaging only $370,000 ($458 per square foot), followed by, finally, Edmonton at $341,800 ($358 per square foot).
