DATE

Steve Saretsky -

There is much to learn from financial mania’s. In particular, the role of human behaviour responsible for inflating asset prices to previously unimaginable heights. Economist Robert Schiller has done some excellent work on this topic in his book Irrational Exuberance. In essence, Schiller highlights a few key themes. Mainly that real estate booms seem just as mysterious and hard to understand as the stock market booms when they happen, there are always popular explanations for them- explanations that are not necessarily correct, but people love a good story. Meanwhile, higher prices tend to drive a positive feedback loop where initial price increases lead to more price increases as the effects of the initial price increases feedback into yet higher prices through increased investor demand. This second round of price increases feeds back again into a third and then a fourth round, and so on. A recent publication from CMHC highlights strong human behaviour dynamics have been playing out in the Vancouver & Toronto Real Estate markets. After surveying 30,000 recent homebuyers, CMHC found evidence of euphoric and perhaps irrational behaviour. For instance, respondents were asked about whether how much they paid was aligned with their plan budget. Respondents were also

Steve Saretsky -

The condo market across Greater Vancouver and into the Fraser Valley suburbs has been carrying the Real Estate market for quite some time. Despite detached home sales cratering to a thirty year low, it seemed condos were somehow exempt. Condo sales remained robust as inventory levels continuously declined lower each month, placing further upwards pressure on prices. As of May, condo prices in the Valley were up as much as 42% year over year. However, that trend appears to be reversing. Condo inventory has climbed higher each month following a ten year low registered in December 2017. While the recent uptick is part of a seasonal trend, the year over year increases have been far from normal. Condo inventory levels increased by an eye watering 40% year over year in Greater Vancouver, and 48% in the Fraser Valley. This was the single largest percentage increase recorded on a year over year basis since May of 2007. While inventory levels remain below normal levels, it is important to gauge market trends. Inventory has jumped substantially and appears to be trending higher at a time when sales are weakening. Condo sales dropped as much as 30% in Greater Vancouver this May. With

Steve Saretsky -

With National home sales declining by 16% year over year in the month of May, marking the worst year over year decline since May of 2008, we turn our attention to the province of BC where home price growth has grossly outpaced any other province in recent years. On the surface the BC economy appears to be humming along, unemployment rates remain low, declining from 5% in April to 4.8% in May, with a plunge in the Vancouver metro area from 4.5% to 3.8%. Labour force participation rates and employment rates remain elevated which is helping pump Year-over-year growth in average hourly wages from 5.6% in April to a whopping 6.9% in May. However, a recent slowdown in the housing market is beginning to test the province of BC. Fewer full-time positions drove a 0.5%, or 12,000-person dip in total employment from April. Overall, employment has eroded since a December peak, cutting year-over-year growth to 0.1% which was the weakest since 2015. This might not be surprising considering recent data on the housing front. BC home sales dropped by a head turning 29% year over year in May. This marked the largest percentage decline on a year over year basis since May

Steve Saretsky -

Canada’s national housing market continued its sluggish performance in the month of May. Despite the warmer weather and usually busy spring selling season, buying activity has been awfully quiet. New mortgage regulations which are now in full swing have stymied fringe buyers, particularly millennials. According to new data from credit bureau TransUnion, new mortgage originations among millennials in Canada fell by 19.5% between the last quarter of 2017 and the first three months of 2018. That has also been showing up sales data. National home sales declined by 16% year over year for the month of May. This marked the worst year over year decline since May of 2008 when home sales dipped 17%. Total home sales of 50,604 marked the  lowest total since May 2011. Seasonally adjusted home sales edged 0.1% lower on a month over month basis, or 15% on a year over year basis. Either way you slice it not a great month for one of the worlds most resilient housing markets. As sales continue to slide inventory is slowly beginning to build. For sale inventory crept up by 4% year over year, increasing for the first time in three years. The average sales price dipped 6% year over

Steve Saretsky -

There’s a clear shift underway in the Canadian housing market. After years of borrowing and runaway price inflation, regulators seem content to shift course, at least for the time being. It was just a few weeks ago when CIBC announced they were expecting a 50% decline in new mortgage originations later this year. Now, RBC Capital markets has also declared the best days for the Canadian mortgage lenders are in the rear view mirror. In a recent publication from RBC Capital Markets they noted, “We believe annual mortgage loan growth will likely slow from +5.3% Y/Y today to +2–3% over the next couple of years. Our forecast of slowing mortgage loan growth reflects continued weaker home sales activity and continued moderating home price appreciation.” RBC does not expect mortgage loan growth to turn negative, noting that loan growth has only turned negative once, and that was in the early 1980’s. During which Canadian unemployment rose from 7% to 13%. Following recent regulations, slowing home sales have become a nationwide phenomenon. Other than condo sales in Ottawa and Quebec City, home sales declined year over year across all major cities in the month of April. OSFI’s mortgage stress test is reflecting in

Steve Saretsky -

The great Canadian real estate bull market has pushed home prices to dizzying heights over the past two decades. And with ever-rising prices it has sucked in more capital and resources creating an almost self enforcing feedback loop, where an entire economy has become dependent on rising house prices. This misallocation of capital and resources is particularly well documented in the labour force where every year the number of realtors, mortgage brokers, and homebuilders seems to grow exponentially. Per Stats Canada, the share of employment tied to construction as well as finance, insurance and real estate is nearly two standard deviations above its long-term average. I’m no economist but somehow it seems building an economy dependant on selling each other more expensive homes is probably not the greatest long term growth strategy. To illustrate this point we can see here that residential investment as a percentage of GDP now outpaces investment in machinery equipment research and development. Currently there are over 55,000 new homes under construction across BC, with a record high number of housing starts also underway. This has created a massive shortage in the trades sector, while sending construction costs and house prices higher. However, with the real

Steve Saretsky -

The Vancouver detached housing market has entered truly unchartered territory. Following a sluggish opening to the 2018 year, which saw detached homes slide to near 30-year low in sales, that same trend has continued in May. There were just 231 detached home sales for the month of May, this marked a 39% decline in sales activity year-over-year. This was a record low in sales for the month of May per the Real Estate Board of Greater Vancouver MLS data, which dates back to 1991. Following nearly two years of weak sales, inventory continues to build, topping out at 1769 homes available for sale in the city of Vancouver as of the end of May 2018. For sale inventory has not been this high since October 2012. The combination of a twenty seven year low in sales with a six year high in inventory has not been kind to home prices. The median sales price of a detached home in the city of Vancouver sunk 12.5% on a year over year basis in May. Unfortunately the Real Estate Boards official MLS benchmark price shows a meager 1.5% decline year-over-year. This has provided a false sense of hope for home sellers, many

Steve Saretsky -

Following a rather quiet month of April, which saw Vancouver condo sales slip to a five year low, it appears that trend has continued in May. Vancouver condo sales inched in at just 534 sales, the fewest sales recorded for the month since May 2013. The decline marked a 28% drop on a year over year basis. This is a particularly noteworthy decline considering the condo market has been the engine driving the entire Vancouver Real Estate market for the past eighteen months. The drop in sales likely has a strong correlation with mortgage credit growth decelerating to its slowest pace since 2001. Just last week CIBC announced they are expecting new mortgage originations to decline by 50% in the back half of this year. To add to that, RBC Capital Markets wrote in note to readers this week that they expect annual mortgage loan growth to slow from 5.3% year-over-year today to 2-3% over the next couple years. While prices in the Vancouver condo market remain robust, the MLS benchmark highlights 14% growth on a year over year basis, it appears growth has been rather benign. The average price per square foot, which has been a strong indicator of

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The Canadian Economy

Steve Saretsky -

There is much to learn from financial mania’s. In particular, the role of human behaviour responsible for inflating asset prices to previously unimaginable heights. Economist Robert Schiller has done some excellent work on this topic in his book Irrational Exuberance. In essence, Schiller highlights a few key themes. Mainly that...

Steve Saretsky -

The condo market across Greater Vancouver and into the Fraser Valley suburbs has been carrying the Real Estate market for quite some time. Despite detached home sales cratering to a thirty year low, it seemed condos were somehow exempt. Condo sales remained robust as inventory levels continuously declined lower each...

Steve Saretsky -

With National home sales declining by 16% year over year in the month of May, marking the worst year over year decline since May of 2008, we turn our attention to the province of BC where home price growth has grossly outpaced any other province in recent years. On the surface...

Steve Saretsky -

Canada’s national housing market continued its sluggish performance in the month of May. Despite the warmer weather and usually busy spring selling season, buying activity has been awfully quiet. New mortgage regulations which are now in full swing have stymied fringe buyers, particularly millennials. According to new data from credit bureau...

Steve Saretsky -

There’s a clear shift underway in the Canadian housing market. After years of borrowing and runaway price inflation, regulators seem content to shift course, at least for the time being. It was just a few weeks ago when CIBC announced they were expecting a 50% decline in new mortgage originations...

Steve Saretsky -

The great Canadian real estate bull market has pushed home prices to dizzying heights over the past two decades. And with ever-rising prices it has sucked in more capital and resources creating an almost self enforcing feedback loop, where an entire economy has become dependent on rising house prices. This...

Steve Saretsky -

The Vancouver detached housing market has entered truly unchartered territory. Following a sluggish opening to the 2018 year, which saw detached homes slide to near 30-year low in sales, that same trend has continued in May. There were just 231 detached home sales for the month of May, this marked...

Steve Saretsky -

Following a rather quiet month of April, which saw Vancouver condo sales slip to a five year low, it appears that trend has continued in May. Vancouver condo sales inched in at just 534 sales, the fewest sales recorded for the month since May 2013. The decline marked a 28%...

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The Saretsky Report. December 2022