DATE

Steve Saretsky -

The Vancouver Real Estate market which has undoubtedly entered a correction period following home sales dropping to a six year low, and mortgage credit growth sinking to a seventeen year low, is now seeing lower prices across the board. The latest performance in the Vancouver housing market can largely be attributed to OSFI’s mortgage stress test which chopped buying power by 20%. The policy which was designed to de-risk the Canadian banks after dishing out over $1.2 trillion worth of mortgage debt, is now being called an assault on the Canadian dream, limiting one’s ability to leverage themselves into the housing market near peak prices. The removal of mortgage stimulus is hard to fathom, particularly considering how generous Canadian regulators have been over the past twenty years, allowing household debt to balloon to 100% of GDP, the most in the G7. A large portion of which was facilitated by CMHC through securitization and other methods. At one point, from 2007-2008 CMHC was insuring mortgages with 0% down and 40 year amortizations. When lending froze temporarily in 2008, the Canadian Government created the $69 billion dollar Insured Mortgage Purchase Program (IMPP) which allowed banks to exchange illiquid mortgage assets for bonds

Steve Saretsky -

BC’s property market continued to slow in October per official numbers released by the BC Real Estate Association. October sales fell 26.2% year over year while inventory increased by nearly 30%. The continued slowdown brings year-to-date residential sales lower by 22.8% compared to the same period last year, while dollar volumes slipped by 22.1% to $49.7 billion. The slowdown can certainly be attributed to a bout of tighter lending conditions, including a mortgage stress test and higher interest rates, both of which have pushed mortgage credit growth to an eighteen year low. However, it appears foreign buyers have also retreated. Year to date foreign buying activity has accounted for $2.2B worth of residential home purchases, a drop of 28.5% from the same period last year. The Dollar volume decline was even steeper in October, sinking 36% year over year. Per BC Government land transfer data, foreign buyers accounted for just under 3% of all transactions, little changed from a year ago. As a result, tax revenues from the foreign buyers tax have also been declining. Year to date foreign buyer tax revenue fell by 19% to $144 million. The BC Government is hopeful the recent shortfall will be offset by

Steve Saretsky -

Over the past few years the new development space has flourished. On the backs of an impressive housing boom, developers have been hitting record sales numbers, and sky high prices. However, amidst the changing market conditions in Greater Vancouver, which have pushed sales and prices lower in recent months, the new development space could be in for a bumpy ride. According to research firm Urban Analytics, which gathers data directly from builders, developers and their marketing agencies, from January through September new multi-family dwelling sales in Metro Vancouver declined by 14% compared to the same nine-month period in 2017. Altus Group, a development research firm, has come to a similar conclusion noting the year to date decline in new construction sales for both the single family and multi family housing markets. Despite the decline, sales remain above the historical average, although its the shift in direction which should raise concerns. The ensuing slowdown has resulted in a growing number of unsold inventory, to which Urban Analytics notes there were 4,478 unsold units in Metro Vancouver last quarter. Year to date, new condo inventory has jumped to 3.9 months of inventory, an increase from 2.5 for the same period a year ago. This has

Steve Saretsky -

Canadian housing activity continued to cool in October. On the heels of rising interest rates, mortgage stress tests, and the recently announced curtailing of Home Equity Lines of Credit, a barrage of demand side measures have put a dent in the resilient housing market. Per the Canadian Real Estate Association, home sales fell 3.7% year over year in October. It was the fewest October sales since 2013. The association noted, “While sales were down year over year in slightly more than half of all local markets in October, lower sales in Greater Vancouver and the Fraser Valley more than offset the rise in sales in the Greater Toronto Area (GTA) and Montreal by a wide margin.” Overall, market conditions have been deteriorating, leading to decelerating prices across the board. Ottawa and Montreal remain arguably the two strongest markets, where leverage has been, for the most part, kept in check. For example, the share of new uninsured mortgages with a loan to income above 450% sits at 8% in Ottawa and 9% in Montreal. This pales in comparison to Vancouver & Toronto where the number of leveraged borrowers sits at 38% and 28% respectively. Not surprisingly, Ottawa & Montreal have been

Steve Saretsky -

The Bank of Canada recently released a report highlighting the recent policy changes on the Canadian mortgage market. While the report highlights the positive influence of the mortgage stress test and the overall de-risking within the banking system, these vulnerabilities have not disappeared but have been transferred from the traditional banking system and into the shadow banking sector. Per the report, the share of new uninsured mortgages going to highly indebted borrowers, those with loan to income ratios above 450% (4.5 times income) dropped to 13% in the second quarter of this year, down from more than 18% last year. However, while those numbers fell nationwide, they remain elevated in Toronto and Vancouver. The share of new uninsured mortgages with a loan to income above 450% sits at 38% in Vancouver and 28% in Toronto. Compare this to the less leveraged cities of Ottawa and Montreal which sit at 8% and 9% respectively. While the Bank touts, “The overall riskiness of new mortgages has therefore decreased because the proportion of risky borrowers has declined across cities.” They also estimate the share of new mortgages originated through private lenders has grown, particularly in Toronto where private lenders grew from 5.9% to

Steve Saretsky -

The Fraser Valley, which was arguably BC’s hottest housing market in 2017, and a large benefactor of ‘the drive to qualify’, appears to have taken an unpleasant turn in recent months. The drive to qualify is phenomenon seen in every housing boom, it’s the process of moving far away to a region where real estate is more affordable and where one can actually qualify for a mortgage. This drive is often led by a fear of missing out as prices inflate across the city, creating a speculative mania enhanced by stories to justify the ever increasing prices. As buyers scrambled to enter the market, sales surged hitting an all time high in 2017 while inventory simultaneously plunged to record lows. From January 2016 to January 2018 buyers drove the typical condo higher by an eye watering 88% Per the MLS benchmark. The rapid increase in prices and record low inventory spurred real estate developers into action. Housing starts in 2017 hit a fresh high, reaching over 9200 units, surpassing a previous high set in the last housing boom which ended abruptly in 2008. However, with credit tightening and a barrage of policies aimed at cooling the market, buyers have retreated. While

Steve Saretsky -

The growth of the HELOC (Home Equity Line of Credit) in Canada has been well documented. Between 2000 and 2010, HELOC balances soared from $35 billion to $186 billion, according to the Financial Consumer Agency of Canada, an average annual growth rate of 20%. Today that number sits at over $260B. This growth has become a blessing and a curse for Canadian households. While it has helped spur house prices and simultaneously provided consumers the ability to tap into their new found equity, it has also crippled many Canadian households into a debt trap that seems insurmountable. Canadian household debt has ballooned to 100% of GDP, the highest of the G7 countries. Amidst a rising interest rate environment and a weakening housing market, this growth has prompted the concerns of Canadas financial regulators. OSFI, which already implemented a mortgage stress test earlier this year, is now rumoured to be taking a stab at the HELOC space. Earlier this week, Canada’s No. 1 player in HELOCs, TD Bank, just changed a key policy on Tuesday. For people applying for a separate new mortgage and keeping their existing HELOC, TD is requiring that applicants now prove they can afford a theoretical monthly payment based

Steve Saretsky -

Vancouver’s detached market has continuously posted 27 year lows in sales throughout this year. If there was any silver lining for the detached housing market, it appears to have come in October. This October there were 145 single family home sales, slightly higher than the 142 posted in October 2016 after the market went into a free fall following the foreign buyers tax. So we no longer have a 27 year low in house sales. However, the recent bump is nothing to get too excited over. Other than 2016 and 2008, this was indeed the third worst October on record for Vancouver house sales. Inventory also declined year over year by 4.7%, which was primarily a result of sellers taking their house off the market and trying to wait out current conditions. This is explains why new listings fell by 14%. While some sellers are trying to suppress new inventory from flooding the market home sales are so weak that it still leaves 11 months of supply for sale. This has paved the way for buyers to negotiate steep discounts.   We have now been in a weak detached housing market for over two years, as a result, price declines

Steve Saretsky -

Vancouver’s condo market continued its downwards trend in the month of October. This should generally come as no surprise considering Real Estate markets are incredibly slow moving and are highly dependant on the availability of mortgage credit. In other words, this trend is likely to remain in place for the foreseeable future unless we see a shift in either domestic credit, (mortgage credit growth is currently at its weakest pace of growth in 18 years), or we see large capital outflows from China. This seems unlikely given their need to maintain capital reserves in order to fight a trade war and growing economic instability and slowing real estate market. These two trends help explain why Vancouver condo sales fell 28% year over year to their lowest total since October 2012. As a result of weaker than usual condo sales, listings are beginning to stagnate. This has allowed inventory to build rather quickly, jumping 74% from the same month last year. While historically condo inventory remains low, this trend should certainly put sellers on notice. As is typical in all real estate markets, sales volumes lead prices. This is generally a result of market exhaustion and an adjustment phase were both

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The Canadian Economy

Steve Saretsky -

The Vancouver Real Estate market which has undoubtedly entered a correction period following home sales dropping to a six year low, and mortgage credit growth sinking to a seventeen year low, is now seeing lower prices across the board. The latest performance in the Vancouver housing market can largely be...

Steve Saretsky -

BC’s property market continued to slow in October per official numbers released by the BC Real Estate Association. October sales fell 26.2% year over year while inventory increased by nearly 30%. The continued slowdown brings year-to-date residential sales lower by 22.8% compared to the same period last year, while dollar...

Steve Saretsky -

Over the past few years the new development space has flourished. On the backs of an impressive housing boom, developers have been hitting record sales numbers, and sky high prices. However, amidst the changing market conditions in Greater Vancouver, which have pushed sales and prices lower in recent months, the...

Steve Saretsky -

Canadian housing activity continued to cool in October. On the heels of rising interest rates, mortgage stress tests, and the recently announced curtailing of Home Equity Lines of Credit, a barrage of demand side measures have put a dent in the resilient housing market. Per the Canadian Real Estate Association,...

Steve Saretsky -

The Bank of Canada recently released a report highlighting the recent policy changes on the Canadian mortgage market. While the report highlights the positive influence of the mortgage stress test and the overall de-risking within the banking system, these vulnerabilities have not disappeared but have been transferred from the traditional...

Steve Saretsky -

The Fraser Valley, which was arguably BC’s hottest housing market in 2017, and a large benefactor of ‘the drive to qualify’, appears to have taken an unpleasant turn in recent months. The drive to qualify is phenomenon seen in every housing boom, it’s the process of moving far away to...

Steve Saretsky -

The growth of the HELOC (Home Equity Line of Credit) in Canada has been well documented. Between 2000 and 2010, HELOC balances soared from $35 billion to $186 billion, according to the Financial Consumer Agency of Canada, an average annual growth rate of 20%. Today that number sits at over $260B....

Steve Saretsky -

Vancouver’s detached market has continuously posted 27 year lows in sales throughout this year. If there was any silver lining for the detached housing market, it appears to have come in October. This October there were 145 single family home sales, slightly higher than the 142 posted in October 2016...

Steve Saretsky -

Vancouver’s condo market continued its downwards trend in the month of October. This should generally come as no surprise considering Real Estate markets are incredibly slow moving and are highly dependant on the availability of mortgage credit. In other words, this trend is likely to remain in place for the...

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The Saretsky Report. December 2022