DATE

CIBC bank
Steve Saretsky -

Amidst a slowing Canadian housing market spurred on by the B-20 mortgage stress test, new credit growth continues to slow. As per the Bank of Canada, household credit growth grew by 3.03% Year-over-Year in December, the slowest past of growth since June 1983. The slowdown has also been reflected in residential mortgage credit growth which slipped to 3.13% the weakest pace since April, 2001. As a result, and perhaps rather unsurprisingly, Canadian bank earnings largely disappointed in Q1. Starting with the Laurentian Bank of Canada, shares fell the most in almost nine years after the lender said it would cut its workforce 10% after posting earnings that missed analysts’ estimates for a third straight quarter. Net income fell 32% to C$40.3 million for the quarter ended Jan. 31. The disappointment spread unevenly to CIBC & TD Bank. The Canadian Imperial Bank of Commerce hiked its dividend following first quarter profits sinking 11% to $1.18 billion. While TD reported a 2.4% increase in earnings, yet still falling short of overall expectations. Both banks reported an increase for loan loss provisions, as credit conditions shift to the downside. CIBC loan loss provisions more than doubled from last year, while TD Bank set

Steve Saretsky -

The ongoing woes in the Vancouver housing market are becoming more pronounced, particularly in the single family house sector. Coming off a sluggish 2018 which saw annual sales slip to an eighteen year low, 2019 has not faired much better. Greater Vancouver detached sales fell 29% year-over-year, recording the worst January since 2009. Amidst several years of falling sales, inventory continues to build. As of today there is 15 months of inventory in the detached market, well above a balanced market which is distinguished as an MOI (months of inventory) between 4-6. Unsurprisingly this is placing downwards pressure on prices, with the home price index having declined 9.1% over the past year, although in reality price declines have been much steeper. As a result, this is placing added pressure on single family builders where profit margins on new homes are being squeezed. Very few spec builders (builders with no contracted buyer) accounted for the dramatic shift in market conditions which we are witnessing today. This is not only putting a dent in profits but has slowed future housing starts significantly. The 12 month rolling sum of housing starts has fallen 15% after peaking in January 2018. This is resulting in

Steve Saretsky -

As is typical in all housing corrections, luxury properties are the first on the chopping block while also suffering the steepest of price discounts. This is ultimately the result of a much smaller buyer pool that, when it shrinks, creates liquidity constraints. As the housing cycle turns, and liquidity dries up the luxury market becomes extremely prone to volatility and wild price gyrations. As a result, bank credit also seizes up, further hampering liquidity when it is most needed. It appears this phenomenon is playing out in the Greater Vancouver housing market. With global growth slowing, and Chinese capital controls becoming even more severe, luxury home sales have ground to a halt. Add in an increased foreign buyer tax which has been bumped to 20% of the purchase price, a confiscatory annual speculation tax of 2% which targets real estate holders who earn an income outside of BC, and an added annual “school tax” of 0.2% for homes assessed between $3 million and $4 million (a 0.4% tax rate on the portion above $4 million) and it becomes increasingly more evident of the deepening sorrows in the luxury housing market. Greater Vancouver home sales of $3M and above fell 45%

Steve Saretsky -

The Fraser Valley suburbs, which became the idle recipient of a spillover of cheap credit created in the depths of the Vancouver real estate boom is now facing repercussions as the party comes to an end. With home prices correcting in the city of Vancouver, the ripple effect has spread across the city and into the Fraser Valley, particularly in the once euphoric cities of Langley and Abbotsford. Condo price declines have been sharp. Since Langley condos peaked in June, the home price index has dropped 10%. Price declines have accelerated in Abbotsford where the price index shows a 14% drop since peaking in June. It turns out Vancouver’s suburban condos do not defy the laws of gravity. Although, considering price growth had reached dizzying heights during the peak of the mania real estate bulls can perhaps chalk this up as just a minor set back. At the peak of the mania both Langley & Abbotsford experienced year-over-year condo price growth of 49%. However, with prices clearly declining, year-over-year price growth will soon dip into negative territory, perhaps as soon as next month. Inventory for sale continues to grow after bottoming near the end of 2017. As of January, condo

Steve Saretsky -

With many global property markets slowing due to a tightening of global liquidity and Chinese capital flight, many home sellers and property developers remain eagerly optimistic the Chinese Lunar New Year would provide a much needed bear market rally. However, if recent spending habits in China are any indication, this New Year is likely to come and pass with disappointment. According to Beijing media group; Caixin, Lunar New Year spending in China failed to meet expectations. While spending technically increased to 8.5%, it was indeed the slowest rate of growth since 2011. Earlier today, the South China Morning Post reported New homes sales declined by 56% year on year in 17 major mainland China cities, including Shanghai and Nanjing, during the Lunar New Year holiday. From a broader 30 city view, which includes re-sales, the three month moving average of home sales in China’s tier 1 and tier 2 cities remains firmly in negative territory. While Positive sales growth and prices are still being recorded in tier 3 cities. According to the Chinese National Bureau of Statistics, land transactions fell 29% in January, the largest decline since May 2015. This has prompted various rounds of monetary stimulus, with the head

Steve Saretsky -

The city of Vancouver’s detached housing market followed up a miserable 2018 with another decline in home sales. Detached salesfor the month of January fell 9% from last year, this marked the worst January on record since data started being collected in the early 1990s. It’s hard to see detached home sales declining much further, we are likely to see a seasonal uptick from here as we head into the spring market. However, given that sales are historically weak and will almost certainly remain sluggish in the near term, new listings will continue to outpace sales and rising inventory will adjust home prices lower. As of the end of January there was 15 months of inventory for sale. This is approximately double what would be considered a balanced market. While many sellers remain anchored to peak prices those who need to sell are having to realize the clearance price is significantly lower than what we are used to. While there are a barrage of price metrics none of them are completely accurate nor reflect current market prices. When studying comparable sales it is safe to conclude luxury home prices are about 25% lower than peak prices achieved back in early

Steve Saretsky -

Vancouver condo sales did some catching up with the detached housing market in January.  Condo sales fell sharply, dropping 42% year-over-year. This was the fewest monthly sales since January 2009. As a result of the weak sales, inventory increased  81% year-over-year in the month of January. It is important to note however that overall inventory levels still remain historically low.  With sales falling and likely to remain muted given the numerous headwinds that we will describe in detail below, it is likely that inventory will continue to grow as this housing cycle comes to an end. The sales act this ratio slipped to 12%, indicative of a buyer’s market. This was also highlighted in the months of inventory which climbed to 8.4, also indicative of a buyer’s market. Inventory levels are likely to continue growing given the weak pace of sales and the record number of housing units under construction across Greater Vancouver. Many of these buyers are investors and not and users. A recent report from MLA Canada suggests 67% of pre sale condo buyers in the Burnaby area are investors and not end users. Therefore in the coming 12 to 24 months these units will be completing and

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Amidst a slowing Canadian housing market spurred on by the B-20 mortgage stress test, new credit growth continues to slow. As per the Bank of Canada, household credit growth grew by 3.03% Year-over-Year in December, the slowest past of growth since June 1983. The slowdown has also been reflected in...

Steve Saretsky -

The ongoing woes in the Vancouver housing market are becoming more pronounced, particularly in the single family house sector. Coming off a sluggish 2018 which saw annual sales slip to an eighteen year low, 2019 has not faired much better. Greater Vancouver detached sales fell 29% year-over-year, recording the worst...

Steve Saretsky -

As is typical in all housing corrections, luxury properties are the first on the chopping block while also suffering the steepest of price discounts. This is ultimately the result of a much smaller buyer pool that, when it shrinks, creates liquidity constraints. As the housing cycle turns, and liquidity dries...

Steve Saretsky -

The Fraser Valley suburbs, which became the idle recipient of a spillover of cheap credit created in the depths of the Vancouver real estate boom is now facing repercussions as the party comes to an end. With home prices correcting in the city of Vancouver, the ripple effect has spread...

Steve Saretsky -

With many global property markets slowing due to a tightening of global liquidity and Chinese capital flight, many home sellers and property developers remain eagerly optimistic the Chinese Lunar New Year would provide a much needed bear market rally. However, if recent spending habits in China are any indication, this...

Steve Saretsky -

The city of Vancouver’s detached housing market followed up a miserable 2018 with another decline in home sales. Detached salesfor the month of January fell 9% from last year, this marked the worst January on record since data started being collected in the early 1990s. It’s hard to see detached...

Steve Saretsky -

Vancouver condo sales did some catching up with the detached housing market in January.  Condo sales fell sharply, dropping 42% year-over-year. This was the fewest monthly sales since January 2009. As a result of the weak sales, inventory increased  81% year-over-year in the month of January. It is important to...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022