Following a once considered inconceivable decline in home prices across Greater Vancouver, housing affordability is unsurprisingly improving. Indeed the team at RBC Economics has caught on, updating their latest affordability index. RBC summarized the changing dynamic in the nations most expensive property market, “The Vancouver-area housing market is in full-blown correction mode. Home resales have plummeted 58% since the peak in early 2016 with no sign of a turnaround so far in 2019. While various policy measures triggered and sustained the correction, Vancouver’s ongoing affordability crisis explains most its magnitude. The demand-supply balance now favours buyers and prices are falling. This helped RBC’s aggregate affordability measure to improve by 2.6 percentage points in the fourth quarter. With ownership cost still representing 84.7% of household income, we’re still a long way from the end of the crisis.” The recent pullback in home prices, which as of February saw Greater Vancouver detached home prices slide 9.7% year-over-year, and condos dip 4% from last year should come as no surprise given the bout of policy measures and rather benign mortgage credit growth, which is expected to continue as the economic outlook slows and the yield curve inverts. Affordability pressures, however, remain elevated- particularly

With the Canada 5 year bond crashing below 1.50, the lowest level since mid 2017, there remains cautious optimism that banks will slash mortgage rates- providing a shot in the arm to the Canadian housing market just in time for the spring market. It would certainly be welcoming news for an industry witnessing the fewest home sales in a decade and mortgage credit slowing to its weakest pace of growth since the 1980’s. However, those hopes could very well disappoint for several reasons. A regime shift from policy makers continues to move further away from an economic growth model propelled by the Canadian consumer. Given record levels of household indebtedness and elevated home prices, policy makers have shown little desire to encourage more borrowing. This stance was reaffirmed following a Federal Budget which killed consensus views for the re-introduction of a 30 year amortization, while also keeping the mortgage stress test firmly in place. Meanwhile recent developments in the bond market illuminate slowing growth which has officially inverted a good portion of the yield curve. Yield curve inversions have presided before nearly every recession. This is partly due to not only compressing net interest margins at banks, technically making it

With national home sales falling to a 10 year low in February and the home price index slipping into negative territory, the risk of a near two decade long housing bull market coming to an end was enough to scare the Trudeau Government into action. In the latest budget, the Trudeau Government announced it will begin taking an equity stake in homes purchased by first time buyers. Of course there are a few stipulations involved. This loan only applies to first time buyers using an insured mortgage (less than 20% down payment) and earning a maximum household annual income of $120,000 and can only be leveraged to 4x your income. If one does qualify, CMHC will take a shared equity position on your mortgage. The equity position will be either 10% for a newly constructed home or a 5% for an existing home and will need to be repaid upon a future sale. The Government will share in both price gains or losses when you sell. Either way the deal works like this, if a borrower purchases a brand new $400,000 home with a 5% down payment and a 10% CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be

Canadian households are feeling the pinch of rising interest payments. The debt service ratio, a measure of how much household income is going towards servicing principal and interest payments, ticked higher in Q4 2018. The debt service ratio topped a record high of 14.9% last quarter. The Canadian debt story is well known, and has gone on much longer than anticipated, much to the chagrin of short sellers hoping to capitalize on the painful knock-on effects when a consumer deleverages, as they did in the US during the 2008 financial crisis. Today the US consumer has largely recovered, and the debt service ratio for households sits at record lows of just 9.8%. Yet the balance sheet of Canadian households continues to defy gravity. There are however, early signs that a household contraction is underway. Household consumption slowed to 0.7% in Q4, the weakest pace of growth since 2012. Meanwhile, the pace of household credit growth has slumped to its slowest pace since the 1980’s. This is particularly ominous considering the unemployment rate remains at a 40 year low. Mortgage loan growth remains weak, particularly in Alberta & Saskatchewan where job prospects are rather discouraging. The year-over-year change in total mortgages

Amidst an ongoing debate as to the influence of foreign money in the Vancouver housing market, CMHC has attempted to shed some light on this debacle through their latest report. Using an infusion of taxpayer dollars to begin collecting more measurable data, including Canadian tax and property info, CMHC was able to determine the proportion of non-resident ownership, and non-resident participation (owning a portion of real estate) within the housing market. As per CMHC, the number of properties that have at least one non-resident owner amounted to 6.2% in British Columbia and 7.6% in Vancouver, the highest of all the areas surveyed. Non-ownership is more heavily concentrated in the condo segment. Non-resident ownership in Vancouver condos sits at 11.2%, nearly double that of the single family housing market. Further, non-residents remain enamoured in the new construction space where they have a 19.2% ownership rate of condos constructed between 2016-2017. This suggests the pre-sale condo space has become increasingly dependant on foreign capital flows, particularly from China. Thus, the vulnerabilities in the pre-sale space remain elevated considering Chinese capital outflows have hit a brick wall while simultaneously any outflows have been discouraged from investing into the Vancouver property market following a barrage of

The Vancouver condo market continues to experience very weak sales numbers. February sales fell 41% year-over-year and were the lowest for the month since 2001. An eighteen year low in condo sales, particularly considering the growth in supply and population is really something to behold. This weakness has ultimately debunked the once widespread belief that condos would not be impacted by a housing market correction which at first appeared to be isolated to luxury detached homes. Condo inventory increased 83% year-over-year and remains low in a historical context. However, due to the significant weakness in sales, the months of inventory sits at 6.4 which is indicative of favouring buyers. New listings were up 5.8% from last year but are relatively normal from a historical context. This suggests sellers not panicking to list and conditions remain orderly. However, with a nearly 40,000 units under construction inventory is likely to continue to outpace sales and should place further downwards pressure on prices. The official home price index notes Vancouver condo prices have dipped 5.1% year-over-year. While the average price per square foot shows an 8.6% decline. Again, this number can vary depending on the metric used but it is safe to say

As reported last month, Vancouver detached sales had their worst January dating back to 1990. This same phenomenon repeated in February. The city of Vancouver recorded just 98 sales, a 24.6% decline from last year and the lowest total we have on record. Yes we will see more sales in March as the spring market gets underway, however that is a normal seasonal uptrend and unfortunately is likely nothing to get too excited about. The bump in sales expected for the spring market is likely to be crowded out by an increase in new listings and quite frankly an overwhelming build in inventory. As of the end of February there is 14 months of inventory for sale, well above a healthy balanced market of 4-6 months of inventory. As a result, sellers are having to slowly and surely lower their prices (remember the analogy of a cruise ship turning). The price correction in Vancouver’s detached housing market has been a slow bleed, it has been nearly three years since prices peaked out in the spring of 2016. There are economic/housing studies which illustrate sales volumes peak two full years before prices start to fall, and Vancouver seems to be a