DATE

Steve Saretsky -

It wasn’t long ago we were discussing the horrors of rising mortgage rates and what was sure to be the inevitable death knell for home values. The Bank of Canada had turned suddenly hawkish and borrowing costs were surging. On October 05, 2018, the Canada 5 year bond had touched a cycle high of 2.48%. Then everything fell apart. The economy started to stumble and the bond market hit the panic button. With the Bank of Canada’s Poloz on hold, borrowing costs have been falling ever since. You can now get an uninsured mortgage for basically 3%, down nearly 60 basis points from the peak. That’s not to say rates can’t rise from here, but I think we are definitely in a lower for longer period. One in which global Central Banks have cornered themselves in a hole. We live in a world with over $11 trillion in negative yielding debt, with no real exit strategy. Kind of like Japan for the past two decades. There are still some concerns with mortgage rates in Canada though. Economist David Doyle of Macquarie believes there are troubles brewing in 2020. A lot of homeowners who took out 5 year mortgages in 2015

Steve Saretsky -

With May sales figures set to be released in a few days there is somewhat of a renewed optimism. Sales have picked up a bit, at least month over month. This is partly seasonal, with May likely to be the busiest month of the year, as it usually is every year. Condo sales will come in at a six year low, edging out May 2013 which was previously the slowest May in nearly two decades. In other words, it’s bad but could be worse. Prices appear to have stabilized somewhat, although they certainly face further downwards pressure. That catalyst is likely to come from a rise in unemployment and increasing inventory, both of which will probably stem from the pre-sale market. Hence why i’ve become increasingly focused on this segment of the market. There are already indications that peak jobs are in the rearview mirror. Here in Vancouver, The annual percent change of unemployment across Vancouver has risen for five straight months. Perhaps this is just a temporary bounce higher but if you ask anyone in the Real Estate & Construction sector they would probably agree. Developers have already begun pulling back on new projects as pre sale demand hits

Steve Saretsky -

CMHC released their Q4 2018 report on mortgage and consumer credit trends. Maintaining our Canadian culture, The average mortgage loan value reached $209,570, a 3.1% jump from last year. This allowed household debt to continue growing quicker than incomes, and pushed the debt to income ratio to a record high 178.5% in the fourth quarter. However, on a more positive note, the average balance for new loans actually declined 3.8% year-over-year, which is most likely the result of the mortgage stress test. Any wonder the IMF released a report earlier this week suggesting, “The government is under pressure to ease macroprudential policy or introduce new initiatives that buttress housing activity. This would be ill-advised, as household debt remains high and a gradual slowdown in the housing market is desirable to reduce vulnerabilities.” Mortgage delinquency rates remain stable, suggesting a gradual slowdown may be entirely possible. Although, as we are sometimes quick to forget, mortgage delinquency rates are very much a lagging indicator and are generally not a great barometer for forecasting the future health of Canadian household balance sheets. There has been a substantial rise in the growth of the outstanding balance of non-mortgage debt, particularly in Vancouver. Existing mortgage holders

Steve Saretsky -

On the heels of what was the slowest April for national home sales last year, April 2019  appeared to have provided a glimmer of hope. With sales having fallen for 15 consecutive months, April enjoyed a 4.2 percent increase on a year-over-year basis, helping to end the losing skid and perhaps prolong the near two decade-long housing boom. The uptick in sales was largely contributed to a somewhat resilient Greater Toronto housing market. Despite a slight increase in home sales, the national home price index continued to slide lower. Prices dipped 0.3% year-over-year thanks to significant weakness in Greater Vancouver which saw home prices sink 8.5% year-over-year. As you can see, the softness in the national housing market is mostly out West, at least for now. Prices continue to face downwards pressure in Greater Vancouver, Calgary, and Edmonton. While prices have slightly bounced back in greater Toronto and continue to inflate in Montréal and Ottawa. overall this reads like a good report.  however it’s becoming glaringly obvious that there is a huge divide between the East and the West. The Canadian labour market remains robust with unemployment hovering near 40 year lows,  and of course population growth remains strong. However

Steve Saretsky -

Tougher times at the pre sale centres have forced developers to boost incentives and begin cutting prices, as sales fall and inventory builds across the spectre. In April, the pre-sale absorption rate dipped to just 28%, well into buyers territory. Given the drop in sales and steeper price reductions eating into margins, developers are not only cancelling new projects but have slammed the brakes on new land acquisitions. With land and labour costs still inflated amidst a deteriorating economic backdrop, first quarter land sales fell 54% from last year. There were just 122 commercial land transactions across Metro Vancouver in Q1 2019, the slowest first quarter in over five years. The complexity of land sales and the longer duration of due diligence periods results in a significant lag for reporting standards. In other words, expect a further slump in land sales moving forward. This doesn’t bode well for the BC Government, which become one of the largest benefactors of the recent land boom. Property transfer tax alone makes up nearly 4.5% of tax revenues, not including the nearly 25% of GDP derived from real estate and construction. Indeed they have been lucrative times all around, even the money launderers made

Steve Saretsky -

As is typical in every housing cycle, property flipping escalates as prices and sales increase, allowing for profit maximization. According to a Bloomberg article today, US homes flipped within a 12 month period surged to 6.5% of total sales in Q4 2018. This was the highest share in seasonally adjusted data going back to 2002, according to real estate data firm CoreLogic. However, with the US property market now slowing and liquidity contracting, property flippers are feeling the pinch. Meanwhile, in Vancouver, property flipping has taken a nosedive as panicked investors hit the sidelines amidst deteriorating margins and falling home prices. Properties flipped within a 12 month period hit a cycle high of 4.6% in January 2017 and have since fallen to just 1.4% of total sales in April. Given the dramatic rise in home prices one would think property flipping would consume a greater portion of total transactions. Perhaps we need more HGTV exposure here in Canada. Don’t expect flipping activity to pick up anytime soon especially when the head of CMHC takes a bearish stance on the multi decade long housing boom. In an interview with Bloomberg Siddall suggested, “In places like Paris and Sydney and Hong Kong

Steve Saretsky -

The month of April turned out to be another disappointing month for home sales activity across Vancouver. Detached home sales in the city of Vancouver fell 25% year-over-year in April. This was the fewest home sales on record for the month with data going back to 1992. This was identical to what happened in March and virtually erasing any hopes of a Spring market pickup. With sales this weak prices will need to adjust lower it is really just a matter of sellers slowly adjusting to current market conditions. Selling a home is an emotional process and every seller wants to at least give their initial asking price a shot. Perhaps rather surprisingly, detached inventory actually fell on a year-over-year basis, dropping 14.3%. This is mostly because new listings fell steeply, dropping 30% from last year. Perhaps sellers are trying to wait out the market, or perhaps a flood of new listings is en route, it remains to be seen. However, there remains just under 12 months of inventory available for sale which is still very high and will continue to place downwards pressure on prices. Prices are still moving lower, particularly in the high end of the market where

Steve Saretsky -

Following their detached counterpart, condo sales were historically weak in April. Sales fell 30% from last year, and hit their lowest total for the month since April 2001. Indeed the 18 year low comes as buyers shift to the sidelines and wait for sellers to lower their prices, particularly given the significant declines in the prices for a detached home. Indeed buyers wishes are being granted as inventory in the condo market continues to grow at a rapid pace. Inventory for sale increased 75% year-over-year and pushed the months of inventory to 6.3. Anything above 6 months is considered to favour the buyer in terms of negotiations. New listings also increased by 5% from last year. While inventory is growing and now favour the buyers it is not overly elevated, although we suspect if this trend continues it will certainly become more of a problem. Condo prices are declining noticeably now after peaking over a year ago. The average price per square foot for a Vancouver condo declined by 14.4% year-over-year. It’s important to note that the average price per square foot has historically been a very consistent and reliable price metric with much less volatility. This movement falls in

Steve Saretsky -

It came later than expected But the spring market finally arrived in the city of Vancouver. The month of May was the busiest month this year, at least in terms of sales volumes. However, while sales volumes increased month over month this was still one of the slowest months of May we have ever seen. Sales declined 8.4% yearover-year to their lowest total since May 2000. This allowed inventory to continue building, up 10% from last year, and kept downwards pressure on prices across all segments. Developers are reporting continued weakness at pre-sales centres across Greater Vancouver, this is making it more difficult to obtain construction financing and thus more projects continue to be cancelled. As a result, developers have slowed new land purchases, land transactions fell nearly 50% year-over-year in the first quarter. This will have knockon effects on the BC economy as new housing starts slow and future projects in the construction pipeline begin are reduced. We believe the pre-sale market is a leading indicator of the real estate and construction sector which makes up nearly 25% of GDP in the province.

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The Canadian Economy

Steve Saretsky -

It wasn’t long ago we were discussing the horrors of rising mortgage rates and what was sure to be the inevitable death knell for home values. The Bank of Canada had turned suddenly hawkish and borrowing costs were surging. On October 05, 2018, the Canada 5 year bond had touched...

Steve Saretsky -

With May sales figures set to be released in a few days there is somewhat of a renewed optimism. Sales have picked up a bit, at least month over month. This is partly seasonal, with May likely to be the busiest month of the year, as it usually is every...

Steve Saretsky -

CMHC released their Q4 2018 report on mortgage and consumer credit trends. Maintaining our Canadian culture, The average mortgage loan value reached $209,570, a 3.1% jump from last year. This allowed household debt to continue growing quicker than incomes, and pushed the debt to income ratio to a record high...

Steve Saretsky -

On the heels of what was the slowest April for national home sales last year, April 2019  appeared to have provided a glimmer of hope. With sales having fallen for 15 consecutive months, April enjoyed a 4.2 percent increase on a year-over-year basis, helping to end the losing skid and...

Steve Saretsky -

Tougher times at the pre sale centres have forced developers to boost incentives and begin cutting prices, as sales fall and inventory builds across the spectre. In April, the pre-sale absorption rate dipped to just 28%, well into buyers territory. Given the drop in sales and steeper price reductions eating...

Steve Saretsky -

As is typical in every housing cycle, property flipping escalates as prices and sales increase, allowing for profit maximization. According to a Bloomberg article today, US homes flipped within a 12 month period surged to 6.5% of total sales in Q4 2018. This was the highest share in seasonally adjusted...

Steve Saretsky -

The month of April turned out to be another disappointing month for home sales activity across Vancouver. Detached home sales in the city of Vancouver fell 25% year-over-year in April. This was the fewest home sales on record for the month with data going back to 1992. This was identical...

Steve Saretsky -

Following their detached counterpart, condo sales were historically weak in April. Sales fell 30% from last year, and hit their lowest total for the month since April 2001. Indeed the 18 year low comes as buyers shift to the sidelines and wait for sellers to lower their prices, particularly given...

Steve Saretsky -

It came later than expected But the spring market finally arrived in the city of Vancouver. The month of May was the busiest month this year, at least in terms of sales volumes. However, while sales volumes increased month over month this was still one of the slowest months of...

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The Saretsky Report. December 2022