DATE

Steve Saretsky -

Famed US fund manager Bill Gross is well known for many reasons, one of them was his creation of ‘The Plankton Theory‘, or as best described by Gross as, “In the case of real estate, the plankton would be the first-time buyer (perhaps a young married couple) with a desire to own their own home but with very little capital to carry it off. When the time comes that they can’t pull it off – either through an inability to come up with a down payment, or to service the monthly mortgage – then the ‘plankton’ would disappear and the rapid escalation in housing prices would ease as well. For, unless the current homeowner has someone to sell his house to, he’ll be unable to afford the house with the view or that extra bedroom, and the process would continue into the echelons of Beverly Hills and Shaker Heights. In the end, the entire market would wither on the investment vine and home prices would stop increasing at the same rapid rate. So to gauge the health of the housing market, look first at the plankton.” While I will stop short of saying “this time is different”, it appears the

Steve Saretsky -

It appears the pre-sale space is beginning to garner more media attention. CBC just penned an article titled, “Pre-sale condo buyers back out of contracts as market slows in Lower Mainland.”  I have been beating this dead horse for awhile now as the risks mounting were simply too large to ignore. During the peak of the mania people were piling into pre-sale condos at a frantic pace. It was just a few years ago that buyers were camping out in tents and paying record sums to get their hands on one. It sounds rather hysterical now but at the time people found a way to rationalize the behaviour. Anyways, as per the article, Vancouver Real Estate lawyer Kenneth Padzer notes an uptick in clients trying to renege on their pre-sale contract. “We’ve had clients approach us and say, can you go through all the paperwork and see if there’s some some way that we can legally not close, and it’s unlikely.” Of course this happened just a decade ago, but during a mania we tend to have short memories. In February 2009 CBC wrote an article titled, “More lawsuits filed as pre-sale condo buyers seek to renegotiate.” An excerpt from

Steve Saretsky -

As expected, the federal Government unveiled the details of their first time home buyer scheme which was initially promised a few months ago. Basically the Government will become an equity partner in your home and share both the upside or the downside of your home purchase, backed by the Canadian taxpayer. At first glance it feels like an awkward big brother type of deal. Of course the Government is always backwards looking and seems to have brought in this policy at the worst possible time. After a multi-decade long run-up in home prices the Government has decided now is the best time to leverage taxpayer dollars into homes for first time buyers. This will likely be a losing proposition, at least in the near term as the National Home Price Index drifts into negative territory. Although, on a more positive note, CMHC is limiting the scheme to people whose mortgage and incentive are less than or equal to four times their total gross income. In other words, their ability to leverage will actually decline under this program. As a result, Rate Spy calls this first time buyer program a “bridge to nowhere” as it will likely receive little use. Although

Steve Saretsky -

New data released from the Canadian Housing Statistics Program suggests there are quite a few homeowners who have accumulated more than one property. In BC and Ontario about 15% of homeowners have more than one property. And the vast majority of them are residents. Canadians have certainly played a large role in accumulating real estate. They’ve also incurred a lot of debt in the process. First quarter data for 2019 shows the household debt servicing ratio printed a new record high. For context, our US neighbours to the south are currently enjoying the lowest debt servicing ratio on record after taking the medicine in 2008. No wonder CMHC’s Evan Siddall continues to lament for the continuation of the B-20 Mortgage stress test. Siddall re-iterated his views in a recent piece in the Globe & Mail, “The real estate lobby is on the wrong side of this issue, they’re being intensely self-interested, and somebody had to call them on it frankly because they were getting traction.” Adding,  “If we ease the stress test or extend mortgage amortizations, for sure it is increasing debt and it’s going to bump prices higher.” Safe to say there’s no change coming on that front anytime

Steve Saretsky -

There are a lot of predictions right now that a recession is just around the corner. At least the bond market thinks so. The entire Canadian yield curve is below the overnight rate, which has been historically speaking- a strong indicator. The spread between 10 year and 3 month yields is the most inverted since 2007. Of course people have been calling for a recession for awhile now. Particularly in Canada where household debt levels are off the charts. Housing bulls have found a way to justify the debt levels, usually citing the correlating asset prices which are directly dependent on underlying debt levels continuing to grow. It’s a pretty flawed argument but so far it hasn’t mattered since household balance sheets have failed to blow up after more than a decade of warnings. However, with the recent yield curve inversion and now residential investment falling, those warnings are ratcheting up again. Friends over at Better Dwelling noted Residential investment marked its fifth consecutive quarterly decline. Residential investment fell to 6.50% of GDP in the first quarter of 2019, down from 6.94% the same period last year. The predicative nature of residential investment as a recession indicator has been well

Steve Saretsky -

As mentioned in my last post, the Vancouver detached housing market remained weak in May with sales posting 28 year lows and prices sinking 13% from last year. Things could certainly be better in that space. Shifting gears to the condo market and we can see that the condo market faired slightly better than the detached market, although sales were still weak from a historical context. Condo sales dipped 11% year-over-year, marking the lowest total for the month since May 2001. The eighteen year low in sales matched the same record set in April. We feel it is important to highlight condo sales were at an eighteen year low despite the growth in population and housing stock over this time period. Further, mortgage rates have dropped considerably over the past couple of months yet sales remain sluggish which suggests buyers have cautiously moved to the sidelines. Clearly something has to give, and this will really depend on inventory levels which are still quite low. The number of condos listed for sale increased 39% year-over-year, so inventory is still growing off a historically low base. The months of inventory for sale sits at 4.7 which is indicative of a balanced market.

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. Detached sales in the city of Vancouver fell 7% year-over-year in May. It was the fewest number of sales for the month of May in Vancouver history with data going back to 1991. We feel sales have likely bottomed or close to it which may sound obvious given they can’t get much worse. However, we don’t expect sales to normalize anytime soon, ie lower for longer seems to be the most likely scenario. Given how weak sales volumes have been, it is clear that the buyer pool remains pretty thin given the reduction of Chinese capital and the median home price still elevated at $1,662,500. However, sellers are fighting back, new listings fell 24.6% year-over-year to their lowest total in over 10 years. As a result, the months of inventory plummeted to 7.3. This is still considered a buyers market but is much better than

Steve Saretsky -

As we have now entered July, we can officially call it the end of the spring market for Vancouver Real Estate. Prior to the start of the year, many market watchers and industry pundits alike rightfully noted the importance of the spring market, suggesting it would dictate what to expect for the year ahead. After a sluggish finish to 2018 and an equally weak start to 2019, there were hopes the historically resilient Vancouver housing market could shrug it off. However, month after month that proved not to be the case. Through the first six months of this year, home sales totalled 10,924, the fewest transactions for that time frame since the year 2000. June sales figures suggested that trend was in tact, with monthly home sales dropping 13.9% year-over-year to their lowest total in 19 years. Undoubtedly this slowdown has knock-on effects, which we are beginning to see, namely the cancelation of newer construction projects. However, will a recent plunge in mortgage borrowing costs help cushion the blow? We will examine this and much more in the June report.

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The Canadian Economy

Steve Saretsky -

Famed US fund manager Bill Gross is well known for many reasons, one of them was his creation of ‘The Plankton Theory‘, or as best described by Gross as, “In the case of real estate, the plankton would be the first-time buyer (perhaps a young married couple) with a desire...

Steve Saretsky -

It appears the pre-sale space is beginning to garner more media attention. CBC just penned an article titled, “Pre-sale condo buyers back out of contracts as market slows in Lower Mainland.”  I have been beating this dead horse for awhile now as the risks mounting were simply too large to...

Steve Saretsky -

As expected, the federal Government unveiled the details of their first time home buyer scheme which was initially promised a few months ago. Basically the Government will become an equity partner in your home and share both the upside or the downside of your home purchase, backed by the Canadian...

Steve Saretsky -

New data released from the Canadian Housing Statistics Program suggests there are quite a few homeowners who have accumulated more than one property. In BC and Ontario about 15% of homeowners have more than one property. And the vast majority of them are residents. Canadians have certainly played a large...

Steve Saretsky -

There are a lot of predictions right now that a recession is just around the corner. At least the bond market thinks so. The entire Canadian yield curve is below the overnight rate, which has been historically speaking- a strong indicator. The spread between 10 year and 3 month yields...

Steve Saretsky -

As mentioned in my last post, the Vancouver detached housing market remained weak in May with sales posting 28 year lows and prices sinking 13% from last year. Things could certainly be better in that space. Shifting gears to the condo market and we can see that the condo market...

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...

Steve Saretsky -

As we have now entered July, we can officially call it the end of the spring market for Vancouver Real Estate. Prior to the start of the year, many market watchers and industry pundits alike rightfully noted the importance of the spring market, suggesting it would dictate what to expect...

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The Saretsky Report. December 2022