DATE

Steve Saretsky -

The Greater Vancouver housing pipeline remains fully bloated surpassing 44,000 units under construction as of the end of June, a fresh record high. Despite the softness in the housing market with home sales hovering near two decade lows to start the year, developers are still jamming through new projects at a record pace. Year to date (as of the end of June), housing starts hit 15,723 units, that’s up 25% from the same period last year. While these housing starts are likely to ease prices further, ultimately aiding in the battle of affordability, they still need to find willing buyers. Per data from MLA Canada and Urban Analytics, pre-sale activity remains weak. Perhaps even threatening the viability of some of these projects. In June, MLA reported the pre-sale absorption rate at 14%, the lowest count since MLA began tracking the data in January 2018. Urban Analytics second quarter data shows the growing divergence between sales and unsold inventory. Buyers of course are the real winners here as the abundance of options are being further incentivized through increased bonuses and decorating allowances from developers. However, it’s not just property developers who are vying for the attention of buyers, condo flippers too

Steve Saretsky -

Given the uncertainty in the Canadian housing market, inflated home prices, elevated levels of household debt, and mortgage stress tests, it seems more and more buyers are opting for the sidelines, choosing to rent instead. It appears real estate investors and developers are taking note, funnelling money into purpose built rental units. A good chart from Ben Rabidoux of North Cove Advisors highlights a record number of rental apartment units currently under construction across Canada. While these units should provide relief to a national housing market ailing with low vacancy rates, I am hearing anecdotally of more property builders in Vancouver switching to rentals given the obvious weakness in the resale market where sales have tumbled to near two decade lows throughout the year. The data appears to back those rumblings. Per CMHC, there were 4226 rental units under construction in Greater Vancouver for the month of June, just off a record high set in May. Further, housing starts for new rental units remains elevated. The 12 month monthly average for new housing starts remains close to record highs. I suspect rental housing starts will continue to trend higher, given the weakness at pre-sale centres across Greater Vancouver. The pre-sale

Steve Saretsky -

The global economic slowdown which has prompted the worlds central bankers to take a dovish pivot has no doubt been plagued by the cyclical slump in global property markets. This slump has been exacerbated by the slowdown in the Chinese home buying spree as capital controls remain tight as economic output slows. China recently reported second quarter GDP growth of 6.2% year-over-year according to the National Bureau of Statistics, the slowest pace of output expansion on record dating back to 1992. Of course, the slowdown in China’s self-reported growth rate comes as the Trump trade war shows no signs of cooling off. This has impacted foreign purchases of American homes. According to the National Association of Realtors, the dollar volume of homes purchased by foreign buyers from April 2018 through March 2019 dropped 36% from the previous year. Foreigners bought 183,100 properties (the lowest count in 10 years), with a total value of about $77.9 billion, down $121 billion a year ago. The dollar volume of foreign purchases declined amongst the top five most active countries, with the steepest drop in Chinese purchases, which fell to $13.4 billion, a 56% decline from the prior level. Despite the steep decline in

Steve Saretsky -

The Canadian housing market recorded somewhat of a stabilization in June. The news comes just days after being featured on the number one spot for Bloombergs “housing bubble dashboard” which featured Canada and New Zealand as the most vulnerable to a correction in home prices. Per the Canadian Real Estate Association, national home sales inched higher in June, up 0.3% year-over-year. The slight increase in sales was largely in part due to an uptick in Eastern Canada, where lenders have shifted mortgage originations to more stable markets. “There’s a growing divergence in Canadian housing market trends between eastern and western Canada,” noted Gregory Klump, CREA’s Chief Economist. Sales increased 16.2% in Quebec city and 9.6% in Toronto, while falling 15% in Greater Vancouver and 4.6% in Calgary. The overall year to date trend in home sales remains weak, especially considering mortgage rates have plummeted nearly 90 basis points since the start of the year. The sluggish activity in the housing market appears be weighing on the auto market. The Canadian auto industry posted its sixteenth consecutive deceleration in sales for June, contracting another 7.2% year-over-year. “We’ve been expecting single digit declines all year and that’s exactly what we’ve been getting.

Steve Saretsky -

One of the signs you look for when an economy, and in particular a housing market is in distress is the number of foreclosures hitting the market. Foreclosures are a lagging indicator as typically households try to hold on as long as possible while lenders will typically offer borrowers a grace periods to try and catch up on outstanding payments. However, once foreclosures begin to increase they create somewhat of a self fulfilling feedback loop. When houses are forced to sell they create a clearance price which ultimately impacts the values of homes in the surrounding areas. In their book ‘House of Debt’ economists Atif Mian and Amir Sufi argue the impact of the housing bust in 2008 was ultimately magnified through the sharp increase in foreclosures. They believe the damage could have been mitigated had banks partaken in some of the risk sharing, by forcing lenders to share in the downside of property values they would have been more prudent in their lending standards. But alas, this was not the case, and as we can see in the chart below, US foreclosure starts (listings) and completions (sales) began ratcheting higher in 2005 as home values peaked. Foreclosure sales ultimately

Steve Saretsky -

As we have seen throughout this year, the condo market continues to outperform the detached housing market. However, outperform might be a little too generous. Condo sales across Greater Vancouver fell 23.9% from last year, this marked the fewest condo sales for the month of June since 2002. This is particularly concerning given this doesn’t account for the increase in population growth and new condo stock during that time period. Similar to the detached market, the majority of the weakness in the condo market is at the higher end of the spectrum. In other words, the more expensive the condo the more challenging it is to sell. This should not be mistaken for assuming entry level condos have not been impacted. One bedroom and studio units have witnessed sales fall and prices drop as well. One bedroom and studio condo sales were down 27% year-over-year with the average price per square foot sinking by 6.9% (8.7% decline for 2 bedroom condos).  Inventory jumped by 46.5% year-over-year to the highest levels since June of 2015. This allowed the overall months of inventory to inch higher to 6.2 months. This is indicative of a buyers market but certainly not cause for panic. 

Steve Saretsky -

As we had been calling for the past few months, Greater Vancouver home sales had likely bottomed and we would soon begin to see year-over-year increases. This was indeed the case in July, where home sales bounced, jumping 23% year-overyear. While the large increase in sales is certainly significant, it is also important to contextualize the increase. Last year ( July 2018) was the slowest month of July in eighteen years. Therefor, it was highly unlikely we would see sales weaken further. Instead, we saw sales increase, although still below the 10 year average for the month, while prices continued to inch lower. It appears lower prices, along with falling mortgage rates have certainly encouraged some buyers back into the market. Further, the labour market remains relatively strong, allowing willing buyers to obtain a mortgage and or leverage up in the housing market. However, overall market conditions remain very volatile with some segments exuding significant weakness, while other more affordable segments of the market remain much more resilient. Let’s unpack the month of July further.

Steve Saretsky -

This an excerpt from The Saretsky Report. You can subscribe to the monthly report for free Here. The June edition is set to be released later this week. Detached sales across Greater Vancouver dipped just 1.7% from last June, despite the small decline it still helped push detached sales towards their lowest count on record. This marked the fewest transactions dating back to 1991.  Again, this reaffirms our belief that detached sales are nearing a bottoming process where the comparative base effects are easing and will likely trend positive within the next 6-8 months. In other words, detached sales are already so low that we should expect to see year-over-year increases very soon. This is not to be confused with year-over-year price increases.  Although inventory actually fell 5% year-over-year it remains elevated. As of today, there is 8.8 months of inventory for sale, suggesting further downwards pressure on prices. However, new listings fell 17.7% from last year which has certainly helped support prices from falling further. We will continue to watch inventory numbers closely.  Buyers remain very cautious, and low-ball offers have become commonplace. Similar to our message last month, entry level houses, particularly with mortgage helpers are not seeing

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The Canadian Economy

Steve Saretsky -

The Greater Vancouver housing pipeline remains fully bloated surpassing 44,000 units under construction as of the end of June, a fresh record high. Despite the softness in the housing market with home sales hovering near two decade lows to start the year, developers are still jamming through new projects at...

Steve Saretsky -

Given the uncertainty in the Canadian housing market, inflated home prices, elevated levels of household debt, and mortgage stress tests, it seems more and more buyers are opting for the sidelines, choosing to rent instead. It appears real estate investors and developers are taking note, funnelling money into purpose built...

Steve Saretsky -

The global economic slowdown which has prompted the worlds central bankers to take a dovish pivot has no doubt been plagued by the cyclical slump in global property markets. This slump has been exacerbated by the slowdown in the Chinese home buying spree as capital controls remain tight as economic...

Steve Saretsky -

The Canadian housing market recorded somewhat of a stabilization in June. The news comes just days after being featured on the number one spot for Bloombergs “housing bubble dashboard” which featured Canada and New Zealand as the most vulnerable to a correction in home prices. Per the Canadian Real Estate...

Steve Saretsky -

One of the signs you look for when an economy, and in particular a housing market is in distress is the number of foreclosures hitting the market. Foreclosures are a lagging indicator as typically households try to hold on as long as possible while lenders will typically offer borrowers a...

Steve Saretsky -

As we have seen throughout this year, the condo market continues to outperform the detached housing market. However, outperform might be a little too generous. Condo sales across Greater Vancouver fell 23.9% from last year, this marked the fewest condo sales for the month of June since 2002. This is...

Steve Saretsky -

As we had been calling for the past few months, Greater Vancouver home sales had likely bottomed and we would soon begin to see year-over-year increases. This was indeed the case in July, where home sales bounced, jumping 23% year-overyear. While the large increase in sales is certainly significant, it...

Steve Saretsky -

This an excerpt from The Saretsky Report. You can subscribe to the monthly report for free Here. The June edition is set to be released later this week. Detached sales across Greater Vancouver dipped just 1.7% from last June, despite the small decline it still helped push detached sales towards...

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The Saretsky Report. December 2022