The Canadian population grew 1.4% year-over-year in July, marking the fastest pace of growth since the 1990’s. It was also the fastest pace of growth amongst the G-7. The rapid growth has been fuelled primarily by immigrants, with the Liberal Government pumping in 313,580 people in the past year, the most on record for a single year. Given the large increase in new immigrants and overall population growth, it shouldn’t be a surprise that the country is mired in a housing shortage. However, as I have written before, migration flows are largely dependent on the overall strength of the economy, which ironically hinges on the strength of the housing market. Further, the last time population growth was this strong the housing bubble in Canada burst, leading to not only a steep decline in home prices but also in population growth. We often hear the argument that population growth has been responsible for the sharp rise in BC home prices, however, when looking at the most recent data from Stats Canada it’s evident that population growth really hasn’t been anything special in BC. However, it is certainly true that both interprovincial migration and non-permanent resident growth into BC has been strong,

The Bank of Canada recently published a new report titled, ‘Home Equity Extraction and Household Spending in Canada‘. I think their social media team set them up for an easy jab on Twitter. It is well known that housing is the business cycle, and that the growth of the Canadian economy largely hinges on household spending which of course is being financed through rising home prices. This isn’t a new concept that was created in Canada. This is a very common pattern during housing booms, and was very prevalent in the US prior to the financial crisis in 2008. Here’s a chart on US home equity cash-outs which peaked at $84B in Q2 2006. However, once the drug wears off (house prices stop rising), consumer spending and economic growth drop off significantly. This appears to be developing in Canada now. The home price index has been flat for basically a year now, same with consumer spending. Year to date, retail volumes have increased just 0.8%, the slowest pace of growth since 2009. As per the Bank of Canada report, which was actually well done, the relationship between house prices and household spending is fairly robust. Home equity extraction in Canada

New data from Altus Group shows foreign investment in Canadian commercial Real Estate dropped by 70% through the first half of 2019. Transactions totalled just $1.5 billion through the first 6 months, that’s down from $5 billion during the same period last year. Altus Group suggests the steep decline is due to a shortage of core assets such as top-tier office buildings, and rental apartments in urban areas, while also suggesting this year’s tally should rise significantly when pending deals across Canada complete in the coming months. However, there is arguably more to the story here. The same phenomenon is being reported in the United States. Through the first half of 2019, deals totalled $16.9 billion, down from a record $32.7 billion in the same period last year, according to a report by CBRE Group Inc. This is part of a larger global slowdown, particularly out of China, where the global buying spree appears to have come to and end, at least for now. Chinese companies have become net sellers of global assets this year for the first time since corporations from the country became big players in international mergers and acquisitions a decade ago. Chinese companies have agreed to

The first year results of the BC Governments empty homes/speculation tax were just released. Ironically the news came on the same day of which Justin Trudeau’s Liberal party proposed a national empty homes/speculation tax of 1% if re-elected. The tax would be modelled after the foreign buyers’ tax already in place in British Columbia. And so here we are. According to BC Finance Minister Carole James, “Based on the data … the tax is working as we intended.” But you be the judge. The SVT (speculation vacancy tax) was paid by 11,783 homeowners across BC. More than half (65%) were foreign owners or satellite families, while 33% of SVT tax payers were Canadians, ultimately caught in the cross fire. However, when we look at this through percentages it shows us the tax ultimately only hit 0.17% of BC Residents, and 5.67% of Canadian owners. While it hit 19.5% of Foreign owners and 15.3% of satellite families in BC. The tax generated $115M in revenue for the 2018/19 fiscal year, with that number expected to jump to $185M when the tax rate increases from 0.5% of the assessed value of a property in 2018 — to 2% for foreign owners and

The cost of housing has become a hot button topic across the world, but of course that is not a surprise to anyone. As home prices inflate well beyond wages, affordability is being eroded, particularly in global cities. This has simply been exacerbated through monetary policy, where a decade of cheap credit has funnelled into assets such as housing, enriching those with access to capital. This is the inevitable side effect of keeping rates too low for too long. Creating a crisis between the haves and the have nots, as hedge fund billionaire Ray Dalio has noted in his research, this is “the issue of our time.” Since 1980, median household real incomes have been nearly flat, and the average household in the top 40% earns four times more than the average household in the bottom 60%. Further, those in the top 40% now have on average 10 times as much wealth as those in the bottom 60%. That is up from six times as much in 1980. A recent article in the Wall Street Journal echoed these thoughts, suggesting the bottom half of Americans haven’t recovered from the housing bust. “The share of families in the bottom half who

Greater Vancouver condo sales bounced 9% year-over-year this August. This brought condo sales roughly in line with their 10 year average. Keep in mind these sales are not adjusted for population growth and/or the growth in the housing stock. We are seeing weakness in two and three bedroom condos, particularly the higher up you go. There is still lots of activity for one-bedroom condos as first-time buyers try to squeeze into the housing market. This is perhaps best reflected in the sales actives ratio for one-bedroom condos which shows a ratio of 28%, this is indicative of a seller’s market, although I’d still be hesitant to suggest that sellers truly hold the upper hand in negotiations. Buyers are still relatively picky, opting to neglect older less desirable buildings, particularly those with rental restrictions or pet restrictions. Most of the demand in the condo market is funneling into newer one bedroom units that are reasonably priced. However, again we like to emphasize context, the percentage of one-bedroom condos that sold over the asking price slipped to just 8% in August. This is down from 17% last year, and down significantly from a cycle high set back in June 2017 when 62%

The theme of this report is context. Case in point with the detached housing market. August detached housing sales surged 25% year-over-year. That makes for a great headline and if you didn’t have any context you would assume the detached market was booming. However when we contextualize this movement we can see that detached sales despite the large uptick year-over-year, sales are actually still below the 10 year average.  In fact, detached sales were 21% below the 10 year average for August, and even further below the 19 year average below. Which brings us to our next point. We actually believe that this is a structural problem. Detached home sales have been falling ever since 2015, as prices are simply out of reach for most local buyers. Despite prices falling anywhere between 15% and 35% (high end luxury segment), and mortgage rates hovering near record lows, sales remain weak.  The logical conclusion seems to be that we will slowly see the death of the single-family home as more of these homes get redeveloped into condos and townhomes in the future.  Detached prices remain soft, with both the average and median sales price showing a 4% decline year-over-year.  Further the MLS