DATE

Steve Saretsky -

The city of Vancouver has been especially busy this month. Just last week the city announced the empty homes tax had generated $39.4 million in revenue during the 2018 tax year, which helped increase the overall number of tenanted properties by 7%. The nearly $40M in additional tax revenues to city coffers could swell further. Just a few days ago the city also proposed an 8.2% property tax increase for residential homes in 2020. If council passes the city budget as proposed, it would mean an estimated increase of $354 for the City of Vancouver’s portion of the property tax bill on the median single-family home, from $3,809 to $4,163. It would be the largest increase in more than a decade. A special meeting is scheduled on Dec. 3 for members of the public to speak to council about the budget. On a more positive note, the city announced today it has approved a series of recommendations that will enable rental apartments to be developed faster, and in more areas of the city. Approved measures include rental-only zoning, allowing up to six storeys in commercial zones, and a new family-friendly housing pilot program for four to six storey buildings close

Steve Saretsky -

The often outspoken chief economist of CIBC, Benjamin Tal, is out with a new housing report today. The premise of which suggests the Canadian housing market correction has come to an end, ultimately joining a chorus of media headlines suggesting the same. While the data has certainly improved and higher prices are possible in the near term, I still believe caution is warranted. The true test comes in the next recession, which is obviously overdue. However, central banks have the printing press working overtime and so far it appears to have eased financial conditions. I remain skeptical they have found the cure to eradicating the business cycle. Anyways, back to Tal’s report. Tal notes, “After visiting negative territory in the second quarter of the year, the average house price in Canada is now rising by just under 2% y/y.” Adding, “the share of residential structures investment in GDP is still notably below its pre-correction level. At the same time, the share of employment remained elevated during the correction—probably reflecting reluctance by home builders to let go of construction workers who are in short supply.” Employment is a lagging indicator and i’d suspect the number of workers employed in the Real

Steve Saretsky -

Per Bloomberg, The real estate market in downtown Los Angeles is taking a hit as Chinese cash dries up. Condo sales plunged 31% in the third quarter from a year earlier, according to data from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Chinese buyers have made about 50% of the purchases in downtown Los Angeles in recent years, said Stephen Kotler, who oversees the western region for Douglas Elliman. But tightened restrictions on capital flowing out of China have hampered the market. Without wealthy Chinese buyers, condos priced above $800,000 aren’t selling. Which has pushed average sales prices in Downtown LA lower after peaking out in 2018. The news comes just one month after a report Beijing-based developer Oceanwide Holdings Co., halted construction on three high rise towers in Downtown LA following difficulties getting money out of China to complete the project. Given the magnitude of Chinese capital that flooded global property markets, it’s time to revisit foreign purchasing activity here in British Columbia. As of October, property transfer tax data from the BC Government shows foreign buyers were involved in $135M of residential transactions across the province. That remains well below the cycle high of $400M

Steve Saretsky -

The city of Vancouver released a report updating the results for the empty homes tax. Per the report, the city generated $39.4 million in revenue during the 2018 tax year. The tax captured 1989 vacant properties (not including those that were exempt) in 2018, that’s down 22% from last year when the tax punished 2538 homeowners. When we break the results down further, we can see the largest number of empty homes were concentrated in the Downtown core. There were 1453 vacant and exempt properties in Downtown Vancouver. A good chunk of those units were exempt due to strata bylaws which restrict rentals. No surprise there. Also not surprising to see that the Shaughnessy neighbourhood had the highest percentage of empty homes at 7% of the neighbourhoods total housing stock. Probably still a conservative number if you take a hard look around. It’s hard to say how much of an impact the empty homes tax is having, the results seem mediocre at best. However, the city, which is grappling with an extremely low vacancy rate hovering near 1%, found the number of properties deemed tenanted jumped by 7% year-over-year. My conversations with property management companies in the city also suggest

Steve Saretsky -

Don’t look now but rental inflation is surging. This is probably no surprise to most Canadians who have likely witnessed rampant rent inflation over the past couple of years. However, it appears it is finally showing up on the Bank of Canada’s dashboard. Thanks to a new approach for estimating the rent component of the CPI, which aims to more accurately reflect the real world, October’s CPI data showed rent inflation surged to 3.7%, the highest rate since 1991. Keep in mind, rent inflation is obviously much higher in large metro cities like Vancouver & Toronto. Further, per the Capital Economics team, the rent CPI represents the average rent for every renter household rather than the actual market rate. So if only 5% of people are moving and face the “real” rate of say 20% y/y, and yet rents for everyone else remain unchanged, then CPI rental growth will only be 0.05 * 20% =1%. It’s also worth noting that the rent index only represents around 6.24% of the entire CPI basket. In other words, rents make up a small percentage of the Bank of Canada’s overall inflation gauge. The Bank of Canada suggests overall inflation across Canada was just

Steve Saretsky -

Homeowners are staying put, and opting not to move. A recent article in the Wall Street Journal notes homeowners in the United States are remaining in their homes typically 13 years, five years longer than they did in 2010, according to a new analysis by real-estate brokerage Redfin. When owners don’t trade up to a larger home for a growing family or downsize when children leave, it plugs up the market for buyers coming behind them. More homeowners staying put has helped cause housing inventory to dwindle to its lowest level in decades, which has also helped push up prices on homes for sale. Adjusted for population, the inventory of homes for sale is now near the lowest level in 37 years of record-keeping, according to housing-data firm CoreLogic Inc. Homeowners are staying longer in every one of the 55 metros that Redfin studied. Why? It seems there’s no definitive answer. Some suggest it has to do with the high costs when selling, or the lack of affordability when trying to upsize. Something is broken and nobody seems to know why. That takes us to Canada, where a similar phenomenon appears to be playing out here. New listings remain stubbornly

Steve Saretsky -

Per Bloomberg, wealthy homebuyers are finding global cities less welcoming and even hostile towards their cash. This is a secular shift as the wealth inequality created through a decade of easy money has enhanced social frictions and birthed the rise of populist governments. As Ray Dalio notes in his recent post, “The world has gone mad and the system is broken.” Luxury property prices in 45 global cities rose an average of just 1.1% in the third quarter from a year earlier, the weakest annual gain since the end of 2009, according to a report from Knight Frank. They fell 4.4% in New York, 3.9% in London and 10% in Vancouver. “The safe havens are becoming less certain,” said Dan Conn, chief executive officer of Christie’s International Real Estate. “It’s becoming much more challenging in the hubs to find a high quality place to deploy capital.” Indeed, London and New York, among other cities, have recently passed taxes aimed at rich buyers. Same thing here in Vancouver with foreign buyer taxes, and increased property taxes on luxury homes. As a result, capital has fled luxury markets in these cities prompting the Knight Frank luxury home price index to slip to

Steve Saretsky -

It is no secret Canadian households are extremely leveraged. In fact, they are the most indebted in the G7. Except it hasn’t really mattered, since house prices apparently only go up, and nobody goes bankrupt anymore because central banks won’t allow it to happen. However, those beliefs are now being put to the test amidst a slowdown in home prices and economic growth. Despite interest rates hovering near record lows, the debt servicing ratio for Canadian households actually reached a record high in Q2 2019. As a result, new data on consumer insolvencies (a lagging indicator) is finally rising. The number of consumer insolvencies (bankruptcies and proposals) for the 12 months to September 2019 increased by 8.5 per cent compared with the same period in 2018. Compared to 2018, the increases are more pronounced in Newfoundland (+14.8%), Alberta (+15.2%), Manitoba (+13.1%), Ontario (+13.4%) and British Columbia (+9.5%). While, Quebec (+1.8%), Nova Scotia (+6.2%), PEI (+3.2) and Saskatchewan (+1.6%) experienced more moderate increases. This has propelled Canadian banks to begin shoring up reserves for increased credit losses. Overall, the top six Canadian lenders grew loan-loss provisions 27% year on year to C$2.45bn in the third quarter of 2019. With a reduction

Steve Saretsky -

From the Monday Newsletter. Join for Free HERE.  Happy Monday Morning! The Toronto housing market continued its torrid pace in the month of October, pushing the multi-decade long bull market to new lengths. The benchmark price rose 5.8% from a year ago to $810,900, as per the Toronto Real Estate Board. That’s the biggest jump since December 2017 and takes it to within about $4,300 of the record set in mid-2017.“As market conditions in the GTA have steadily tightened throughout 2019, we have seen an acceleration in the annual rate of price growth,” said Jason Mercer, TREB’s chief market analyst. “We will likely see stronger price growth moving forward if sales growth continues to outpace listings growth, leading to more competition between home buyers.” This has prompted another celebrity appearance for the city of Toronto, with hip hop singer Pharrell Williams announcing he is making his foray into residential development. Pharrel is partnering with two local firms to help design a dual-tower condo project in Canada’s most populous city. The 750-unit project, dubbed “untitled,” will start sales early next year. “From music to fashion and footwear, some design, working with amazing visual artists, now we’re talking about physical structures,” Williams said in

Steve Saretsky -

Condo sales bounced 41% year-over-year in October, a steep increase following an unusually weak October 2018. When we adjust for these big fluctuations we can see that sales this month were slightly above the ten year average, suggesting a healthy condo market.  Prices are still recording declines on a year-over-year basis with the MLS benchmark price of a condo recording a 5.8% decline and the average price per square foot falling 4.3% from last year. However, in recent months there have been signs of stabilization.  The main reason condo price declines are easing is a decline in inventory. Inventory growth was trending higher for the past year but has since reversed in recent months due to rising sales and a decline in new listings as sellers hold off from listing their units. As of the end of October there was just 3.4 months of inventory for sale. It is close to impossible to see a sustained decline in prices when inventory is in this range. It needs to grow above 5 or more to see downwards pressure on prices.  Despite the decline in inventory we still believe months of inventory should turn higher in the year ahead given there is

Steve Saretsky -

Detached sales surged 48% from last year. Despite the large uptick, sales were still slightly below the ten year average for the month of October. We believe detached sales are structurally below normal as they remain unaffordable for most Vancouver residents. It seems hard to fathom we will ever return to peak sales volumes seen in 2015/16 unless we see another mass exodus of capital flight from overseas. Instead, what we are seeing is detached sales picking up as sellers adjust their prices lower and buyers come off the sidelines. However, because of affordability issues, most of the increase in detached housing activity is concentrated in the lower end, more affordable segments. In some cases we are seeing multiple offers for entry level detached houses with basement suites. Meanwhile, the high end of the detached market continues to suffer.  For example, here we can see that for detached homes priced between $1M and $1.499M has a sales to actives ratio of 27.6%. Technically indicating a sellers market. Meanwhile, for homes $2M and above the sales to actives ratio is a paltry 7%. If you’re a buyer looking to spend more than $2M the options are plentiful.    While it can

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The Canadian Economy

Steve Saretsky -

The city of Vancouver has been especially busy this month. Just last week the city announced the empty homes tax had generated $39.4 million in revenue during the 2018 tax year, which helped increase the overall number of tenanted properties by 7%. The nearly $40M in additional tax revenues to...

Steve Saretsky -

The often outspoken chief economist of CIBC, Benjamin Tal, is out with a new housing report today. The premise of which suggests the Canadian housing market correction has come to an end, ultimately joining a chorus of media headlines suggesting the same. While the data has certainly improved and higher...

Steve Saretsky -

Per Bloomberg, The real estate market in downtown Los Angeles is taking a hit as Chinese cash dries up. Condo sales plunged 31% in the third quarter from a year earlier, according to data from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Chinese buyers have made about...

Steve Saretsky -

The city of Vancouver released a report updating the results for the empty homes tax. Per the report, the city generated $39.4 million in revenue during the 2018 tax year. The tax captured 1989 vacant properties (not including those that were exempt) in 2018, that’s down 22% from last year...

Steve Saretsky -

Don’t look now but rental inflation is surging. This is probably no surprise to most Canadians who have likely witnessed rampant rent inflation over the past couple of years. However, it appears it is finally showing up on the Bank of Canada’s dashboard. Thanks to a new approach for estimating...

Steve Saretsky -

Homeowners are staying put, and opting not to move. A recent article in the Wall Street Journal notes homeowners in the United States are remaining in their homes typically 13 years, five years longer than they did in 2010, according to a new analysis by real-estate brokerage Redfin. When owners...

Steve Saretsky -

Per Bloomberg, wealthy homebuyers are finding global cities less welcoming and even hostile towards their cash. This is a secular shift as the wealth inequality created through a decade of easy money has enhanced social frictions and birthed the rise of populist governments. As Ray Dalio notes in his recent...

Steve Saretsky -

It is no secret Canadian households are extremely leveraged. In fact, they are the most indebted in the G7. Except it hasn’t really mattered, since house prices apparently only go up, and nobody goes bankrupt anymore because central banks won’t allow it to happen. However, those beliefs are now being...

Steve Saretsky -

From the Monday Newsletter. Join for Free HERE.  Happy Monday Morning! The Toronto housing market continued its torrid pace in the month of October, pushing the multi-decade long bull market to new lengths. The benchmark price rose 5.8% from a year ago to $810,900, as per the Toronto Real Estate Board....

Steve Saretsky -

Condo sales bounced 41% year-over-year in October, a steep increase following an unusually weak October 2018. When we adjust for these big fluctuations we can see that sales this month were slightly above the ten year average, suggesting a healthy condo market.  Prices are still recording declines on a year-over-year...

Steve Saretsky -

Detached sales surged 48% from last year. Despite the large uptick, sales were still slightly below the ten year average for the month of October. We believe detached sales are structurally below normal as they remain unaffordable for most Vancouver residents. It seems hard to fathom we will ever return...

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The Saretsky Report. December 2022