CIBC’s Benjamin Tal Suggests The Bottom is In

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 Estate sector should tick marginally lower following the recent soft patch. We are nearing 10% of the labour force, which is cause for concern in its own right.

Further, as I have highlighted several times before, the correction has hit the luxury market the hardest. Here is price changes for Greater Vancouver detached homes across various price bands.

And here’s condo prices, which have fallen across all price segments from last year.

Tal suggests, “The logical implications of the above findings are that we might see increased demand, in both cities, for single-detached properties around, and above, the midpoint of the price spectrum, and a possible migration of condo owners, at the higher end of the price range, to semis, townhouses, and potentially single-detached units.”

At the end of the day we still haven’t solved affordability issues. Locals are reaching towards product they can qualify for.

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The Saretsky Report. December 2022