I must admit, people bidding up house prices amidst the deepest recession in living memory is something I definitely did not see coming. Segments of the Real Estate market remain red hot across much of Canada, although mostly for single family homes. It’s certainly a head scratcher, and defies all rational logic. However, as the old saying goes, “60 million Frenchmen can’t be wrong.” Essentially it is based on the idea that the crowd is collectively smarter than any one individual. This collective intelligence was first stumbled upon by the late great statistician, Francis Galton, who in 1906 observed a competition at a local fair where approximately 800 people tried to guess the weight of an ox. To his surprise, the average of all the guesses was 1,197lbs. The real weight was 1,198lbs. Countless studies have been done since, all showing similar results. Herd following has been a key success for legendary investor George Soros. Soros, who is considered one of the greatest investors of our times has been quoted as saying, “Being so critical, I am often considered a contrarian. But I am very cautious about going against the herd. I am liable to be trampled on. Most of the

The new Bank of Canada Governor, Tiff Macklem, didn’t mince words in his first speech to the house of commons finance committee, reminding attendees “We’re in a deep hole and its going to be a long way out of this hole.” Indeed, it’s difficult to find much optimism when it comes to the economic outlook. The Canadian economy was hammered with more bad news as retail sales fell further than expected. Receipts fell 26% in April on a month over month basis, falling significantly further than analysts expectations for a 15% decline. For the first time in 27 years, retail sales fell across every sub-sector. As the Canadian consumer pulls back, so too has immigration. Once deemed a strong pillar of the economic machine, Canada admitted a mere 4,140 new permanent residents in April. That was down 85% from the same month last year. The number of study visas declined 41% year-over-year, and temporary immigrants collapsed by 80%. Suffice to say, a whole country has been upended as it hurries to adapt to a new normal. It seems logical to conclude that even with the economy re-opening, many businesses are simply not designed to prosper in a socially distanced society. The threat

It’s been several months since COVID-19 sent the Canadian economy into a tailspin. As we begin to re-open, many questions remain unanswered, including the fate of the Canadian housing market. So far, here’s what we know. Sales activity has collapsed, falling by about 50% in April, with a similar figure expected in May. However, despite the unemployment rate nearly tripling, sales activity is arguably better than most would have anticipated at the beginning of the shut-downs. Meanwhile, sellers have refrained from listing their homes, with the number of new listings falling by roughly the same as sales. This has ultimately helped to keep inventory levels in check, and has supported prices for now. For now, it appears the damage has been kept in check. This has bolstered some confidence in the market, with homebuyers flocking to detached houses further out from the city core, as home buying preferences shift to more space and better affordability. A decision which has been made easier around the idea of working from home more frequently. This has impacted the downtown condo markets where space and affordability has become a concern. Indeed, consumer behaviour has changed remarkably in the matter of a few months. Will

After publishing the industries most bearish housing forecast, which called for a slump in property prices between 9-18% over the coming twelve months, CMHC delivered another blow to the real estate sector. This time, announcing they’ll be choking off credit for Canada’s most levered home buyers. Effective July 1, CMHC will lower both gross debt service ratios and total debt service ratios, pushing minimum credit scores higher, and eliminating sources of down payment that increase indebtedness. “COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said Evan Siddall, CMHC’s President and CEO. “These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.” n other words, CMHC is making good on its own forecast by directly reducing credit flowing into real estate. These changes result in a 10-11% reduction in how much one can borrow for the purchase of home using an insured mortgage, ie home purchases under $1M using less than a 20% down payment. The moves are not insignificant, as nearly 1 in 3 new mortgage originations in Canada are insured.

With lockdown restrictions essentially coming to an end, home buyers returned in June. After being suppressed in April & May, the two busiest selling seasons (on average), a wave of pent-up demand infiltrated the Vancouver housing market in June. Sales jumped 64% month-over-month and showed a positive increase on a year-over-year basis. However, once again we need to contextualize things. Basically what has happened here is that the spring market was put on pause, April and May recorded record low sales volumes and so the spring market was pushed to June and should continue in July and perhaps August. As we’ll get into later in the report, despite the “pentup demand” June sales were still incredibly weak from a historical perspective. In fact, home sales in June were 21% below the ten year average. Meanwhile, new listings have bounced back as well, increasing 38% month-over-month and near normal levels for June. However, all in all, inventory levels remain low and that has kept prices firm.

Love him or hate him, Bank of Canada Governor Stephen Poloz is on the way out. Poloz has been lauded for his near perfection in managing inflation, earning him the Central Banker of the year award in 2018.  During his tenure, the Consumer Price Index has stayed within the central bank’s comfort zone for inflation 92% of the time, a better record than any governor since the central bank started targeting inflation in the early 1990s. However, there are certainly debates over the accuracy, or for that matter the relevancy of the consumer price index, which tends to disguise real inflation for you average hard working Canadian. In fact, if you were to ask any young or middle age citizen how much, on average, the cost of living was rising each year, you’d most certainly get an answer higher than 2%. Once dubbed “The Candyman”, Poloz’s lower for longer stance on interest rates encouraged household debt levels to reach unsustainable levels, and allowed house prices to detach from incomes. Both of which have reached a point of no return. I’ll be the first to admit, Poloz was merely following his Central banking peers, caught between a rock and a hard