Steve Saretsky -

As if this year couldn’t get any stranger, look no further than the Canadian housing market. Six months into a global pandemic and a crushing recession, home sales have never been stronger. National home sales activity ripped, jumping 33.5% from last years levels. The increase was a new record for the month of August, and the sixth-highest monthly sales figure of any month on record.

I don’t recall reading any forecast back in March or April that had called for anything remotely close to this type of feverish activity. In fact, even the most bullish and self-interested Real Estate lobbyists could not have dreamt this up. Now, don’t get me wrong, i’ll be the first to suggest these numbers should be taken with caution. There is undoubtedly some pent-up demand that could soon fizzle. Buyers were clearly desperate to upgrade their living situation after spending months confined at home. The thought of working from home indefinitely, and the threat of a second wave forcing people to hunker down in what could be a long winter prompted a rush of purchasing activity. Unfortunately the unexpected tsunami of buyers were met with low levels of inventory, creating bidding wars and higher prices.

As of the end of August, there was just 2.6 months of inventory on a national basis, the lowest reading on record for this measure. As a result, the national home price index was up 9.4% year-over-year, and the average sales price surged higher by 18.5% as the composition of sales tilted towards bigger homes.

This has put a wrench in housing forecasts, perhaps none more obvious than that of CMHC. The Government agency responsible for our housing and mortgage industry called for a 9-18% decline in the average home price, the exact opposite of where we stand six months in. Again, much too early for flag waving but so far this forecast looks embarrassingly bad.

In fact, CMHC was so certain prices would fall, CEO Evan Siddall, whom I actually have a great deal of respect for, tweeted on May 27th, “Please question the motivation of anyone who wants you to believe prices will go up (yes, up) with our economy in slow motion, oil being given away, millions of Canadians on income support and a greater percentage of mortgages not being paid than we’ve seen since the Great Depression.”

I suppose this ultimately shows how difficult it is to forecast markets, let alone human behaviour. I mean, if anyone had a competitive advantage in the market, at least in terms of getting a behind the scenes look of the mortgage book and the state of household balance sheets it would be CMHC.

Ultimately, while the Canadian Real Estate market is currently making a fool of most forecasters, I still believe it’s much too soon for a victory lap. At some point it seems rational to believe the jobs lost and the number of delinquent mortgages coming down the pipe will matter, combine that with a reduction in immigration, lower rents, and a record number of new home construction completing should make for an interesting 12 months ahead.

Until then, happy forecasting.

Three Things I’m Watching:

1. Canadian Real Estate sales up 33% in August, after a steep drop during the early days of the pandemic. Context matters.

2. Bubble type activity forming in the Nations capital. Ottawa home prices were up 20% year-over-year in August.

3. Latest government data show Canada admitted 13,645 permanent residents in July, down 63% from the same period last year.

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The Saretsky Report. December 2022