The Gilded Recession

Steve Saretsky -

Against all odds, the Canadian housing market continued its torrid pace, ripping to new highs in the month of December. The Canadian Real Estate Association announced national home sales printed new highs for the calendar year. Yes, 2020 was full of surprises, and the depth of our nations housing fetish was certainly one of them.

There was a total of 551,392 home sales recorded in 2020, surpassing the previous high set in 2016 when a wave of offshore money flooded the market.

This time around the story is much different. This surge in buying activity has been prompted by several conditions. First and foremost, back in March/ April, policy makers had a decision. Pump the financial system full of liquidity and support asset prices, or do nothing and watch households collapse under a mountain of debt, while sending home prices tumbling.

Four hundred billion dollars worth of Quantitive Easing later, combined with an immediate relaxation in capital reserve requirements for the banks, and a generous mortgage deferral program for the people, and there you have it. Not only did we save home prices, we actually increased them. A miraculous accomplishment despite all odds. Home prices closed out the year up 13%, making a mockery of forecasters.  I don’t want to get into the societal ramifications, that’s a story for another time, but one that will certainly have to be dealt with.

Today, people are bored at home and wanting more space. The banks are flush with cash and are actively incentivizing people to take out new mortgages. These are the types of concoctions that spur housing booms. And that’s exactly what we have.

While home prices are up 13% across the board, the majority of the strength is concentrated in the single family housing market where prices were up a staggering 16%, compared to a mere 4% increase in the condo market. New listings have failed to keep up with the frenzied buying activity. In fact, active listings for sale dropped below 100,000 for the first time in 30 years. There’s just 2.1 months of supply on the market, indicating significant upside potential for home prices.

The reality is, months of inventory will need to double from here in order to ease upwards pressure on prices. This level of price appreciation should concern policy makers, although I think they are more concerned about getting through this economic recession, if you can even call it that.

The gilded recession has been most generous to homeowners in Ottawa, Moncton, and Montreal, where home prices are up 22, 19, and 18 percent respectively.

Three Things I’m Watching:

1. National home sales hit record highs for the year of 2020.

2. Home prices closed out the year up 13%. (source: RBC)

3. Canada’s residential investment is now 9.43% of GDP. During the US housing bubble, residential investment peaked at 6.4%. (source: Better Dwelling)

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! At the beginning of the year I was part of a real estate pannel with REW on the state of the Vancouver housing market. On stage, in front of a live audience, the moderator asked me for my forecast for 2023. I promplty noted at the time that “we’re...

Steve Saretsky -

Happy Monday Morning! The housing crisis in this country gets a lot of attention, as it should. Fixing it, however, is proving to be rather difficult. Over the past several years we have attempted to beat demand over the head with a blunt instrument. The list of policy measures include,...

Steve Saretsky -

Happy Monday Morning! Headline inflation ripped higher than expected this week, jumping back up to 4% for the month of August. It turns out Chrystia Freeland’s premature victory lap marked the bottom back in June. There’s a lesson here in base effects, you’d think her economics team would have tapped...

Steve Saretsky -

Happy Monday Morning! Over the past several months we’ve been highlighting the marked slowdown in residential building permits, a leading indicator of future supply. This is what happens when the cost of capital doubles, and in some cases, triples. This is a disaster in the making for a federal government...

Steve Saretsky -

Happy Monday Morning! The Bank of Canada moved to the sidelines once again, appeasing premiers in BC & Ontario who publicly pleaded with the BoC last week. It’s no secret these two provinces have the most to lose, their coffers largely built on a highly levered housing market, but we’ll...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022