Real Estate Hoarding

Steve Saretsky -

The great reopening trade is in full swing. People have exited their homes and real estate has become less of a priority. We can see this in the housing data which continues to recede each month since the FOMO induced top in March. Sales here in Greater Vancouver have now dropped for four consecutive months in a row, but are still running above normal levels.

Meanwhile, new listings have evaporated, with sellers seemingly delaying their listings until the fall. I know what you’re thinking, “this always happens in the summer, real estate is seasonal.” While that is certainly true, this summer slowdown has certainly been more dramatic. For example, this July was the weakest July in 11 years for new listings. For detached homes it was a 20 year low in new listings. This is downright painful for home buyers who have been plagued with inventory shortages over the past year. In other words, the cupboards have been looted bare and they aren’t being restocked, at least not yet.

To no surprise, the same phenomenon is playing out in Toronto. New listings in the Toronto area plunged 32% from last years levels, and overall active inventory for sale is now down 37%.

So what exactly is going on?

I strongly believe new listings are being held back from the market because this summer marks an unusual time. The economy is finally open, and people are elated to get out of the house. Local travel is booming, try and book a camp site or an AirBnb, completely sold out. Not only are the sellers gone, but so are the Realtors. The last 12 months has been the biggest bull market in Canadian Real Estate history, literally. Realtors have been well fed and are now enjoying the fruits of their labour at the summer cottage, while encouraging their sellers to do the same.

Suffice to say there will be a strong bounce back in new listings this fall. However, i’d like to add one more crucial piece rarely discussed in the media. There is a growing trend of real estate hoarding. Canada is in the longest expansion of home prices without a correction ever. After Q2 2021, prices have logged 97 quarters without a technical correction (a drop of 10% or more). When you get a 24 year bull market it is inevitable that people think it will go on forever. So, naturally, people want more real estate.

Remember when people used to sell their condo in order to buy the house? Today we are seeing a growing trend of keeping the condo while still buying the house. Yes, in Canadian Real Estate you can have your cake and eat it too. There is a massive trend where people opt to keep the condo as a rental, refinance it, and use the new found equity as a down payment on the house.

I know what you’re thinking, “this can’t end well.” Maybe you’re right, but this trend will continue to grow so long as the bull market continues. In all honesty, can you blame people for their insatiable appetite for more real estate? It’s not like the banks are paying any interest on savings. I can assure you there would be a lot less real estate hoarding if savings yielded 4 or 5%.

In other words, Canada’s housing shortage is not just due to population growth but a society that is being nudged to become landlords.

Three Things I’m Watching:

1. New listings for detached homes in Greater Vancouver fell to a 20 year low in July. (Source: REBGV, Steve Saretsky)

2. Canada has longest housing bull market in the G7. (Source: Better Dwelling)

3. Real estate employment hitting new highs as everyone hopes to cash in on bull market. (Source: Toronto Star)

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The Saretsky Report. December 2022