Worst Buying Conditions on Record

Steve Saretsky -

Consumer prices continue to rip higher in Canada, officially growing at their fastest pace in 30 years per Stats Canada data this December. Consumer prices were up 4.8%, while shelter costs, which make up a part of the CPI basket, were up 5% from last year. Of course this is stirring the ongoing debate on we measure inflation, as both resale prices and market rents are suggesting a much different picture.

Prospective home buyers are currently grasping with the worst buying conditions on record. There are currently fewer properties listed for sale in Canada than at any point on record.  House price inflation is out of control, with the Canadian Real Estate Association reporting national home prices were up 26% year-over-year in December. This is the fastest pace of house price inflation on record, surpassing the previous highs set in 2017. While one can argue there is no national housing market, that housing prices vary region by region, one common denominator remains the same, house prices are up, a lot.

Here’s home price growth by city over the past 12 months:
– Toronto 31%
– Victoria 24%
– Montreal 23%
– Vancouver 17%
– Ottawa 16%
– Winnipeg 12%
– Calgary 10%

Everything i’m seeing right now points to even further price growth coming in the months ahead. In the suburbs of Vancouver, townhouses that were selling for $800,000 in October are now going for over $1M. These are not one-off cases either. The housing market is in desperate need of a dousing of cold water, and perhaps we’ll get that soon. It’s widely anticipated the Bank of Canada might move on interest rates as soon as this week, Wednesday to be exact. They have every excuse in the book to begin hiking this week, so let’s watch.

In the interim, financial markets have been selling off on the prospects of higher rates. A big down week in stocks and crypto. If this continues it will eventually filter through to the housing market, albeit on a significant lag. There is lots of downpayment money tied up in financial markets. Recent research from John Burns consulting, a US based housing consultant, found that 12% of first-time home buyers sold crypto to help with the down payment on a home in 4Q21. I have no doubt it is a similar number here in Canada.

Ultimately higher interest rates and volatile financial markets will take time to show up in the housing market, and in the near term won’t be enough to overcome the acute inventory shortage plaguing the industry. Either way, it’s an important week for the Bank of Canada and housing participants alike. Let’s watch.

Three Things I’m Watching:

1. National home prices ripped 26% year-over-year in December. (Source: RBC)
2. How crazy was 2021 for home sales in Canada? Inflation adjusted sales volumes were the highest on record by a wide margin. (Source: Edge Analytics)

3. In the US, 12% of first-time home buyers sold crypto to help with down payment on home in 4Q21. (Source: John Burns)

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