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The Saretsky Report. December 2022

Steve Saretsky -

Sales activity remains subdued across Greater Vancouver as we close out the year. Buyers are tepid, not eager to write offers and are looking to negotiate, can you blame them? Sales activity remains historically weak. In the month of November, sales across Greater Vancouver totalled 1624, down 54% from November 2021 and marking the third slowest November in two decades.

The Saretsky Report. November 2022

Steve Saretsky -

As we expected and discussed in last months report, the Bank of Canada raised interest rates another 50bps in October. Markets were pricing in a 75bps rate hike but the Bank of Canada failed to deliver, citing growing concerns around financial stability. It’s the first time in awhile they have flagged financial stability concerns, which suggests we are likely near the end of this rate hiking cycle. Still, the damage is already done. Prime rate now sits at 5.95%, meaning nearly all variable rate mortgages are now north of 5.5% and closing in on 6% when we get our next (and perhaps final??) rate hike in December. Short term fixed rates are now north of 6% in many cases, particularly for renewals where borrowers have less flexibility in changing lenders. Just for curiosity sake, I called one of the big banks the other day to inquire about converting a variable rate mortgage to a two year fixed rate mortgage and I was quoted 6.14%. This was the best rate they could offer. Suffice to say, mortgage rates of 6% are hard to stomach and the market is not digesting it well at all.

The Saretsky Report. October 2022

Steve Saretsky -

It was another slow month for the Greater Vancouver housing market in September. While housing activity was historically low, there is still much to talk about across the housing spectrum. The volatility across global financial markets has been extreme and that is no doubt having a major influence on our local housing market. Interest rates are still, painfully, pushing higher, bond yields are surging once again, the provincial government has proposed major policy changes to the housing market, and so much more. Let’s dive in.

The Saretsky Report. September 2022

Steve Saretsky -

There’s always lots to talk about in the Vancouver housing market, especially these days. We have plenty of updates this month on interest rates, trigger rates, and the investor/ rental market. Housing activity remains on the same course it’s been on over the past few months. Greater Vancouver home sales dropped 40% y/y in August. Over the past two decades only the years 2008 & 2012 have seen weaker sales volumes in August.

The Saretsky Report. August 2022

Steve Saretsky -

Continuing on the theme from last month, housing activity continues to slow as expected when the Bank of Canada raised interest rates by 100bps last month and instantly reduced borrowers purchasing power. Remember, over 50% of new mortgage applicants this year have been going with variable rate mortgages, in large part to dodge the pain of a higher mortgage stress test that accompanies fixed rate mortgages. The pain is not over yet, as we should see another rate hike from the Bank of Canada on September 07.

The Saretsky Report. July 2022

Steve Saretsky -

I’m a bit later than usual in writing this report and it’s probably for the best. As of this writing on July 13th, the Bank of Canada raised interest rates a monstrous 100bps, the single largest increase since 1998. This will have significant ramifications for the housing market, not just psychologically but financially.

One of the pillars supporting the housing market has been variable rate mortgages. They’ve been dirt cheap, averaging more than 150bps cheaper than the fixed rate mortgages this year.

The Saretsky Report. June 2022

Steve Saretsky -

As has been the theme for the past few reports, inflation and interest rates remain front and center. Inflation remains stubbornly high and central banks are panicking to reign it in. They are now tasked with the impossible mission of killing enough demand to bring commodity prices (energy) down, without triggering a financial mistake and or recession. Keep in mind Canada has one of the worst balance sheets in the G-20, with total non financial debt to GDP at over 350%. Households, corporations, and governments in Canada are highly levered. Vancouver & Toronto housing prices have benefited immensely off cheap leverage, which is now going away, at least temporarily. Again, lets just run some simple numbers here. The benchmark price of a home in Greater Vancouver, which measures the cost of your typical home across all property segments (houses, condos, townhouses) equates to $1,261,100 as of the end of May.

The Saretsky Report. May 2022

Steve Saretsky -

Last month we discussed the beginnings of a slowdown, and that theme continues this month. For the first time since 2010, the lowest nationally-available uninsured 5-year fixed rate mortgage is now north of 4%. This means that any buyer opting to make a purchase using a 5 year fixed rate will be stress tested at a minimum of 6.25%. Now add record home prices and wage growth that has failed to keep pace with the rising cost of living and you can see that something has to give. The highly levered Vancouver housing market is going to struggle with mortgage rates north of 4%. Need I remind you that in 2018, when mortgage rates were hovering around 3.5%, Greater Vancouver home sales slumped to an eighteen year low. Thus there should be no surprise that sales activity has fallen precipitously since the end of February, and April home sales fell 34% year-over-year. Prices need to adjust for the higher cost of borrowing. There are now signs that process is underway, which we’ll discuss later in the report.

The Saretsky Report. April 2022

Steve Saretsky -

Last month I wrote about the early signs of the housing market beginning to turn. Fewer offers, less FOMO, etc. Again, none of this should have come as a surprise, we’ve had two years of record home sales and runaway price growth, and trees don’t grow to the sky. The housing market always has ups and downs and this time is no different. The downs are coming, even if that is just a slowdown. When I wrote last months report, the Canada 5 year bond was yielding 1.5%, and today it sits at just over 2.5%. In just one month, the most important metric in Canadian housing moved 100bps. In case you need a reminder, the Canada 5 year bond prices our 5 year fixed rate mortgage. When yields rise on the 5 year bond, so too do borrowing costs for fixed rate mortgages. In other words, over the past 4-5 weeks we’ve seen the typical 5 year mortgage go from about 2.8% to 4%. We haven’t seen 4% mortgages in nearly a decade.

I know the media likes to talk about foreign buyers, investors, taxes, and housing supply, but at the end of the day, the largest influence on the Vancouver housing market is the cost of borrowing. Let’s run some basic numbers here on borrowing costs.

The Saretsky Report. February 2022

Steve Saretsky -

I’m about to walk you through the usual Saretsky Report where we highlight all sorts of charts and data points pertaining to the housing market. What I want to emphasize is that the situation is changing rather quickly. A war has erupted in Ukraine, commodity prices are ripping- adding to inflationary pressures, and the Bank of Canada has begun raising interest rates. To suggest it has been a busy few weeks would be an understatement. All of this to say that real estate data works on a lag. The housing market is beginning to turn and that will not show up in the data for perhaps another month or two. So what exactly are we seeing?

The Saretsky Report. January 2022

Steve Saretsky -

For regular readers of this report you will remember that 2021 marked a record year for Greater Vancouver home sales, smashing through previous highs set in 2015. That momentum has carried over into 2022. Sales remain incredibly strong, still running more than 30% above the long run average. Meanwhile, inventory in the month of January dropped 37% from last year, and currently sits at its lowest levels in over 20 years.

The Saretsky Report. December 2021

Steve Saretsky -

It was a blockbuster year for the Vancouver housing market. Annual sales finished the year at just over 44,000, an all time record high. The previous high of 42,000 was set in 2015 during the last housing boom that was sparked by an inflow of offshore cash. This time around, the story is much different. Offshore investment is a fraction of what it used to be, instead it has been sparked by rolling lockdowns, and helicopter money. People are wanting more space, and bigger houses. These purchases have been financed through ultra low mortgage rates, enabled through fiscal and monetary policy. Canada is running wartime fiscal and monetary policy. There are no guns this time, but there is a virus, and so there is seemingly no limit on how much money we should throw at this. We just found out the federal government is forecasting a budget deficit of $144B this year. For context, in 2009, following the financial crisis, the deficit that year was less than $35B. Obviously the excesses are showing up in asset prices.

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The Saretsky Report. December 2022