With national home sales falling to a 10 year low in February and the home price index slipping into negative territory, the risk of a near two decade long housing bull market coming to an end was enough to scare the Trudeau Government into action. In the latest budget, the Trudeau Government announced it will begin taking an equity stake in homes purchased by first time buyers. Of course there are a few stipulations involved. This loan only applies to first time buyers using an insured mortgage (less than 20% down payment) and earning a maximum household annual income of $120,000 and can only be leveraged to 4x your income. If one does qualify, CMHC will take a shared equity position on your mortgage. The equity position will be either 10% for a newly constructed home or a 5% for an existing home and will need to be repaid upon a future sale. The Government will share in both price gains or losses when you sell. Either way the deal works like this, if a borrower purchases a brand new $400,000 home with a 5% down payment and a 10% CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be

Canadian households are feeling the pinch of rising interest payments. The debt service ratio, a measure of how much household income is going towards servicing principal and interest payments, ticked higher in Q4 2018. The debt service ratio topped a record high of 14.9% last quarter. The Canadian debt story is well known, and has gone on much longer than anticipated, much to the chagrin of short sellers hoping to capitalize on the painful knock-on effects when a consumer deleverages, as they did in the US during the 2008 financial crisis. Today the US consumer has largely recovered, and the debt service ratio for households sits at record lows of just 9.8%. Yet the balance sheet of Canadian households continues to defy gravity. There are however, early signs that a household contraction is underway. Household consumption slowed to 0.7% in Q4, the weakest pace of growth since 2012. Meanwhile, the pace of household credit growth has slumped to its slowest pace since the 1980’s. This is particularly ominous considering the unemployment rate remains at a 40 year low. Mortgage loan growth remains weak, particularly in Alberta & Saskatchewan where job prospects are rather discouraging. The year-over-year change in total mortgages

Amidst an ongoing debate as to the influence of foreign money in the Vancouver housing market, CMHC has attempted to shed some light on this debacle through their latest report. Using an infusion of taxpayer dollars to begin collecting more measurable data, including Canadian tax and property info, CMHC was able to determine the proportion of non-resident ownership, and non-resident participation (owning a portion of real estate) within the housing market. As per CMHC, the number of properties that have at least one non-resident owner amounted to 6.2% in British Columbia and 7.6% in Vancouver, the highest of all the areas surveyed. Non-ownership is more heavily concentrated in the condo segment. Non-resident ownership in Vancouver condos sits at 11.2%, nearly double that of the single family housing market. Further, non-residents remain enamoured in the new construction space where they have a 19.2% ownership rate of condos constructed between 2016-2017. This suggests the pre-sale condo space has become increasingly dependant on foreign capital flows, particularly from China. Thus, the vulnerabilities in the pre-sale space remain elevated considering Chinese capital outflows have hit a brick wall while simultaneously any outflows have been discouraged from investing into the Vancouver property market following a barrage of

The Vancouver condo market continues to experience very weak sales numbers. February sales fell 41% year-over-year and were the lowest for the month since 2001. An eighteen year low in condo sales, particularly considering the growth in supply and population is really something to behold. This weakness has ultimately debunked the once widespread belief that condos would not be impacted by a housing market correction which at first appeared to be isolated to luxury detached homes. Condo inventory increased 83% year-over-year and remains low in a historical context. However, due to the significant weakness in sales, the months of inventory sits at 6.4 which is indicative of favouring buyers. New listings were up 5.8% from last year but are relatively normal from a historical context. This suggests sellers not panicking to list and conditions remain orderly. However, with a nearly 40,000 units under construction inventory is likely to continue to outpace sales and should place further downwards pressure on prices. The official home price index notes Vancouver condo prices have dipped 5.1% year-over-year. While the average price per square foot shows an 8.6% decline. Again, this number can vary depending on the metric used but it is safe to say

As reported last month, Vancouver detached sales had their worst January dating back to 1990. This same phenomenon repeated in February. The city of Vancouver recorded just 98 sales, a 24.6% decline from last year and the lowest total we have on record. Yes we will see more sales in March as the spring market gets underway, however that is a normal seasonal uptrend and unfortunately is likely nothing to get too excited about. The bump in sales expected for the spring market is likely to be crowded out by an increase in new listings and quite frankly an overwhelming build in inventory. As of the end of February there is 14 months of inventory for sale, well above a healthy balanced market of 4-6 months of inventory. As a result, sellers are having to slowly and surely lower their prices (remember the analogy of a cruise ship turning). The price correction in Vancouver’s detached housing market has been a slow bleed, it has been nearly three years since prices peaked out in the spring of 2016. There are economic/housing studies which illustrate sales volumes peak two full years before prices start to fall, and Vancouver seems to be a

As expected, the slow grind in the Vancouver housing market continued in March. As we continue to stress on a monthly basis, the direction of housing markets are largely determined by the supply and availability of credit and human sentiment, thus once those two factors turn negative they can be very challenging to reverse. This is very different than the stock market where prices and the overall direction of the market can change significantly on a month to month basis. Yet we continue to hear suggestions that home sales will suddenly bounce back any month now. With home sales falling 30% from last March, and marking their lowest total for the month of March in 33 years, sales will continue to stumble along in the months ahead. Unsurprisingly, in the face of a weakening Canadian economy and sluggish housing market, the Bank of Canada has taken a dovish pivot, this has sent longer duration bond yields plummeting, inverting a large portion of the yield curve and pushing mortgage rates lower, actually helping to ease affordability as prices fall. We will discuss the impacts of this in the March report.

Amidst a slowing Canadian housing market spurred on by the B-20 mortgage stress test, new credit growth continues to slow. As per the Bank of Canada, household credit growth grew by 3.03% Year-over-Year in December, the slowest past of growth since June 1983. The slowdown has also been reflected in residential mortgage credit growth which slipped to 3.13% the weakest pace since April, 2001. As a result, and perhaps rather unsurprisingly, Canadian bank earnings largely disappointed in Q1. Starting with the Laurentian Bank of Canada, shares fell the most in almost nine years after the lender said it would cut its workforce 10% after posting earnings that missed analysts’ estimates for a third straight quarter. Net income fell 32% to C$40.3 million for the quarter ended Jan. 31. The disappointment spread unevenly to CIBC & TD Bank. The Canadian Imperial Bank of Commerce hiked its dividend following first quarter profits sinking 11% to $1.18 billion. While TD reported a 2.4% increase in earnings, yet still falling short of overall expectations. Both banks reported an increase for loan loss provisions, as credit conditions shift to the downside. CIBC loan loss provisions more than doubled from last year, while TD Bank set

The ongoing woes in the Vancouver housing market are becoming more pronounced, particularly in the single family house sector. Coming off a sluggish 2018 which saw annual sales slip to an eighteen year low, 2019 has not faired much better. Greater Vancouver detached sales fell 29% year-over-year, recording the worst January since 2009. Amidst several years of falling sales, inventory continues to build. As of today there is 15 months of inventory in the detached market, well above a balanced market which is distinguished as an MOI (months of inventory) between 4-6. Unsurprisingly this is placing downwards pressure on prices, with the home price index having declined 9.1% over the past year, although in reality price declines have been much steeper. As a result, this is placing added pressure on single family builders where profit margins on new homes are being squeezed. Very few spec builders (builders with no contracted buyer) accounted for the dramatic shift in market conditions which we are witnessing today. This is not only putting a dent in profits but has slowed future housing starts significantly. The 12 month rolling sum of housing starts has fallen 15% after peaking in January 2018. This is resulting in

As is typical in all housing corrections, luxury properties are the first on the chopping block while also suffering the steepest of price discounts. This is ultimately the result of a much smaller buyer pool that, when it shrinks, creates liquidity constraints. As the housing cycle turns, and liquidity dries up the luxury market becomes extremely prone to volatility and wild price gyrations. As a result, bank credit also seizes up, further hampering liquidity when it is most needed. It appears this phenomenon is playing out in the Greater Vancouver housing market. With global growth slowing, and Chinese capital controls becoming even more severe, luxury home sales have ground to a halt. Add in an increased foreign buyer tax which has been bumped to 20% of the purchase price, a confiscatory annual speculation tax of 2% which targets real estate holders who earn an income outside of BC, and an added annual “school tax” of 0.2% for homes assessed between $3 million and $4 million (a 0.4% tax rate on the portion above $4 million) and it becomes increasingly more evident of the deepening sorrows in the luxury housing market. Greater Vancouver home sales of $3M and above fell 45%

The Fraser Valley suburbs, which became the idle recipient of a spillover of cheap credit created in the depths of the Vancouver real estate boom is now facing repercussions as the party comes to an end. With home prices correcting in the city of Vancouver, the ripple effect has spread across the city and into the Fraser Valley, particularly in the once euphoric cities of Langley and Abbotsford. Condo price declines have been sharp. Since Langley condos peaked in June, the home price index has dropped 10%. Price declines have accelerated in Abbotsford where the price index shows a 14% drop since peaking in June. It turns out Vancouver’s suburban condos do not defy the laws of gravity. Although, considering price growth had reached dizzying heights during the peak of the mania real estate bulls can perhaps chalk this up as just a minor set back. At the peak of the mania both Langley & Abbotsford experienced year-over-year condo price growth of 49%. However, with prices clearly declining, year-over-year price growth will soon dip into negative territory, perhaps as soon as next month. Inventory for sale continues to grow after bottoming near the end of 2017. As of January, condo

With many global property markets slowing due to a tightening of global liquidity and Chinese capital flight, many home sellers and property developers remain eagerly optimistic the Chinese Lunar New Year would provide a much needed bear market rally. However, if recent spending habits in China are any indication, this New Year is likely to come and pass with disappointment. According to Beijing media group; Caixin, Lunar New Year spending in China failed to meet expectations. While spending technically increased to 8.5%, it was indeed the slowest rate of growth since 2011. Earlier today, the South China Morning Post reported New homes sales declined by 56% year on year in 17 major mainland China cities, including Shanghai and Nanjing, during the Lunar New Year holiday. From a broader 30 city view, which includes re-sales, the three month moving average of home sales in China’s tier 1 and tier 2 cities remains firmly in negative territory. While Positive sales growth and prices are still being recorded in tier 3 cities. According to the Chinese National Bureau of Statistics, land transactions fell 29% in January, the largest decline since May 2015. This has prompted various rounds of monetary stimulus, with the head

The city of Vancouver’s detached housing market followed up a miserable 2018 with another decline in home sales. Detached salesfor the month of January fell 9% from last year, this marked the worst January on record since data started being collected in the early 1990s. It’s hard to see detached home sales declining much further, we are likely to see a seasonal uptick from here as we head into the spring market. However, given that sales are historically weak and will almost certainly remain sluggish in the near term, new listings will continue to outpace sales and rising inventory will adjust home prices lower. As of the end of January there was 15 months of inventory for sale. This is approximately double what would be considered a balanced market. While many sellers remain anchored to peak prices those who need to sell are having to realize the clearance price is significantly lower than what we are used to. While there are a barrage of price metrics none of them are completely accurate nor reflect current market prices. When studying comparable sales it is safe to conclude luxury home prices are about 25% lower than peak prices achieved back in early