Canadian real estate may be nearing peak prices. National Bank of Canada (NBC) economists released their quarterly analysis of affordability across Canada’s major cities. Declining prices in Toronto mean the city’s first improvement of affordability since 2014. In Vancouver, prices finished the year higher, leading to the worst level of affordability since the 1980s. The bank’s economists expect prices to lower this year, as a perfect storm of interest rates, tougher lending standards, and anti-speculation measures hit.
What Are We Going To Be Looking At?
The National Bank of Canada affordability index focuses on the ratio of income required to service a mortgage. They take the median priced home, and compare it as a percentage of the median income. To calculate the mortgage payments, they assume a conventional mortgage, with an amortization of 25 years, at a five year fixed rate. If you’re new to the home buying process, the last part means they put 20% down, and are splitting their house payments over 25 years. They’re borrowing at a 5 year fixed rate, ensuring interest is fixed for the whole term of payments.
The higher the ratio of payments to income, the worse the affordability. The lower, the better. Affordability can be improved by higher income, lower prices, or lower rates. It deteriorates as the opposite happens. On to the data.
Toronto Real Estate Improves For The First Time Since 2014
Toronto prices falling in the back half of 2017 led to a huge improvement in affordability. The median household would need to use 68.1% of their paycheque to service a mortgage. Still rough, but a decline of 3.5 points since from the previous quarter. This is the first improvement in affordability since 2014. Toronto real estate is now the most affordable since … the same time last year. A year of gains were just wiped out.
Source: National Bank of Canada. Better Dwelling.
Vancouver Is The Least Affordable Since 1981
Vancouver continued to see affordability deteriorate, printing the third worst quarter in history. The median family would require 82% of their income to service debt on a median home at the end of 2017. This is a rise of 2.13 points from the quarter before. The only year in the city’s history that was less affordable, was the 1981. That may be about to change, with according to the Bank’s economists.
Senior NBC economists Matthieu Arseneau and Kyle Dahms believe Toronto and Vancouver will see price declines in 2018. Toronto is facing higher interest rates, more strict lending, and a foreign buyer tax, 3 things that reduce demand. Vancouver faces the same issues, plus new anti-speculation measures from the province. Might be a great year to be a buyer, a rough year for sellers.
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You think about this day, but you never know what to say when it comes. It’s beautiful – one of the largest mortgage lenders in the country thinks prices are coming down.
Bitcoin Or Nothing,
I’m the first one to never trust the banks however, if you look at this close enough, its the beginning stages of these banks and politicians pushing the narrative to save their reputation.
Get ready for all the finger pointing to come next, my guess the narrative is going to be “its the Chinese people’s fault” while the whole root of the problem that let all the Chinese wealth buy up all homes to push prices to insane levels, is essentially the banks and politicians.
I also suspect that the greater fools that buy at the top due to fomo, will also transform into a new breed of racists that will blame others such as the chinese people instead of themselves for being so fucking greedy.
Time will tell.
One crappy bank. Toronto condo prices are ripping higher, and they aren’t building any more rentals. Good luck trying to find a place. Maybe you can move to Quebec City, the unemployment is great!
Same with Vancouver. They aren’t building any rentals, and expect people to sell their homes for cheap. It makes no sense. Unless you physically pick up the people that already live in the city, and displace them, you aren’t going to find anywhere to put new people.
LOL! There are a quarter million condo and apartment units in the pipeline. You’re in for a rude awakening.
You should buy as many condos as possible in Toronto before they get too high. Make sure to fund your purchases by leveraging your current assets to the max. Hurry up before a single one bedroom exceeds $2 million.
I agree with Joe! Buy more and buy more fast! 500sq feet will cost 5mil by September DON’T MISS OUT!
#september
Price will drop slightly and then will remain stable…slight drop mean 20 percent at most…but then again it went up by 200 percent in last 10 year unfortunately….in mean time vast majority of people who bought real estate before 2014 will be just fine.
Don’t Be Idiots,
Lets see if we can break this down in a more simple outlook.
all the readers in these comments have just read a whole article of statistics presented by National Bank of Canada. It points out the issue of affordability, median income in the high percentages, leaving a big fat cash load of fuck all for anything else (basically people that don’t make much money that are willing to buy something overvalued)
Then we have experts like yourself that say nothing with any credibilty, just to go on and inject fear tactics such as “good luck trying to find a place”. Bring out some real numbers and real data to give people a reason to be scared. Last time I checked craigslist and kijiji it wasnt very hard to rent an apartment. Especially to rent out a shitty 420 sq ft unit with paper thin walls. Also the last time I checked MLS it appears there is alot for sale too.
even if you have a job in Toronto or Vancouver it proves this apparently superior employment situation over quebec city, does not make your situation amazing if you are blowing 70-90% of your median income to speculate on a 25-30 year gamble that everything goes up forever.
Actually, the new federal budget 2018 has huge, huge money for housing and rentals over the next 10 years. Lots of money on the books to be spent for non-profits, starting now. It’s never looked better for the average Canadian family who wants to raise their family in a nice place but not pay through the nose for soul-crushing real estate. Plus, all the money laundered money is being sucked out of housing as we speak as laws across the world change and govn’ts can now expropriate these properties and if they think they’re owned by money gotten through criminal activities (huge wack of Vancouver and Toronto real estate falls in this category.) It will be an interesting year, and National Bank is right on the money with their call.
Xi is sucking back his capital; it isn’t just criminals (state-sponsored?) who have been called
on but mainly the princlings across the globe who have NEVER given Poppa his dues. I suspect Vancouver priceing is holding out with grey-market lending and the mere fact that, in my opinion, their entire market appreciation is a fugazi. So many more players, going back well into 2012-13 with intermingling of funds and obligations; some of these ‘contracts’ /’agreements’ go back to mainland china and cannot be separated by just selling real estate. Approvals may need to be given and penalties determined to save face and make sure everything is kosher. Way bigger Asian criminal influence in BC also…I’m not getting into it but the Triads have never been able to fully penetrate East of BC due to the heavy influence of the Bikers and Italian Mafias…but back to my final point: this started in BC and will end in BC. The entire province will burn.
” It’s never looked better for the average Canadian family who wants to raise their family in a nice place but not pay through the nose for soul-crushing real estate. ”
Never looked better??? 30 years ago, when I graduated, my salary was $50,000 and a nice house in Kitsilano cost $380,000. Today, when my kids graduate, their salary in the same field is $64,000 and the SAME nice house in Kitsilano cost $4,400,000. The exact. same. house.
I’m pretty sure it looked a ‘lot’ better pretty much any time over the past 30 years.
The NDP’s sealed the deal last month. My problem here is they’re forcing depreciation of people’s assets, but didn’t make any other way to make money. IF their scheme works to bring down prices, it’s going to be a very depressing place. No good paying jobs, no housing wealth. Just a bunch of millennial NIMBYs roaming the streets.
Dude, those people had opportunities to make money on the sale of their homes this whole time. The government has allowed this situation to reach nose bleed levels to begin with. The whole market is completely unsustainable.
Daaammmnnn…this is a lot to unpack.
1) ‘Forced’ – implementing prudent fiscal policy, albeit very late, is returning to normal. Forced would be expropriation or a forced writedown on the banks
2) Depreciation – I’m not even touching this. Please google what depreciation is.
3) Didn’t make another way to make money – ding ding, we have a weiner…housing shouldn’t be the stock market my friend, governments job isn’t to find ways for us to make money,
4)IF Scheme works – really it isn’t IF and as you can tell from my responses, returning to a normal balanced market is not a scheme
5) Blah, blah, last bunch of trash – great, then fuck off to where ever (peru is booming!) and pump up their real estate market and complain when it falls apart.
September
In other news …. Laurentian Bank says it expects to finish its review of problematic loans sold to an unnamed lender by the fiscal second quarter, and will fix or repurchase any mortgages that failed to meet the proper criteria.
http://www.cbc.ca/news/business/laurentian-bank-1.4555286
I am shorting this bank big time.
Already good money. This bank is pull of mortgage fraud as are the others, but this one is NOT big enough to fail.
Apologies in advance if I’m stating the obvious here, as many here sound pretty sophisticated, but it just dawned on me just how much these banks were making, especially over the past 5-7 years. I’ve bought and sold property since 06. Stopped buying in 11, sold some in 17. During 09 up until 15-16, my lender at BMO always told me that getting a 30 yr amort was no problem since I’m a preferred customer, blah blah blah.
Of course they want me to sign up for a 30 year amortization, almost 90% of my payment in the first 5 years is interest only and I hardly have any skin in the game in terms of equity. As houses went from low 7’s to 1.2MM+, they were generating massive amounts of almost pure interest only annuities. What do they care if we hit a correction, they already squeezed a ton of juice out of all these homes and if they sell for 30% less, they’ll just ask for a bail out and lend against the same house to whoever is willing to buy that assest when it’s back in the 8’s.
I feel like our bank system learned a lot from the 08-09 correction in the states, and tweaked their lending policies to further capitalize on eager human behaviour, but not by supplying sub-prime borrowers, but those with strong financials; creating a massive credit glut knowing how greedy our species is (sub-prime or strong T4) when offered cheap capital.
Long time lurker, seldom commenter. Bluetheimpala, I love your comments. Am I on the right track?
Yuuupers…if at anytime the ‘Pimp 6’ thought their deals were in trouble they would’ve cracked down on us with a big old back hand. Keep up the good work! BD4L
I dunno Blue… looks like a trap…
Let’s see what we have here from Mr. Bodnar… Mainstreaming RE speculation, blaming banksters while actually pushing “there is no sub-prime here”, houses went from low 7’s to 1.2MM+ (only a fool wouldn’t speculate)… What can I say, nicely done. One of the best pieces so far. Good character development, subtle details, captivating storyline… Impressive.
BTW, if we are getting to the point where RE industry and banks are beginning to point fingers at each other, it’s a good sign that things are about to get really interesting.
Some flags like the self deprecating entry with some loose numbers and a bit of conjecture. I missed the post after with the ‘regular guy who just decided to create a mortgage amortization model’ so I know he isn’t some plumber trying to figure out the market buuuuttt…the argument structure is not subversive and this is a topic we’ve touched on. He makes some good points which are a little old but a good reminder of how much the wanker bankers made off the backs of the looming crisis. You are coming unhinged my friend, time for a vacation!
No love? Feelings still intact.
This realization bothered me so I crunched some numbers. Using the 5 year posted rate in 2014 (2.99%) source: http://www.cbc.ca/news/business/the-2-99-5-year-fixed-mortgage-is-back-1.2546527
I used a standard loan amortization schedule in excel using the example of 1MM dollar home, 20% down, 30 year amortization, 2.99 fixed 5 years. Interest payments average $22,000 year for the first 5 years of the loan.
So if I’m doing this right, banks let this market leverage up to unprecedented levels, raking in 100K in revenue per home (that fits this example) over 5 years. The higher the home, the higher the interest payment, so why have protocols at the bank level to curb bad lending policy? I now see more clearly why it was OFSI that had to step in when things got to frothy and how duplicitous banks can be when they encourage buyers to feel like a millionaire when the bank lends them 800K on a 1M property.
That’s why I leave my wallet in the car when I go to the strip club.
I really thought I had market dynamics figured out when everything was heading up and to the right. This blog is the best educational tool I have come across in a while in terms of content and skill level in the peanut gallery. Everyone, keep up the great work! Back to lurking.