This Week’s Top Stories: Bank of Canada Calls Out Property Bubbles, And Canada Tops The List of Least Affordable Cities

Time for your cheat sheet on this week’s most important stories. 

Canadian Real Estate

Bank Of Canada Indicators Now Show Some Real Estate Markets Are A Bubble

Canada’s central bank published its own index of overvalued housing markets. The BoC’s latest research shows Toronto, Hamilton, and Montreal are exuberant (AKA bubbles) in Q1 2021. Montreal only just entered this territory according to them. The other two regions have seen mostly exuberant quarters since 2016.

When a market is exuberant, it becomes vulnerable to a sharp correction. The only thing between today’s prices and the fundamental value is emotion. Those tend to change very quickly at the slightest sign of an issue.

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Canadian Property Bubbles Are Now So Big, LA And NYC Are Now More Affordable

Canadian real estate topped the list of least affordable North American housing markets. Vancouver, Toronto, and Hamilton were ranked the top three least affordable cities. These three cities became so expensive, so fast — it’s now easier to buy a home in Los Angeles or New York City. Which makes sense, because Hamilton is a small city known for steel production, and NYC has a GDP the size of Canada.

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Canadian Home Builders Are Asking Buyers For More Money To Finish Building

Thought you beat the market by purchasing a pre-sale home from a developer years ago? It may not be the case. In Greater Toronto, the cost of building a home is up 15% from a year before, and 27.7% from 2017. Considering developers only plan an ~18% profit margin, that could wipe out their gains.

So what are developers doing? Asking buyers that bought years ago, to fork over cash to cover rising building costs. One developer we mention is asking buyers as far back as 2016, to share their home price gains. For one buyer whose contract we shared, they’re being asked to give up $100,000 in equity to the developer. Their other option is to get their deposit back and buy another home at today’s prices.

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Canadian Mortgage Debt Increased By $115 Billion — About 5% The Size Of GDP

Record Candian real estate sales helped to push mortgage debt a lot higher. The outstanding balance reached $1.67 trillion in March, up 7.39% from the year before. The 12-month increase isn’t just the largest rate seen since 2011, it’s about $115.39 billion dollars. For context, that’s over the size of 5% of GDP. Canada borrowed a lot of future income and productivity to make those sales numbers rise.

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Overleveraged Home Buyers Represent A Larger Share Of Canada’s Mortgage Debt

Canada is seeing a lot more overleveraged homebuyers with a mortgage 4.5x the size of income. The share of new mortgage lending that went to this segment of borrowers increased by 6.54 points in 2020. Borrowers with a better leverage ratio are taking a step back from this market. Their market share is being picked up by those willing to overleverage themselves to get into this market.

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Canadian Uninsured Mortgage Debt Is Growing 4x Faster Than Insured Debt

Uninsured mortgage debt is growing much faster than insured mortgage debt. The total of funds advanced from lenders reached $53.27 billion in March, up 48.7% from the year before. This was the biggest month in at least 8 years, but most likely goes back much further. A breakdown of the debt shows uninsured mortgage debt was around 4x the amount of insured debt. It was the largest gap in the data set. First-time buyers are unlikely to be behind most of the borrowing, or they have very deep pockets all of a sudden.

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Canadian Inflation Makes The Fastest Two-Month Acceleration In Over A Half Century

Canadian inflation is rising at one of the fastest rates in decades. CPI increased 0.6% in April, on a seasonally adjusted monthly basis. Annual growth was 3.4% in April, compared to 2.2% in March. The central bank says it’s just transitory, or temporary in nature, due to a base effect. The majority of commercial bank economists aren’t so sure. They point to recent acceleration, which was one of the fastest in decades.

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Canadian Housing Starts Drop 20%, Which Normally Means A Correction: BMO

Canadian housing starts fell sharply, which usually leads to a correction. BMO thinks this time may be different. Seasonally adjusted at the annual rate, home starts fell to 268,631 in April. This is down 19.8% from a month before, and would normally be a sign of a slowing economy. BMO thinks this may have been excess activity, and won’t have much of an impact in the near term. We’ve heard this one before, but where?

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Canada’s Condo Markets Are Making Huge Gains, That Will Get Bigger: BMO

Canadian condo price growth is quietly accelerating and likely to get bigger soon. Condo prices across Canada saw 8.4% annual price growth in April, the largest rate since 2018. BMO annualized the growth over the past 3-months, and found it was around 25% for April. This kind of growth would usually grab the attention of headlines across the country. Since detached prices are growing at nearly twice the rate though, it’s not even getting so much as a blink.

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Canadian Home Buyers Are Ready For Bidding Wars, And To Pay Way Over Ask: TD

A TD Bank survey shows Canadian homebuyers are willing to pay more than the asking price. Just over 51% of young adults, under 35 years old, said they were ready to offer more than the asking price to buy a home. This was significantly higher than older homebuyers, who were less willing to do so.

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Unsustainable Canadian Real Estate May See Price Moderation Soon: RBC

Canada’s largest bank sees home price growth moderating in the not-so-distant future. There were 731,600 home sales when seasonally adjusted and annualized, down 12.5% from a month before. The bank said the market is cooling from “unsustainably” high levels. They see this leading to price growth moderation in the future.

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Toronto And Vancouver Insolvencies Make The Biggest Jump In Years

Toronto and Vancouver insolvency filings reached the highest level since the start of the pandemic. Most of the surge was a slight shift in composition though, with businesses taking the lead. Experts say this is a backlog of people after the pandemic allowed many to delay. While it’s still early to see a normal level of insolvency filings, things are going to catch up. Prior to the pandemic, filings had reached a multi-year high, so the issues aren’t all due to COVID.

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Canadian Real Estate Mania Pushes Home Prices Up To $43,000 Higher In A Month

Canadians are going all-in on real estate, and it’s quickly pushing home prices a lot higher — every month. The price of a typical home in Canada reached $731,600 in April, up $18,000 from a month before. From last year, prices are now up a whopping $137,400 from last year. That’s just the national number too, with individual markets climbing up to $43,000 over just the month of April. When a typical home price increases by the after-tax annual income of a median worker every month, things are very much out of hand. 

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3 Comments

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  • Janine 1 year ago

    Who lends the buyers money for overpriced homes?
    Who is making the big money?

  • Glen Stone 1 year ago

    I think the appropriate word here is “terrifying”. Couple with the economic dislocations caused by the pandemic, including increased unemployment and government debt, the inevitable bursting of the bubble will will leave a distressing number of Canadians holding empty bags where their future and hopes wereonce carried.

    • Joyce Yeh 1 year ago

      U may have some regions only for the PR and citizen to purchase which can also mix with new development projects, example : 200 units (150 unit for local price and allowed to mortgage / 50 units for international investors but only the international investors rate per sq/ft and also no sell after 3 years so u have a better control over the local benefit and demand vs supply. Not flippers anymore . Look at Thailand and Germany

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