Time for your weekly cheat sheet on this week’s top stories.
Canadian Real Estate
A Big Six bank believes they figured out why Canadian real estate prices are high – buyers want them to be. BMO’s latest analysis shows Canadian homeowners pay 46% more after exchange than people in the US. He drills through all of the common explanations for higher prices, showing they don’t really make sense. Then comes to the conclusion people are paying more because they want to. He doesn’t think that’s a bubble though, it’s just the Canadian way of life. Next up, Canadians prefer to make less and work longer hours because it just feels good.
Canadian condo apartment buyers pay a big carrying premium to own instead of rent in some big cities. A CMHC analysis shows Toronto condo owners pay 87% more to own, than rent in a purpose built building in 2020. Vancouver’s huge, but not as big as Toronto, premium is 54% to own vs rent. It’s not like that everywhere though, with Victoria actually 13.35% lower than renting in a purpose built. What does that tell us? It doesn’t tell us anything in regards to affordability. It suggests buyers in some regions pay huge premiums, hoping a disconnect from fundamentals persists as a lottery ticket. Read More
Canadians saw the sharpest drop in real disposable income across the G7. Real disposable income dropped 3.87% in Q3 2020, bringing annual gains to 9.06%. It was both the biggest quarterly drop, and the largest annual gain. Since 2005, inflation adjusted income is 43.81% higher, with one important note. Almost a third of those gains are due to a single quarter – Q2 2020. That was due to emergency programs that replaced income at a rate of $2 for every $1 lost. It might be the first time in history people have more during a recession, and may have less when the economy recovers.
Canada lost a huge number of jobs during the pandemic, but those with a university degree may have fared better. There were 18.43 million jobs in December, down 417,500 from February. Data for shows those without a university degree represented virtually all losses. In fact, those employed with a university degree increased by 290,000 people over the same period. This is likely due to pandemic lockdown restricting many trades. Meanwhile knowledge workers can more easily adapt to working from home.
Canada’s real estate market is the fastest growing in the G7, and it’s pushing the gap to the extreme. Canadian residential real estate prices increased 2.93% in Q3 2020, bringing them 8.27% higher than last year. The annual growth is now the biggest, but so is total growth from 2005. Canadian real estate prices have shown larger than typical growth since that year. It’s gotten to the point where Canadian real estate prices grew 3x faster than the second fastest growing market.
Toronto Real Estate
Toronto condo apartment buyers are paying big premiums, according to the CMHC. Condo buyers are paying 87% higher carrying costs than those renting an apartment in a purpose built building. More interesting is data shows rents were still rising, despite more vacancies. If vacancies hitting a multi-decade high can’t bring down prices, fundamentals are broken. And that might just be fine, since we also just learned Canadians just want to pay more, right?
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