Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian real estate prices are in a “melt up,” says one the country’s largest banks. This is when prices show unsustainable price growth, based solely on exuberance. A senior economist at BMO notes, “The 1-month change is faster than the 3-month; which is faster than the 6-month; which is faster than the 12-month.”
This happened in 2017, but policy makers were already discussing cooling measures. Currently, there are no discussions to cool the market. The economist believes this means nothing can be implemented before Spring. This can very likely mean prices will capitulate, with market failure being the only thing that can stop it in the near term.
Canadian real estate prices are forecast to make huge gains this year. Just one problem — the price forecast is actually lower than last month’s prices. CREA has forecast an average sale price of $655,329 for 2021, up 16.5% from last year. In 2022, they see prices climbing another 2.21% on top of that. Compared to last month’s numbers, the 2021 average is 1.88% lower, and 2022 is only 0.18% higher — virtually flat. The agency expects a big year, but they see things cooling down in the second half, as demand normalizes.
Canadians are on an epic mortgage binge, as the country floods the market with cheap credit. Outstanding residential mortgage credit reached $1.66 trillion in January, up 7.19% ($111.12 billion) from last year. The increase is astronomical in contrast to the size of the country’s economy, equivalent to over 5% of GDP. It’s a lot of mortgage debt, even for Canada.
One of Canada’s Big Six banks finds it “almost comical” to see home prices soar, but the cost of living almost flat. In a note to institutional clients, BMO’s chief economist unpacks why official inflation numbers fail to capture the full increase of home prices. It inevitably will show up delayed, but even then — it won’t reflect the reality households are seeing. He feels this will further reinforce the household perception of CPI being unrelatable.
The pandemic shifted the buying habits of Canada’s young adults, and it might be permanent. A Royal LePage survey found 25% of adults aged 25 to 35 bought a home after the pandemic began. The surge is likely due to the forced adoption of remote work, allowing them to buy further from the city centre.
The shift towards valuing remote work is also likely to become more permanent. Two-thirds of respondents said it was now very important for their workplace to offer it. Almost half of people in this demographic would also prefer to live in the countryside. If you combine the two, either remote work sticks, or there’s going to be a lot of cranky employees.
One of the “Big Three” credit agencies is finding many Canadians think mortgage fraud is no big deal. An Equifax survey found one in ten people think it’s okay to inflate their income on a mortgage application. Over one in ten also believe mortgage fraud is a victimless crime, where all parties win. That’s just the number that are willing to tell a stranger about their passion for fraud. The reality is likely much higher.
There’s still a shortage of inventory, but more sellers of Canadian real estate are out. The sales to new listings ratio fell to 84% in February, down 7.2 points from a month before. Three markets remained above the 100% ratio, meaning inventory was actually shrinking in these places. That sounds bad, but 10 markets were above this ratio the month before. Like I said, it’s still tight, but more sellers are finally coming to market — many waiting for Spring to list.
Juwai, China’s largest foreign real estate portal, said the US is back at the top of buyers’ lists once again. Monetary stimulus is driving prices around the world, sending Asian buyers into a “frenzy,” according to the firm. Overseas buyers are now looking to make some cash before, or prevent themselves from being locked out of home prices in the future. Canada remained the fourth top destination for this market, but buyers are largely concentrated in Toronto and Vancouver, according to the firm.
Canadian home prices added tens of thousands of dollars just last last month. The cost of a typical home reached $698,500 in February, up 3.35% ($22,641) from the month before. Compared to the same month a year before, prices are now 17.02% ($101,593) higher. Last month, banks warned home prices were beginning to rise faster than household incomes. Now they’ve cleared that barrier by a country mile.
BC Real Estate
BC real estate is seeing more first-time buyers, but they aren’t rising at nearly the rate of the general market. The number of first-time buyers reached 1,070 in January, up 17.1% from last year. Due to a surge in general home sales, this represented just 9.65% of total transactions — the smallest ratio in at least 2 years. Anecdotally, agents are seeing more first-time homebuyers. That’s because there are more, but investors are rising at a faster rate in this market.
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