This Week’s Top Stories: Canada Abandons Its Real Estate Warning System As Mortgage Rates Surge Higher

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

Canadian Real Estate

Canada’s Housing Agency Abruptly Halted Its Public Real Estate Warning System

Canada’s national housing agency abruptly ended its warning system for housing. For nearly a decade, the agency warned home buyers when their local market became risky. In the September 2021 report, they declared all of Canada as highly vulnerable. That was the last report. The latest one was replaced with a message saying it would no longer be continued. You know? At the exact time you would need a report like this. 

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Canadian Real Estate Sentiment Is Changing Fast, Price Discovery Underway: BMO

Canadian real estate sentiment is shifting fast as price growth appears past peak. BMO points to annual home price growth in Toronto (+34.8%) and Vancouver (+20.7%) for March, which failed to print a new high. In some areas of Greater Toronto, the bank said it appears detached home prices fell in the month. They warn a 50 basis point interest rate hike will further pressure prices lower.

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Canadian Real Estate Buyers Are Facing The Highest Mortgage Rates In A Decade

Canadian bond yields hit the highest level in a decade, and it’s taking mortgages with them. The 5 Year Government Bond Yield reached 2.544% on Friday, up 74.25 basis points from a month before. Since this directly influences the cost of a 5 year fixed rate mortgage, they’re also following the path. For example, RBC’s posted 5 year fixed rate was 3.94% last week, almost double the 2.19% they offered back in October. 

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Canadian Unemployment Hit A Record Low, Supporting Higher Interest Rates

Canadian employment is booming like never before, showing signs of an overheated market. The unemployment rate fell to 5.3% in March, down 0.2 points from the previous month. The unemployment rate has never been this low, and is unheard of with interest rates at this level. Unemployment this tight tends to be inflationary, providing more fuel for rate hikes.

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Canadian Businesses Report Credit Conditions Are Beginning To Tighten

Canadian businesses are facing tighter lending conditions already, while rates are still low. The Bank of Canada Business Outlook Survey found credit tightened for 2 quarters. The share that reported tightening was 6 points greater than those with easing. Two consecutive quarters of tightening haven’t been seen since the Great Recession.

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Canada’s Tax On New Home Trading Could Destroy Speculator Margins

Canada’s Federal 2022 Budget proposes a measure investors may want to watch. Canada is proposing all pre-construction assignments be hit with a sales tax (HST/GST). Assignments are used to delegate the rights of a pre-construction purchase to a new buyer. Since building a home takes years, these have become a prime target for speculators. By hitting the units with a sales tax, assignments would be higher than market housing. This should drastically reduce the attractiveness, or erode profit margins.

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Canada’s 2022 Budget Is Already Trying To Bail Out Real Estate By Creating Demand

It’s only been a month since the first interest rate hike, and Canada is already trying to increase demand. At least 3 incentives for first-time home buyers are rolling out to induce demand. Any time you stimulate demand, you’re trying to create pressure for home prices to rise. Experts warn against these exact things if Canada wants more affordable housing.

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Young Canadians Are Seeing Their Wealth Fall While Everyone Else Is Seeing A Boom

Canadians have seen their net worth surge the past couple of years, but young adults have been left out. Households saw the average net worth rise to $989,500 in Q4 2021, up 0.8% from the previous quarter. Meanwhile, households under 35 had an average net worth of $326,300, down 1.4% from the last quarter. Stat Can said it was the only age cohort to see a net worth declined in the quarter. It also happens to be the only drop since 2020.

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Most Businesses Don’t Think The Bank of Canada Can Control Inflation: BoC

The Bank of Canada lost control of the inflation narrative, making it even harder to manage. The central bank’s goal is to maintain inflation at 2 points with a 1 point margin (making 3% max). A BoC survey found 70% of businesses forecast annual inflation over 3% for 2 years. A record share of businesses told the central bank they aren’t confident in their control. When inflation expectations become “unanchored,” it becomes more difficult to keep within the target range. 

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Canadian Building Intentions Surged Higher In February, Boosted By More Housing

Canadian building intentions surged higher ahead of interest rate hikes. The value of permits reached $12.4 billion in February, up 21.0% from the month before. Nearly ¾ of the permits are for residential housing, likely locking in cheap financing. New home starts are expected to taper over the next couple of years gradually. 

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Toronto Real Estate

Toronto Real Estate Sales Fell 3x Faster Than New Inventory, Enters Balanced Market

Toronto real estate reentered a balanced market, further showing it is past peak growth. Home sales fell to 10,955 units in March, down 29.9% from last year. At the same time, new listings fell to 20,038, down 11.9% over the same period. Home sales fell at 3x the rate of new inventory, as demand disappeared faster than supply. The sales to new listings ratio is just 54.7%, meaning the market is now balanced. If sales taper further though, it could send the market in favor of buyers, leading to falling prices.

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Vancouver Real Estate

Vancouver Real Estate Inventory Improves, Median Sales Price Falls

Vancouver real estate is sending some mixed signals on home price growth. The benchmark price hit $1,360,500 in March, up 20.7% ($233,300) from last year. It’s massive growth, but a city breakdown of median sale prices shows a widespread drop. In Vancouver East, a monthly decline for detached (-$70,000), semi (-$16,500), and condo (-$28,800) median homes were observed. Vancouver West showed declines for detached (-$155,000), semi (-$169,950), and condos (-$17,500) as well. This doesn’t necessarily mean home prices are falling, but cheaper homes are for sale. It can be due to price drops or fewer luxury homes listed. Either way, buyers are probably happy with slightly more affordable options. 

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US Real Estate

US Real Estate Price Growth Forecast To Slow Significantly: CoreLogic

US real estate prices have shown record growth that’s expected to grind to a halt over the next few months. The CoreLogic national index shows home prices rose 2.2% in February and are now 20% higher than last year. The firm is forecasting just 0.6% growth in March, with the annual rate falling to 5% by February 2023. Still positive growth, so we’re not looking at a crash at this point. However, it’s still a very different change from the current environment.

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