Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
One of Canada’s largest real estate lobbies isn’t very happy with one of the new election promises. The Liberals promised this week to ban “blind-bidding” if re-elected. The process prevents bidders from knowing what other bidders are willing to pay. This can sometimes result in buyers paying thousands more than the next bidder. The industry argues this is “criminalization” of letting sellers choose their preferred method of selling. They further argue this is misguided, and may not actually help buyers by much.
Canada will most likely ban foreign buyers, with both major parties making it a promise. Both the Conservatives and Liberals have promised to ban foreign buyers for 2 years. They also suggest this is just a trial, and might be extended if needed. Only the NDP aren’t promising a ban, but they do plan on hitting non-residents with a 20% tax on purchase. The post-election environment will be less friendly for foreign investors.
The Canadian economy is making progress on its recovery, but it did slow in the latest numbers. The Canadian Business Activity Index (BAI) showed a 0.6% increase in July. It works out to nearly half the rate of growth seen a month before. The bank attributes this to production constraints, as well as Delta-variant concerns. Both of these issues are transitory, and they expect the recovery to pick up soon.
Canadian job vacancies are rising, which should technically lead to higher wages. Supply and demand, right? Except that’s not what’s happening this time around. BMO found annual wage growth reached 2.3% in June, even slower than the 2.4% seen a month before. At the same time, there were 816,000 job vacancies, the highest numbers since the index started. Rising job vacancies, and wages are failing to even keep up with inflation.
Renters may dominate the next election in BC and Ontario, where they are now the majority. Both regions had more renters eligible to vote in the last election — BC (63%) and Ontario (64%). Part of this has to do with rising youth, and a delay in purchasing their first home. In BC and Ontario, 88.6% and 89.6% of eligible voters aged 18 to 34 years old, live in non-owner occupied housing. That can shift how attractive policy that may impact home prices is valued.
Canada is seeing rising job vacancies, but unemployment remains elevated. The last time the unemployment rate was this high, only half the number of job vacancies existed. National Bank said this is due to the “disincentive” to work, created by the generous unemployment benefits. As these benefits fade by November, they expect vacancies will begin to fill.
Canadian real estate markets are finally seeing prices start to cool, after a huge run. A third of boards reported monthly price declines for the benchmark in July. Annual growth also dropped in 4 out of 5 boards, meaning peak growth is now behind us. Many of these markets have seen huge growth, so it might be a while before it becomes noticeable. Though it’s on it’s way — as long as policy doesn’t inject the market with more capital again.
The price of lumber soared at the onset of the pandemic until this May, but it’s now in the middle of a massive crash. The price closed at US$506.10/mbf at the time this piece was written, down 20.2% from the previous month. Prices are now down 69.7% from the peak ratio reached on March 7 of this year. Soaring lumber prices pushed new home construction costs higher. Now the cost of lumber for a typical home should be US$11,000 cheaper. Whether that passes on to consumers the same way increases do, still remains to be seen.
Canadians have managed to avoid many defaults through government support. However, that may not mean the country is in the clear, as banks have still prepared for them to soar. Non-mortgage expected credit losses came in at 1.99% in Q1 2021, down just 1 bps from the previous quarter. It remains 59.2% higher than it was a year before, and is higher than it was during the peak of the financial crisis. Things might have been quiet, but that doesn’t appear to mean banks think the coast is clear.
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