Time for your cheat sheet on this week’s most important stories.
Canadian Real Estate
Canada’s mortgage lenders are setting aside a record amount of money for bad mortgages. The loss allowance at large lenders reached $3.9 billion in Q3 2020, up 54.11% from the same quarter a year before. This is both a record high for the total dollar amount, as well the fastest growth since the Great Recession. Lenders are readying for a negative scenario, that few agree with right now.
During the pandemic, Canada’s economy has slowed down – while real estate has ramped up. Residential investment reached $54.89 billion in Q3, up 18.03% from a year before. Residential investment is now 9.43% of GDP, up from 7.71% last year. This is not just the highest rate seen in the past 60 years, but unusually high for most countries. For context, US residential investment peaked at 6.7% of GDP in 2006, during the height of the housing bubble.
Canadian real estate sales are rising at the fastest rate in over a decade. There were 59,543 seasonally adjusted sales in December, up 7.2% from the month before. Unadjusted sales came in at 39,876 in the month, up 47.2% from last year. Massive year-over-year growth is expected to persist until mid year, due to the base effect. The same effect will also make it seem like there’s an abrupt slowdown, even if the busy market persists.
Toronto has seen more and more young people leaving the city for other parts of the province. Stat Can estimates 50,375 more people left Toronto than arrived in 2020. This isn’t entirely pandemic related either, with 2019 printing a 46,549 person decline. The City has long had a negative flow of locals to other parts, but the losses double from 2015 to 2017. During this period, the ratio of people under 40 also jumps from a third to almost half of all losses.
More Canadians want to work from home, and it’s going to have a big impact on how cities operate. An RBC analysis found 80% of employees want some form of work-from-home arrangement. Meanwhile, only around 14% of employers are planning to continue work-from-home arrangements, post-pandemic. The bank believes Canada’s tight labor market will be in favor of the employees, helping to push more employers to embrace the idea.
Canada’s employment slid lower last month, causing a minor setback for the recovery. Stat Can estimates 18.59 million people employed in December, down 560,500 jobs from last year. Major real estate markets like Toronto and Vancouver are down 82,200 and 53,700 jobs respectively, from last year. Generally the trend is improving, but it’s a long way from where the economy was just a year ago.
Canadian mortgage delinquencies are falling, but one demographic is seeing a sharp increase – seniors. Mortgage delinquencies reached 0.30% in Q3 2020, flat from both the previous quarter and last year. Mortgages held by people aged 65 and older had a delinquency rate of 0.37% though. This number was up 2.78% from the previous quarter, and represents an increase of 5.71% compared to last year. At a high level it appears things aren’t moving, but there’s a big demographic shift. Mortgages held by young people are becoming overdue at a lower rate, balancing a surge in seniors.
Canada’s largest bank presented two scenarios to two different audiences over the past few weeks. The chief economist’s report forecasts home prices 8.4% higher in 2021. Just a few weeks ago, the bank’s CRO presented a pessimistic scenario to investors, telling them the bank is putting greater weight on a negative price move. Two different audiences, both looking at different market scenarios. It’s a volatile time, with different audiences placing a different weight on risk.
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