Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
BMO thinks home prices can drop much more than they did just a few months ago. Over the next two years, the bank sees home prices making a 28.7% drop. The bank previously only expected a much smaller decline in the worst case scenario. The downside revision was also accompanied by an increased upside, and base case. However, the downside is still much bigger than the upside.
RBC still sees a large potential downside to home prices. As of April 30, 2021, the bank’s base case forecast shows home prices rising 3% in the next 12 months. In the worst-case, prices fall 29.6%, and in the best case they rise 10.9% over the same period. The size of the downside is significantly larger than the upside, in case you didn’t notice.
Canadian real estate is seeing home buyers fall faster than sellers, improving inventory. The SNLR fell to 75.2% in April, down 6.1 points from the previous month. It’s now down sharply from the 90.9% rate seen in January. Despite this, home prices have been soaring even higher. Higher home prices tend to deter home buyers and incentivize sellers. That is until the SNLR falls enough that sellers have to compete for buyers, with lower prices.
Canada’s property bubble is seeing the SNLR drop fast, which is often followed by price growth. Since 2005, the annual rate of price growth took two to six months to follow a decline in SNLR after hitting a peak. Not a total stretch to see that happening, considering annual price growth was 23% in April.
Canadian real estate is such a bubble, rental prices are rising with vacancies. Toronto rental vacancies reached the highest level in over a decade. About 1 in 29 apartments in the city are now sitting empty. Still, rental prices increased at a pace about 50% higher than the median annual rate seen over the past 10 years. Similar observations are made in Vancouver, and Montreal as well.
Canadian real estate has become so expensive, so fast — only a small portion of the country can still buy. The minimum income to carry the mortgage on a typical home reached $130,921 in Q1 2021. Fewer than 29% of households in the country make an income high enough to clear that hurdle. That’s not just Toronto or Vancouver either, it’s all of Canada. As for those cities, as you might have guessed — the buyer pool is even smaller. That’s going to lead to some very odd demographic and liquidity patterns at these levels.
BMO’s head of risk said they’re watching mortgages more closely in this environment. High flying price gains mean the loan to values of homes are rapidly improving. They believe this can exaggerate home equity, and create more risk if prices were to rollback. To address the issue, the bank is processing more applications manually. The objective is to make sure these buyers can still pay the mortgage, even if home prices fall.
Canadian condo apartments are seeing prices grow very quickly these days. The benchmark, or typical, condo price reached $511,500 in April, up 2.94% ($14,600) from a month before. This brings prices 8.48% ($40,000) higher than the same month a year before. Just two of those numbers tell you how quickly price growth is accelerating. Last month’s dollar change was a quarter the size of annual gains.
Canadian mortgage rates are forecast to rise before central bank rate hikes. Desjardins sees the 5-year fixed rate mortgage hitting 3% by Fall of next year. The rise in mortgage rates would mean they are 50% higher than they were at the end of last year. It would also mean they would hit the same level as pre-pandemic, before the overnight rate fell. Inflation is pushing the cost of borrowing higher, instead of the overnight rate.
Canadian housing “mania” is reversing its unsustainable spike, says the country’s largest bank. The seasonally adjusted annual rate (SAAR) of home sales fell to 731,600 units in April, down 12.5% from a month before. This was a much larger drop than new inventory, meaning the market is better supplied. It’s still a tight market, but at this rate, pressures on prices to rise are releasing quickly.
Canadian homeowners reached a new record high for the amount of HELOC debt they carry. The outstanding balance hit $260.28 billion in April, up 0.47% from the month before. It increased by only 1.04% from last year. Despite hitting the new record, this is oddly slow growth for the segment.
New condo apartments in Toronto and Vancouver are seeing more non-resident owners. Both regions have seen a drop in the overall non-resident rate of units. However, new construction is a totally different story. In Toronto, over 1 in 20 condos made after 2010 are owned by non-residents. In Vancouver, that number is 1 in 10.
Toronto Real Estate
Toronto new home prices gave back a portion of their massive gains. The benchmark price of single-family homes saw home prices fall to $1,395,190 in April, down 3.35% ($48,448) from a month before. The new condo apartment benchmark fell to $1,058,432 in April, down 0.55% ($5,885) from a month before. Prices for both types are down, but still significantly higher than last year. Although at this rate, it wouldn’t take long to wipe up all of those gains in just a few months, if the market doesn’t firm up.
Vancouver Real Estate
Greater Vancouver new inventory and sales were both higher than usual. The region saw 977 new units released in April, down 32% from a month before and 245% higher than last year. The market saw 547 of those units sold in the same month, which is roughly half of the inventory. With demand firming up, developers are looking to take advantage of the opportunity. Analysts expect 2,708 units launched in May, which will be a real test of the strength of the market.
US Real Estate
US new home prices made a sharp increase in the past month. The median sale price of a new home reached US$372,400 in April, up 11.44% ($38,200) from the month before. Compared to the same month last year, this number is 20.09% ($62,300) higher. It’s just under the all-time high reached this past January. It also happens to be the largest annual rate of growth since 1988.
Fast rising new home prices are reducing sale volumes very quickly. The seasonally adjusted annual rate (SAAR) of home sales fell to 863,000 in April, down 5.9% from a month before. The volume is still 48.3% higher than last year, but the monthly drop is a big concern for falling volumes. Accompanying the drop in home sales was also a large revision for the month before.
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