We know, you were busy this week. Don’t worry, here’s your cheat sheet for the most important real estate stories this week.
Canadian Real Estate
Debt on residential Canadian real estate has been growing much faster than GDP. Over the past 60 quarters, 59 saw mortgage debt grow faster than GDP. The result? Outstanding mortgage debt is now 76% the size of the most widely used measure of the Canadian economy. That’s nearly double what it was 60 quarters ago.
The rapid increase in debt, especially when viewed in contrast to moderate GDP growth, has been manageable by households. However, this puts the Bank of Canada in a tricky position. The debt pile is manageable because of low rates. Raising rates would raise the ratio of debt servicing, causing a drop in consumer spending – likely pushing the country into a recession. Leaving rates low, would continue to deteriorate the value of the dollar, thus raising the cost of imported goods. The latter would also likely cause a recession.
Another foreign agency is accusing Canada of acting as a washing machine for corrupt money. Sherpa, a Paris-based NGO, is demanding the RCMP look into evidence they’ve provided questioning the source of income of 20 high-ranking officials from corrupt regimes. The officials have bought millions in Canadian real estate, despite having incomes that would not allow such lavish purchases. The NGO is alleging that these are “ill-gotten gains,” and the RCMP should be looking into them, as well as the banks, and notaries that may have facilitated the transactions.
Canadian mortgage debt did not hit a new record, for the first time in awhile. Total outstanding mortgage credit stood at $1.519, a 0.01% decline from the month before. That doesn’t seem all that important, until you realize this is the first-time since 2011 we’ve seen mortgage debt fall on a monthly basis. Yes, January was the first month in six years, where debt stopped growing faster than people can pay. Has the great deleveraging phase begun?
It’s no secret that the Canadian economy has become increasingly dependent on real estate, but just how dependent? Adding up GDP contributions from Construction of Residential Structures, Real Estate and Rental and Leasing, as well as Finance and Insurance we get 22.68% of GDP. This is up from 20.65%, just ten years ago. The increasing dependence leads to a greater chance of a recession, in the event that demand for residential real estate declines.
Toronto Real Estate
Toronto real estate prices are still positive, but an increase in supply continues to lower pressure on prices. The benchmark price is now $751,700, a 3.21% increase compared to last year. While that’s still higher, it’s light years away from the 35.43% gains seen just last April. A large part of this has to do with demand, which apparently works both ways. The GTA’s 5,175 sales are 35% lower than last year, while active listings reached 13,362 – a 147.44% increase. If that active listings number looks high for a February, that’s because it is. The median number of active listings for all months over the past two years is only 12,926, and we’re higher than that during a “slow” month.
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