Time for your cheat sheet on this week’s top real estate stories.
Canadian Real Estate
Canadian Real Estate Prices Are Overvalued By Up To 91%: Moody’s
Canadian real estate is massively overvalued, said a global credit rating giant. Moody’s estimates the average urban market in Canada is 22% overvalued as of Q2 2021. Large overvaluations were also seen in Toronto (39.5%), Montreal (25%), and Vancouver (23%). Steep premiums, but not as bad as Niagara (91%) and Peterborough (77%), both in Southern Ontario. Despite these very large overvaluations, only a few markets are forecast to correct. The rest are forecast to see very slow price growth for years, until incomes catch up. It’s never happened before, but we can dream.
Canadian Mortgage Rates Were 20% Higher The Last Time Bond Yields Hit This Level
Canadian bond yields are soaring, and likely to take mortgage rates with them over the next few weeks. The Government of Canada’s 5-year bond yield reached 1.43% last Wednesday at publishing. This was a huge climb of 9 basis points (bps) in a single day. A trend that’s been occurring for a few week. Yields are now back above pre-pandemic levels.
GoC bond yields have climbed so fast, mortgage rates haven’t had time to fully respond. Yields are now 33 bps higher than a month before, and 105.6 bps higher than last year. The last time they were at this level, mortgage rates were 40 bps higher. Since GoC bonds influence fixed-rate mortgages, expect mortgages to climb soon.
The Bank Of Canada Is Killing The Program That Helped Home Prices Soar
The Bank of Canada is ending its quantitative ease (QE) program, and that means the end of cheap money. Well, money that’s this cheap, anyway. The central bank had been using the program to suppress mortgage rates even lower than a low overnight rate could support. They had been flooding the market with $2 billion per week, trying to drive inflation higher.
On a separate note, they aren’t sure what’s causing higher inflation, but they expect it to end soon. Probably a few weeks after their program to drive inflation higher ends.
Canadian Home Builder Confidence Falls As Stress Tests Soften Demand: CHBA
Canadian home builder confidence took a small dip, but remains high according to the CHBA. The industry organization for home builders published its regular sentiment index. The sentiment is just off record highs, but took a sharp dive. Dampening the mood is soaring construction costs, and a tougher mortgage stress test. One in four home builders said the latter affected sales.
Nearly 30% Of Canadian First-Time Home Buyers Received “Gifts” For A Down Payment
Tough time buying your first home? Next life, try having a richer family. A CIBC analysis shows 30% of first-time home buyers received a gift from family for a down payment. This is nearly 50% higher than in 2015. The bank determined the huge down payment gifts show a correlation with home prices. Down payment help is being used, due to down payment help driving prices higher. lol.
The Bank Of Canada Has No Justification To Continue Extreme Stimulus: BMO
BMO, one of Canada’s largest banks, sees no justification for the BoC to continue extreme stimulus. The BoC’s policies are looking out of step with soaring housing, equities, and inflation. As a result, BMO’s top economist sees the central bank rolling out corrective actions fast. Up to four rate hikes are forecast, potentially adding 100 bps to the overnight rate. Will it be enough to slow inflation and housing? Who knows, but the central bank shouldn’t be adding more gas to those fires.
The Irrational Exuberance Of Canadian Real Estate With Mortgage Veteran Ron Butler [Video]
In this week’s video, we chat with mortgage industry veteran Ron Butler, of Butler Mortgages. He tells us about the “infinite up” culture, and the irrational exuberance of home buyers. Amongst the many insights dropped, the most intriguing is about leverage.
There’s been a sharp rise in the number of people leveraging their home to buy another. And why not? If you think prices only rise, why wouldn’t you double down on the best investment you made? The question is where does Canada draw the line for the moral hazard it has created?
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