This Week’s Top Stories: Canadian Real Estate Now Requires 64% of Income & “Excess” Demand Is Gone

Time for your cheat sheet on this week’s top stories.

Canadian Real Estate

Here’s How The Bank of Canada Drove Over 250,000 Excess Real Estate Sales

When inflation is below target, a central bank will cut interest rates to help stimulate “excess” demand for goods. The excess demand is intended to over run the existing supply and help create inflationary price increases. In the case of existing-home sales, the Bank of Canada stimulated over 250,000 excess sales over two years to increase prices. The central bank claims we “needed” the economic activity, but the benefits are far smaller than the issue created. 

Continue Reading…

Canada’s Mortgage Mayhem From Higher Rates? It Was Just $61

Rising interest rates have economists worried about the impact of mortgage debt on the economy, but the risk is lower than low rates. In Q2 2022, the average mortgage payment increased to $1,458 per month, up 4.5% (+$61) from last year. While that’s high, annual growth was 4.2% (+$55) per month in Q2 2021. This year the loss of disposable income to rising mortgage rates is only a slightly higher rate than last year’s record low rates. At the same time, falling prices are likely to slow growth even further.

Continue Reading…

Canada’s Real Estate Bubble Is So Big Households Need 64% of Income For A Mortgage

Canadian real estate just saw the worst erosion of affordability in four decades, but things are expected to get better. National Bank of Canada estimates an average family now needs 63.9% of their income just to carry the mortgage on a typical home in Q2 2022. It was a 10.4 point increase from the previous quarter, the largest since the 1982 inflation crisis. The bank says there are a few positive signs on the horizon. They expect rates will peak soon, stabilizing yields and home prices will continue to correct.

Continue Reading…

Canadian Mortgages To Experience Less Payment Shock Than Some Countries: Fitch

Globally more mortgage borrowers have been opting for variable-rate mortgage products and the rising rates environment presents sudden risk. Fitch Ratings stress tested these markets and found countries like Canada will see variable-rate borrowers see a large increase in their debt servicing costs. However, since Canadians don’t often hold variable rate mortgages, the increase in risk for the general mortgage market is lower than the risk change in other countries. That isn’t to say Canada’s supersized mortgage debt isn’t at risk, but rising rates by itself doesn’t change the circumstances much. 

Continue Reading…

Canadian Real Estate Is Proving To Be A Story of Excess Demand: BMO

Canadian real estate sales are plummeting but it’s largely just a normalization of activity, following supersized demand. Seasonally adjusted sales were down 5.3% for July, and unadjusted were 29.3% lower than the same month last year. BMO highlights the fact this is 40% below the peak, and finally below the 10-year average. They attribute the recent boom to excess demand from low rates and FOMO, with activity falling towards less stimulated levels.

Continue Reading…

Canadian Real Estate Prices Fall Another $27k, Average Sale Now Negative Growth

Canadian real estate prices made another sharp monthly drop. A typical home saw its price fall to $782,300 in July, down 3.4% (-$27,400) from the previous month. Prices remain 10.9% (+$76,700) higher than the same month last year, but at this rate those gains can be vaporized quickly.

Continue Reading…

US Real Estate

US Enters A “Housing Recession” As Sales Fall Back To May 2020-Levels

US existing-home sales have cratered recently, falling to the lowest level in more than two years. The seasonally adjusted annual rate of home sales fell to 4.81 million units in July, down 5.9% from the month before and 20% below last year. Sales haven’t been this low since May 2020, when public health measures first rolled out. The chief economist at NAR went so far as to call it a “housing recession,” even though price movements don’t reflect that… yet. It was also the first month in a while to see a price drop, and it was a big one. 

Continue Reading…