Time for your cheat sheet on this week’s most important stories.
Canadian Real Estate
Canada Quietly Changed Its First-Time Home Buyer Program To Limit Its Losses
Canada is lowering taxpayer exposure to the First-Time Home Buyer Initiative. The program sees the government buy a share of your home, helping to drive payments lower. Canada would then share in the gains or loss to the property’s value, and collect its share when you sell. The subtle update to the website last week shows they’ll be limiting exposure to 8% per year from now on. Leverage exposure increased for these borrowers after an 8% movement — not great.
Canadian Real Estate To Fall Double-Digits, Or “I Would Be Shocked”: BMO Director
BMO management revealed they would be shocked if home prices didn’t fall double-digits. The head of the capital markets division explained the past 15 years have been unusual for bonds. What we’re seeing is the normalization of the market and asset prices will need to adjust.
Canadian Real Estate Investors On The Rise As First-Time Buyers Fall: RBC
Canada’s largest bank is seeing more investors and fewer first-time buyers in their book. RBC estimates investors were $47 billion of the residential mortgages they held. It represents about 13% of the total, and is coming at the expense of first-time buyers. “…I think it is a bit of a sad commentary in terms of young people being able to get into some of these markets,” said the head of the bank’s consumer banking.
Canadians Are Still Deferring Thousands of Mortgages At Non-Bank Lenders
Canadian non-bank mortgage lenders are seeing a rise in early delinquencies. Mortgages in arrears (30+ days) reached 2.3% of mortgages held in Q4 2021, up from 2.0% last year. Only 0.17% of mortgages hit 90s days or more in arrears, but there are also another 17,700 borrowers on payment deferrals. Defaults are rock bottom, at a level similar to banks, but borrowers are still distressed.
Canadian Real Estate Is About To See Rate Pressure Not Seen Since The 90s Crash: BMO
Canadian real estate was just hit with a headwind not seen in nearly 30 years. The 5-year Government of Canada (GoC) bond yield jumped nearly 2 points in less than a year. The 5-year GoC bond yield influences the cost of 5-year fixed rate mortgages. The country hasn’t seen such a rapid climb since the popping of the 90s bubble. “Suffice it to say that this rapid climb in rates bodes ill for housing,” wrote BMO.
Bank of Canada Hikes Interest Rates And Its Inflation Forecast
The Bank of Canada raised rates, as expected. The overnight rate climbed 0.5 points and hit 1.5% last week, remaining just 0.25 points from 2020’s high. Despite “forcefully” trying to control inflation, they also discreetly raised the inflation forecast. This indicates BoC is realizing they’re further behind the rate curve than thought.
Canadian Real Estate Was Responsible For Nearly Half of GDP Growth Last Quarter
Canada’s economy became a little more dependent on real estate, as spending grew faster than GDP. Residential investment, the most direct contribution of housing to GDP, represented nearly half of GDP growth. That helped drive its share of the economy to 8.0% in Q1 2022, up 0.3 points. For context, the US housing bubble peaked at 6.7% of GDP back in 2006. At the time, experts began warning the economy had become too dependent on real estate. Meanwhile in Canada, they’re well past that level and it’s still going.
Canada’s Vacant Real Estate Is Getting The Viral Treatment On Social Media
Canada’s vacant homes are getting the viral treatment on social media. Urban explorers have long explored abandoned buildings, but usually in small towns. The rise of vacant homes across Canada now has them exploring homes — often mansions — in big cities. The audience? Largely Americans, perplexed how homes in the middle of major cities just sit empty — often for decades.
Toronto Real Estate
Greater Toronto New Home Prices Fell Over $50k Last Month As Sales Cool
Greater Toronto new home prices fell significantly in April. The benchmark fell at least $50k, depending on the segment. Slowing demand for new homes also has sales falling towards more traditional levels. If the market doesn’t firm soon, these prices might fall even further.
Toronto Real Estate Prices Are $90,000 Lower But There’s A Catch
Greater Toronto real estate price growth is weakening but it’s not easy to understand by how much. The benchmark price in May was lower across TRREB (-$92,200) and the City of Toronto (-$142,400). It sounds like a lot but part of this is due to a shift in methodology used. It’s unclear exactly how the old metrics would look, but one thing’s clear — demand is weakening. The sales to new listings ratio fell to just 39%, a level where the industry expects prices to fall.
Vancouver Real Estate
Vancouver Real Estate Now Balanced, Price Methodology Change Makes It Tricky To See
Greater Vancouver real estate prices fell but a methodology change obfuscates it. The benchmark price in May reported was smaller in REBGV (-$113,400), Vancouver West (-$110,900), and Vancouver East (-$107,600). More clear is exuberance has been knocked out of the market. The sales to new listings ratio fell to 45.8% in May, indicating the market is currently balanced.
New Zealand Real Estate
New Zealand Real Estate Prices Dropped The Most Since 2010, Forecast To Fall Further
New Zealand real estate prices just had one of the worst quarters in a decade. Prices fell 0.8% in May, bringing the 3-month drop to 0.9% lower. The 3-month drop is the largest seen since the Global Financial Crisis, and it’s expected to get worse. New Zealand’s central bank is forecasting even further drops in the future.
“Canada’s largest bank sees more investors and fewer first-time buyers in their book. RBC estimates investors were $47 billion of the residential mortgages they held.” They helped lure investors into runaway real estate prices by any means possible and now expect forgiveness from those who can’t afford a home/condo/apartment or a doghouse to live in. Because you didn’t mean to cause harm, it’s still called culpable negligence.