Time for your weekly cheat sheet on this week’s top stories.
Canadian Real Estate
Canada went all in on home sales to the point where excess home sales are now 6% of its GDP. Existing-home sales reached $500 billion in annualized sales in October. BMO estimates this is $150 billion worth of excess demand, driving prices higher. It should stop as soon as the central bank wants it to stop, said the Big Six bank.
Canadian home prices are generally overpriced, according to a credit rating giant. Moody’s latest models show urban cities are 22.6% overvalued. After the massive climb this year, they don’t expect an encore to follow next year. Average annual growth is forecast to be just 1.3% over the next two years. Provinces that have seen slow growth (such as Alberta) are expected to buck this trend.
Canadians are investing more into foreign equities and less into real estate. A net increase of $17.2 billion was pumped into foreign equities in September, up 33% from the same month a year before. At the same time, existing-home dollar volumes reached $34.9 billion, down 5.9% from a year before. These data points are worth watching over the next few months. Investors are significant buyers of housing, driving demand. If they’re looking for returns in other segments, it can mean fewer dollars to drive home prices.
Canadian new home price growth is slowing after hitting a 3-year high for annual growth. New home prices increased 0.9% in October and 11.5% higher than the year before. It’s one of the fastest annual rates of growth in history but lower than the recent peak hit in August. Historically growth hasn’t spent much time at this level and is followed by a period of low to negative growth. If the trend begins to cool, it might be followed by slow growth. This is a trend the industry is largely expecting will occur.
Canadian home prices are soaring as a sudden surge of demand was met with a complete lack of inventory. The benchmark price across Canada reached $762,500 in October, up 2.34% ($17,400) from a month before. That’s the national number, with some cities seeing home prices rise up to 5.4% ($73,100) in one month. Somehow the Bank of Canada (BoC) thinks this is an environment that needs more credit stimulus.
Canadian inflation reached a nearly two-decade high and some provinces are worse. Annual growth for the consumer price index (CPI) hit 4.7% in October, up from 4.4% the month before. It was the highest reading since 2003 but still lower than most provinces. This is especially true in the Maritimes, where annual growth is now above 6% in some provinces.
Canadian immigration may have gone through a lull but it’s back with a new record. There were 45,040 permanent resident arrivals in September, up 19% from a month before. It was the largest single month of arrivals in over 100 years of data. This may not translate into immediate demand for housing though. Canada’s permanent residents come from both outside and inside of the country.
Canadian new housing starts are crashing as inflation forces builders to pause. The number of starts fell to 236,554 housing starts as of October, a drop of 5.3% from the month before. This number has now fallen 29% from the peak reached in March, back during the lumber and material craze. Having fallen more than 20% technically means it’s a “crash” in the number of starts.
Toronto Real Estate
Canada’s largest real estate board released more details on its for-profit entity. The Toronto Regional Real Estate Board (TRREB) is launching PropTx Innovations Inc. It will be a for-profit entity wholly owned by the board. By starting the entity, the non-profit board is hoping to cash in on its proprietary data.
US Real Estate
US starts for new housing and permits have been trending lower over the past few years. Housing starts fell to a seasonally adjusted annual rate (SAAR) of 1.52 million in October, down 8.3% from the recent peak in December 2020. New permits, which lead starts, reached a SAAR of 1.65 million, down 12.4% from January. These numbers are trending lower but not due to a lack of demand — it’s due to inflation. Material shortages and unstable costs have some builders hitting pause on new projects.