Global Real Estate
It’s the credit, stupid. That’s basically the conclusion from a US Federal Reserve Board staff paper. The paper examined the price levers that have made home prices move, both from a supply and demand angle. Paying special attention to the pandemic gains, they attribute soaring prices to stimulated demand, not a lack of supply.
A global real estate downturn is underway and Canada is expected to see the sharpest drop. That’s according to analysis from Goldman Sachs, who sees higher rates throttling demand. Canada’s high debt and extreme valuations are expected to amplify the issues.
Canadian Real Estate
Canada has a huge problem with organized crime, and it’s only getting worse. That was the message in a report by CISC, Canada’s organized crime intelligence agency. They identified significant activity across thousands of organized crime groups. The groups have infiltrated everything from real estate to government. This widespread corruption will ultimately cost Canadians more.
BMO is making an upward revision to its Bank of Canada interest rate forecast. Next week they’re calling a 75 basis point hike, the largest since the late 90s. That’ll push the overnight rate to the highest level since 2008, in just a few days. The hikes aren’t done there — they expect rates to rise until the end of the year to 3.25%, about 0.25 points above neutral.
More Canadians are quitting due to dissatisfaction, and that’s a good thing. Quitting due to job dissatisfaction increased over 60% in June. It might sound like bad news, but this typically only occurs when workers feel they have options. Paired with low unemployment, this is a strong sentiment indicator.
Lumber prices have crashed over 60% lower as of Tuesday, after more than tripling since 2020. Still steep, but similar to levels seen in 2018, when things were considered much more tame. Industry experts called the decline last year, suggesting postponing purchases if possible. By the end of summer, this is expected to help reduce home builder material costs, saving them thousand.
Canadian real estate prices are falling in some of the country’s priciest markets. For example, Oakville, a posh Toronto suburb, is now down 12.4% from its peak just 3 months ago. This represents a loss of more than $2,200 per day since peak. That’s just one example, but the majority of major markets within the HPI are now off peak prices.
Higher interest rates may force Canadians to do the unexpected — stop the credit binge. That was one of the findings in the Bank of Canada (BoC) Survey of Consumer Expectations. In the Q2 2022 results, homeowners said they would pay down debt and save more if rates rise. Fiscal responsibility is a consequence of higher rates? No wonder governments are so opposed.
Toronto Real Estate
Toronto real estate prices are falling unusually fast these days. The price of a typical home fell $56k last month, adding up to a $130k drop from the peak hit 3-months ago. Home price growth is decelerating and at a rapid rate, reversing gains made over the past two years. Easy come, easy go.
Vancouver Real Estate
Greater Vancouver real estate prices slipped a little lower over the past month. The price of a typical home across the region fell about 2% ($25k), last month. Prices are just off peak and it’s a relatively small pullback in contrast to recent gains. However, if this rate persists a good chunk of growth over the past two years can be lost very fast.