Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canadian real estate is an excellent tool for money laundering, according to CISC. The Canadian intelligence agency published a report on how organized crime launders. They found organized crime engaged in housing in many ways, including document fraud and flipping. Using homes to launder creates excess demand and distorts comps, ultimately raising prices.
A soaring population will protect Canadian real estate from a downside? Not exactly, warns BMO. The bank’s chief economist presented data showing no correlation between price and population. In fact, the largest price drop in the early 90s occurred with stronger population growth. They explain interest rates trump population when it comes to home prices.
Most Canadian real estate markets have soared since the Great Rate Cuts of 2020, but not like Ontario. Home prices in the province have climbed up to 111.1% higher since 2020 began. Even the slowest growing market has seen 60% growth, a frothy amount for anywhere in the world. Never mind small towns most people have never heard of.
In a very un-Canadian scenario, households abruptly slowed their new mortgage borrowing. Bank of Canada (BoC) data shows lenders advanced just $35.6 billion in new loans in February, down 13.7% from last year. Lenders haven’t advanced fewer dollars for new mortgages since February 2020. We’re already back to pre-rate cut numbers and rates aren’t even back to pre-March 2020 levels.
Canadian employment is scorching hot — except in two of the country’s biggest cities. The unemployment rate fell 0.1 points to 5.1% in April, the lowest it has ever been. During the same period, the rate climbed 0.2 points in Toronto (6.4%) and Vancouver (5.6%), respectively. Both cities have seen the rate rise while employment is above the national average.
Excluding mortgage interest costs from inflation sends a multi-decade high even higher. CPI annual growth reached 6.7% in March, about 3x higher than last year. It happens to be the highest rate in 31-years. Excluding mortgage interest costs, CPI rises 0.5 points to 7.2% — the highest read since at least the mid-80s.
Canadian mortgage rates are rising, but they’re still much lower than inflation. Interest on conventional 5-year fixed-rate mortgages reached 3.77% in March. It was the highest since June 2020, so fairly low compared by historic standards. However, headline inflation is 6.7%, meaning real mortgage rates are -2.9% — the lowest ever. It’s no surprise investors borrowed as much as possible. Lenders were receiving less in repayment than they lent out in real terms.
Toronto Real Estate
Greater Toronto real estate prices fell sharply last month. The composite dropped $22,000 in April, sending annual growth down sharply. It’s only been a few weeks since interest rates climbed, and the market is already adjusting.
Greater Toronto’s new home sales are cratering as interest rates climbed. There were just 4,115 new homes sold in March, down 21% from a year before. The market showed a mixed reaction, with single-family prices falling while condos climbed. Single-family homes have very tight inventory, but even that wasn’t enough to stop it.
A Greater Toronto real estate union strike has ground construction to a halt. Toronto’s LiUNA Local 183, representing various building trades, began a legal strike. Sky-high inflation is forcing workers to demand better cost-of-living adjustments. Fears the strike can be prolonged are misplaced since the workers are limited to 6 weeks in Ontario. After that point they can be mandated back to work and have mediated negotiations.
Vancouver Real Estate
Greater Vancouver real estate sales plummeted helping to create a healthier market. Sales fell 30% in April, a much bigger drop compared to inventory. This has helped to relieve pressure on inventory and restore a balanced market.
US Real Estate
The US Federal Reserve is fighting the highest inflation in 40 years with the biggest rate hike in 20 years. The Federal Funds rate was raised by 50 basis points last week, bringing the range to 0.75% to 1.00%. It was the sharpest increase since 2000 and the Fed hinted at least 2 more similar hikes are likely to follow.
US mortgage rates reached the highest level in well over a decade. The average 30-year fixed-rate mortgage reached 5.27% last week, up 2.31 points from a year before. From the lowest rate in history to the highest rate since 2009 — all in less than a year.
New Zealand Real Estate
New Zealand real estate prices are coming down with a pessimistic outlook. That was the take from property analytics giant CoreLogic, showing some price drops. Home prices in Dunedin (-2.9%) and Wellington (-2.0%) made the biggest declines since the Global Financial Crisis (GFC). So far it’s been little consolation with home prices still up 18.8% at the national level. However, higher rates and various cooling measures will chip away at recent gains.
New Zealand’s central bank warns a large correction in home prices is possible. RBNZ estimates price fell 4.3% since peaking in November 2021. It comes after a 48% increase over the prior two years, though, so no one’s sweating. However, rates are expected to continue to rise and throttle demand going forward. RBNZ wants a gradual correction of “unsustainable” home prices, but warns a large one is possible.
Australia Real Estate
The Reserve Bank of Australia (RBA) hiked interest rates by 0.25 basis points this week. The central bank is trying to dampen inflation, which reached 5.7% annual growth in March. It’s the largest jump since 2001, hit with the biggest interest rate hike since 2010. RBA is still forecasting higher inflation even with rate hikes.