Time for your cheat sheet on this week’s most important stories.
Canadian Real Estate
Canadian real estate needs to focus on the demand-side measures to fix housing. Urban housing completions hit over 200,000 annualized units in July. The higher than usual supply should be cooling prices, but isn’t due to insatiable demand. The Big Six bank suggests focusing on more demand-side measures to fix the market.
Currently, the strategy is actually the opposite, with Canada rolling out demand-stimulus measures. Those are typically only used after a crash, but Canada is oddly using them as prices hit record highs.
A third of Canadians don’t have any cash left after paying their mortgage. A quarterly survey conducted by Ipsos found 32% of homeowners consider themselves “house poor.” That is, they have no money left for anything else after paying their bills. Additionally, the same survey found a fifth of homeowners regret making their purchase. MNP used the data to estimate 5.5 million Canadians would be vulnerable to a financial shock. Examples would be higher rates (aka the economy improves), or a loss of job.
Canada’s cost of living is the number one issue this election, according to the polls. The issue was a top concern for 62% of voters, up from 55% in the 2019 election. Access to healthcare is a distant second, with 47% of voters listing it as a top concern. Expect inflation and housing to be hot topics in the media over the next few weeks.
Canadian real estate markets saw inventory taper much faster than sales last month. This led to a tighter market, leading some to believe another wave of home price growth might be coming. That might be true, but more likely it’s just the fact a market doesn’t move solely in a straight line. Prior drops of this size for the SNLR show a bounce had occurred as well. It was more of a breather than a reversal though.
Canadian mortgage debt has never seen a monthly surge like it just made. The outstanding balance hit $1.7 trillion in June, up 1.37% ($23.6 billion) from a month before. It was the largest monthly increase in the history of Canada. Over the past year, one in seven dollars added to the mortgage debt was in June. Quite the accomplishment considering how busy this year has been for borrowing.
Canada is experiencing some of the highest inflation in years, and a lot of it has to do with shelter costs. Annual CPI grew 3.7% in July, up from 3.1% in June. Rising shelter costs are a big part of the numbers, especially since they’re a major component. Shelter increased 4.4% over the same period.
Inflation is accelerating, especially shelter costs — though this might be an anomaly, at least the numbers showing the inflation might be. Recent adjustments to the inflation basket has experts claiming it will lead to chronic underreporting. Even more than before, apparently.
The Canadian new housing starts tapered, but remains significantly above their long-term average. Seasonally adjusted annual rate (SAAR) home starts hit 272,176 in July, down 3% from a year before. Urban starts represented 249,001 of those home starts, down 0.65% from last year. A drop sounds bad, but you really have to take it in the context of how much building recently occurred. This is 25% higher than the same period in 2020, and 30% higher than it was in 2019. There’s a lot of housing coming to market, even before one considers population growth has been slim over the past year.
Canadian existing-home sales continued to slide lower after hitting a record high earlier this year. There were 53,870 homes sold through the MLS in July, down 14.9% from a month before. Compared to last year, this is also a 15.2% decline. It was the first time in over a year that home sales have made a negative decline. Who thought getting closer to the end of a pandemic would mean fewer home sales?
Canadian permanent resident admissions are rising above pre-pandemic levels. There were 74,250 permanent residents admitted in Q2 2021, up 5.4% from the previous quarter. In terms of volume, this is pre-pandemic levels, but not quite a recovery. Previous quarters were significantly lower than the target rate. This means the current numbers are most likely a backlog clearing. If you factor in the artificial boost, these numbers aren’t quite as impressive as before.
A Big Six bank is seeing some signs of Canada’s hot market slowing. National Bank of Canada (NBC) said the C11, a price index of the country’s largest markets, increased 2.0% in July. It’s a substantial increase, but the second consecutive month they tapered. The bank’s economist also notes falling home sales, which he feels are behind the market’s taper. This can lead to a slowdown for home prices in the not-so-distant future. It’s already begun to materialize in local board data.
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