Time for your weekly cheat sheet on this week’s top stories.
Canadian Real Estate
The Canadian credit cycle appears to be heading into its contraction phase. The balance of household debt reached $2.119 trillion at the end of May, up 4.4% from year before. Mortgages, representing over 2/3 of the debt, is experiencing growth 30% lower than last year. Consumer debt grew at a similar rate, but are not synching and heading lower with mortgages.
What does this mean? The contraction phase of the credit cycle may have begun. It’s a healthy part of the credit cycle, but it’s never an easy thing. Especially when the economy has relied so heavily on the expansion of credit.
Canadian lenders are known for their strict criteria, right? Not exactly, and investor and lawyer Joey Evans has a knack for finding examples where this isn’t the case. Take for example a home listed in a court case, recently selling for $3.45 million, $250,000 more than the asking price. Sounds like a steal, right? One problem though, it had over $10.5 million in debt, spread out over three mortgages. Who was willing to finance such a deal? Private lenders.
Most private lenders have a criteria for lending, but many don’t. In fact, since there’s few regulations, they’ll sometimes lend much more than the house was worth – as is the case here. This used to be a niche industry in Greater Toronto, but now that Canadians are real estate crazy, it’s been booming. Nearly one in ten mortgage dollars are now from private lenders in Toronto. Why do you care, you don’t use them? Your neighborhood’s comps now depend on these mortgages being carried.
Mortgage growth is decelerating across Canada, but can it go lower? There’s $1.509 trillion in residential mortgage credit outstanding, up 4.4% from last year. Annualizing the trend over the past 3 months, the busiest months of the market, we see growth dropped to 3.5%. Pending no explosion in income, and a double cut to interest rates, this trend is primed to head lower.
Toronto Real Estate
Greater Toronto real estate sales increased, but prices are still down from last year. The price of a composite home is now $772,100, down 4.76% compare to last year. Sales did experience a mild bounce, mostly in the 905, reaching 8,082 sales in June. That represents an increase of 2.39% compared to last year… implying that last year’s reported sales actually had a downward revision.
Vancouver Real Estate
Vancouver real estate, the country’s priciest, suddenly found a fix to their low supply. The price of a typical home reached $1,093,600, up 9.5% from last year. While that’s huge growth, it’s not even close to the monster numbers that were being produced just last year. Strangely, inventory has seen a surge all of a sudden, jumping over 40% and reaching a three year high. People say demand-side measures don’t work, but it sure as hell looks like they are.