Time for your weekly cheat on this week’s top stories.
Canadian Real Estate
National bank of Canada’s chief economist warned of a new risk — stagflation. This is a period of high inflation and low economic growth, and the first signs have appeared. The dangerous combination was last seen in the early 1970s, and led to costs rising in a recession. If left unchecked, it becomes a difficult situation to control. People will starve with low rates, or not be able to get a supersized mortgage with higher ones. Decisions, decisions.
Canadian building permits are dropping very fast, and it’s entirely due to housing. The value of residential building permits has dropped 22% since hitting a record in March. It’s not much of a concern for supply, since it’s still higher than pre-pandemic levels. The decline in activity will contribute to drag economic growth though.
Canadians are fleeing Ontario, and Nova Scotia is one of the biggest winners. The region showed a net gain of 8,000 people in Q2 2021, over 4x any previous quarter. Unlike other regions that gained people in the last quarter, Atlantic Canada lost very few. This is much more important than the gross gain, since it accounts for the population lost. This is healthy demographic growth for Nova Scotia.
Canadian business owners see a lot more inflation in your future. Small and mid-sized businesses expect prices to rise 3.6% over the next 12 months. This is the second-highest reading for the CFIB index, which goes back over a decade. Since businesses have to pass on costs, expect to see prices rise further.
Canadian housing affordability has worsened the most in 30 years, said RBC. They found the share of pre-tax household income to carry ownership costs reached 45.3% in Q2 2021. This is a jump of 2.8 points from the previous quarter, and 4.1 points from a year before. Not only did the market absorb the rate cut, but it also climbed at the fastest rate in the past 3 decades. The bank said this should reach a point where affordability slows down the market by next year.
The head of the Bank of Canada is finding inflation is more complicated than thought. Governor Macklem answering a media question, attributed high inflation to a base effect… right before also attributing it to a supply bottleneck. The two seemingly contrary issues would imply it’s an illusion, as well as due to fundamental factors. At the same time, he also said inflation is temporary, but it will be persistent. He thought it was more complicated than it seemed? It sounds like he might still be confused, or at odds with what he thinks needs to be said, compared to reality.
BMO, one of Canada’s biggest banks, see’s home prices getting a boost from election promises. Most promises made during the election were demand-side, putting pressure on supply. This is expected to push prices higher, like we’re seeing in Toronto and Vancouver. Further price increases would erode affordability further, when it’s already strained. The bank warned, this will put the market at a correction risk. The problem will just get bigger.
Canadian real estate will rise in the near-term, but credit markets will contain it this time. That’s the take from BMO, which uses Toronto to highlight the market’s short-term tightening. They say don’t expect another boom though, like at the beginning of the pandemic. Bond yields are soaring due to rising inflation, and will throttle credit demand. It’s the exact opposite environment of the one seen at the start of the pandemic.
Low interest rates can make housing more affordable, but also drive more demand. If left low for too long, the rising demand can outweigh the benefits of cheaper debt. That’s what just happened in Canada. After rates were cut at the start of the pandemic, the share of income needed to service a mortgage fell to 30%. After surging home prices and record sales, that share has increased over 6 points in one year. Home prices increased to consume the share of credit capacity households gained.
Ontario residents have left in unusually large numbers over the past year. Just over 37,200 people left Ontario for other provinces in Q2 2021, 61% higher than the previous quarter. Over the past year, 89,200 people in total have relocated, a boost of 13% from the previous year. Where are they heading? BC, Alberta, and Quebec. This is a little different from the net, since these regions also saw outflows to other provinces.
Toronto Real Estate
Greater Toronto’s existing home prices are back to ripping higher post-election. The composite benchmark reached $1,082,400 in September, up 2.19% ($23,200) from the previous month. A 2 point monthly jump is a very large one, and happened to be large enough to accelerate annual growth. A couple of months of acceleration isn’t a trend, but with such a large jump it’s hard to argue it’s just a blip.
Vancouver Real Estate
Greater Vancouver real estate also made an abrupt climb last month, after a period of slowing. The composite benchmark price of a home hit $1,186,100 in September, up 0.80% ($9,400) from the previous month. Compared to last year, prices are now 13.80% ($143,800) higher. September somehow managed to buck the trend, with monthly gains 8x the previous month.
Like this post? Like us on Facebook for the next one in your feed.