Time for your weekly cheat sheet on this week’s top stories.
Canadian Real Estate
Another big global credit agency sees Canadian real estate prices falling next year. Fitch Ratings, see prices dropping up to 5% at the national level in 2021. The decline would effectively wipe out most of this year’s gains, but would obviously vary across the country’s markets. The firm also forecasts delinquencies can double the current level, which is bad – but not as bad as the BoC’s forecast of tripling.
Canada’s real estate markets are frenzied, but yet another fundamental indicator was showing it shouldn’t be. Canada’s population reached 38,008,005 in Q3, up just 2,767 people in the quarter. Ontario actually saw a decline of 895 people, while BC saw the population drop by 1,861 people. Surprised a decline in fundamentals would have no impact on buyer psychology? Don’t be. Prices didn’t rise on fundamentals, so a deterioration of fundamentals wouldn’t necessarily trigger a decline. Especially if buyers aren’t aware of that fact.
The Canadian household debt to income ratio has retraced more than half of the historic drop made in Q2. The household debt to income ratio jumped to 170.7% in Q3, up 4.85% from the previous quarter. New data also shows the massive decline in Q2 was revised up 4 points from previously mentioned. Revisions are normal, but this does remind us pandemic data is highly volatile. Improvements or deterioration may be worse or better than previously expected. The full extent of its impact won’t be known until households are well into the clear.
CMHC, Canada’s national housing agency and state-owned mortgage insurer, is seeing delinquencies rise. The agency notes banks, credit unions, mortgage finance companies (MFC), and mortgage investment entities (MIEs) have all seen the arrears rate rise in Q2 2020. The broad increase came despite mortgage lenders rolling out more than generous payment deferral programs. Rising rates across types of lenders indicates this isn’t just a problem related to a single segment of borrower.
Two of Canada’s largest banks are reducing office space, as more companies adopt work from home policies. TD decided to vacate 1.2 million square feet of office space, about 11% of the bank’s non-retail space. CIBC is consolidating 23 Greater Toronto operations into their CIBC Square tower, currently under construction. They also note they’ve been planning to reduce square footage before the pandemic. Both banks appear to be pleasantly surprised with how well work from home is going during the pandemic. The reduction in office space is likely to improve profits, but also drastically rewrite how Canada’s largest companies influence real estate demand.
Canadian real estate prices are rising at the fastest pace since 2017, and it’s being led by the suburbs. CREA’s aggregate benchmark price reached $646,700 in November, up 11.33% from last year. The price of a typical detached home reached $709,700, up $8,300 from the previous month. The price of a condo apartment though, reached $471,100 – down $6,800 in the same month. Price growth across the country is being exclusively driven by detached homes, largely located in the suburbs. Meanwhile condo apartments, mostly located in urban areas, are seeing their premium disappear.
Canada’s non-bank lenders saw arrears rise, despite offering payment deferrals to borrowers. The lenders reported 4,392 mortgages more than 90 days in arrears in Q2, up 20.13% from the previous quarter. The balance of those mortgages reached $1.08 billion, up 31.81% over the same period. With the value rising faster than the number of mortgages in arrears, this implies more expensive homes are falling into arrears.
Toronto Real Estate
The City of Toronto finally voted in favor of a vacancy tax, but the industry wants a few exceptions. Among the requests for exemptions are US citizens, commuters, or owners unable to rent due to market conditions. Considering these are the scenarios a vacancy tax is meant to address, it would be surprising to see Toronto adopt them. Considering Toronto is adopting a vacancy tax 5 years after cities around the world did, seeing them not accomplish the intended goal seems on point.
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