Time for your cheat sheet on this week’s most important stories.
Canadian Real Estate
Canadian home prices are rising so quickly, very few people could qualify for a typical home. The minimum qualifying income in the country reached $130,921 for a benchmark home in Q1 2021. Remember, that’s a typical home. It’s not located in a notoriously expensive city like Toronto or Vancouver either. This is for the composite price to buy in all of Canada’s large cities.
During a Bank of Canada (BoC) speech, the central bank suggested QE may be causing inequality. “… of course, these assets aren’t distributed evenly across society. As a result, QE can widen wealth equality,” said the BoC governor. The bank is slowing the use of the program, as they claim mission accomplished. However, the drop may have to do with housing activists launching a popular petition to ban future use.
Canadian consumer insolvencies, which include bankruptcies and consumer proposals, made an unexpected leap. There were 9,224 filings in March, up 22.8% from the month before. While still lower than last year’s number, the monthly increase is the largest seen in more than 10 years of data. This is the highest number of insolvencies since the start of the pandemic.
The number of Canadians expecting home prices to rise further is dropping very quickly. A regular Bloomberg/Nanos poll shows the results of homebuyer expectations. Over the past few months, there’s been a sharp pullback in the rate of people that believe home prices will rise in the near-term. It’s still a very high number of Canadians expecting price growth, but the rate is falling fast.
TRREB is asking Canada’s bank regulator to loosen the mortgage stress test rules. The organization, which is Canada’s largest real estate board, submitted formal feedback with OSFI. In the letter, they request consideration of stress test regionalization. They would also like to see it removed from renewals.
Canada’s economy is improving faster than thought, which means less stimulus is needed. National Bank of Canada has revised their forecast for interest rate hikes forward. The bank now expects Canada’s central bank to hike rates by Q4 2022. Originally they did not expect this to happen until 2023. Things are improving so fast, they now say it’s more likely to see a hike next summer, than in 2023.
Canadian incomes jumped during the pandemic, but it was all a temporary skew. The average after-tax household income fell to $90,657 per year in Q1 2021, down 2.54% from the previous quarter. Incomes are now down 8.20% lower than last year’s peak, a sharp drop.
Canadian homebuyers are willing to pay a big premium to be away from the city center. Home prices increased the fastest outside of the city. In Toronto, within one kilometer of the city center, prices actually fell 1.86% from a year before. Once you get 30 kilometers from city center, double-digit price growth becomes normal. The same trend was observed in Montreal and Vancouver. When the difference between the city and burbs flatten, it’s often a sign of exuberance.
Canada’s national housing agency sees home prices growing much faster than incomes. They forecast the average sale price will rise $669,500 by 2023, up 17.93% higher than last year. The increase is much more than typical income is expected to grow. Although they had forecast prices to fall as they surged higher. The curse of the CMHC forecast may hold true.
Toronto Real Estate
Toronto real estate saw the SNLR make a sharp increase, indicating a lot more supply. The SNLR fell to 66.10% in April, down 6.56% from a month before. The ratio peaked at 86.06% in January, and has now fallen 19.96 points since the peak. It’s rare to see this index fall so suddenly, without accompanying price drops.
Toronto real estate flippers in April didn’t make quite as much as the benchmark indicated. Those who bought within the past 3 years, and listed and sold in April held on average for two years. Over two years, they managed to capture about half of the gains the benchmark made over one year.
Canadian real estate prices are unlikely to see large home price growth from here. Desjardins’ affordability index dropped 11.1% from the previous quarter. Affordability is now 16.34% lower than the long-term average. Cities like Toronto and Vancouver are even more disconnected from historic affordability. According to the financial group, Q2 2020 only saw a big burst because of interest rate cuts. The cut briefly made affordability rise above historic norms in these regions. Home prices quickly consumed any discount on interest paid.
US Real Estate
US inflation is rising at the fastest rate in over two decades, and it’s not just the base effect — like central banks have suggested. Core CPI increased 0.9% in April, making the largest monthly increase since September 1981. The annual rate of growth reached 3.0%, the largest number since December 1995. There is some base effect, however, BMO economists say that’s only part of the story. Many of the sub-components were not impacted by base effect, and are also soaring. Further, most of the growth acceleration is observed in the recent quarters, not on a year over year basis.
Like this post? Like us on Facebook for the next one in your feed.