We know you’re busy. So here’s a cheat sheet on the week’s most important real estate stories. You’re welcome.
Canadian Real Estate
Recessions sound bad, but they serve a useful purpose. They’re a part of the natural business cycle, killing misallocations of both human and financial capital. If people are too focused on one economic driver (like building junk startups), then a recession fixes that. So what happens when a country skips the negative consequences, and embraces inefficiencies? Look to Canada.
Canada went through the Great Recession, but most people felt a minimal impact. This isn’t because we designed a bullet proof economy. It has to do with the massive injection of liquidity (a.k.a. monetary expansion) that occurred. Since none of the inefficiencies had consequences, they only got worse.
Businesses couldn’t use the expanded credit fast enough, and it flooded existing asset classes. The result? Most businesses didn’t use the cheap credit to expand, but consumers did. The Bank of Canada noted this in 2011, when then governor said consumers were bidding up the prices of “non-tradable goods.” For those that don’t study economics for a living, the largest non-tradable good is housing.
The first of the Big Six banks has forecasted lower prices in Toronto and Vancouver this year. National Bank of Canada, crunched the numbers on affordability in major markets at the end of 2017. Affordability improved in Toronto, and continued to deteriorate in Vancouver. Despite the divergence, they expect both markets to see declines in 2018. New OSFI B-20 Guidelines, and higher interest rates will meet unsustainable price growth.
Canadian real estate prices are seeing growth slow, but not because of foreign buying taxes. Carrie Law, the CEO of Juwai, China’s largest overseas property portal, argues that OSFI B-20 is going to make a greater impact. Easy mortgage credit readily absorbs price increases. This provides a near frictionless environment for home prices to rise. She believes that stress testing and a more stringent lending criteria will put a stop to that.
It appears that former Bank of Canada governor, Mark Carney, would likely agree. Addressing the Vancouver Board of Trade in 2011, he said “Cheap credit has been used to bid up the price of Canadian houses, a non-tradable good, rather than invest in expanding the productive capacity and export competitiveness of our businesses.” Cheap money wasn’t being used to drive business growth, but used to increase debt on existing assets. Whoopsie!
Soaring Canadian real estate prices haven’t increased late mortgage payments. Canada only saw 0.24% of mortgage payments fall into arrears in November, the lowest number since October 2006. Breaking that number down into the two largest markets, Ontario saw the rate of arrears fall to an all-time low of 0.09%. In BC, it fell to 0.16%, the lowest since June 2008. You might have noticed the lows are similar to well-known bubble dates, and there’s a good reason why. Click through to find out more.
Toronto Real Estate
Greater Toronto has more than enough land to accommodate people until at least 2030. Neptis, a non-partisan urban research foundation, crunched the numbers. Their researchers found 125,560 hectares reserved for growth across the Greater Toronto and Hamilton area. That’s a 17.34% increase from 2013, which means the province is actually adding more available supply than we’re using. If it’s unclear what your take away from their numbers should be, the report was titled “No Shortage of Land for Homes in the Greater Toronto and Hamilton Area.” Click through to get the report highlights.
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