Time for your weekly cheat sheet on the most important stories in real estate.
The Bank for International Settlements (BIS), the central banks for central banks, is warning its members that Canada may hit a financial crisis soon. Canada’s Credit-To-GDP Gap, and Debt Service Ratios are about to hit critical warning levels. Both indicators have to do with excessive household debt.
The Credit-To-GDP Gap measures the consumption of credit compared to the output of the economy. Breaching a ratio of 10 results in a banking crisis in two-thirds of economies, within 3 years. Canada is currently sitting pretty at massive ratio of 14.
The Debt Service Ratio is a measure economists use to determine how much debt a country will be paying in relation to export earnings. The higher the Debt Service Ratio, the worse it is for an economy’s future earnings. You know, because people are still paying for stuff they already bought. In order to cool consumer borrowing, the Bank of Canada will have to raise interest rates.
This sounds good, but it’s going to have a domino effect according to BIS. They modeled a rise of 250 basis points, which would bring interest rates to “normal” according to the Government of Canada. This rise in rates will send the DSR well above the critical level. Complicating the country’s management of consumer debt even further.
One of the key measures of inflation, the Consumer Price Index (CPI), fell to a low for 2017. The Bank of Canada (BoC) targets CPI at 2%, and has maintained an average of 1.5% over the past five years. May fell to 1.3%, the lowest it’s been for the year. The BoC has been discussing raising rates, but this would likely lower inflation even further. Advanced economies generally don’t see inflation except in times of significant recession.
Finally, some good news…maybe. Despite all of the talk about the shift to e-commerce in Canada, Canadians aren’t adopting it at nearly the rate you might have assumed. Canadians spent C$1.2 billion in online purchases in April 2017, a 41.62% increase from last year. As big as that sounds, it still only represented 2.49% of total retail sales. There’s two ways to look at this in our opinion – either Canadians aren’t taking to e-commerce very quickly, or they’re going to very soon. The former is good for Canadians, since 1 in 5 are employed in the retail sector. Although if it’s the latter, that means those jobs might disappear sometime soon.
Despite Canada having a fifth of the world’s fresh water, many Canadian households don’t have access to clear water at home. Officially, there are “only” 82,400 people – but using data science we determined that isn’t even close to the real number. The official number only uses 108 of the active clean water advisories. Turns out that’s only 10.7% of total 1,001 advisories being put out by governments in Canada. The lack of standardization of water advisories is likely maintained to keep numbers hard to track, low, and good for the reputation of Canada. Don’t you love when an international reputation comes before helping fellow Canadians?
The number of late mortgage payments in Toronto has fallen to the lowest level in 27 years. The Canadian Bankers Association (CBA) puts the latest number at 0.12%, which sounds great if you have no idea how market liquidity works. This is 66% lower than the 27 year average of 0.36%, which indicates the market may be too liquid. This means people can list their home, and have it bought before they actually fall significantly in arrears. This is almost certainly an indicator that buyers are buying anything on the market, without much time or consideration. Poorly planned large buys almost always result in buyer remorse – which may be a sign of a massive bubble in real estate.
When prices started to decline in the last half of last year, the BC government put together a subprime borrowing program. This program was officially meant to help first-time buyers enter the market with a little help from the government. Unfortunately in Vancouver, the additional buying pressure lead to higher prices – far in excess of the 5% being loaned. The flood of subprime buyer’s likely pushed prices out of a potential correction, actually making housing less affordable. Either this was poorly planned, or an intentional way to keep prices afloat.
The number of foreign buyers in BC are showing significant growth. According to the BC Ministry of Finance, foreign transactions in the province were up 68%. While this was still a small number of the total sales, increased efforts to market to foreign countries without capital controls may be paying off for agents.
Advertisements for foreclosure property in Vancouver have been popping up everywhere, which doesn’t really make sense considering the market. Turns out these ads may be made to intentionally dupe buyers into thinking they’re getting a deal. Not one of the listings we checked were for a foreclosure property, despite being a part of an advertised list of foreclosure properties. This was confirmed with some of the original listing agents, who didn’t even know their properties were being pulled directly from the MLS and being labeled as a foreclosure sale. Intentional deceit, or a massive mistake?
Are the people in Vancouver generating enough economic output to justify the value of the land, or has it turned into an overpriced resort town? We crunch the numbers to determine GDP estimates by square kilometre of Vancouver. Turns out the economic output is rising, very quickly. However, it’s trading at a massive premium to cities like Toronto.
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