Time for your cheat sheet on this week’s most important real estate stories.
Canadian Real Estate
CIBC is discontinuing its Foreign Income Program, a program designed to help those with foreign income obtain an uninsured mortgage. The program is being replaced with new, more strict income verification guidelines. The new guidelines require the Canada Revenue Agency (CRA) to be notified of foreign assets. It doesn’t sound like a huge deal, but increasingly people have been buying homes in the wealthiest neighbourhoods, and declaring poverty levels of income. Since poverty levels of income can’t typically afford a mansion, it’s assumed many have been using foreign earned income, without notifying Canadian tax authorities.
Canadian real estate sales fell off of a cliff last month. The Canadian Real Estate Association (CREA) reported 39,609 sales in January, when seasonally adjusted. This represents a decline of of 6,367 sales, about 13.84%, from December. This was the largest decline for national sales numbers since the Great Recession.
CREA’s president blamed it on “uncertainty and confusion” around the new OSFI B-20 Guidelines. We disagree. Bank of Canada statistics show that 12.37% of last year’s mortgages would not have passed the new uninsured stress test. Really, it sounds like that number is perfectly in line with the BoC’s math skills. Not sure what the uncertainty and confusion would be.
A lot of great stuff came from Canada Mortgage And Housing Corporation (CMHC) last week, but the speculator index was the most interesting. Using a system similar to the US Federal Reserve Bank of Dallas, the indicator maps prices that are moving “too quickly.” Periods of rapid price gains are typically periods of “excessive exuberance.” These periods are usually accompanied by price gains beyond fundamentals, and buyers ignoring any risk potential.
The indicators show Toronto and Vancouver real estate markets are showing “excessive exuberance.” If you’re a regular reader, you probably already knew that. However, it’s nice to know the government’s finest are on the same page.
Toronto Real Estate
Over half of Toronto real estate price gains can’t be explained. From 2010 to 2016, prices increased 40.19% when inflation adjusted. Over 59% of the increases were “unexplained.” This means they are not a result of fundamental demands, and are likely buyers demonstrating over exuberance. Note that these numbers ended in 2016, before Toronto saw prices get really out of control.
Toronto real estate started last year with a huge bang, and… is definitely not repeating that. The benchmark price for a detached home reached $907,100, a 0.25% increase compared to the year before. While that’s better than negative, it’s not far off. Detached prices are now performing under inflation.
Vancouver Real Estate
The CMHC broke down Vancouver real estate prices, to see what factors were behind the huge surge. From 2010 to 2016, prices increased an inflation-adjusted 47.88%. The majority of the prices increase were justified, but 25.19% of that increase was “unexplained.” Unexplained factors are more often known as “demand side” factors, such as overpaying or laying down a premium in a low inventory market.
Like this post? Like us on Facebook for the next one in your feed.