Yeah, yeah – you were busy this week. Don’t worry, we’ve got your back. Time for your weekly cheat sheet on the most important real estate stories.
Canadian Real Estate
The CMHC requested we present a little on forecasting real estate prices to government, and industry leaders. We’re not closed door people, so we’re giving our presentation away for free – in a less technical series of articles. Part one focused on breaking down the myth that incomes can catch up to home prices. Here’s part two, where we explain behavioural influence on prices.
Price discovery is a little more complicated than supply and demand. Most buyers don’t sit down with a sheet of paper, and make a list of comps to determine what they should pay. Instead, they operate using herd mentality, bidding multiples based on future expectations. We drop our first proprietary indicator to track this trend, median credit market exhaustion. We then use it to see where Toronto real estate prices would likely bottom.
Read part two of our talk? In part three, we discuss layering forecasting models. This helps build better precision and accuracy, to give better forecasts. In this part we layer two models for Toronto real estate, to help predict timelines. We also use these models to produce price targets and recovery timelines.
Financial regulator OSFI delivered a final draft on new rules for mortgages. There’s quite a few new regulation changes, but stress testing borrowers is the big one. New borrowers will be “stress tested” at the five-year benchmark from the BoC, or the contract rate –whichever is greater. Then they’ll add another 2% on top of that to determine how much you can borrow. There’s going to be a serious reduction in borrowing power.
Toronto Real Estate
New rules for uninsured mortgages are going to hit Canadian borrowers in just a few months. We crunch the numbers to see the broad impact on the Greater Toronto area. Under current regulations, 49% of Toronto households can afford to carry a conventional mortgage on a typical home. Under the new regulations, this drops to 38%. It’s hard to argue that reducing the potential market by 11 points is not going to have an impact on prices.
Toronto condos showed a fourth month of price growth deceleration. The benchmark price hit $460,200, which is flat from the month before. This represents a 24.22% increase from the same month last year. The interesting thing to note is the start of deceleration of price growth, which peaked in May 2017.
Vancouver Real Estate
Vancouver real estate is already hard to buy. New B-20 guidelines for conventional mortgages will make it even harder. Under current regulations, a maximum of 24.21% of Vancouver households carry a mortgage on a typical home. This drops to 16.68% under new regulations. That can’t be good.
Vancouver condo prices continue climbing to new heights. The benchmark condo price is now $635,800, a 1.4% increase from the month before. This represents a 21.7% increase from the same time last year. Yes, Vancouver has more inventory than the same time last year, although it has more sales this year as well.
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