Time for your weekly update on the most important real estate stories.
Canadian Real Estate
As high as prices are right now, Canadian real estate prices have been less affordable twice in the past 30 years. National Bank of Canada economists crunched the numbers on how much of the median household income would be consumed by just mortgage payments on a typical home. While we are at record levels, the early 1990s comes in second – when Toronto and Vancouver experienced real estate bubbles. The early 1980s was the least affordable, when interest rates were above 20%. Surprisingly, things can get less affordable.
UBS, the Swiss based megabank, updated their global real estate bubble index. They noted there’s currently a global real estate bubble, being driven by low interest rates and a fear of missing out. This is being fueled by domestic and international speculators, looking to take advantage of these markets. Topping the bank’s list for largest real estate bubbles is Toronto, and in fourth is Vancouver. Yes, two Canadian cities were in the top five of global real estate bubbles.
Canada has diverging real estate markets. Half of markets saw price increases, and half saw them fall according to the Teranet-National Bank Home Price Index. Toronto, the most heavily weighted city, saw a massive 2.45% single month decline. This dragged the whole index to flat. BC now claims the top three spots for most expensive regions.
Canadians have never been more sensitive to a mortgage interest rate increase. National Bank of Canada’s economics team crunched the numbers to see how homeowners would be impacted by a 1% rate increase over the past 30 years. In the city of Vancouver, just the hike, would consume 9.23% of household incomes today. In Toronto, it would consume less, but still 8.29%. Surprisingly, those two cities are much more sensitive than the rest of the country. Montreal for example, would only consume 3.23% of income.
Our chief data nerd was invited to participate in a panel on home prices, co-hosted by the Toronto Association of Business and Economics (TABE) and Ryerson University’s Centre for Urban Research (CUR). In his opening remarks, he reminded people that real estate typically follows a cycle, first observed by economist Henry George. Before governments making rash policy decisions on managing the market, or buying raw land as a developer, they need to figure out where we are. Despite the near endless discussions on real estate prices becoming increasingly unaffordable for the middle class, this is likely just a temporary phase. It’s too long to summarize in a paragraph, but worth checking out if you’re interested in where Toronto and Vancouver are in the real estate cycle – and what happens next.
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