Time for your cheat sheet on this week’s most important stories.
Canadian Real Estate
Canadian Real Estate Prices 38% Overvalued, Largest Trend Deviation In 40 Years: BMO
Canadian real estate hasn’t seen anything quite like the bubble it’s facing right now. Since 2020, the price of a typical home across Canada has increased a whopping 57%. That means a third of a typical home’s value across Canada was made in a little over two years. This is a significant deviation from the trend, with homes now 38% overvalued according to BMO. Canada hasn’t seen such a wide deviation from the trend in the past 40 years. Even two large bubbles that led to big crashes weren’t this disconnected.
Canadian Real Estate Prices May See Growth Disappear In Just 3 Months: BMO
Canadian real estate prices are about to stall — or worse if activity continues to fall. The sales to new listings ratio (SNLR) fell to 66% in April, much less than the 76% averaged over the past year. The SNLR shows relative inventory compared to demand, and is a leading indicator for home prices. BMO warns we can see price growth fall to zero in just 3 months. That’s if the ratio doesn’t drop further, which is more than likely.
Canadian Real Estate Prices Dropped For The First Time In 2 Years
Canadian real estate prices are cooling down very fast. The price of a typical home across Canada fell to $882,400 in April, down 0.3% from a month before. Prices remain 23.8% higher than last year, but that’s a 5.4 point drop from a month before. It’s too early for rates to have throttled buyers, so this is most likely the breaking of the speculative mindset. The impact of higher rates will be thrown on top of that at a later date.
Canadian Mortgage Costs Are Surging and Renting Can Make More Sense: First National
Bond yields are surging higher and taking Canadian mortgage rates with them. Data from First National, one of Canada’s largest non-bank lenders, shows rates surged. A conventional 5-year fixed mortgage climbed from 2.94% at the start of 2022, to the current 4.84%. Rates are still low but this is a rapid change from prices just a year before.
“Does a payment change of over $1,000 a month on a $1M mortgage or $500 a month on a $500k mortgage get people thinking about renting instead? The answer is yes,” explained a senior credit analyst with the lender.
Canadian HELOC Debt Is Rising At The Fastest Rate Since 2013, All With Variable Rates
Canadians are cashing in on the real estate boom by tapping a home equity line of credit (HELOC). The balance of HELOCs reached $167.3 billion in March, up 1.4% ($2.3 billion) from last year. It was the second consecutive month to see growth over the past few years, but that’s not all. The relatively low number is because borrowers shifted their borrowing pattern. Home equity loans similar to HELOCs add up to $291 billion, up 7.3% ($19.8 billion) from last year.
Canadians Borrowed Another $14 Billion In Mortgage Debt & That’s A Slow Down
Canadian mortgage debt slowed in growth after growing to nearly the size of the economy. The outstanding balance reached $1.99 trillion in March, up 10.6% ($190.7 billion) from last year. Growth trimmed 0.2 points from February, showing things are beginning to slow down. Though mortgage borrowers are still borrowing substantial amounts of money.
Canadian Businesses Are Going Broke At An Unusually Fast Rate Due To Inflation
Canadian business insolvencies are rising towards more historic levels. There were 807 business insolvencies filed in Q1 2022, up 33.8% from last year. It was too early for higher rates to be a significant contributor. Experts attribute the decline to an increase of inflation and the withdrawal of government support. The impact from higher rates has yet to materialize, but is expected to compound issues.
Canada’s Inflation Is Higher Than Its Jobless Rate — It’s Rare & Bad News
Canada is facing a rare circumstance — inflation is higher than the unemployment rate. Annual growth of the CPI hit 6.8% in April, a 31-year high for the country. At the same time unemployment reached 5.2%, the lowest going back to 1976. It’s only happened twice before (March 1973 and May 1977). In other words, it preceded a monetary crisis and stagflation.
Canadian Inflation Hits The Highest Level Since MC Hammer Released 2 Legit 2 Quit
Canadian inflation hit the highest level in 31 years. Annual growth of CPI reached 6.8% in April, up just 0.1 points compared to a month before. It was the highest read since September 1991, meaning no one under 30 has ever seen something like this occur.
Canadian Real Estate Sales and Prices Plummet, Experts Warn It’s Just Getting Started
Canadian real estate sales are falling as last year’s speculative fever disappears. Seasonally adjusted home sales fell 12.6% in April and were 21% lower than last year’s record high. About 80% of markets showed a drop in sales, indicating this is more of a macro issue than a local market one.
Canadian New Home Starts Remain High But Have Cratered In Toronto
Canadian housing starts are cooling down from record highs but remain elevated. The SAAR reached 267,300 in April, down 3.1% lower than last year. It’s lower than last year, but still way above pre-2020 numbers. Expect a cool down, but new supply is still flowing in very quickly.
Global Real Estate
Central Banks Responsible For Most Global Real Estate Price Gains, Risks Rising: BIS
The Bank of International Settlements (BIS), the central bank for central banks, dropped research on home prices. Over the past 40 years, home prices fell for a year after an economic collapse. A similar monetary policy reaction inflated home prices across the world. They attribute most gains seen to low rates and holding them too low for too long. A suggestion to resolve the issue in an orderly fashion is to raise rates and reduce leverage. Failing that, embracing further gains would risk longer term stability.
US Real Estate
US Housing Starts and Future Building Intentions Fall, Expected To Drop Further
US home building is slowing down after headwinds suddenly reduced demand significantly. The seasonally adjusted annual rate (SAAR) of starts fell to 1.72 million in April, down 0.2% from the month before. Building permits, a leading indicator of starts, fell to 1.82 million units, down 3.2% over that period as well. Higher costs have hit everything from financing to materials, reducing demand everywhere.
Prices are falling, or its the less expensive houses that are selling? Unless one is selling the same house over and over, this statistic of average house price doesn’t tell the correct story. The data has to be examined in a different method.