Canadian real estate is seeing sales slow down across the country. Canadian Real Estate Association (CREA) numbers show new mortgage rules are likely biting into sales activity. Most of the country’s major markets are seeing declines, which will have significant consequences to the general economy.
Who Cares About National Sales Numbers?
We know, who gives a s**t about national sales numbers? Well, you should, even if you’re not looking for a home. In 2015, CREA estimated that each sale generated an additional $51,409 in spin-off economic activity. As sales increase, so does the economic activity in a region. Prosperous economies, mean prosperous local populations. Yay!
If that’s true, so is the opposite. Every sale that’s removed in contrast to year before, is income that’s not going to come in through spin-off activity. If a sale represented $51,409 in spin-off, a 10% reduction in sales would be $2.64 billion of activity businesses will have to make elsewhere. That creates a bigger problem when these sales are in the same economic region.
Now, we’re not advocating you go out and buy a house because it’s your patriotic duty. Your ability to worship service your debt should trump all. Instead, we’re pointing out that a lack of economic diversification has more consequences than people think about. Got it? Let’s do this.
Canadian Real Estate Sales Are Down Over 22%
Canadian real estate sales have made a significant decline compared to last year. CREA reported 41,983 sales in March, a 22.7% decrease compared to last year. Only 6 of the 25 largest markets saw an increase in sales compared to last year. That’s not great news.
Source: CREA. Better Dwelling.
Greater Toronto Areas Lead The Country For Losses
The largest decline in sales were observed in markets around Greater Toronto. Toronto saw 7,228 sales in March, a 40.2% decline compared to last year. Hamilton saw 1,009 sales, a 39.2% decline in sales. Niagara reported 541 sales, a 34.2% decline from last year. Macro folks are going to want to note that all three markets are in the same economic zone.
Source: CREA. Better Dwelling.
Ottawa Leads The Country For Gain In Sales
Not all markets are seeing declines. Ottawa, Sherbrooke, and Montreal all saw substantial increases in sales. Ottawa reported 1,674 sales, a 10.2% increase from last year. Sherbrooke reported 232 sales, a 7.9% increase compared to last year. Montreal reported 5,656 sales, a 6.4% increase compared to last year. Worth noting that despite the increase in sales, all three of these markets are currently underperforming the average national price increase.
A decline in home sales activity is expected, due to the changes in mortgage rules. As we’ve previously pointed out, 12% of mortgages issued last year would not have been approved under new OSFI B-20 Guidelines. You know, but maybe your real estate agent is right and that really good feeling they have about August trumps the math.
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I wonder if holding the rate will add a little pop to May? I suspect there has been enough traction to influence behaviour and change the psychology leading to further declines but time will tell. More rate increases are coming it is a matter of when. Tick tock.
If some of the key numbers are down YOY in May I think it will create a lot of panic. The industry has been playing the “stop comparing to record early 2017….not a normal market” card heavily.
That being said, more and more news keeps coming out about people who committed financial suicide, eventual the masses will take note.
https://globalnews.ca/news/3951652/interest-rates-canaa-housing-underwater/
Starts off with an example of someone who lost playing the alt/community lender game. Then highlights which regions of the GTA have the largest percentage of people who are paying more than 50% of the income towards housing. Even 20% of dt condo owners are in the boat. Scary stuff
I was checking out some Buy vs Rent bank calculators. There are boxes to enter your “expected yearly rent increase” and “estimated capital appreciation” .
These boxes only accept a project increase, they do not accept negative numbers.
That is not an option, illegal, does not compute!
“The census tracts with the highest number of households with very high shelter cost-to-income ratios are in the Vancouver area.
Of Canada’s 50 top census tracts for high shelter cost-to-income ratios, 31 are in Greater Vancouver.”
This seems a little disingenuous to me. The issue in Vancouver is that the owners don’t report global income nor global wealth. Many of these properties were purchased with proverbial suitcases full of cash. There are zero-income ‘students’ dropping $20,000,000 cash for Shaughnessy mansions.
The disconnect of price-to-income is very real and it’s a big deal for the community. The problem is the inability of non-wealthy locals to live here – and staff local businesses. Low reported incomes of those actually doing the buying is probably nothing to worry about.
Right because non-wealthy people in Vancouver have all chosen not to come up with riskier ways to get into the market. 31 of the 50 are in Van yes……….. but where do you think the other 19 are located? Also, that is only the 50 regions with the highest cost vs income. Its not to say that there are not other neighborhoods that are disconnected. Look at the maps for GTA and GVA, how many of the neighborhoods do not have at least 10% of the residents paying OVER 50% of the income…….. Keep in mind even paying over 40% of your income is considered very risky. Canadians have been over extending themselves despite the fact we have had record low rates. Its not as obvious in Van yet because prices have still been rising (allows the over leveraged to get out easy) but in GTA we are starting to see some of the crap surface to the top.
Stories like the Mattamy/Oakville buyers (who chose to hold existing property after committing to a pre con, assuming prices would rise) , the person in this story who could only qualify with an alt lender (assuming her home would rise in value and she would be able to refi with a normal bank), that bus driver from Oshawa who was devastated that she overpaid for a pre con home for her son now that phase 2 properties were being sold for less (all of her other properties had only gone up in value)……….. Are these people hiding their income?
The key answer as to why they are so high, have stayed so high over the last ten years is interest rates. I don’t think any of the bears that started their warnings ten years ago anticipated rates would be held this low for that long.
Now, back to that post, keep in mind those stats, are your income (fully stated or understated) vs your housing debt (costs). If these rich foreigners have so much cash why even take the debt? Because interest rates are so low that they could use their capital to get way higher returns elsewhere. For example buying multiple properties and just sitting back and watch them appreciate at a way higher rate then their debt servicing. Exact same motivation as those that took out HELOCS to buy investment properties. As rates rise and cost of debts goes up we will see how many of these people are able to cover themselves.
Now are their people whose income is not reflective of their property.? 100%. This could be individuals with oversees wealth who do not declare income here, or those working for money launderers, this could be locals who have their down deposit and even monthly payments subsidized by their parents, it could also be people who have multiple income earners at their residence contributing to payments. (family or undeclared renter). Such individuals could be fine if rates go up and/or correction/crash were to occur, as long as nothing stops the flow of their oversees funds (recession in home country, capital controls, or new regulation to go after tax cheats), the flow of money from their parents does not decreases (parents have actual income generating assets or high wages rather than perceived home equity) and no disruption to the incomes of the additional contributors. Such individuals would skew the results as you and Bob pointed out.
However, to say that because these results might be skewed we should ignore any information like this, is to feed into the narrative crafted by the RE industry………
“local incomes no longer matter because all these wealthy people are dying to live in Toronto and Vancouver (if they don’t actually want to live here, then why wouldn’t the dump if prices start to go down). If you don’t buy today then you will be paying rent to the Chinese for the rest of your life.” (could be subsidizing you by a $1000 a month)
And that narrative has worked wonders………… As i mentioned above, just look at some of the stories that are coming out around the GTA of people who took way too much risk because they thought prices couldn’t go down.
And no not all immigrants are poor that come here. Lot’s of Canadians (2nd gen 6th gen, whatever) drive Uber and work at Tim Horton’s as well………………. just unfortunately some of them have managed to buy into this bubble as well………… that bus driver from Pickering who owned multiple properties for example.
Mmr, here is how I explain Vancouver real estate prices:
https://globalnews.ca/news/4149818/vancouver-cautionary-tale-money-laundering-drugs/?utm_source=Article&utm_medium=MostPopular&utm_campaign=2014
And that’s been going on since the early 1990s. Don’t mistake a long term process for permanence. If you think criminal money laundering and undeclared foreign income are going to support the market forever, then you have no business questioning anyone else’s analysis. Just ask Miami how that worked out for them in the 1980s. A market supported by criminal financiers is a market setting itself up for a massive collapse. Whether the process takes a decade or 30 years is immaterial. The longer it inflates, the harder it will fall.
Grizzly, imagine how many articles we will get if condo market slows down similar to detached segment.
Mortgages data on 2017 condos is pretty bad, and it was before B-20 and 3 interest rate increases were implemented. This year’s data will be way way worse because nobody planned for B-20 when they bought their preconstructions 2 years ago. Huge number of people will be pushed to alt. lenders this year and pay 6%+ interest on their mortgage.
And this is kind of OK while condo prices go up because people can refinance but if condo prices will decline we will definitely see avalanche of sad stories like we are hearing today.
All eyes are on condo markets.
Just came across an interesting article.
The article itself it’s questionable but it contains some interesting data such as: 36,000 preconstruction GTA condos were purchased in 2017.
36,000 families decided to lock down condo at 2017 price and when it’s finally delivered all those people will face additional 0.75% -1.5% interest rate and B-20 restrictions which most likely they never planned for. And that’s not even taking into account potential risks such as NAFTA, economy slowdown, additional housing market cooling measures etc.
Link to the article btw: https://www.theglobeandmail.com/real-estate/article-toronto-condo-projects-teeter-on-collapse-amid-rising-costs/
Bluetheimpala,
Not sure what you mean here? a Pop to the bubble or a pop up in sales/prices? as much as I hope you are right about about your suspicions, I am suspecting rate increases will not come into any scenario anytime soon because they know how risky it is for them to do so, considering a large amount of people that have to renew thier mortage terms.
The BoC overnight rate policy is not designed to protect people from their own stupidity.
So while the mortgage market may be a consideration by Poloz et al., their mandate is maintaining inflation. The oil uptick alone is going to pump mega dollars into the economy.
Dont bank on the Bank.
I think we get March’s inflation readings tomorrow. Has been trending up and if it has jumped from February the bank may not be able to give households as much time to adjust.
Expert. While I’m sure consideration was made to the knock on effect a rate hike would have on housing and personal credit defaults, the rate hold decision probably encompassed some pretty compelling macro data.
Bear in mind that we are in NAFTA negotiations so with macro data on the surface necessitating a rate hike (employment, inflation, etc), we may come off as currency manipulators to the US at a negotiation table. A table where we don’t have many cards unfortunately and stakes are high.
Pop in sales. Gives a cohort under pressure the ability to potentially buy undertake narrative of ‘rates stabailized, good time to buy now,’ At this point if sales and inventory keep moving inversely nothing will help pricing on volume. Be careful what you wish for, tempering policy to appease a bunch of pigs and possums will only result in more problems for the broader economy. We need the BoC to do what is right and be less political.
Considering we’re looking at a 30% drop, you might as well triple that number to $8 billion. Me thinks Ontario’s minimum wage hike isn’t going to be enough to make up that ground.
The media here has been pumping the “Ottawa real estate is HOT!” narrative 24/7. The marketing – both implicit and overt – is directed squarely at Millennials, specifically naming “Millennials” several times during the broadcast. Saw an interview with a realtor on the noon CTV news on Monday. She had very detailed advice for precisely how parents should create a formal gift letter that guarantees their down payment gift is not a loan. She’s also arranging bus tours specifically for first-time Millennial homebuyers to visit various open houses.
Brilliant strategy. Take the generation that, because of social media and other factors, is more sensitive to peer pressure and the herd instinct than their forebears, get them all on the same bus, then show them houses at the same time. I can imagine how it will play out. She’ll take them to a few over-priced dumps first. Then, as the tour goes on, the houses get progressively nicer. They’ll be told, “This place will go fast. If you like it, you might want to make an offer right now. Don’t be limited to the asking price. If you really want it, you might have to offer a lot more.” The competitiveness and FOMO will be raised to a fevered pitch. Couples will scurry into their own little private huddles. They’ll phone their parents.
As soon as the first sale is made, she will l have guaranteed sales for every house she visits until the end of the day. Every sale after that first one will be just another domino. Who wants to be the loser couple getting off that bus who didn’t buy a house that day? All the other couples chatting excitedly about their new homes, how they’re going to furnish them, where they’re going to put the second TV, and you’re going to get off the bus and go home empty-handed? It’s bloody genius.
Well if they can afford that place on their salary why can’t I? If everyone is doing it, then the government cant just let it crash………….
For prospective buyers in the booming world class city that is now Ottawa, with the spreading contagion it actually makes sense to jump on the bandwagon now due to the spreading contagion Higher average incomes, 93k vs 78k in Toronto, many with government pensions and health benefits … and house/condo prices not much more than half.
Happy for my niece and nephew though, they bought in Ottawa last year. Appears we have a bona fide real estate genius in the family.
Not good news for Toronto since the investment dollars are going elsewhere. Now we’re facing a recessionary cycle with record debt and plummeting sales.
Fomo limo
It certainly sounds fomoliar
I think I’m getting closer to understanding Toronto & Vancouver house prices.
And the answer is – they don’t really differ much.
If someone is interested here are my thoughts. In order to understand those markets we should zoom out a little and compare GTA vs GVA. I live in GTA so I know how interconnected it is so it’s really can be considered just as 1 city. I guess similar is true for GVA as well.
And if we compare GTA vs GVA real estate prices there is not much of a difference really.
Average property price: $802k (GTA) vs $947 (GVA)
Median property price: $695k vs $750k
Average price is significantly higher in Vancouver because it’s much more foreign money pouring into the area which bumped up prices of luxury properties but Median prices are much more closer to fundamentals and the difference is not so big here, really.
So it looks like there is no magic about Vancouver like massive undisclosed incomes or corporate purchases of Real Estate, it’s just Vancouver is much more attractive place in GVA than Toronto in GTA.
https://globalnews.ca/news/4149818/vancouver-cautionary-tale-money-laundering-drugs/?utm_source=Article&utm_medium=MostPopular&utm_campaign=2014
Lot’s of money laundering in both cities, but it is endemic in Vancouver, and has been since the early 1990s.
And multiplying by temperature and subtracting rain, it’s close to dead even!
It’s more attractive, sure, but there’s absolutely no jobs that can sustain these prices. I love to share this little graphic… but all throughout my professional career (here in Vancouver), the mantra has always been “If you want to make more money, go east”.
https://i.redditmedia.com/yKoG1Y2NeFA1V1KNF0XIdRwURfiV0wVtp5mOWyLy-ic.jpg?w=801&s=07d0599e76accdcbacd908a09b242ad4
It’s not just for the tech sector either, wages suck in EVERY sector in Vancouver. So okay, Vancouver is good enough that companies can pay whatever the fuck they want and people will still live here. So where’s all this money coming from?
Well, why not use the same line of thought into debt. People are more willing to go into massive, and dangerous amounts of debt just to live here, because it sure hell isn’t
a) foreign investors (anymore, well officially anyways)
b) wages and high paid professionals pushing housing prices up.
my2cents
“Very high” quality tech talent available for $60K USD per year. If that isn’t a sad pronouncement of the Canadian jobs market, I don’t know what it. The answer to that is always , “Yabutt we have healthcare and low crime rates!” As though that can make up for shit salaries, high taxes and insane housing costs.
The Ontario government was boasting – yes, boasting – that if Amazon HQ were put in Toronto, Amazon would save $1.5 billion per year in salary and benefits costs. A big chunk of that was healthcare costs. But the biggest chunk was salaries – partly due to the weak loonie, and partly because tech salaries in Toronto are absolute shit in comparison to US cities. We’re back to the 1990s again, when politicians bragged about our devalued currency and cheap wages as if they were selling points.
Truly disturbing. And I wouldn’t put too much stock in the future of healthcare or public safety the way things are heading. Seems like a daily shooting or stabbing reported daily in the Toronto papers.
The wait time in QC is now more than 1,000 days to be assigned a GP when you register. There’s always the emergency room, but it’s not all that much quicker.