Time for your cheat sheet on this week’s most important stories.
Canadian Real Estate
Bank Of Canada Announces QT, Reverse Of The Program That Boosted Real Estate Prices
Canada’s central bank is letting the public know they plan to tighten credit in the country further. The Bank of Canada (BoC) explained that quantitative tightening (QT) would begin soon. QT unwinds quantitative ease (QE), a program that helped create home buyer demand, credit conditions will correct. As credit conditions correct, expect home buying demand to correct.
Canadian Real Estate Price Psychology Can Change Fast If Price Growth Slows: BMO
Canadian real estate price psychology can change fast, warned the country’s oldest bank. BMO estimates home price growth has run about 50% higher than usual. This has created a lot of incentive to buy, as well as hang onto excess property. However, as rates rise and easy credit conditions reverse, the incentive disappears. If incentive disappears, this can cause a much larger reaction than expected.
Canadian New Home Building Intentions Are Well Into Correction Territory
Canadian builders are pulling back plans for future projects after hitting a record. New building permits fell to a seasonally adjusted $10.1 billion in January, down 8.8% from the previous month. Most were residential permits representing $6.72 billion of the total, down 11.63% over the same period. Activity is still running 50% above pre-2020 data, but this is a strong taper in recent months.
Canadian Housing Affordability Hits The Worst Level Since The Last Bubble: NBF
Canadian housing affordability has reached the worst level in more than two decades. A typical household needs to spend 48.6% of its income in Q4 2021 to service a mortgage. This is 2.1 points higher than the previous quarter and 7.8% higher than a year before. The share of income required to service a mortgage hasn’t been this high in years. Typically normalizing rates worsens affordability immediately, but improves it shortly after.
The Bank Of Canada Doubled Interest Rates, Here’s What It Means For Real Estate
The Bank of Canada raised rates this week, indicating rate normalization has begun. The reversal of easy credit conditions might not be apparent, but will be over the next few months. The easy credit that helped boost inflation and home prices should be gone by the end of the year. Usually higher interest rates help to cool inflation and home price growth. Though at this level of growth, how much higher rates need to be is an interesting question.
Canada Isn’t Keen On Foreign Buyer And Vacancy Taxes After US Warns Retaliation
Major political parties had promised vacancy taxes and non-resident speculation measures. The combination of measures ensures a perpetual penalty for occupying scarce housing. Now that it’s time to create those laws, they aren’t just stalling — they outright voted them down. Citing trade partner concerns, it might be due to a threat from the US to retaliate any taxes.
Canadian Disposable Income Drops For A Second Consecutive Quarter
Canada’s population has been growing fast but their incomes haven’t done much. The seasonally adjusted annual rate (SAAR) of disposable income came in at $1.425 trillion in Q4 2021. It was down 1.32% from the previous quarter and was the second consecutive quarterly drop. Disposable income peaked in Q2 2020, and the most recent quarter was 3.58% lower than the peak. The country’s national statistics agency attributed the decline to smaller government transfers. Even with a larger population, the amount of money households earn has contracted.
Canada’s Top Finance Experts See The Bank Of Canada Aggressively Hiking Rates
Our poll of some of the country’s top finance experts shows they see aggressive rate hikes this year. The panel sees the Bank of Canada (BoC) overnight rate hitting 1.50% this year. They correctly called the last two meetings, despite one being against consensus. If the overnight rate does go that high, expect very different credit conditions soon. Though sky high inflation should be obliterated.
Most Canadian Mortgage Borrowers Are Choosing Higher Interest Rate Risk Exposure
Most Canadian mortgage borrowers are opting for variable rate mortgages. About 54.5% of the $38.8 billion mortgage loans originated in December, were variable-rate. Initially cheaper than fixed rate mortgages, these respond with higher interest rates. If rates were to normalize as forecast, this can mean paying more than expected.
Toronto Real Estate
Toronto Real Estate Prices Rose $80,000 Last Month As Sellers Surged 78% Higher
Greater Toronto real estate prices are surging even faster, even as inventory climbed. The price of a typical home increased by 6.36% ($80,100) across TRREB in January, and 5.28% ($65,600) in the City. That’s not over the past year, but just in a single month that home prices have moved this aggressively. Higher price growth is typically the result of tighter inventory, but not this time. Sellers surged a whopping 78% as the Spring market kicked off a little early.
Toronto New Home Prices Drop $58,000 Despite Low Inventory And Higher Sales
Toronto’s new home prices have been falling despite the market tightening. Single-family homes dropped $58,500 in January, and condo apartments fell $13,200. Both segments have climbed dramatically over the past year, so it’s not exactly a panic. However, prices fell as sales rose and inventory was scarce. These are the exact opposite conditions for falling prices.
