DATE

Steve Saretsky -

The Bank of Canada released their financial system review today which shed some vital insights on household debt, mortgage originations and the housing market. It’s a 44 page report that economic geeks have been salivating over for weeks. However, i’m sure you’d rather not bore yourself to sleep, so i’ll provide some the key takeaway’s here. Low Ratio Mortgages Are Growing After Previous Stress Test When the previous mortgage stress test was introduced in November 2016 it targeted insured borrowers. Meaning, people who were borrowing with less than 20% down had to pass a stress test. Borrowers, particularly in Vancouver & Toronto who were desperate to participate in the housing market began to get creative and found various ways to come up with a 20% down payment. (18% of down payments now come from The Bank of Mom & Dad. Low ratio mortgages, meaning borrowers with 20% down or more increased from 85% of all loans in Vancouver to 90%. This is also due to increasing home prices which requires a 20% down payment on all purchases above $1M. So What Does this mean? First off, 90% of all mortgages in Vancouver are now low-ratio. This basically means most of

Steve Saretsky -

Vancouver Real Estate functions like any asset class. Buyers, particularly investors, are chasing returns and looking for a safe place to park their money. This is even more pronounced in an environment where central banks are printing trillions of dollars and suppressing interest rates. This is why we have wealthy people land banking, it’s effectively more prudent to buy land and watch prices inflate than having it depreciate in a bank. With this in mind, keeping an eye on dollar volumes is pretty important. It tells you how much money is flowing into Vancouver Real Estate. More money pouring in chasing fewer supply equals higher prices. And obviously, less money spent is the first sign of a potential reversal. As you’ll notice in the charts below, Vancouver dollar volumes spiked in 2014 and 2015, essentially kicking off our housing boom. This is virtually in line with the  hundreds of billions of dollars which flowed out of China as their currency depreciated. As you can see, total dollar volumes exploded upwards by 22% in 2014, and 32% in 2015. Then in 2016, dollar volumes barely increased, experiencing just 9% growth. Today, dollar volumes are reversing, plunging 15% year to date. This

Steve Saretsky -

Foreign Buyer Numbers Rise In Surrey As Pre Sale Condos Complete The Vancouver Real Estate boogeyman aka foreign buyers are set to make what appears to be a ‘comeback’. However, as first reported by Better Dwelling, this is nothing but a mirage. A record number of pre sale condos, which were purchased awhile back, are nearing completion. In other words, foreign buyers of pre sale condos will be closing on their units, meaning official documentation will be recorded in land titles, and will be officially registering as foreign buyers in Government data. With roughly 40,000 units under construction in Vancouver, much of this has been pre sold. And as well all know, many of these projects were marketed offshore. So, unless these foreign buyers assigned (flipped) their pre sale contract prior to completion, then they will officially register in land titles as a foreign buyer once they complete the transaction with the developer. A prime example of this phenomenon is in Surrey. Where foreign buyers miraculously appeared in September. Of course what most won’t realize is that major condo projects completed for the month of September. including ‘Park Avenue’ which appears to have been flogged overseas. Since Park Avenue was

Steve Saretsky -

As always, here are your mid month Vancouver real estate stats. The detached market continues to be sluggish, while condo sales, particularly at the entry level are surging (Vancouver studio prices up 24% this year). Vancouver Detached Market For the first 15 days of November detached sales were up 17% on a year over year basis. Of course this comparing to an abysmal 2016 after the foreign buyers tax. I think the important thing here is new listings continue to grow, and inventory is continuing to pile up after a year of sluggish sales. The 197 new listings so far are more than any time in the past decade. Vancouver Condo Market Nothing different in the condo market. Sales are robust and new listings are thankfully inching up towards more normal levels. New listings for the time period rose 14%. I’ll be keeping an eye on sales to see if we get a surge prior to the January mortgage stress test. Vancouver Townhouse Market New supply is beginning to rear it’s head. Vancouver townhouse listings more than doubled from last year and that was almost entirely due to new builds being re-listed on the market as our avalanche of new

Steve Saretsky -

Mired in a housing crisis, Vancouver city council announced today that Airbnb would be banned for all secondary residences. Whether you own an investment condo, house, or basement suite, or even a coach house, that will now be banned from renting on Airbnb. The new regulations are as follows: Vancouver hosts will be required to obtain a business licence that costs $49 annually, plus a one-time application fee of $54, and display their licence number in their online listing. Those who fail to comply with the regulations will face a $1,000 fine per violation. Vancouver has also imposed a 3% transaction fee on all bookings. This would be remitted voluntarily by the short-term rental platforms. New Rules Begin April 2018 and are as follows: Allowed: It’s your principal residence, in other words, where you live most of the year and the residential address you use for bills, identification, taxes, and insurance It’s a legal dwelling unit You have a short-term rental business licence If you’re renting, your landlord allows you to sublet your home as a short-term rental If you’re in a strata, your strata allows short-term rentals Not Allowed: It’s not your principal residence, in other words, you don’t live there most of the year If you’re

Steve Saretsky -

Another interesting piece today from Macleans. And perhaps only highlighting something that I will continue to emphasize. Canada is mired in a debt binge. Recent data highlights Canada has accumulated more private debt in the past 5 years than any other advanced economy. Record low interest rates are allowing borrowers to take on heaping amounts of debt (debt to income has increased to 169%) creating an inevitable problem when interest rates begin to rise. Scott Terrio, a debt consultant, says the situation is a full blown “extend and pretend” meaning borrowers are just continuously refinancing or taking on more and more debt in order to sustain their lifestyle. Since the year 2000, HELOC debt has grown from $35 billion to $211 billion in 2016. Last year, Canadians used $11.6 billion in HELOC’s to pay down existing debt. In other words, they’re taking on new loans to pay down existing loans. Akin to a Ponzi scheme, more new loans are required to keep the game going. If you haven’t read the book ‘Manias, Panics, and Crashes‘ by Charles Kindelberger I highly recommend it. The famed economist and historian, highlights the role of credit in every boom. “A follow-the-leader process develops as

Steve Saretsky -

Studio Condos See 24% Price Increase In 2017 The squeeze to enter the Vancouver Real Estate market has reached a pinnacle. Condo sales are booming and prices are hitting higher highs every month. A mentality of ‘get in at all costs’ has allowed Canadians to accumulate private debt faster than any other advanced economy. This euphoric rush has pushed entry level condos skyrocketing. As you’ll see below, the fastest price acceleration is occurring in studio condo units. Studio condos have increased 24% so far in 2017, faster than any other segment. As you’ll notice, studio condo prices were relatively flat from 2010-2014 before exploding higher beginning in 2015. Since then they have soared from $636/ square foot to $979/ square foot. Good for a 54% jump in two years. 2 Bedroom Condo Prices Rise 38% since 2015 For context, 2 bedroom condo prices have risen 38% since 2015. While that’s still a ridiculous increase it pales in comparison to studio condo units. It’s an interesting phenomenon when you think about it, you’re actually paying less per square foot for more condo. In other words, the bigger the condo, the better the value. 3 Bedroom Condos Only See 8% Increase Year

Steve Saretsky -

There was an outstanding article from Don Curren today on Canadian debt levels. You can read it here. The article references some new data courtesy of the Canadian Centre for Policy Alternatives. As I have been mentioning for well over a year on this blog, Canada has a serious debt problem which is particularly acute in the household sector. New mortgage loans have been growing exponentially and is a primary factor behind surging house prices. In the past 5 years, Canada has accumulated more debt than any other advanced economy. Private sector debt to GDP has surged 20% in this time. There’s plenty of research which suggests the tipping point for private sector debt appears when the debt to GDP ratio grows by 17% in five years. Which we surpassed in early 2016. Canada has never before led advanced economies in debt accumulation. The last time it came close was in the early 1990s when it stood briefly in third place—only to see housing prices tumble. It’s important to understand the relationship between debt and house prices. When banks give you a mortgage (debt), they are ultimately creating new money that otherwise never existed. By expanding the money supply and

Steve Saretsky -

Vancouver Condo Average Sales Price Hits Record High $906,650 in October The Vancouver condo market continued it’s torrid pace in October. The average sales price hit $906,650, a new high. While there’s no telling how much higher prices could move, it’s evident this has become very unsustainable and completely void of fundamentals. Here’s how the numbers look for October. (September data here) Vancouver Condo Sales Vancouver condo sales increased by 33% on a year over year basis and were 14% above the 10 year average for the month of October. Much of the sales activity is shifting towards the East side of Vancouver as prices on the west side become out of reach for many. For further context, here’s how sales are looking month to month over the past decade. Including a 6 month rolling average, which highlights the drop after the foreign buyers tax last year and then rebounding in early 2017. New Listings/ Inventory Levels Overall Vancouver condo new listings are increasing. They increased by 13% across Vancouver on a year over year basis. This is obviously not enough to keep pace with sales and historic low inventory levels. Vancouver condo new listings were 3% below the 10

Steve Saretsky -

Vancouver’s Detached Market Remains Quiet in October The detached market remains relatively quiet. There’s not a whole lot going on, sales are low, new listings are ticking back upwards but nothing worth talking about and prices look pretty flat. But i’ll let the stats do the rest of the talking. For reference you can view the September data here. Detached Sales Detached sales are pretty weak. There’s been an uptick on a year over year basis. However, I’m not sure i’d call it a “recovery” from the foreign buyers tax. Sales on a year to date basis are still down significantly. As you’ll see in the charts below, detached sales are higher this October than last October, but remain well below the 10 year average for the month. I’m hoping these charts also paint a more obvious picture. You’ll see monthly sales laid on top of the 6 month rolling average. What you’ll notice is that sales peaked in early 2016, fell hard after the foreign buyers tax, enjoyed a small uptick this spring and are now about to roll over as we head into the slow winter months. New Listings/ Inventory New listings are up significantly from a year

Steve Saretsky -

How Government Has Become Addicted to Real Estate & The Impact of Falling Home Prices With local wages stagnating, and house prices rising beyond sustainability, a serious affordability crisis has unfolded in Vancouver. We’re all looking for solutions and while many are hoping for a sharp drop in prices it’s important to understand the implications behind falling home prices. While I strongly agree house prices are detached from reality and a natural downturn is needed (real estate is cyclical) I want to touch on a few things. One thing most people don’t realize is that when house prices fall it wreaks havoc on the economy. Governments love rising house prices as they tend to create a ‘wealth effect’ spurring consumer spending, create more jobs (construction, brokers, Realtors, etc), and ultimately increase tax revenue. Here’s how the typical house sale pumps up the economy As you can see it’s estimated that the average house sale in Canada creates an additional $61,600 spent into the economy. It also creates a plethora of jobs, mostly concentrated in the FIRE industry (Finance, insurance and real estate). The Role of Debt AKA Credit This is why Governments have become addicted with Real Estate (Canada has

Steve Saretsky -

CMHC (Canada Mortgage and Housing Corporation) released their latest housing market assessment today. Here are a few tidbits from the report worth noting. CMHC finds ‘moderate evidence of overheating’ in other words, the sales to new listings ratio was just below 75% for Greater Vancouver.  Anything above that is deemed overheated. You’ll note peak frothiness was back in early 2016. However, as I have been harping forever now, the market is very much divided. Depending on the area, and segment, the temperature of the market varies. For example there’s a historic euphoria for Fraser Valley condos, meanwhile Vancouver Detached volumes have plopped 36%. Here’s CMHC’s breakdown of market segments. A ratio of 40-60% is considered ‘balanced’ while anything below it is considered a buyers market and vice versa. As you can see, peak optimism remains the greatest in the condo market. With the largest price increases dominated by the suburbs. I’d consider this a lag effect or ‘the drive to qualify’ where buyers are forced to drive further and further out in order to purchase a home as prices rise. Case and point. Something tells me this divide could continue to grow with a new mortgage stress test destined to

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The Canadian Economy

Steve Saretsky -

The Bank of Canada released their financial system review today which shed some vital insights on household debt, mortgage originations and the housing market. It’s a 44 page report that economic geeks have been salivating over for weeks. However, i’m sure you’d rather not bore yourself to sleep, so i’ll...

Steve Saretsky -

Vancouver Real Estate functions like any asset class. Buyers, particularly investors, are chasing returns and looking for a safe place to park their money. This is even more pronounced in an environment where central banks are printing trillions of dollars and suppressing interest rates. This is why we have wealthy...

Steve Saretsky -

Foreign Buyer Numbers Rise In Surrey As Pre Sale Condos Complete The Vancouver Real Estate boogeyman aka foreign buyers are set to make what appears to be a ‘comeback’. However, as first reported by Better Dwelling, this is nothing but a mirage. A record number of pre sale condos, which...

Steve Saretsky -

As always, here are your mid month Vancouver real estate stats. The detached market continues to be sluggish, while condo sales, particularly at the entry level are surging (Vancouver studio prices up 24% this year). Vancouver Detached Market For the first 15 days of November detached sales were up 17%...

Steve Saretsky -

Mired in a housing crisis, Vancouver city council announced today that Airbnb would be banned for all secondary residences. Whether you own an investment condo, house, or basement suite, or even a coach house, that will now be banned from renting on Airbnb. The new regulations are as follows: Vancouver...

Steve Saretsky -

Another interesting piece today from Macleans. And perhaps only highlighting something that I will continue to emphasize. Canada is mired in a debt binge. Recent data highlights Canada has accumulated more private debt in the past 5 years than any other advanced economy. Record low interest rates are allowing borrowers...

Steve Saretsky -

Studio Condos See 24% Price Increase In 2017 The squeeze to enter the Vancouver Real Estate market has reached a pinnacle. Condo sales are booming and prices are hitting higher highs every month. A mentality of ‘get in at all costs’ has allowed Canadians to accumulate private debt faster than...

Steve Saretsky -

There was an outstanding article from Don Curren today on Canadian debt levels. You can read it here. The article references some new data courtesy of the Canadian Centre for Policy Alternatives. As I have been mentioning for well over a year on this blog, Canada has a serious debt...

Steve Saretsky -

Vancouver Condo Average Sales Price Hits Record High $906,650 in October The Vancouver condo market continued it’s torrid pace in October. The average sales price hit $906,650, a new high. While there’s no telling how much higher prices could move, it’s evident this has become very unsustainable and completely void...

Steve Saretsky -

Vancouver’s Detached Market Remains Quiet in October The detached market remains relatively quiet. There’s not a whole lot going on, sales are low, new listings are ticking back upwards but nothing worth talking about and prices look pretty flat. But i’ll let the stats do the rest of the talking....

Steve Saretsky -

How Government Has Become Addicted to Real Estate & The Impact of Falling Home Prices With local wages stagnating, and house prices rising beyond sustainability, a serious affordability crisis has unfolded in Vancouver. We’re all looking for solutions and while many are hoping for a sharp drop in prices it’s...

Steve Saretsky -

CMHC (Canada Mortgage and Housing Corporation) released their latest housing market assessment today. Here are a few tidbits from the report worth noting. CMHC finds ‘moderate evidence of overheating’ in other words, the sales to new listings ratio was just below 75% for Greater Vancouver.  Anything above that is deemed...

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The Saretsky Report. December 2022