DATE

balancing act
Steve Saretsky -

  How the Bank of Canada is Juggling Interest Rates and Real Estate There is a direct correlation between the cost of real estate and mortgage rates. The more expensive it is to borrow money the cheaper real estate becomes and vice versa. History shows us this holds true. What many might not know is that variable mortgage rates are set by the commercial banks prime rates, which are essentially set by the Bank of Canada’s interest rate. On the other hand, fixed term mortgage rates are primarily influenced by the yield on Canadian government bonds. In fact there is almost a direct correlation between the Canadian Government 5 year bond yields and the 5 year fixed mortgage rates. The 5 year Canadian Government bonds are also heavily influenced by their US counterparts. “Five years is sort of the middle ground, the pivot point where both U.S. and Canadian trends come into play,” explained CIBC World Markets Chief Economist Avery Shenfeld, referring to five-year Canadian government debt. Back in 2008 when the Canadian economy was teetering and Greater Vancouver real estate prices fell 14% the Bank of Canada swiftly hammered interest rates into the ground. The interest rate went from 4.5% in

Steve Saretsky -

BC Government Drowns Out Housing Critics; Party Rolls On There seems to be a little confusion surrounding the objectives of Christy Clark and the BC Government. Just last week Christy Clark added Fuel to the Fire by creating more demand in the market by introducing interest and payment free down payments for first time buyers. Of course this comes just 3 months after she tanked the market with her foreign buyers tax. So what are their objectives? To cool the market, or keep the music playing? Prior to the introduction of the foreign buyers tax the BC Government’s Mike De Jong and Christy Clark totally downplayed the role of foreign buyers driving up Vancouver real estate prices. Here’s an expert from an interview in May, 2016. “There is a perception that foreign investors and speculators are driving an affordability crisis in residential real estate — particularly in Greater Vancouver. The data we have does not support this perception,” the Finance Ministry analysis said. “However, industry experts estimate that foreign buyers likely make up less than five per cent of home sales activity in Greater Vancouver.” Of course stats showed we did indeed have an issue. Foreign buyers accounted for 13%

Steve Saretsky -

Vancouver Real Estate Market Update As the holidays near, the market begins it’s usual hibernation phase. House crazy Vancouverites forget about the never ending housing mania for a couple weeks and turn to rum and eggnog. However, some buyers and sellers are still out there pulling triggers despite the recent uneasiness . In this post I’ll outline the first 15 days of December and analyze the numbers heading into the New Year. Sales have virtually been cut in half year over year. The market shows little signs of a sudden rebound but perhaps to be expected in the slow winter months. Let’s take a look. Detached Market Through the first 15 days of December year over year detached sales are down 41% in Vancouver East, 54% in Vancouver West, 61% in Richmond, 67% in Burnaby, 51% in REBGV, 50% in Fraser Valley. These are astonishing numbers, perhaps a Christmas miracle for wishful buyers. As I have mentioned , in many areas prices have already corrected 15% or more. Another interesting stat to pull from the detached side is the average and median sales price year over year. [table id=21 /] As per the table, the average and median sales price

Steve Saretsky -

Christy Clark Strikes Again Never put it past Christy Clark to drop the ball. Starting January 16, 2017 she’ll start handing out 37,500 dollar freebies to over leveraged and desperate first time buyers. Essentially adding on a second mortgage to over extended first timers 5 years down the road. Of course this comes on the same day the Bank of Canada warned about excessive household debt levels and a stronger possibility of a housing crash. As per the Bank of Canada Nearly a third of recent Canadian homebuyers with so-called high-ratio mortgages wouldn’t qualify for their loans under new rules recently implemented by the federal government. The number of high ratio mortgages in Vancouver above 450% loan to income has soared to 39% in recent years. Like an epidemic, high ratio mortgages have exploded across Vancouver over the past 2 years. So while, the Bank of Canada and CMHC continue to warn of excessive debt levels and overvalued real estate, Christy Clark is encouraging first time buyers to jump into the market. The same buyers the Bank of Canada is trying to get out of the market. Christy Clark, who just a few months ago called Vancouver a housing bubble, has

Steve Saretsky -

Canadian Household Debt Hits New Record High Announced today from Statistics Canada, Canadian household debt hit another record high this quarter. The numbers have been slightly revised, but households on average owe 1.67 in debt for ever dollar of income earned. So what does this have to do with Vancouver real estate? Everything. Debt and cheap credit has been called the “drunken brew” fuelling real estate prices according to CMHC boss Evan Siddall. Massive mortgages and financially strapped Canadians is putting the Canadian financial system at risk. It’s why Canadian Finance minster Bill Morneau introduced the Stress Test and will likely introduce risk sharing with the banks in 2017. These costs will then get tacked onto your new mortgage in the very near future. In fact, it’s household debt, 65.5% of which is from mortgages, that has the feds up at night. Which prompted RBC Economist Laura Cooper to say “the further deterioration in the oft-cited debt metric will serve to strengthen the Bank of Canada’s appraisal that elevated household indebtedness remains a key vulnerability to financial stability.” Yet there seems to be some confusion around household debt and the overall financial well being of Canadians. As per this chart

Steve Saretsky -

The Impacts of the Foreign Buyer Tax Much has been made of the 15% foreign buyers tax, with much debate as per it’s overall impact. How much of the recent slow down can be attributed directly to Christy Clark’s tax? CMHC CEO says foreign buyers aren’t to blame after cold calling property managers. Meanwhile a Seattle Realtor says she’s done 10 million more in sales thanks to the tax. In this post i’ll analyze the detached market before and after the tax. We’ll take a look at the composition of homes sold and the average days on market. Prior to the tax, foreign buyers accounted for 13.2% of all real estate transactions, and as much as 25% in areas like Richmond. Since the tax the number has been cut in half to a paltry 3%. Coincidence or not, the average sale prices across Metro Vancouver has fallen 8%. The composition of homes selling has changed since the introduction of the tax. It appears there are fewer high end luxury homes selling and more homes selling under 1 million. [table id=20 /] As you can see here, the four months leading up to the foreign buyers tax had more homes selling

Steve Saretsky -

Fixing a Demand Issue with Supply Has anyone ever built their way out of a housing bubble? The narrative across the real estate industry is we have a supply issue. However, a supply shortage is really just a symptom of an underlying disease, demand. The root cause is cheap and easy credit, this makes real estate attractive, hence influx of foreign capital, speculative behaviour, and over leveraged buyers. The result, demand explodes, everything sells, prices go up, banks lend more because prices can only go up, supply becomes extremely scarce as real estate becomes the most sought after asset. Sellers watch their equity increase every month and think why sell when I can make more next month. So sellers decide not to sell making it even harder for buyers now competing for the same scarce inventory, bidding wars, prices shoot up, a vicious cycle ensues. This is why prices shoot up 31% in 8 months in areas like Abbotsford and Mission where land is plentiful and supply has never historically been an issue. Let’s look at a few examples. Langley townhouse supply hits a record high in May 2014. As of March, 2015 supply is still above normal levels. Hence

Steve Saretsky -

Exploring The Largest Price Gains Across the Valley Now that the dust has settled and the FOMO (Fear of Missing Out) has disappeared we are left wondering, what the hell happened? Bidding wars plagued Vancouver, but perhaps more surprisingly the suburban outliers. A stampede of buyers trampled suburban doorsteps, driving prices through the stratosphere. As the herd disperses we’re left to observe the damage. Prices exploded almost vertically on a graph. This is what most economists would call “the mania phase.” Let’s explore some of the damage done in these suburban cities. Langley Langley detached house prices weren’t always hovering around 1 million dollars. In fact, from January 2010- January 2015 Langley house prices only grew 7.2% (less than inflation). As of January 2015 the benchmark price of a single family home was just $580,000. From January 2015 to it’s eventual peak in August 2016 house prices soared 52.3% to a staggering $883,600. Perhaps more concerning, during the mania phase between January 2016 to July 2016 prices exploded 25% in those 7 months. The phenomenon moved to Langley townhouses as buyers got priced out of single family homes. From January 2010 to January 2015 benchmark prices for a townhouse went

Steve Saretsky -

Vancouver Condo Sales Fall 35%, Prices Flatlining In my latest reports covering the detached market and the condo market across Greater Vancouver I highlighted a few things. Detached sales are down 52%, townhouses 40%, and condos 22%. Prices are on the way down, especially in the detached market which is showing most areas are down about 15%. Because I primarily work the Vancouver condo market, and most of my clients have requested a bunch of data I’ve decided to put together this Vancouver condo report. I’ll be focusing on a few areas, Downtown Vancouver, Yaletown, West End, Kitsilano and False Creek. I’ll also highlight Vancouver West as a whole. Unfortunately I just don’t have enough time or resources to pull and analyze all the areas such as what’s happening on the East side. So without further ado, I bring to you the Vancouver condo report, which I will breakdown and analyze on a monthly basis. Sales [table id=19 /] Sales are falling across the board for Vancouver condos. Vancouver West condo sales are down 35% year over year and are 13% below the 10 year average for the month of November. Average Days on Market Vancouver West-29 Downtown-23 Yaletown- 29 West End-19

Steve Saretsky -

Sales Continue to Plummet but Inventory Remains Scarce Little has changed in the condo/townhouse markets over the last few months. The market continues to slow heading into the slow winter months. Despite a substantial drop in sales, inventory remains scarce keeping prices relatively stable. There are a lot of moving pieces right now and the condo/townhouse gets quite complicated compared to the detached market which clearly favours the buyer as inventory hits normal levels while sales plummet 52%. Condo Sales [table id=17 /] REBGV condo sales fell 22% year over year, however sales were still 13% above the 10 year average. New Listings Vancouver East- 159 Vancouver West- 392 Richmond- 193 Burnaby- 184 REBGV- 1436 New listings remain scarce. Sellers simply aren’t selling right now, it appears most are waiting for the New Year. REBGV condo new listings were down 7% year over year. Total condo inventory for REBGV was down 37% compared to November 2015. Sales/Actives Ratio Vancouver East- 69% Vancouver West- 36% Richmond- 36% Burnaby- 53% REBGV- 45% Sales/actives ratios are up from October. However, this is not due to an increase in sales but rather a significant decrease in inventory. Anything above 20% is considered a sellers

Steve Saretsky -

Detached Sales Fall 52% Heading into the Holidays As expected November was another slow month for detached homes in the Vancouver real estate market. For the fourth consecutive month detached homes remained a buyers market. New listings slowed significantly as sellers gear up for the winter holidays and postpone selling until the New Year, as is typical around this time of year. Sales continued to collapse, falling well below the 10 year average for the month of November. Buyers appear hesitant to pull the trigger, the homes that are selling are the nice homes in good locations that are competitively priced or willing to take a significant reduction. Sales [table id=16 /] As you can see in the table above, detached sales fell year over year by 46% in Vancouver East, 58% in Vancouver West, 64% in Richmond, 57% in Burnaby, and 52% in REBGV (Greater Vancouver). More importantly, sales are also well below the 10 year average. As per the chart below, REBGV detached sales are 30% below the 10 year average. New Listings Vancouver East- 199 Vancouver West- 117 Richmond- 150 Burnaby- 95 REBGV- 1154 New listings in the detached market followed seasonal trends. At this time of

Steve Saretsky -

Foreign Buyers Remain Scarce Since Tax Hard to believe we had to debate the impact of foreign money just a few short months ago. The profits before people real estate cartel beat home the message loud and clear, no foreign buyers, BUILD MORE!!! MORE!!! So we obeyed Bob the Builder. More and more pre sale developments came on to the market only to be sold to VIP buyers for record prices. To the cartels dismay Christy Clark and Shrimp De Jong introduced the foreign buyers tax. The results, staggering. The stats solidified what most of us with two eyes could see. Foreign buyers accounted for 13.2% of sales across Metro Vancouver, 24% in Burnaby, and a staggering 25% in Richmond. Since the tax, foreign buyers now make up just 3% of total transactions across Metro Vancouver, 5.9% in Burnaby, and 6.7% in Richmond. Foreign buyers have virtually disappeared. It seems only the desperate remain. Willing to pay any obscene amount to claim their stake. Despite foreign buyers out spending us by $242,476 on average, sales have dropped 37% in Burnaby and 33% in Richmond. Prices are now on the move, especially at the high end. So who will buy all

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The Canadian Economy

Steve Saretsky -

  How the Bank of Canada is Juggling Interest Rates and Real Estate There is a direct correlation between the cost of real estate and mortgage rates. The more expensive it is to borrow money the cheaper real estate becomes and vice versa. History shows us this holds true. What...

Steve Saretsky -

BC Government Drowns Out Housing Critics; Party Rolls On There seems to be a little confusion surrounding the objectives of Christy Clark and the BC Government. Just last week Christy Clark added Fuel to the Fire by creating more demand in the market by introducing interest and payment free down...

Steve Saretsky -

Vancouver Real Estate Market Update As the holidays near, the market begins it’s usual hibernation phase. House crazy Vancouverites forget about the never ending housing mania for a couple weeks and turn to rum and eggnog. However, some buyers and sellers are still out there pulling triggers despite the recent...

Steve Saretsky -

Christy Clark Strikes Again Never put it past Christy Clark to drop the ball. Starting January 16, 2017 she’ll start handing out 37,500 dollar freebies to over leveraged and desperate first time buyers. Essentially adding on a second mortgage to over extended first timers 5 years down the road. Of...

Steve Saretsky -

Canadian Household Debt Hits New Record High Announced today from Statistics Canada, Canadian household debt hit another record high this quarter. The numbers have been slightly revised, but households on average owe 1.67 in debt for ever dollar of income earned. So what does this have to do with Vancouver...

Steve Saretsky -

The Impacts of the Foreign Buyer Tax Much has been made of the 15% foreign buyers tax, with much debate as per it’s overall impact. How much of the recent slow down can be attributed directly to Christy Clark’s tax? CMHC CEO says foreign buyers aren’t to blame after cold...

Steve Saretsky -

Fixing a Demand Issue with Supply Has anyone ever built their way out of a housing bubble? The narrative across the real estate industry is we have a supply issue. However, a supply shortage is really just a symptom of an underlying disease, demand. The root cause is cheap and...

Steve Saretsky -

Exploring The Largest Price Gains Across the Valley Now that the dust has settled and the FOMO (Fear of Missing Out) has disappeared we are left wondering, what the hell happened? Bidding wars plagued Vancouver, but perhaps more surprisingly the suburban outliers. A stampede of buyers trampled suburban doorsteps, driving...

Steve Saretsky -

Vancouver Condo Sales Fall 35%, Prices Flatlining In my latest reports covering the detached market and the condo market across Greater Vancouver I highlighted a few things. Detached sales are down 52%, townhouses 40%, and condos 22%. Prices are on the way down, especially in the detached market which is showing...

Steve Saretsky -

Sales Continue to Plummet but Inventory Remains Scarce Little has changed in the condo/townhouse markets over the last few months. The market continues to slow heading into the slow winter months. Despite a substantial drop in sales, inventory remains scarce keeping prices relatively stable. There are a lot of moving...

Steve Saretsky -

Detached Sales Fall 52% Heading into the Holidays As expected November was another slow month for detached homes in the Vancouver real estate market. For the fourth consecutive month detached homes remained a buyers market. New listings slowed significantly as sellers gear up for the winter holidays and postpone selling...

Steve Saretsky -

Foreign Buyers Remain Scarce Since Tax Hard to believe we had to debate the impact of foreign money just a few short months ago. The profits before people real estate cartel beat home the message loud and clear, no foreign buyers, BUILD MORE!!! MORE!!! So we obeyed Bob the Builder....

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The Saretsky Report. December 2022