DATE

Forecasting

Steve Saretsky -

As if this year couldn’t get any stranger, look no further than the Canadian housing market. Six months into a global pandemic and a crushing recession, home sales have never been stronger. National home sales activity ripped, jumping 33.5% from last years levels. The increase was a new record for the month of August, and the sixth-highest monthly sales figure of any month on record.

I don’t recall reading any forecast back in March or April that had called for anything remotely close to this type of feverish activity. In fact, even the most bullish and self-interested Real Estate lobbyists could not have dreamt this up. Now, don’t get me wrong, i’ll be the first to suggest these numbers should be taken with caution. There is undoubtedly some pent-up demand that could soon fizzle. Buyers were clearly desperate to upgrade their living situation after spending months confined at home. The thought of working from home indefinitely, and the threat of a second wave forcing people to hunker down in what could be a long winter prompted a rush of purchasing activity. Unfortunately the unexpected tsunami of buyers were met with low levels of inventory, creating bidding wars and higher prices.

As of the end of August, there was just 2.6 months of inventory on a national basis, the lowest reading on record for this measure. As a result, the national home price index was up 9.4% year-over-year, and the average sales price surged higher by 18.5% as the composition of sales tilted towards bigger homes.

This has put a wrench in housing forecasts, perhaps none more obvious than that of CMHC. The Government agency responsible for our housing and mortgage industry called for a 9-18% decline in the average home price, the exact opposite of where we stand six months in. Again, much too early for flag waving but so far this forecast looks embarrassingly bad.

In fact, CMHC was so certain prices would fall, CEO Evan Siddall, whom I actually have a great deal of respect for, tweeted on May 27th, “Please question the motivation of anyone who wants you to believe prices will go up (yes, up) with our economy in slow motion, oil being given away, millions of Canadians on income support and a greater percentage of mortgages not being paid than we’ve seen since the Great Depression.”

I suppose this ultimately shows how difficult it is to forecast markets, let alone human behaviour. I mean, if anyone had a competitive advantage in the market, at least in terms of getting a behind the scenes look of the mortgage book and the state of household balance sheets it would be CMHC.

Ultimately, while the Canadian Real Estate market is currently making a fool of most forecasters, I still believe it’s much too soon for a victory lap. At some point it seems rational to believe the jobs lost and the number of delinquent mortgages coming down the pipe will matter, combine that with a reduction in immigration, lower rents, and a record number of new home construction completing should make for an interesting 12 months ahead.

Until then, happy forecasting.

Three Things I’m Watching:

1. Canadian Real Estate sales up 33% in August, after a steep drop during the early days of the pandemic. Context matters.
afe0fafb-9aeb-4ed2-8898-55684f715fd8-7016147

2. Bubble type activity forming in the Nations capital. Ottawa home prices were up 20% year-over-year in August.
638e48dd-8ba1-4f8b-a4e0-3a0e57862cae-8905876

3. Latest government data show Canada admitted 13,645 permanent residents in July, down 63% from the same period last year.
fb2b499f-c908-453b-8db8-07cc4d8edce8-1109357

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! At the beginning of the year I was part of a real estate pannel with REW on the state of the Vancouver housing market. On stage, in front of a live audience, the moderator asked me for my forecast for 2023. I promplty noted at the time that “we’re...

Steve Saretsky -

Happy Monday Morning! The housing crisis in this country gets a lot of attention, as it should. Fixing it, however, is proving to be rather difficult. Over the past several years we have attempted to beat demand over the head with a blunt instrument. The list of policy measures include,...

Steve Saretsky -

Happy Monday Morning! Headline inflation ripped higher than expected this week, jumping back up to 4% for the month of August. It turns out Chrystia Freeland’s premature victory lap marked the bottom back in June. There’s a lesson here in base effects, you’d think her economics team would have tapped...

Steve Saretsky -

Happy Monday Morning! Over the past several months we’ve been highlighting the marked slowdown in residential building permits, a leading indicator of future supply. This is what happens when the cost of capital doubles, and in some cases, triples. This is a disaster in the making for a federal government...

Steve Saretsky -

Happy Monday Morning! The Bank of Canada moved to the sidelines once again, appeasing premiers in BC & Ontario who publicly pleaded with the BoC last week. It’s no secret these two provinces have the most to lose, their coffers largely built on a highly levered housing market, but we’ll...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022