Canadian housing activity continued to cool in October. On the heels of rising interest rates, mortgage stress tests, and the recently announced curtailing of Home Equity Lines of Credit, a barrage of demand side measures have put a dent in the resilient housing market. Per the Canadian Real Estate Association, home sales fell 3.7% year over year in October. It was the fewest October sales since 2013. The association noted, “While sales were down year over year in slightly more than half of all local markets in October, lower sales in Greater Vancouver and the Fraser Valley more than offset the rise in sales in the Greater Toronto Area (GTA) and Montreal by a wide margin.” Overall, market conditions have been deteriorating, leading to decelerating prices across the board. Ottawa and Montreal remain arguably the two strongest markets, where leverage has been, for the most part, kept in check. For example, the share of new uninsured mortgages with a loan to income above 450% sits at 8% in Ottawa and 9% in Montreal. This pales in comparison to Vancouver & Toronto where the number of leveraged borrowers sits at 38% and 28% respectively. Not surprisingly, Ottawa & Montreal have been

The Bank of Canada recently released a report highlighting the recent policy changes on the Canadian mortgage market. While the report highlights the positive influence of the mortgage stress test and the overall de-risking within the banking system, these vulnerabilities have not disappeared but have been transferred from the traditional banking system and into the shadow banking sector. Per the report, the share of new uninsured mortgages going to highly indebted borrowers, those with loan to income ratios above 450% (4.5 times income) dropped to 13% in the second quarter of this year, down from more than 18% last year. However, while those numbers fell nationwide, they remain elevated in Toronto and Vancouver. The share of new uninsured mortgages with a loan to income above 450% sits at 38% in Vancouver and 28% in Toronto. Compare this to the less leveraged cities of Ottawa and Montreal which sit at 8% and 9% respectively. While the Bank touts, “The overall riskiness of new mortgages has therefore decreased because the proportion of risky borrowers has declined across cities.” They also estimate the share of new mortgages originated through private lenders has grown, particularly in Toronto where private lenders grew from 5.9% to

The Fraser Valley, which was arguably BC’s hottest housing market in 2017, and a large benefactor of ‘the drive to qualify’, appears to have taken an unpleasant turn in recent months. The drive to qualify is phenomenon seen in every housing boom, it’s the process of moving far away to a region where real estate is more affordable and where one can actually qualify for a mortgage. This drive is often led by a fear of missing out as prices inflate across the city, creating a speculative mania enhanced by stories to justify the ever increasing prices. As buyers scrambled to enter the market, sales surged hitting an all time high in 2017 while inventory simultaneously plunged to record lows. From January 2016 to January 2018 buyers drove the typical condo higher by an eye watering 88% Per the MLS benchmark. The rapid increase in prices and record low inventory spurred real estate developers into action. Housing starts in 2017 hit a fresh high, reaching over 9200 units, surpassing a previous high set in the last housing boom which ended abruptly in 2008. However, with credit tightening and a barrage of policies aimed at cooling the market, buyers have retreated. While

The growth of the HELOC (Home Equity Line of Credit) in Canada has been well documented. Between 2000 and 2010, HELOC balances soared from $35 billion to $186 billion, according to the Financial Consumer Agency of Canada, an average annual growth rate of 20%. Today that number sits at over $260B. This growth has become a blessing and a curse for Canadian households. While it has helped spur house prices and simultaneously provided consumers the ability to tap into their new found equity, it has also crippled many Canadian households into a debt trap that seems insurmountable. Canadian household debt has ballooned to 100% of GDP, the highest of the G7 countries. Amidst a rising interest rate environment and a weakening housing market, this growth has prompted the concerns of Canadas financial regulators. OSFI, which already implemented a mortgage stress test earlier this year, is now rumoured to be taking a stab at the HELOC space. Earlier this week, Canada’s No. 1 player in HELOCs, TD Bank, just changed a key policy on Tuesday. For people applying for a separate new mortgage and keeping their existing HELOC, TD is requiring that applicants now prove they can afford a theoretical monthly payment based

Vancouver’s detached market has continuously posted 27 year lows in sales throughout this year. If there was any silver lining for the detached housing market, it appears to have come in October. This October there were 145 single family home sales, slightly higher than the 142 posted in October 2016 after the market went into a free fall following the foreign buyers tax. So we no longer have a 27 year low in house sales. However, the recent bump is nothing to get too excited over. Other than 2016 and 2008, this was indeed the third worst October on record for Vancouver house sales. Inventory also declined year over year by 4.7%, which was primarily a result of sellers taking their house off the market and trying to wait out current conditions. This is explains why new listings fell by 14%. While some sellers are trying to suppress new inventory from flooding the market home sales are so weak that it still leaves 11 months of supply for sale. This has paved the way for buyers to negotiate steep discounts.   We have now been in a weak detached housing market for over two years, as a result, price declines

The Vancouver market continued it’s slow and gradual descent in the month of November. Home purchases are seasonally slower this time of year, however this year has been particularly quiet and that should come as no surprise to anyone who has been following the market. Across the city of Vancouver home sales slid 42% compared to the same month last year. To put this into context, this was the fewest home sales in ten years for the month of November. Inventory continued to climb, increasing 22% from last year and as a result of the weak sales and rising inventory, has now pushed prices lower across all property segments. Lending continues to tighten across the big banks with some of that slack being picked up by private lenders who issue higher rates and shorter loan terms. Both buyers and sellers are struggling to adjust to the changing market conditions.

Vancouver’s condo market continued its downwards trend in the month of October. This should generally come as no surprise considering Real Estate markets are incredibly slow moving and are highly dependant on the availability of mortgage credit. In other words, this trend is likely to remain in place for the foreseeable future unless we see a shift in either domestic credit, (mortgage credit growth is currently at its weakest pace of growth in 18 years), or we see large capital outflows from China. This seems unlikely given their need to maintain capital reserves in order to fight a trade war and growing economic instability and slowing real estate market. These two trends help explain why Vancouver condo sales fell 28% year over year to their lowest total since October 2012. As a result of weaker than usual condo sales, listings are beginning to stagnate. This has allowed inventory to build rather quickly, jumping 74% from the same month last year. While historically condo inventory remains low, this trend should certainly put sellers on notice. As is typical in all real estate markets, sales volumes lead prices. This is generally a result of market exhaustion and an adjustment phase were both

Canada’s recent population boom has reached it’s strongest growth in nearly three decades. Under Prime Minister Justin Trudeau, Canada’s population has jumped by 1.4 percent over the past year, double the U.S. pace, driven by a surge in non-permanent residents like students and higher immigration levels. Canadian Economists are calling it the “human stimulus.” Amidst the recent population boom one can’t help but reminisce the last time Canada’s population growth was this robust. It was the late 1980’s, and Canada was in the midst of a housing boom. Between 1985 and 1989 the average price of a house in the GTA increased by 113% in real terms. What we have learned from housing booms is that they create knock on effects, and self fulfilling feedback loops. Low interest rates and credit expansion help kickstart housing booms. This expansion spurs new credit growth and foreign capital flows, pushing home prices higher, and spurring new home construction. This in turn creates additional jobs, increased wages, and a flood of new immigration to absorb labour shortages. Many of whom become employed in the booming construction sector. This appears to be the case in Canada, where total housing under construction has reached an all time high, but so too has

Vancouver’s housing market continued its bumpy ride in October. As has been the case throughout 2018, each month has brought weaker than normal sales, rising inventory, and continued downwards pressure on prices. Across the city of Vancouver, which has been the leading indicator for future movements in the outlying suburbs, home sales fell 27% year-over-year in October. This allowed inventory to grow by 24%, pushing prices lower across all property segments. Meanwhile, the macro economic landscape continues to suggest we are in the late stages of this credit cycle with home sales, and housing starts declining across Canada. Further, with the Bank of Canada determined to reach a neutral rate of interest of between 2.5-3.5%, borrowing power continues to erode. Market activity seems poised to remain sluggish in the dark winter days ahead.

To little surprise the Bank of Canada followed through with another interest rate hike this week, pushing the overnight rate to 1.75%, the fifth increase in just over a year. Perhaps more surprisingly was the hawkish stance Governor Poloz took, effectively putting households on notice that they could be more aggressive in their push towards a neutral interest rate of between 2.5%-3.5%. While Governor Poloz is certainly optimistic on the resiliency of the Canadian economy and the prospects for future growth, recent data points may suggest otherwise. In his monetary policy report yesterday Poloz proclaimed, “Household spending is expected to continue growing at a healthy pace, underpinned by solid employment income growth. Households are adjusting their spending as expected in response to higher interest rates and housing market policies” However, retail sales volumes have fallen in each of the past three months, now growing just 0.7% Y/Y compared to the greater than 8% growth just over a year ago. Meanwhile, Poloz also boasted, “household credit growth continues to moderate and housing activity across Canada is stabilizing. As a result, household vulnerabilities are edging lower in a number of respects, although they remain elevated.” Yet the Canadian Real Estate association noted sales

It seems not long ago the Vancouver Real Estate market was mired in a frenzy, a widespread panic ensued over rising home prices and buyers eagerly bid up prices in emotional bidding wars. According to a CMHC report released in June 2017, 55% of Metro Vancouver respondents confessed to engaging in a bidding war to secure their recent home purchase. A behaviour which award winning economist Robert Schiller likens to “irrational exuberance”. However, those days appear to be a thing of the past. With the abrupt shift in the housing market having pushed sales to an eighteen year low through the first nine months of this year. The fear of missing out has turned to a sense of nervousness as potential buyers fear home prices could slide further in the months ahead. This appears to be reflecting in the MLS data from the Real Estate Board of Greater Vancouver. The data shows the number of listings across Greater Vancouver which sold above the asking price has slid from a peak of 51% in April 2016 to just 11% this September. While 11% still sounds high, it’s worth noting that even during the bear markets of 2008 and 2012, the number

With the Greater Vancouver condo market having slowed considerably, sales for the month of September dropped 44% – a six year low, the effects are now trickling into the new development space. Pre sale centres for new developments are beginning to ramp up their incentives and trying to lure buyers with discounts, decorating bonuses, free upgrades, and even a years worth of mortgage payments. Call it desperation, or call it a brilliant marketing strategy, ‘The Landing’ a pre sale condo development in Langley, has perhaps set a new precedent by offering to pay the first year worth of mortgage payments. Just 12 months ago developers were having to contain the madness of crowds, many of whom were lining up overnight to secure a pre-sale contract. Today, incentives have become the new normal. However, this should come as no surprise to market watchers who have witnessed the pressures of rising interest rates and tighter lending conditions. It’s a real estate cycle which is nearing its bitter end. According to MLA Canada, the pre sale absorption rate for new developments fell to 38% in September, down from a high of 94% in January. Further, October is expected to be the busiest month for