The Canadian Real Estate Association reported last week that national sales activity increased to the highest level since June 2007. The spring rush is on and people are buying up homes everywhere you look.
Canadian housing market may be peaking
In 2007 the activity was more wide spread, not just in Canada, but south of the border in the bubble that led up to the sub-prime crisis that ultimately popped later that year.
While many Chinese nationalists target Seattle, Los Angeles and New York, in Canada the hot regions for sales have been in the Lower Mainland of B.C., the Greater Toronto Area and Montreal. These regions contributed the most to the year-over-year increase in Canadian national activity.
While economists and pundits point to a potential bubble in certain pockets of Canadian real estate (think Vancouver), others believe this is just the beginning. Consider this key fact:
“The national average sale price rose 16.4% on a year-over-year basis in February; excluding British Columbia and Ontario, it declined by 1.4%.”
source: http://creastats.crea.ca/natl/index.htm
So, when you exclude B.C. and Ontario the rest of the country isn’t doing so hot. This points directly to foreign investment and immigration rates.
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I’ve written about the ever increasing frothy Vancouver real estate market which saw home prices rise27% year over year through to February 2016.
Check out 3 Ways China’s Bond Bubble could impact Canada to learn more about capital outflows leaving China for Canada.
Canadian housing market: set to enter buyer’s market
Selling activity jumped 18.7% on a year over year basis across Canada in February. Sales are now trending 12.7% higher above the 10-year average for the month.
While already firmly in a buyer’s market in many regions of the country, Canada’s broader real estate market is inching towards a buyer’s market.
CREA explains that:
“A sales-to-new listings ratio between 40 and 60 percent is generally consistent with balanced housing market conditions, with readings below and above this range indicating buyers’ and sellers’ markets respectively.”
source: http://creastats.crea.ca/natl/index.htm
The national sales-to-new listings ratio increased to 59.5% in February 2016 from to 59.3% the previous month. This is the ratio’s highest reading since November 2009.
Note: One third of all local housing markets in Canada recorded a ratio above 60 percent. Think Vancouver, Toronto, Montreal and other urban areas prone to foreign investment.
I’m sure many of us know an area, perhaps the one you live in, that is in a firm seller’s market already.
US Home Sales Crash most in 6 Years
Existing home sales fell 7.1% month over month in February. A lack of supply and rising prices caused buyers to hesitate. This drop missed expectations, of a 3% decline, by a wide margin.
Zerohedge.com reported that:
“Absent the regulation-driven drop in November, this is the largest MoM drop since July 2010 as realtors warn that “home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers.”
While low interest rates have kept many Canadian buyers in the market, particularly those who’ve owned for years and seen their equity soar, in a recession or a prolonged contraction, even low interest rates are not enough. Japan’s multi-decade correction in real estate is a perfect example of this and one all Canadians should be aware of. Especially, when considering our demographics and aging population. For many, the ‘jury is still out’ on whether or not a real estate bubble exists in various hot spots across Canada; and, if it is in fact a bubble, it got a bit bigger in February.
chart source: http://creastats.crea.ca/natl/index.htm
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
