Okay, it sucks. Snow and crisis in Vancouver. Freezing rain n the GTA. Deep chill in the flat places. Eight feet of snow on the Rock. It’s winter, and we’re all supposed to be hibernating. So, what’s up with the real estate market?
Well, sales are pretty decent in most places and we’re back on the price escalator – except in Vancouver where the socialists outlawed everything. Toronto saw a 12% escalation last month, especially with detached houses. There are multiple bids erupting in Kelowna. Montreal single-family home prices are ahead 13% and even Halifax is booming.
All that’s the result of a decent job market which is fueling demand, plus pliant lenders and mortgage rates solidly sub-3%. But probably the biggest phenom right now is supply. Sellers aren’t selling. Inventory’s plopped. So every time a decent listing comes out a bunch of horny buyers are ready to pounce. It’s even brought back that disgusting realtor tactic of pricing a property low, accepting bids only on a specific day and hoping for a blind auction, pushing the market value even higher.
In Vancouver new listings have fallen by a fifth and the number of houses for sale is 20.3% lower than this time a year ago. In Montreal (the second-largest market in the nation, and one of the most affordable) inventories have fallen for 52 consecutive months. Total listings are 28% below last year’s level and the local board says, “a drop this large has never been seen in a month of January since the real estate brokers’ system began compiling this data in the year 2000.”
Ditto in the GTA, where a plunge of 17% in listings is being held responsible for a 12% jump in average price as more buyers fight over fewer properties. This was the biggest monthly hike in two years, ever since the stress test arrived. Now realtors are projecting a 10% increase in values over the course of 2020, with one major company saying it;ll be more like 20%. And just imagine what might happen if the feds are dumb enough to gut the stress test. Or if the virus spreads, infecting financial markets and sending bond yields lower.
Meanwhile, as stated, it’s winter. Early Feb. It just snowed again in YVR. Not even rutting season. So ponder what things might look like come April. Lately condo prices in the GTA have erupted, especially with pre-cons, where buyers are weirdly paying 30% more a foot than resales are commanding. FOMO is here. Again. Spring of ’20 could feel like 2017. And nobody should be happy about that.
Why are sellers not selling?
It’s FOSC – fear of selling cheap. People see residential real estate chugging higher and think they’ll get more later, so they wait. Others believe if they bail from the market they may never get in again, especially with the 5.19% stress test mortgage hurdle in place. Not only has that sucked off buying power from potential buyers, but it’s scared owners who may be sitting on windfall equity yet lack the income to actually borrow money and get back in, if they sold.
Meanwhile, all of the ‘fixes’ governments have come up with for housing has been on the demand side. The enhanced RRSP buyers program, for example. First-timer tax credits. The shared-equity mortgage. The Bank of Canada’s investor-house idea. But as FOMO is goosed and buyers encouraged, the number of available properties falls. Demand up. Supply down. Prices swell. More FOMO. It’s the same vicious circle we saw develop three years ago, when prices were surging over 30% annually.
Say Toronto realtors: “It is clear that many buyers who were on the sidelines due to the OSFI stress test are moving back into the market, driving very strong year-over-year sales growth in the detached segment. Strong sales up against a constrained supply continues to result in an accelerating rate of price growth.”
Well, let’s see what the T2 budget brings. The best possible outcome would be nothing.
Time for an Audrey update. You know, the moister princess with the laundry outsourcing fetish that we dissected yesterday…
“I hope you didn’t delete any comments for my sake,” the tough girl wrote me this morning. “I’ll call you in a few years when/if reality hits me in the face. Until then, we will spend our free weekends taking our son to a million gender-neutral and socially-acceptable activities while being total helicopter parents!”
How can you not like her?
Anyway, this brings us to Matt. He teaches high school and understands financial literacy training is seriously lacking in our society – in order to prevent the wholesale production of more Audreys. He wants your help.
“I’ve enjoyed reading your blog on a nightly basis (and my wife really appreciates the dog pictures!). I am a high school math teacher who has managed to find a couple weeks in the Grade 11 curriculum to focus on financial literacy. In the past we have looked at budgeting, compound interest, mortgages/loans and credit cards. What am i missing? In your view, what are the key aspects of financial literacy that young adults need to learn?”
So let’s have it. What are the three things you think Matt should be imparting to his students? How can we save them from themselves?