This week’s top stories: Canadian house prices set to fall in double digits and the government is limiting its exposure

It’s time for your cheat sheet on this week’s most important stories.

Canadian real estate

Canada has quietly changed its homeownership program to limit its losses

Canada Reduces Taxpayer Exposure to First-Time Home Buyers’ Initiative. The program has the government buying a share of your home, which helps lower payments. Canada would then share in the gain or loss against the value of the property and collect its share when you sell. The subtle update to the website last week shows that they will now limit exposure to 8% per annum. Leverage exposure increased for these borrowers after an 8% move – not great.

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Canadian real estate will fall by double digits, or ‘I’d be shocked’: BMO chief

BMO management revealed they would be shocked if home prices didn’t fall into double digits. The head of the capital markets division explained that the past 15 years have been unusual for bonds. What we are seeing is market normalization and asset prices will have to adjust.

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Canadian real estate investors rise as first-time buyers fall: RBC

Canada’s largest bank sees more investors and fewer first-time buyers in its portfolio. RBC estimates investors accounted for $47 billion of the residential mortgages they held. It represents approximately 13% of the total and is at the expense of first-time buyers. “…I think it’s a little sad to say that young people can access some of these markets,” said the bank’s head of retail banking.

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Canadians are still deferring thousands of mortgages from non-bank lenders

Canadian non-bank mortgage lenders are seeing an increase in first-time defaults. Mortgages in arrears (more than 30 days) reached 2.3% of mortgages held in the fourth quarter of 2021, compared to 2.0% last year. Only 0.17% of mortgages reach 90 days or more in arrears, but there are also 17,700 other borrowers on payment deferral. Defaults are at an all-time low, similar to banks, but borrowers are still struggling.

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Canadian real estate is poised to come under rate pressure not seen since the crash of the 1990s, says BMO

Canadian real estate has just been hit by a headwind that hasn’t been seen in nearly 30 years. The yield on 5-year Government of Canada (GC) bonds has jumped almost 2 points in less than a year. The yield on 5-year Government of Canada bonds influences the cost of 5-year fixed rate mortgages. The country hasn’t seen such a rapid rise since the bubble burst in the 1990s. “Suffice it to say, this rapid rise in rates bodes ill for housing,” BMO wrote.

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Bank of Canada raises interest rates and inflation forecasts

The Bank of Canada raised rates as expected. The overnight rate climbed 0.5 points to 1.5% last week, remaining just 0.25 points off the 2020 high. , they also discreetly raised the inflation forecast. This indicates that the BoC realizes that it is further behind the yield curve than expected.

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Canadian real estate was responsible for almost half of GDP growth in the last quarter

The Canadian economy has become somewhat more dependent on real estate, with spending growing faster than GDP. Residential investment, housing’s most direct contribution to GDP, accounted for almost half of GDP growth. This helped lift its share of the economy to 8.0% in the first quarter of 2022, up 0.3 points. For context, the US housing bubble peaked at 6.7% of GDP in 2006. At the time, pundits began warning that the economy had become too dependent on real estate. Meanwhile in Canada, they have greatly exceeded that level and counting.

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Canada’s vacant real estate is getting the viral treatment on social media

Canada’s vacant homes are getting the viral treatment on social media. Urban explorers have long explored abandoned buildings, but usually in small towns. The increase in vacant homes across Canada now leads them to explore homes – often mansions – in major cities. The audience? Largely Americans, bewildered that homes in the middle of major cities sit empty — often for decades.

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Real Estate in Toronto

GTA new home prices fell more than $50,000 last month as sales cool

New home prices in the Greater Toronto Area fell significantly in April. The benchmark fell at least $50,000, depending on the segment. Slowing demand for new homes is also pushing sales down to more traditional levels. If the market does not firm up quickly, these prices could fall further.

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Home prices in Toronto are $90,000 lower, but there’s a catch

Real estate price growth in the GTA is weakening, but it’s not easy to understand by how much. The benchmark price in May was lower in the TRREB (-$92,200) and in the City of Toronto (-$142,400). That sounds like a lot, but that’s partly due to a change in the methodology used. It’s unclear exactly what the old measures would look like, but one thing is clear: demand is weakening. The sales-to-new listings ratio has fallen to just 39%, a level where the industry expects prices to decline.

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Real Estate Vancouver

Vancouver real estate now balanced, change in pricing methodology makes it hard to see

Greater Vancouver real estate prices have fallen, but a change in methodology obscures that. The benchmark price reported in May was lower than REBGV (-$113,400), West Vancouver (-$110,900) and East Vancouver (-$107,600). More clearly, exuberance has been eliminated from the market. The sales-to-new listings ratio fell to 45.8% in May, indicating that the market is currently balanced.

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Real estate in New Zealand

New Zealand property prices have fallen the most since 2010, forecasts set to fall further

Property prices in New Zealand have just had one of the worst quarters of a decade. Prices fell 0.8% in May, bringing the 3-month decline down to 0.9% lower. The 3-month decline is the largest seen since the global financial crisis, and is expected to worsen. New Zealand’s central bank predicts further declines in the future.

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Julio V. Miller