The three-month average home price in the Toronto area is down a record 14.2% following a flood of new listings and an interest rate hike by the Bank of Canada.
Sales fell most in eight years. Did Canada’s housing bubble just burst?
Bloomberg reports Chill Descends on Toronto Housing as Prices Drop Most Since 1988.
Total home sales in Greater Toronto dropped to 5,977 in June, the lowest level since 2010 and down 15.1 percent from the month prior, data from the Canadian Real Estate Association show. Average prices are down 14.2 percent since March — the fastest 3-month decline in the history of the data back to 1988 — while the ratio of sales to new listings sits at its lowest level since 2009.
The June data comes after a series of measures by policy makers to tighten access to the market — and before the Bank of Canada hiked its benchmark interest rate last week, the first increase since 2010 that will further pinch mortgage eligibility. Prices and sales also fell in nearby regions such as Hamilton-Burlington and Kitchener-Waterloo, CREA data show.
Lawmakers, concerned that escalating prices could lead to a disorderly correction, imposed measures including tightened mortgage eligibility rules and a tax on foreign buyers. Toronto’s market has lost momentum, while in Vancouver sales plummeted last year on similar measures but have since rebounded.
The economists expect Toronto to follow Vancouver’s path — price adjustment at the top of the market with less impact at lower prices. Meanwhile, cities like Montreal and Ottawa look strong.
Vancouver rebounded after the restrictions and economists expect Toronto will do the same.
But at some point sanity will return. The bottom in both markets is a long way down.
The same holds true in Australia. For discussion, please see “Bargain” $2 Million Homes in Australia: “Super Saturday” Auction Results Posted.
Mike “Mish” Shedlock
Well, that looks like at least a 3 sigma event…
Those usually just don’t “happen” without cause.
The entire country of Canada is in a housing bubble.
Full recourse mortgages
Leveraged to the hilt
Greater fool investments
TARP already built into the banking system
Mining and oil at 5 year lows
It is going to get ugly.
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I think the situation will be very deflationary. The moonshot that the CAD$ is likely to experience will be very damaging to the exporters unless Poloz engages in some extraordinary policy measures.
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The money has to go somewhere. Canada’s loss is SoCal’s gain. I for one welcome our new Chinese overlords. To the moon Alice!
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Prices platueaued in 2013 in most of Canada (earlier in some places like Calgary) coincident with major changes to CMHC subprime mortgage insurance. The gains alleged by the Realtors since have been mostly artifacts of a significant shift in the sales mix, towards brand new housing, and towards higher-end housing.
Sales mix changes will exaggerate the downside, of course. So things aren’t as bad as the numbers might imply in Toronto, but they weren’t as good as the Realtor numbers previously implied either.
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“and a tax on foreign buyers.”
…
smoking gun
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But there are negligible amounts of foreign buyers in Canada’s RE sector. Foreign selling seems to be more common, unloading into the price bubble.
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You could be right, but I found this quote:
“What led to the slowdown was really more domestic buyers waiting to see what the tax will do.”
http://globalnews.ca/news/3592484/foreign-buyers-toronto-real-estate/
which is still means it is tax related.
Anyways, if you follow the link in the link above you get:
TORONTO – Newly released figures show nearly five per cent of home purchases in Ontario’s Greater Golden Horseshoe region were made by non-residents since the Liberal government announced a foreign buyer tax.
Yes, that is nice … BUT no mention of percent of foreign buyers BEFORE tax implemented.
Anyone have before / after numbers?
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5% was the number prior to the tax. Mostly US citizens apparently.
Too many people have unfortunately got caught up in a rather racist meme that Canadians aren’t “Canadians” unless they’re white.
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are you operating with the Toronto Real Estate Board survey number?
if so, I’m not buying.
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the link within the link:
“Charles Sousa cited a November 2016 Toronto Real Estate Board survey that suggested foreign buyers were involved in about five per cent of purchases.”
…
yeah, uh huh … I’m going to take “those guys” words? I know enough about RE to know very easy to hide true ownership behind LLCs / shell companies (and if $$s illegally smuggled out of China you durn well buyers want a veil) … and “those guys” did the digging to find out? … rather than just take the money?
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Offshore money has to go somewhere, and now the pendulum has moved back to Vancouver. Since the gates are wide open and unguarded, this show will continue. Population replacement with third worlders will mop up the last resistance. It is a plan.
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Too bad there’s next to no evidence of foreign money showing up in Vancouver. Leverage in the local banking sector, however, is off the charts.
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A couple of things.
Real Estate priced at the margins
Median Household income (2015) for Vancouver BELOW the national average.
$80K median household income of natives —> million dollar homes (without outside capital pushing up total)?
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm
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Loads and loads of “landlord families” in the Vancouver area. Typically East Indians (Pakistanis, etc.), who for the past 20-25 years, have been pac-manning every piece of property they can on subprime credit to rent out. Making a decent living at it until the peak, of course, which occurred back in 2013.
“Chinese”-Canadians are minor players. True foreign Chinese (as in, citizens of China) are quite uncommon.
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No offense – but this is in the internet – I’m not taking anyone’s word without some credible source.
Very easy to hide true identity on deed.
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Oh yes, and the earth is flat.
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what evidence do you have to support this?
As someone who grew up and still living in Vancouver, with real estate agent friends, over 90% of sales on the west side are to Chinese Mainlanders, a lot goes for 3.5 million, tear down the house and build a mansion.
The bubble will crash if China can stop the money fleeing, not sure when this will be?
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I’m afraid his evidence is anecdotal, as there are very few good Canadian stats. My anecdotal evidence relates to a recent trip to China, where I was informed that Chinese buyers are still focusing on the US, Canada, and Australia.
One statistic that I just read today says that 10% of US residential buyers are foreign, primarily Chinese and Canadians.
Bear in mind that mark also says that driverless cars will cost at least a million.
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Jesus are you kidding me? Have you ever been to Richmond? Have you ever seen a presages line in Burnaby?
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California prices continue their March upward.
http://www.prnewswire.com/news-releases/in-the-height-of-the-spring-homebuying-season-californias-housing-market-shrugs-off-housing-shortage-as-sales-and-median-home-price-bound-higher-in-june-car-reports-300489182.html
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The bubble is huge in Canada
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Fixed it for ya.
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Dropping prices don’t matter. Only defaults.
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Step 1. Dropping Prices
Step 2. Defaults
Step 3. Recession
Step 4. Defaults
Step 5. Dropping Prices
…
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Just wait until “AI” replaces 50% of the work force.
Calcutta here we come.
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It looks like the 15% drop was preceded by a 15% increase with a net result of no price change.
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The GTA economy is also heavily dependent on auto manufacturing at locations in Oakville. (Ford), Oshawa (Obama Motors) and Brampton (Fiat-Crapco). Honda and Toyota also have significant assembly operations in other Toronto locations. Auto parts manufacturing by hundreds of smaller firms also employ thousands.
I mention these because any slowdown in new car production will have a disproportionately large impact on Toronto. Add to this the very precarious state of the Province of Ontario’s fiscal situation – which makes Illinois seem virtuous by comparison – and the coming bust will very likely be much deeper, longer and more impactful to IOUSA than anyone imagines.
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People have been predicting a housing crash in Canada for at least the last decade. Many have shorted the banks and house builders and lost a lot of money. This is most likely a modest correction, where they simply give back half of the gains from the last 12 months. I recall in Feb of 2009, when people were in panic mode over the US crash, many thought the same would happen in Canada. For a very brief period, Canadian bank stocks dropped close to 50% in price. I purchased both Royal and TD, as I was confident that Canada was different from the US. Sold both in Mar 2012 for greater than 100% gains, plus 7% dividends each year.
I simply don’t see a crash in Canada. Though if the Canadian banks drop anywhere close to 50% again, I will load up.
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I wish there was a side by side chart of the foreigners coming into Canada vs. The US. (Minus the immigrants from Mexico ) Every new housing development in Canada seems to be more of United Nations vibe. I think a correction crash will be more likely once there is a drop in foreign newcomers..
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…so in othe words ‘When pigs fly’?
The Canadian economy is ‘resource’ based – based on selling off a limited supply of Western Civilization and positions in the 1st world to people from the 3rd world. It’s a gold mine of sorts – till the gold runs out. Then it’s just a hole.
http://www.straight.com/news/818931/liberal-government-raises-immigration-targets-goal-bring-300000-newcomers-year
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Good article on Canadian immigration policy. Canada’s economy does indeed include resources, but it’s actually pretty well diversified. The fact that they are encouraging immigration, particularly of highly skilled workers, just shows how they intend to keep diversifying. In addition, by bringing in younger workers they are fixing a demographic problem that many developed countries have; an aging population.
These young skilled workers will help pay the taxes to support the pensions and health care of older Canadians.
In addition, with Canada bringing in 300,000 immigrants each year, in a country of 37 million, this is part of the increase in demand for real estate.
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The social stealing promises must have failed if the Party needs to flood us with new people to pay. Also their aging 3rd world parents and grandparents are in the house with them, social stealing without having paid a cent. That is a net social burden increase for Canada, not a net tax gain for Canada.
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Thanks to mortgages, housing has been highly leveraged investment but has become much higher beta the past 10-20 years as rules were changed to benefit lenders. When housing blows up, which it must, then we will have the mother of all wealth effects in reverse.
I say housing must blow up because the ROI on these (often unoccupied) McMansions just isn’t there. It’s like Uber drivers investing in new cars but with a lot more zeros. Eventually there will be halleluia moments when the negative returns on the Uber mobiles and McMansions sink in.
Whats the monthly nut on a $2M McMansion if mortgage rates suddenly double or triple. Whats the impact of the wealth effect when the market value of (marginally priced) homes is cut in half and there is a lot of forced selling?
Theses a real high risk investments especially in recourse jurisdictions (although almost everybody would be wiped out by a McMansion foreclosure anyway)
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You could be right, but I doubt it. Many have been using the same arguments to short Canadian bank stocks, over and over for the last decade. They were all wrong.
Most empty homes in Canada are foreign buyers hiding their cash. There is no mortgage. I agree that the lack of good statistics on this, makes it a gray area.
The vast majority of Canadians with mortgages have significant equity in their homes. Only a small percentage have very little equity (the most recent purchasers). If house prices drop, and the newest buyer’s equity is wiped out, they will not walk away from their house or their mortgage. One reason is the fact that mortgages are full recourse and the bank can go after their other assets. The second reason is mortgage insurance, which is required on home purchases with less than 20% downpayment.
Unlike the US housing bubble, there are very few liar loans, and zero down purchases. Canadian mortgage rules are fairly strict. Canadian banks have pretty high standards as they hold their mortgages, rather than collateralize them.
Are Canadian homes overpriced: yes. However, I believe prices won’t collapse, they will merely correct. The banks will be fine.
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Just read an article on foreign buyers of US residential housing. Interesting stats.
In the last year 10% of all residential purchases ($ value) were foreigners. (5% in volume)
Chinese buyers led the pack for the 4th year in a row, followed by Canadians, UK, Mexico, India.
50% of all purchases in 3 states, Florida, California, Texas.
The biggest increase was in Canadian buyers, many of whom are selling their $2 million-plus homes and downsizing in order to buy property in Florida.
Chinese buyers prefer California, though they are starting to be priced out of that market and are looking more at Texas. Mexican buyers prefer Texas.
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The Canadians aren’t selling their Canadian homes. They’re just going into more debt to buy the Florida properties.
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“Are Canadian homes overpriced: yes. However, I believe prices won’t collapse, they will merely correct. The banks will be fine.”
…
I know nothing about RE in Canada … but you just laid out the case why the market will crater.
Once falling home prices are fed into comps the vicious cycle begins. Native buyers requiring a FULL RECOURSE mortgage are going to buy into a declining market? I don’t think so. Instead I think NO BIDS will be the norm … and prices will have to adjust much much lower to entice a bid.
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Then we agree to disagree.
When people stop buying, then people stop selling. And vice versa. As mentioned earlier, many Canadians are cashing out of $2 million-plus homes, downsizing and buying a vacation home in Florida. They are selling into the demand.
If prices drop a bit, the urge to sell will as well. And the market will calm down.
I admit that I look at the Canadian situation from an investment point of view. I wouldn’t mind seeing Canadian bank stocks drop 20-50% as I consider them some of the safest banks in the world. So, in a way, I hope you are right. But I don’t think so.
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You may be right … if enough homeowners have plenty of equity.
But Canadians love their debt:
“Even by global standards, Canada appears over-leveraged. Other than
Australia, Ireland – which came through its own deleveraging period – and
the Nordic countries, Canada sits at the top of the debt chart and is the
most leveraged in the G8 (FIGURE 4). This leaves the Canadian consumer
vulnerable to any potential downturn in the economy or a decline in the
housing market.”
http://www.equifax.com/assets/canada/english/resources_mortgage_trends_wp.pdf
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All true. Very valid point. But there is also another side to the balance sheet (assets) and the difference is net worth. The net worth of Canadians hit a record high last month. And as I mentioned earlier, some very smart Canadians are selling their $2 million-plus assets, downsizing, and buying Florida vacation homes.
And with 300,000 annual immigration, that will contribute to Canadian housing demand (alongside foreign buyers).
In addition, the Canadian economy is growing so well, the Bank of Canada just raised interest rates. Unemployment is very low, and job growth is high.
It’s hard to imagine a doomsday housing scenario under these circumstances.
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Immigration contributes to RE supply as well. The Canadian economy is not growing meaningfully and the Bank of Canada made a giant mistake.
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Unemployment is crazy high in Canada as well.
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