Canadian Economist Optimistic About Real Estate Market Bounce
Real Estate Investing: Canadian Economist Optimistic About Market Bounce
by Steve Saretsky, July 15, 2019
Happy Monday Morning!
Canadian housing starts surged to the highest level in more than a year in June, led by construction of multiple-family dwellings such as condos and row houses. A direct correlation could be drawn from this about real estate investing.
As reported by BNN Bloomberg, it was “another sign of recovery for the nation’s real estate market, builders started work on an annualized 245,657 units last month, a jump of 25 per cent from May.”
The bounce in housing starts has prompted optimism amongst Canadian economists and those with their fingers firmly gripped on the policy levers at the Bank of Canada. Gains were “evenly spread out across the country,” Jocelyn Paquet, an economist at National Bank Financial in Montreal, wrote in a note to clients, adding all 10 provinces registered increases, something that hasn’t happened since 1996. Further, the latest monetary policy report released by the Bank of Canada notes “At the national level, residential investment appears to have stabilized and is expected to contribute modestly to growth in 2020 and 2021.”
However, a further look behind the numbers suggest the bounce in housing starts may be temporary at best, at least in Greater Vancouver which footed a 25% increase in housing starts year to date.
The property market has seen a total collapse in resale activity, with year to date sales at their lowest levels in 19 years. This has spread into the pre construction market, which, according to new home advisors MLA Canada, pre-sale activity have plunged 74% year to date. The latest reading on pre-sale absorption rates was just 14% in June, well below the desired 40-50% range generally needed to hit construction financing targets.
The recent bounce in housing starts likely reflects an urgency to get shovels in the ground prior to construction financing slowing further as the housing cycle turns. The underwhelming demand at pre-sale centres across Greater Vancouver has prompted developers to delay future plans, with year-to-date project releases falling 47% from last year. Safe to say astute investors would be wise to fade the rally in housing starts.
Three Things I’m Watching:
1. The pre-sale absorption rate for new homes remains weak in Greater Vancouver. The absorption rate was just 14% in June according to MLA Canada.
2. Monthly housing starts across Greater Vancouver remain elevated as developers push forward.
3. There’s been an uptick in Metro Vancouver foreclosure listings, suggesting foreclosure sales should follow.
