Are Canadian Households Still Facing Extreme Affordability Challenges?
Canadian Real Estate Association Data Signals Bounce in Housing Activity
In this article, author and real estate expert, Steve Saretsky, discusses recent data released by the Canadian Real Estate Association that restores confidence in the recovery of the Canadian housing market. However, despite seemingly positive news, Mr. Saretsky dives deeper into a thorough analysis of the current housing market. Is all well in the Canadian real estate market?
Latest on Canadian Real Estate Market Trends by Steve Saretsky
September 23, 2019
Happy Monday Morning!
Data released from the Canadian Real Estate Association this past week once again signalled a bounce in housing activity, prompting a renewed sense of confidence that the worse may be behind us. Nationally, home sales have now increased for six consecutive months. Meanwhile, the national home price index grew by 0.9% year-over-year, the second consecutive monthly gain.
“This should put to rest concerns of a protracted housing correction. The market is now clearly past its cyclical bottom and recovering smartly, although the turnaround is more tentative in western markets,” noted RBC chief economist Robert Hogue.
Indeed while the housing data has shown a noticeable improvement, not much has changed structurally, and it seems impossible to ignore the obvious headwinds. Canadian households are still facing extreme affordability challenges. After a brief cool-down, the national home price index is rising again, the index sits at $627,400 for a typical home in Canada, just $800 shy of the record high set in May 2018. With mortgage rates hovering near record lows and household indebtedness providing little room for further expansion, it begs the question, where do we go from here?
Retail spending may provide us with further insight. The most recent July data showed retail spending inched higher by 0.4%, however, in volume terms, which strip out the effects of price changes, July sales were flat on the month and the year. Year to date, volumes have increased just 0.8%, the slowest pace of growth since 2009. Meanwhile, household savings rates are already scraping record lows. Are Canadian households finally tapping out?
I’ll let the often outspoken chief economist of CIBC, Benjamin Tal, close out this note. He summarized the conundrum perfectly in an interview with Bloomberg.
“The housing market has nine lives. Every time it’s supposed to slow down, something bad happens elsewhere that keeps interest rates low and the party’s still going.”
“However you have to look at the economy as a whole and housing is only one part of it. The consumer is not there, clearly, investment is not there, exports are missing in action and the only thing that’s moving is actually the housing market again.”
Three Things I’m Watching:
1. Retail spending has been flat as a pancake in Canada for the past year.
2. The Toronto housing bull market continues. Per Teranet home prices have increased 218% since 2002.
3. Foreign investment in Canadian commercial Real Estate dropped by 70% through the first half of 2019. Transactions totalled just $1.5 billion through the first 6 months.
