The Divergence in Canadian Real Estate Market

Latest on Canadian Real Estate Market Trends by Steve Saretsky

Happy Monday Morning!

There appears to be a rather large divergence between the East & the West in the Canadian real estate investment landscape. Per the Canadian Real Estate Association, national home sales inched higher in June, up 0.3% year-over-year. The slight increase in sales was largely in part due to an uptick in Eastern Canada, where some lenders appear to have shifted mortgage originations to more stable markets, at least in the alternative lending space.

Amidst a continued shrinkage in the insured mortgage space, as CMHC aims to reduce taxpayer exposure while reigning in mortgage debt, the alternative lending space continues to grow. According to a recent analysis by CMHC, there were 200 to 300 active alternative lenders in Canada last year holding $13-$14B of outstanding mortgages. That’s up from $11-$12B the year prior and just $8-10B in 2016.

According to CIBC’s chief economist Benjamin Tal, in 2018 alternative lenders made up nearly 12% of transactions in Ontario and about 15% in the Greater Toronto area. That could help explain CREA’s Chief Economists findings of a  “growing divergence in Canadian housing market trends between eastern and western Canada.”  Sales increased 16.2% in Quebec city and 9.6% in Toronto, while falling 15% in Greater Vancouver and 4.6% in Calgary.

Despite some signs of life in Eastern Canada where prices are still inching higher, the West continues to muddle through a soft patch. The knock-on effects of such appear to be weighing on other parts of the economy. The Canadian auto industry posted its sixteenth consecutive deceleration in sales for June, contracting another 7.2% year-over-year. “We’ve been expecting single digit declines all year and that’s exactly what we’ve been getting. The auto markets have always been cyclical and we’re clearly in a correction period,” says Dennis DesRosiers, president of the Toronto-based consultancy.

Three Things I’m Watching:

1. Canadian national home prices are being supported by strength out East.

2. The outstanding balance of Uninsured mortgages in Canada continues to decline.

3. The Canadian auto industry reported its sixteenth consecutive deceleration in sales for June.