Monthly Archives: November 2009

I think it’s fair to say that any comparison to last years sales levels shouldn’t be given much weight since the global financial system was then teetering on the brink of collapse with consumers hunkering down.

So how does this November stack against previous years so far?

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SFH inventory is barely staying above 2900 – it’s lowest level since April 2007.  Condo inventory has been more stable, leveling out around the 1500′s since July.

A look at the current sold & pending figures show that prices will likely remain quite similar to those recorded in October.

Canadian Housing Bubble

Last week, ING President Peter Aceto noted his concerns with the Canadian real estate market.   Today, Scotia Capital released a report detailing their view:

 Is Canada in a housing bubble? Probably, but low rates, mortgage innovation and a relative shortage of new supply are likely to keep it going for a while yet. Further, the implications for monetary policy are few at this juncture as total credit growth remains weak in Canada with businesses paying down debt and household debt still growing but off its peak, and Canada’s record trade deficits and bloated business inventories that will constrain a production recovery are offsets to domestic economy strengths.

Affordability calculations are really just an interest rate play and of limited use in judging the value of the underlying housing asset itself. Further, just looking at house prices alone is equally limiting, since we need benchmarks for comparison purposes. What we want to know is how the value of housing assets compares against benchmarks. One is a price-to-earnings proxy that entails comparing prices to rent, with rent being the equivalent income stream to housing as corporate earnings are to equities, and it compares the choice of owning versus renting. The accompanying chart shows this metric to be at an all-time high. The second chart shows that reno spending as a share of incomes is also at an all-time record high. Further, the fraction of unoccupied and/or unsold condos is also at early 1990s levels. These are hardly flattering gauges of sustainability.

But much of that might have to do with a relative absence of new product coming to the market in the bellwether single homes segment. Total housing starts remain well off their mid-200k peak of 2007-08 with the latest annualized reading pegged at 157k. That relative shortfall of new product has partly fed frothy activity in the resale segment. Further, we repeat our longstanding contention that Canada remains off-cycle compared to most other major markets in terms of mortgage innovation as new products like longer amortized mortgages, insured investor mortgages, and little-down mortgages came to market only since 2006-07 after mortgage insurance restrictions were liberalized. Now that last Fall’s pent-up demand has been released, the three forces of low interest rates, transferring future sales to the present via mortgage innovation, and modest new supply can keep Canadian housing markets humming for some time yet before the eventuality of a softer market on rising rates in a future relative demand vacuum set in.
-Scotia Economics, Daily Points, November 16, 2009

Source: Scotia Capital

Source: Scotia Capital