Categories
Real Estate Wealth

Canadian Housing Prices Down 10% Since Feb

Canadians aren’t working.

Employment has collapsed, as much of Canada slowly emerges from Covid-19 quarantines. In fact, the number of employed persons in Canada is near a 15 year low (see chart below).

This probably underestimates the problem because it doesn’t include people who are still technically employed but not receiving a paycheque. Many of these people will undoubtedly be added to the unemployment rosters soon.

Canada Employed Persons

It’s no secret that Canadian households are up to their eyeballs in debt. Debt requires money to service, making Canadians highly vulnerable to a negative change to their incomes. The current change is probably the worst we’ve ever seen, putting all forms of household debt at risk of default.

Hundreds of thousands of Canadians suddenly can’t pay their debts and have deferred their mortgages as a result – especially in Quebec, Alberta and Ontario (see chart below). But as I explained in a previous article a mortgage deferral is not a free lunch. The deferred payments are simply adding to what the borrower already owes. (In case you weren’t paying attention, that includes interest on deferred interest.)

All mortgage deferrals do is delay the inevitable. The ability for Canadians to start paying their mortgages again in the future is dependent on employment picking up very quickly. Unfortunately, this doesn’t seem likely. It could take several years for joblessness to shrink back to pre-Covid-19 levels.

The massive volume of mortgage deferrals is a stark warning sign: The Canadian housing market is on the verge of collapse, and with it the Canadian economy.

Simply put, when people can’t pay their mortgages, either they sell and become renters or the bank forecloses and sells the property for them. Either way, a lot more distressed sales enter the market, putting downward pressure on prices. Couple this with a dearth of buyers – due to general economic weakness – and housing inventories rise, again pushing prices down.

It’s only been 3 months and housing prices in Canada area already down 10% across the board. Some parts of Toronto are already down 18%.

While these numbers might not sound huge, they are. A 10-18% change within 3 months is massive! Unless the unemployment situation resolves quickly, by the end of 2020 prices could be down 20-30% across the board.

This isn’t just a housing market issue. The entire Canadian economy is overly dependent on housing and housing-related activity to drive GDP growth. A housing slump will be felt across the entire Canadian economy, with the drag lasting for years.

Ironically, if the housing market declines significantly it will open the door to home ownership to Millennials and Gen Z, which until now were locked out of the market.

Categories
Real Estate

11 Signs Canada Housing On Verge of Collapse

A recent Bloomberg article provided a view of the deteriorating condition of the Canadian housing market. It’s dire and in my opinion will get worse because the economy is being pushed to the edge by the Covid-19 coronavirus crisis.

Housing crises are slow-motion train wrecks, so don’t expect the pain to be immediately obvious, like in the stock market. While this might seem to make it more manageable, it actually extends the economic pain. If you are unfamiliar with what a housing-led economic implosion looks like, you should brush up on what happened to the US after 2006 and Canada after 1989.

The US housing collapse took years to eventually bottom, resulting in massive economic dislocation, human suffering and a near-collapse of the global financial system. Coming out the other side of the collapse was a long, slow uphill battle for most.

Canada saw the same after its real estate bust in the early 1990s. Years of stagnation and relatively high unemployment.

Of course, in both the US and Canada the real estate bust eventually created massive opportunities for many.

The following key stats from the Bloomberg article illustrate the immediate vulnerability of the Canadian housing market and the overall Canadian economy:

1) Nearly one in three workers have applied for income support.

2) Canadian households are among the world’s most indebted.

3) Real estate has become Canada’s largest sector. Including residential construction, it accounted for 15% of economic output last year; energy accounted for 9%.

4) The City of Vancouver fears it’s heading for insolvency after it surveyed residents and found that 45% of households say they can’t pay their full mortgage next month and a quarter expect to pay less than half of their property tax bills this year.

5) Canadian households owe C$1.76 for every dollar in disposable income. In Vancouver, that spikes to about C$2.40

6) Canadians owe C$2.3 trillion in mortgages, credit card, and other consumer debt, about equal to the country’s GDP, which is an even higher ratio than the U.S. had before its housing bust.

7) If only 2% of the housing stock were to be listed for sale, it would trigger the kind of supply shock behind a 1990 crash, according to Veritas. That’s most likely to come from investors, half of whom weren’t generating enough cash to cover the cost of owning their rental properties, Veritas found in a survey last September.

9) 30% of apartment rent due April 1 went uncollected, according to estimates by CIBC Economics.

10) Nearly a third of Canada’s Airbnb hosts — who jointly had 170,000 active listings in late 2019 — need the income to avoid foreclosure or eviction, Airbnb said in a letter to the Canadian government last month.

11) Nearly 6 million Canadians have applied for income support. Lenders had deferred nearly 600,000 mortgages, about 12% of the mortgages they hold, as of April 9.

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Categories
Wealth

You’re Richer Than You Think? City by City Median Income in Canada

Feb 14, 2020 Update: I originally chose a sample of cities across Canada so not every single one is in the chart below. Due to popular request here is the data for Ottawa-Gatineau and Edmonton: Ottawa-Gatineau median salary is $40,128. 90th percentile is $97,713. Edmonton has a median income of $56,058. 90th percentile is $134,997.

If you’re like me you probably compare yourself to the people within your industry or social group. In particular, you look at the people you admire as the benchmark for your own success.

If you work in a high paying field like law or finance you are comparing yourself to a small elite group. This group is not representative of society in general. By comparing yourself to the upper echelon of society you likely feel like you are falling behind. However, even the worst paid surgeon makes more than most of the general population.

Reality Check: How Does Your Income Actually Compare?

I dug up some data on incomes in various Canadian cities, from Calgary to Victoria. I then calculated the 50th and 90th percentile incomes for each city for male workers. (The 50th percentile means 50% of the population is below that number. The 90th percentile means 90% of the population is below that number.)

I displayed the data below for worker salaries in each city. As you can see, 50% of the working population in each Canadian city makes less than a fairly modest income. For example, 50% of workers in Halifax earn less than $40,000.

My point: before worrying about how shitty you’re doing or how you are falling behind, take a look at how the rest of the population is faring. You may be surprised by your own relative success.

Note 1: this data is from 2015 so the Alberta figures may have fallen since due to the challenges in the oil patch.

Note 2: part time student and senior workers likely pull the data down, but this doesn’t change the point.

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