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Real Estate

12 Charts: Toronto Housing Market

Despite the worst recession since the Great Depression, Toronto real estate is booming.

The boom isn’t occurring because of affordability. The proportion of income used to pay mortgage principal and interest, property taxes and utilities is approaching the 1989 high.

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The Toronto housing market is bifurcated. Condo listings have risen dramatically, as Airbnb hosts abandon ship. Meanwhile, listings of detached homes have plummeted. Prices have reacted accordingly, with condo price appreciation lagging behind. The median detached home in Toronto has appreciated by 28.2% over the past year.

Despite the difference between listings, months of inventory for both condos and detached homes in Toronto remain very low. Toronto remains a tight housing market.

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The state of the Toronto housing is also showing up in average days on market data. At all price points, home sales in Toronto are actually happening faster than in 2019.

Source: ZOLO.ca

As a result, prices have risen across all home sizes for detached homes in Toronto year-over-year.

Source: ZOLO.ca

Similarly, Toronto condo prices have risen across all sizes, but (as previously indicated) to a lesser extent.

Source: ZOLO.ca

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What happened to the real estate crash everyone was predicting?

While the lockdowns did create a dip in prices across Toronto. Prices have recovered from the dip. Note, however, Toronto got a boost from a hot market going into 2020 before the lockdowns occurred (see the February price increase).

Source: Toronto.Listing.ca

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Government benefits are helping to keep the system whole.

48% of the Canadian workforce is currently receiving CERB (Canadian Emergency Relief Benefit). That equates to over 20% of the population for most provinces, with a huge proportion of beneficiaries residing in Ontario alone.

The question remains: are these benefits propping up the Canadian housing market and can they be gradually removed without creating significant housing market disruption?

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Categories
Real Estate

Charts: Real Estate in the Crapper

Businesses are closed or operating at reduced capacity. Millions of people are unemployed. Mortgages are deferred. The need for office space is being questioned.

To put it lightly, both retail and commercial real estate is experiencing one of the most transformative moments in history. While malls and brick-and-mortar retail has been under pressure for years, Covid-19 compressed a decade’s worth of change into a couple months.

The charts below highlight the current state the real estate market.

With the huge surge in unemployment and minuscule savings, Americans are suddenly unable to pay their bills. 32% of Americans missed (either fully or partially) their July mortgage payment.

Delinquency rates vary by property type (overall delinquencies approaching decade highs) but are rising rapidly.

New York is the most stressed area at the moment, likely due to its concentration of people/businesses, real estate valuations and the severity of regional lock-downs.

Toronto-area housing has remained strong through the downturn, with prices actually increasing.

Although Toronto has experienced a resilient housing market, it could face increasing pressure over the next several months as rental supply rises (driving down the price of rent). The decline in condos leased combined with the surge in listings has pushed the condo rental inventory from 1.5 Months of Inventory (MOI) at the end of March to nearly 4 months at the end of April.

How is Canadian real estate holding together? Government handouts. Approximately 20% of the Canadian population is receiving CERB – a $2000/mth support payment from the Federal Government.

If and when CERB benefits are taken away, Canadian real estate will likely face growing pressure. Not only is the supply of rentals growing rapidly, immigration is plummeting. This combination could tip Canadian real estate into negative territory. Of course, there’s always the possibility that immigration once again picks up in the future, but it’s debatable whether this will be enough to absorb the rise in housing supply.

The Coronavirus Economic Depression:

The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

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I originally planned on printing the guide and selling copies for $20+. Instead I’m giving this away free because I think we all need to help each other during these difficult times.

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.