March madness

General Robyn McLean 20 Apr

Some insight from our friends at First National.

The national home sales numbers for March have been delivered by the Canadian Real Estate Association.  As expected, they show the promising start to this year’s spring buying season has come to an abrupt end.

Earlier CREA released sales figures for Toronto and Vancouver, the country’s biggest and busiest markets.  They showed those cities going into a tailspin in the second half of the month.  Nationally, the market followed suit.

Here is a quick look at the country’s biggest markets:

Greater Toronto Area: -28%
Montreal: -13.3%
Greater Vancouver: -2.9%
Calgary: -26.3%
Edmonton: -13.2%
Winnipeg: -7.3%
Hamilton-Burlington: -24.9%
Ottawa: -7.95%

CREA’s early numbers for April suggest more of the same.  Prices, though, are standing pat.

Generally, market watchers believe prices are holding steady because of a significant drop in new listings.  They were down 12.5% in March, compared to February.  The MLS Home Price Index rose 0.8% m/m and is up almost 7.0% compared to a year ago.  These are early statistics and April’s final results will likely give a better indication of what is in store.

Analysts will also be watching the bankruptcy and default numbers.  Increasing levels of unemployment and income loss, due to COVID-19 measures, could push debt laden households over the edge, forcing them to put their homes on the market.  Any surge in that kind of activity could well lead to price declines.

Apr 20, 2020
First National Financial LP

Bank of Canada Stands Ready To Do Whatever It Takes

General Robyn McLean 15 Apr

Kudos for the Bank of Canada for doing what needs to be done and for standing on guard as the situation continues. Full details from Dr. Sherrp Cooper, Chief Economist at Dominion Lending Centres
On the heels of a devastating decline in the Canadian economy, the Bank of Canada is taking unprecedented actions. With record job losses, plunging confidence and a shutdown of most businesses, this month’s newly released Monetary Policy Report (MPR) is a portrait of extreme financial stress and a sharp and sudden contraction across the globe. COVID-19 and the collapse in oil prices are having a never-before-seen economic impact and policy response.The Bank’s MPR says, “Until the outbreak is contained, a substantial proportion of economic activity will be affected. The suddenness of these effects has created shockwaves in financial markets, leading to a general flight to safety, a sharp repricing of risky assets and a breakdown in the functioning of many markets.” It goes on to state, “While the global and Canadian economies are expected to rebound once the medical emergency ends, the timing and strength of the recovery will depend heavily on how the pandemic unfolds and what measures are required to contain it. The recovery will also depend on how households and businesses behave in response. None of these can be forecast with any degree of confidence.”

“The Canadian economy was in a solid position ahead of the COVID-19 outbreak but has since been hit by widespread shutdowns and lower oil prices. One early measure of the extent of the damage was an unprecedented drop in employment in March, with more than one million jobs lost across Canada. Many more workers reported shorter hours, and by early April, some six million Canadians had applied for the Canada Emergency Response Benefit.”

“The sudden halt in global activity will be followed by regional recoveries at different times, depending on the duration and severity of the outbreak in each region. This means that the global economic recovery, when it comes, could be protracted and uneven.”

Today’s MPR breaks with tradition. It does not provide a detailed economic forecast. Such forecasts are useless given the degree of uncertainty and the lack of former relevant precedents. However, Bank analysis of alternative scenarios suggests the level of real activity was down 1%-to-3% in the first quarter of this year and will be 15%-to-30% lower in the second quarter than in Q4 of 2019. Inflation is forecast at 0%, mainly owing to the fall in gasoline prices.

“Fiscal programs, designed to expand according to the magnitude of the shock, will help individuals and businesses weather this shutdown phase of the pandemic, and support incomes and confidence leading into the recovery. These programs have been complemented by actions taken by other federal agencies and provincial governments.”

The Bank of Canada, along with all other central banks, have taken measures to support the functioning of core financial markets and provide liquidity to financial institutions, including making large-scale asset purchases and sharply lowering interest rates. The Bank reduced overnight interest rates in three steps last month by 150 basis points to 0.25%, which the Bank considers its “effective lower bound”. It did not cut this policy rate again today, as promised, believing that negative interest rates are not the appropriate policy response. The Bank has also conducted lending operations to financial institutions and asset purchases in core funding markets, amounting to around $200 billion.

“These actions have served to ease market dysfunction and help keep credit channels open, although they remain strained. The next challenge for markets will be managing increased demand for near-term financing by federal and provincial governments, and businesses and households. The situation calls for special actions by the central bank.”

The Bank of Canada, in its efforts to provide liquidity to all strained financial markets, has, in essence, become the buyer of last resort. Under its previously-announced program, the Bank will continue to purchase at least $5 billion in Government of Canada securities per week in the secondary market. It will increase the level of purchases as required to maintain the proper functioning of the government bond market. Also, the Bank is temporarily increasing the amount of Treasury Bills it acquires at auctions to up to 40%, effective immediately.

The Bank announced new measures to provide additional support for Canada’s financial system. It will commence a new Provincial Bond Purchase Program of up to $50 billion, to supplement its Provincial Money Market Purchase Program. Further, the Bank is announcing a new Corporate Bond Purchase Program, in which the Bank will acquire up to a total of $10 billion in investment-grade corporate bonds in the secondary market. Both of these programs will be put in place in the coming weeks. Finally, the Bank is further enhancing its term repo facility to permit funding for up to 24 months.

The Bank will support all Canadian financial markets, with the exception of the stock market, and it “stands ready to adjust the scale or duration of its programs if necessary. All the Bank’s actions are aimed at helping to bridge the current period of containment and create the conditions for a sustainable recovery and achievement of the inflation target over time.”

This is exactly what the central bank needs to do to instill confidence that Canadian financial markets will remain viable. These measures are a warranted offset to panic selling. Too many investors are prone to panic in times like these, which has a snowball effect that must be avoided. As long as people are confident that the Bank of Canada is a backstop, panic can be mitigated. The Bank of Canada deserves high marks for responding effectively to this crisis and remaining on guard. Governor Poloz and the Governing Council saw it early for what it is, a Black Swan of enormous proportions.

As a result, Canada will not only weather the pandemic storm better than many other countries, but we will come out of this economic and financial tsunami in better condition.

Housing Market Another Victim of the Virus 

General Robyn McLean 15 Apr

Current market conditions are indicative of what’s to come until the Covid-19 virus is behind us. We take a close look with DLC’s Chief Economist Dr. Sherry Cooper.

Data released this morning from the Canadian Real Estate Association (CREA) showed national home sales fell 14.3% on a month-over-month (m-o-m) basis in March, the first national indication of the early impact of social isolation. The economic disruption and massive layoffs caused both buyers and sellers to increasingly retreat to the sidelines over the second half of the month.Transactions were down on a m-o-m basis in the vast majority of local markets last month. Among Canada’s largest markets, sales declined in the Greater Toronto Area (GTA) (-20.8%), Montreal (-13.3%), Greater Vancouver (-2.9%), the Fraser Valley (-13.6%), Calgary (-26.3%), Edmonton (-13.2%), Winnipeg (-7.3%), Hamilton-Burlington (-24.9%) and Ottawa (-7.9%).

Actual (not seasonally adjusted) sales activity was still running 7.8% above a quiet March in 2019, although that was a considerable slowdown compared to the y-o-y gain of close to 30% recorded in February.

“March 2020 will be remembered around the planet for a long time. Canadian home sales and listings were increasing heading into what was expected to be a busy spring for Canadian REALTORS®,” said Jason Stephen, president of CREA. “After Friday the 13th, everything went sideways. REALTORS® are complying with government directives and advice, all the while adopting virtual technologies allowing them to continue showing properties to clients already in the market, and completing all necessary documents.”

“Numbers for March 2020 are a reflection of two very different realities, with most of the stronger sales and price growth recorded during the pre-COVID-19 reality which we are no longer in,” said Shaun Cathcart, CREA’s Senior Economist. “The numbers that matter most for understanding what follows are those from mid-March on, and things didn’t really start to ratchet down until week four. Preliminary data from the first week of April suggest both sales and new listings were only about half of what would be normal for that time of year.”

New Listings
The number of newly listed homes declined by 12.5% in March compared to the prior month. As with sales, the declines were recorded across the country.

With sales and new listings each falling by similar magnitudes in March, the national sales-to-new listings ratio edged back to 64% compared to 65.4% in February. While this is down slightly, the bigger picture is that this measure of market balance was remarkably little changed considering the extent to which current economic and social conditions are impacting both buyers and sellers.

Based on a comparison of the sales-to-new listings ratio with the long-term average, two-thirds of all local markets were in balanced market territory in March 2020. Virtually all of the remainder continued to favour sellers.

There were 4.3 months of inventory on a national basis at the end of March 2020. While this is up from the almost 15-year low of 3.8 months recorded in February, it remains almost a full month below the long-term average of 5.2 months. With the overall number of listings on the market continuing to fall in March, the m-o-m decline in the months of inventory measure was entirely the result of the outsized drop in sales activity.

The number of months of inventory is well above long-term averages in the Prairie provinces and Newfoundland & Labrador. By contrast, the measure is running well below long-term averages in Ontario, Quebec and the Maritime provinces. The measure remains in balanced territory in British Columbia.

Home PricesWith measures of market balance at this point, little changed from recent history, and most of the impact on sales and listings from the COVID-19 situation only showing up towards the end of March, the impact on housing prices will likely take a little longer to become apparent. Price measures for March 2020 were strongly influenced by very tight markets and a very strong start to the spring market in many parts of Canada before physical distancing measures were implemented.

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8% in March 2020 compared to February, marking its 10th consecutive monthly gain.

The MLS® HPI was up in March 2020 compared to the previous month in 16 of the 19 markets tracked by the index. (See the Table below)

Looking at the major Prairie markets, home price trends have ticked downwards in Calgary and Edmonton to start 2020 but have generally been stable since the beginning of last year. Prices in Saskatoon have also been stable over the last year, while those in Regina have continued to trend lower. Prices in Winnipeg have been on a slow upward trend since the beginning of 2019.

Meanwhile, the recovery in home prices has been in full swing throughout British Columbia and in Ontario’s Greater Golden Horseshoe (GGH) region. Further east, price growth in Ottawa, Montreal and Moncton continues as it has for some time now, with Ottawa and Montreal prices accelerating to start 2020.

Bottom Line: Clearly this is only the beginning, but the plunge in sales and new listings in the second half of March is indicative of the stall out in housing market activity likely until social distancing is removed and people feel safe enough to resume normal activities. No doubt, at that point, there will be buying opportunities, but right now, housing is just another contributor to the collapse in the economy.

 What we know. What we can hope for.

General Robyn McLean 14 Apr

Some great insight from our friends at First National. 

Apr 13, 2020

We have been receiving a lot of unsettling economic data lately.

Coming out of February, unemployment stood at 5.6% and nearly 250,000 jobs had been created in the previous 12 months.  By the end of March, nearly a million jobs had disappeared.  The Conference Board of Canada projects that could climb to 2.8 million by the end of April.  The best guess right now is that unemployment stands at about 20%.

Nationally, March housing starts dropped 7.3% compared to February.  The value of building permits – a forward looking indicator – crashed in March, dropping 23%.

As distressing as the numbers are, the real anxiety remains the unknown.  But, many of the country’s best-known economists are putting on brave faces.  They point to the temporary nature of the job losses.  StatsCan reports most workers expect to be back on the job in about six months, once the coronavirus pandemic is deemed to be under control.  We have also come to know that month-to-month job numbers can be volatile and need to be watched over time to establish trends.

The decline in housing starts can, at least in part, be attributed to bans on new construction.  A number of jurisdictions are restricting builders to the completion of existing projects, only.  And the drop in building permits is uneven across the country.  B.C. is down nearly 27%, Ontario is down 50.5%, while Alberta increased nearly 12% and Halifax jumped 153%.

Beyond the Pandemic

General Robyn McLean 6 Apr

Kevin Skipworth, Managin Broker/Partner at Dexter Realty is someone who I respect & admire; he’s a hard-working numbers guy who always adds his own thoughtful insight to anything he shares. I thought I would share with you his most recent look at the state of the industry in our market. Sta safe everyone. 

“Our patience will achieve more than our force” – Edmund Burke

Where to begin. This month’s numbers for Greater Vancouver real estate are a tale of what could have been, not so much what will be. The way sales on a given day are counted by the Real Estate Board of Greater Vancouver are by looking at the day when that sale is reported by a real estate company to the Board, regardless of when the date the contract is written. So, there is a time lag between when the contract is written and when it is reported. This will be important in looking at sales figures for March as a degree of that activity came from transactions that were initiated prior to mid-March.

There were 2,562 homes sold of all types in Greater Vancouver in March this year compared with 2,185 homes sold last month, 1,745 sales in March last year and 2,551 homes sold in March 2018. Sales in March were 19 per cent below the 10-year average for the month of March. The number of sales in March were 47 per cent higher compared to March 2019, continuing the trend for the ninth straight month where year-over-year sales were up. This trend is likely to stop in April as the effect of the COVID-19 Virus impacts the real estate market.

Beyond the Pandemic:

The COVID-19 crisis will continue over the next number of months, a timeframe which is impossible to determine at this time. The numbers show that Greater Vancouver was in the stages of a market gaining momentum. While the market was still reaching for average, it was still vastly improved from last year which was a very challenged real estate market. Pent up demand was coming to the market, and from the provincial numbers identifying a very small number of foreign buyers, these were local buyers. While the real estate market takes a pause for the short term, there are many reasons to think it will be very active when we see some relief from virus, and in some cases why we may see activity over the next few months.

  • Detached/townhouse will be more attractive and in greater demand after this as people want dwellings with social distancing – people will make personal and financial sacrifices for health
  • Those in sectors where the most job losses are occurring in higher numbers aren’t the typical buyers in the market
  • After isolation people will grow tired of their homes and want a change
  • Unfortunately, some marriages may not survive after this hence people will need to move
  • In 9 to 12 months there likely will be a mini-baby boom hence people will need to move
  • Having not spent disposable income as much, people are in saving modes and that will carry on beyond this and will add to what’s available for home purchasing (even with reduced incomes, many of the home buyers are still earning an income)
  • Interest rates will be low for the foreseeable future, lowest we’ve seen
  • With so many sectors in the economy suffering that are important to government revenue, and as they struggle to recover, the government will need investment and revenue from real estate
  • There will be a shortage of homes available coming out of this and continuing so prices will not be dropping to any great degree, and new construction will suffer which will perpetuate the shortage in the years to come
  • Stock markets will continue to be volatile, pushing money into real estate, especially at higher price points
  • Canada’s response to Covid-19 is showing it a favourable place to be – immigration and investment will likely flourish with the United States potentially being a source of those coming to Canada.

The number of homes for sale in Greater Vancouver saw a slight increase in March. At the end of March there were 10,338 homes for sale in Greater Vancouver, compared to 9,894 at the end of February and 13,408 at the end of March 2019. While it may be surprising that we had that many new listings during the current pandemic, April will be more telling of the effects. But we saw 2,511 new listings up to March 15 and then 2,010 after that. The number of new listings per day did start to decline in the days leading up to the end of the month, but we are still seeing listings coming on (233 in Greater Vancouver in the last two days of the month.) Current market conditions are still producing some multiple offers – in all product types. While it may seem like a high number of new listings for current conditions, it is still well below what we would see for March in Greater Vancouver. There were 4,421 new listings during March in Greater Vancouver, down 11 per cent from March last year. The number of new listings in March were 22 per cent below the 10-year average for the month.

The first two weeks of the month were the busiest days of the year for our region with heightened demand and multiple offers becoming more common,” Ashley Smith, REBGV president said, “Like other aspects of our lives, this changed as concerns over the COVID-19 situation in our province grew. “Many of the sales recorded in March were in process before the provincial government declared a state of emergency. We’ll need more time to pass to fully understand the impact that the pandemic is having on the housing market,” Smith said.

East of the Fraser River, the Fraser Valley Real Estate Board processed 1,441 sales of all property types on its Multiple Listing Service® in March, an increase of 7 per cent compared to sales in February and a 18 per cent increase compared to the sales in March of last year. According to the Fraser Valley Board, during the first 7 business days of the month, property sales were tracking 60 per cent higher compared to the same period in March of last year, however finished significantly lower.   Active listings for the Fraser Valley finished 6 per cent higher month-over-month and decreased of 13 per cent when compared to March 2019. There were 2,666 new listings in March, a 4 per cent increase compared to February 2020 and a 7 per cent decrease compared to March 2019.

Above all else, right now is a time to focus on staying safe and healthy. There will be real estate activity while we are under these unprecedented times, some people’s financial wellbeing may depend upon it. Others just need a home to isolate in. What’s important is that we all act in a way to help bring back normalcy to our lives – as much as that can be. Be safe and be careful.