This year I had the pleasure of doing some extensive travel. I started in January with trips to Vancouver and New York City. Then off to Palm Beach, Las Vegas, Athens, Naples Florida, Istanbul, Naples Italy then London and Paris. I still have Fort Worth, and will finish the year in Sonoma. All of my travel was work related, where I attended conferences, presented our brokerage story, and exchanged ideas

with industry leaders throughout the world. I do love the opportunities I get from being part of a Strong Global Brand. The market insight I have been able to gather by

speaking with REALTORS® all over the globe, and what you can purchase in their respective countries (for instance waterfront - oceanfront properties mainly), compared to

what we pay back in Canada, made me reflect on our market values within a global context. The world may be small but when it comes to how far our Canadian Dollar goes, well that’s another story. I researched many different currency lists, which had a variety of methods of analysis and no matter which list I checked, Canada always fell short of the top 10 currencies. Kuwaiti Dinar was always the clear #1; the British Pound was always 5th or 6th; the Euro and the US dollar were 9th and 10th, and Canada always missed the top 10, ranking at 11th or 12th depending on the list, methodology, and time of year. Our dollar seems to go shorter compared to other currencies when we travel, but it also goes shorter when we are home buying or renting a property.....why is that?

Are Canadians Really Getting Ahead?

Statistics Canada recently reported that our debt compared to how much we earn fell in Q2 of 2023. We saw disposable income outperform debt, while demand for mortgages subsided. So we as Canadians wiped out just nearly 4 cents of debt in approximately 90 days. In Q1, Canadians carried $1.84 of debt for every dollar we earned, and by Q2 it was just over $1.80. But when you look at growth in real estate in Canada for the last 6 months, (particularly if you bought a 2 storey home in January/February), the aggregate

increase across Canada was +5.5% (Ontario +5.3%). Let me get this straight, our debt levels retracted by 2%, while Canadians missed out on a nearly 6% return if they would have gotten into the real estate market at the beginning of this year? Not to mention that if they acquired in British Columbia they would be up nearly 10%.

“Are we poor?” View the GIF here.

International Home Price Index (HPI) and How Does Canada Compare?

HPI measures the prices of residential properties over time. These indices are very important for individuals and households all over the world, and are particularly important to economic policy makers (the BOC

and the Federal Reserve). I

was able to track down a dataset which covers OECD (Organisation for Ecomonic

Co-operation and Development) member countries, and some non-member countries (stats.oecd.org). This source contains information on real house prices, rental prices coupled with household income per capital. As of Q1 of 2023 Canada ranked 4th most expensive, and in Q4 of 2019 we ranked 15th. Our index ranked above France, Japan, the UK, Luxembourg and Switzerland. Switzerland!!!!! What?! Recently, according to Bloomberg, it was reported that Zurich just blew past London and Paris as the most expensive real estate in Europe.

What Do Investors Know That We Don’t?

The Bank of Canada just released Q1 buyer composition the other day, and when you compare it with the first quarter of 2020, it reveals something very interesting about the mindset of the Canadian home buyer. Back in January to March 2020, we were clearly in an uncertain market as Covid-19 was upon us. First-time buyers lead the market with 48% of the buying public; repeat buyers represented 30%, and investors were in third place at 22%. It seems that even with the prospect of cheap money, investors were jittery. Fast forward to the first quarter of 2023, where investors now 30%, surpassed repeat buyers (27.5%). First-time buyers dropped 5 percentage points to 43%.

With rising rates already a thing, what made investors so confident in the market. They are income driven, and as rates were climbing, they had a tougher time justifying entering the market. How is it that first-time buyers backed off when prices were at a low point, and rates looked like they were stabilizing? First-time buyers can weather the storm better than investors. They can be strategic about the term of their mortgage, budget their expenses, and as long as they have a steady employment, they will be able to carry their mortgages and eventually realize capital gains tax free.

A strategy which is emerging as a result of constraints put on buyers as a result of the current rates and increase

in housing sale prices is co-ownership. Co-ownership amounts to 6% of the market (according to a recent RLP study). It’s not just families buying together, but also friends. There are a host of tools and agreements which can help make this new emerging buyer sector (ask your REALTOR®) a viable option. Many who were surveyed said that co-ownership bought them more house, and a far better neighbourhood.

Why Home Values are Insulated From a Bubble

I often get asked why I am so bullish on real estate, given the uncertainties which plague the real estate market including interest rates, the overall economy, high inflation, major labour unrest, job losses etc. For me it all centres around household formation and the formation of housing units. When you have an imbalance between these two numbers you either see a housing bubble (decline in

home prices) or a steady climb in rental rates and housing appreciation. We are in the latter, and this is even more pronounced in immigration hotspots throughout Canada.

The interesting thing is that even with the failed Greenbelt Land debacle to increase land to build more housing, Canada has many barriers to development. I have often said even if the land was free, there are local government constraints which impose vast timelines (time is money), from raw land to move-in ready. Not to mention all the soft costs the development journey is plagued with. So far in Ontario housing starts are up for Q1 and Q2 of 2023,

at 44,000. Compared to the same period last year we

are up just under 12% - far short of the province’s target

of 150,000 per year. Most of these housing starts are remnants of sales which occurred in 2019/20 and early 2021 when the housing market was at its highest. Q3 and Q4 will not make any headway on the targeted number as we see labour shortages and the results of high interest rates take hold. New condo sales went down in the first half of the year in Toronto by nearly 35%, and prices dropped slightly for the first time in over 10 years.

Do We Need Mortgage Default PAIN to See Lower Interest Rates AGAIN?

Natural population growth has been on the decline (near negative household creation) in countries like Canada. The fact that we lead the G7 in immigration growth gives home owners a level of comfort that there is a floor under home values. Barring extreme job losses, double digit interest rates etc., immigration acts like an insulation against falling demand, and therefore falling property values. Just after the real estate boom of the late 80’s we saw a period in the the 90’s where population growth fell (household creation plummeted) and home values dropped nationally by

21%. Our current immigration numbers offer Canadians a hedge on demand. It’s not that we will not see values come off slightly, but our recovery is steadfast due to growing (demand) immigration numbers.

The irony of it all is that if first-time buyers continue to sit on the sidelines and postpone their purchase of a property, they will lose buying power. We all saw how a 25 basis point increase in mortgage rates in March 2022 lead to a 25% decline in property values, despite tight inventories and a million new Canadians. Can you imagine when

rates go the other direction, what impact that will have

on home prices? Rising rates may have been the impetus to the decline, but our housing demand fuelled our price recovery. The Bank of Canada’s strategy is a simple one.

By raising rates they are hopeful that some Canadians are forced into a sell off. Furthermore, the BOC strategy is to weaken the housing market, and in turn, weaken inflation by reducing construction costs (labour) and consumer (spinoff) spending on appliances and furniture . As a result, with less borrowing to buy homes today, there would be lower rates tomorrow.

The Canadian Home-Owner Has Miles and Miles of Runway (the metric equivalent doesn’t sound as good)

Let’s stop the blame game. It isn’t immigration, absentee landlords or vacant properties which tipped the scales of housing. We have had periods of higher immigration per capita in the past. In 1914 over 400,000 immigrants came to Canada representing 5% of our population. It isn’t high or low interest rates that are the sole driver of housing prices either. In 2023 we saw many market fluctuations, from buyer to seller, to buyer to balanced, to seller and back to buyer again. All within an historically higher mortgage rate environment. The federal government through CMHC just announced increasing the bond program to fund purpose built rentals from $40 billion annually, to $60 billion. Canada Mortgage and Housing estimates the “core housing need” at 3.5 million new units between now and 2030. By those estimates we would have to double housing starts (250,000 to 500,000) annually, at a cost of approximately

of hundreds and hundreds of billions of dollars. So as I see it, the market hick-ups we may be experiencing are temporary, opportunities and market driven growth will rule the day, it ain’t about too many people, it’s about too little supply, and the lack of ingenuity to create more.