Paying For The Crazy Years: Home Prices Leading Economy Down

Apr. 03, 2019 5:47 AM ETAWP, VNQI, EWC, IGR, WPS, RWX, JRI, REET, RWO, SRET, IFGL, WTRE, ASRAX, RDOG, FFR, QCAN, FCAN, HEWC, RRGIX, BBCA, FLCA8 Comments8 Likes
Danielle Park, CFA profile picture
Danielle Park, CFA
4.62K Followers

Summary

  • The largest headwind for Canadian households, lenders and the economy in 2019-20 is the same force that worked as a tailwind in the decade before: real estate.
  • Naturally, the leaders of the boom years -the greater Vancouver and Toronto areas - are now also leading the deflation cycle.
  • Spring listings come to market as Vancouver already had 12,774 homes for sale in March, 52% more than a year ago and 10.2% more than a month earlier.

The largest headwind for Canadian households, lenders and the economy in 2019-20 is the same force that worked as a tailwind in the decade before: real estate. Naturally, the leaders of the boom years -the greater Vancouver and Toronto areas - are now also leading the deflation cycle. And a popular plan to 'list this spring' suggests homes on offer are set to rise significantly in the weeks ahead.

Spring listings come to market as Vancouver already had 12,774 homes for sale in March, 52% more than a year ago and 10.2% more than a month earlier. Although 8% cheaper than last March, the benchmark composite index price for a Vancouver home is still $1.01 million today - an impossible 12.5x the $80,000 median household income in the city.

The Real Estate Board of Greater Vancouver (REBGV) reported today that a total of 1,727 homes sold in the region in March - the lowest sales total for the month since 1986 - down 31% from a year earlier and 46% below the 10-year March sales average. See: Prospective home buyers remain on the sidelines in March.

Of course, the REBCV President blames governments for higher lending standards and new taxes that deter speculation, rather than the unaffordable prices and the decade-long credit party that burdened the nation with debt servitude that'll take years to alleviate.

Canada is a stand-out in this problem, but we're not alone. According to Knight Frank, a London-based real-estate consulting firm, inflation-adjusted home-price gains have significantly outpaced income growth over the last five years in 18 of 25 world cities. See: Affordable housing crisis spreads throughout the world.

Now as prices fall, sellers tend to hold high and hope for a rebound. But new buyers have every reason to wait and watch as prices come back in line with long-term affordability metrics. Paying for the last ten years of crazy is going to take some time.

Disclosure: No positions

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Danielle Park, CFA profile picture
4.62K Followers
Portfolio Manager, financial analyst, attorney, finance author, a regular guest on North American media. Danielle Park is the author of the best selling myth-busting book “Juggling Dynamite: An insider’s wisdom on money management, markets and wealth that lasts,” as well as a popular daily financial blog:www.jugglingdynamite.com Danielle worked as an attorney until 1997 when she was recruited to work for an international securities firm. A Chartered Financial Analyst (CFA), she now helps to manage millions for some of Canada's wealthiest families as a Portfolio Manager and analyst at the independent investment counsel firm she co-founded Venable Park Investment Counsel Inc. www.venablepark.com. For two decades, Danielle has been writing, speaking and educating industry professionals and investors on the risks and realities of investment behaviors. A member of the internationally recognized CFA Institute, Toronto Society of Financial Analysts, and the Law Society of Upper Canada. Danielle is also an avid health and fitness buff.
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