Canada’s Housing Market Headed for Weakest Year in Almost a Decade

house_soldCanada’s Housing Market Headed for Weakest Year in Almost a Decade, Warns CREA in Updated Outlook

The average price for homes sold last month was down 5.2% from last year as the number of sales dropped to a 10-year low for the seasonally weak month of February, the Canadian Real Estate Association (CREA) reported on March 15.

CREA highlighted the impact of a mortgage stress test that affects federally regulated lenders, including the big banks, but some analysts said February’s drop may be due in part to severe winter weather.

“February home sales declined across a broad swath of large and smaller Canadian cities,” CREA chief economist Gregory Klump said in a statement.

CREA said February sales fell 4.4% compared with the same month last year. That is the lowest level for the month of February since 2009 and almost 12% below the 10-year average for the month.

On a month-over-month basis, national home sales in February were down 9.1% compared with January for the lowest level since November 2012. It’s the biggest month-over-month drop since the mortgage stress test came into effect in January 2018.

The new stress test requires borrowers to prove that they can service their uninsured mortgage if lending rates go above a certain threshold.

The national average price for homes sold in February was $468,350, down 5.2% from the same month in 2018. Excluding the Greater Vancouver and the Greater Toronto Area, two of the country’s most active and expensive markets, the national average price was just under $371,000.

There were 5.7 months of inventory on a national basis at the end of February 2019, a three-and-a-half-year high and a little above its long-term average of 5.3 months. That said, there are significant regional differences. The number of months of inventory has swollen far above its long-term average in Prairie provinces and Newfoundland & Labrador; as a result, homebuyers there have an ample choice of listings available for purchase. By contrast, the measure remains well below its long-term average in Ontario and the Maritimes.

“Only time will tell whether successive changes to mortgage regulations went too far, since the impact of policy decisions becomes apparent only well after the fact,” said Klump.

“Hopefully policy makers are thinking about how to fine tune regulations to better keep housing affordability within reach while keeping lending risks in check.”

Some analysts however focused on the weather as a key factor.

Doug Porter, chief economist at BMO Financial Group, wrote in a note that February is normally a seasonally slow month even during a tame winter.

“This was most patently not a tame winter month, further bludgeoning a sluggish market,” Porter said.

He added that the year-over-year drop in sales was heavily concentrated in British Columbia and Alberta, while the other eight provinces saw a 2.8% year-over-year rise.

Porter said he won’t delve into great detail on the housing figures as they’re more of a weather report than an economic one at this time of year.

TD Economics senior economist Brian DePratto, and upcoming CHHMA Spring Conference speaker, agreed that severe winter weather in Toronto and Vancouver may have sidelined potential buyers and sellers.

“The true test of market health will come with the warmer spring weather,” DePratto wrote in a note.

CREA Updates Annual Outlook

Meanwhile, CREA has updated its outlook for the year, now saying it expects home sales in Canada to pull back by 1.6% to 450,400 in 2019, a change that would mark the weakest annual sales since 2010. The association expected British Columbia to account for much of that projected decrease, as well as continued decline in Alberta.

Its forecast projects sales will rise to 459,400 in 2020, up 2% from the 2019 forecast.

The national average price is expected to stabilize (-0.2%) in 2019 at around $487,000, following a 4.1% drop in 2018, which was the largest in almost 25 years. In B.C., Alberta, Saskatchewan, and Newfoundland and Labrador it forecasts the average home price will retreat, while it will continue to rise in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and P.E.I.

The association expects the national average price to move up 0.8% to $490,800 in 2020.

Source: CREA, The Canadian Press

Toronto Housing Has Become Magnet for Money Launderers, with $28 Billion in Real Estate Bought by Anonymous Owners

In an article by Bloomberg News, Toronto’s housing market has become a target for money laundering or “snow washing,” thanks to anonymous property ownership, weak regulation and lax enforcement, according to a new study.

Since 2008, $28.4 billion worth of housing was acquired in the Toronto region largely through private entities where owners can remain anonymous, according to a report released on March 21st by Transparency International Canada, Canadians for Tax Fairness and Publish What You Pay Canada.

In that period, $9.8 billion of housing was bought by companies through cash purchases, largely bypassing anti-money laundering checks on fund sources and beneficial owners, according to the study, which analyzed more than 1.4 million residential sales dating back to 2008.

“Canada’s lack of beneficial ownership transparency makes our entire country an attractive destination for money laundering,” according to the report. While some vacant properties in Toronto might sit as investments for legitimate money, a worrying amount slips past regulators who do not really know who owns what, nor how much is being used for money laundering and tax evasion, it said.

The report follows a similar one on Vancouver in 2016 that revealed almost half of the city’s most valuable property owners were unknown and hiding behind shell companies, trusts and nominee owners. This led to greater enforcement from the provincial government, including proposing a registry for beneficial owners for property.

The Toronto housing market has ranked among the least affordable in the world and became a target for speculative investment. The provincial government brought in a foreign-buyers tax in 2017 and instituted audits of real estate speculators in the region.

The report argues that more measures should be implemented to shed light on the extent of anonymous ownership in the market, which includes requiring disclosure of beneficial owners of real estate as a prerequisite for any properties transfers.

The federal budget tabled on last week included a proposal to spend $16.9 million on strengthening the Financial Transactions and Reports Analysis Centre of Canada that would help boost scrutiny of the real estate and casino sectors with a focus on British Columbia.