All Signs Point to a Real Estate Crash in Canada

Summary

The Canadian real estate market is experiencing significant shifts, with housing prices falling across various regions, particularly in Ontario and Greater Vancouver. Buyers are protesting appraisals that fall far below purchase prices, especially in developments like Colan Crossing. Meanwhile, unemployment has risen to 6.8%, creating uncertainty about potential rate cuts by the Bank of Canada. While mortgage arrears remain low, they are expected to rise as the economic situation evolves. The market is largely in a balanced state, with some regions remaining in a seller's market, but overall, it’s a challenging time for buyers and sellers alike.

Takeaways

• 😀 The luxury real estate market in Toronto is under some pressure, with prices dropping significantly in various regions of Canada.
• 😀 A major issue in the pre-construction market is the mismatch between the purchase price and appraisals, leading to buyer protests and financial difficulties, including cases of homes being burnt down due to failed closings.
• 😀 House flipping in Greater Vancouver has drastically decreased to its lowest level in 25 years, signaling a shift away from speculative real estate investments.
• 😀 Unemployment in Canada rose to 6.8% in November 2024, the highest since January 2017, with speculation that the Bank of Canada may implement a jumbo rate cut to address economic pressures.
• 😀 The unemployment rate and mortgage arrears show an inverse correlation: as unemployment rises, mortgage arrears typically follow, though with some lag time.
• 😀 The Bank of Canada interest rate decisions often precede spikes in unemployment by several months, with interest rate drops generally leading to a rise in joblessness.
• 😀 The home buying recipe chart illustrates the current real estate cycle, showing that while interest rates are falling, unemployment is rising, leading to an eventual correction in the market.
• 😀 The national real estate market saw month-over-month price declines in several regions, with Toronto experiencing a 6.4% drop in average MLS prices from October to November 2024.
• 😀 Some regions have experienced significant price drops from their peak, such as Peterborough (down 31.5%), Durham region (down 27.1%), and Waterloo region (down 26.5%).
• 😀 Despite price drops, some regions like Montreal and Quebec City are experiencing increases in home prices, reflecting continued demand in these markets.
• 😀 The current real estate market is primarily balanced or favoring sellers, with regions like Calgary, Montreal, and Ottawa showing overheated seller markets due to low inventory and high demand.

Q & A

What is the main issue that buyers at the Colan Crossing development are facing?

The buyers at Colan Crossing are upset because the banks are appraising properties for $400,000 to $500,000 less than the purchase price. They believe the builders should honor the appraisal price, not the original purchase price.

What unusual event has occurred in the Colan Crossing development area?

Homes in the Colan Crossing development have been burnt down due to buyers failing to close on their properties, and builders are suing buyers who can't come up with the funds to fulfill their contracts.

What significant trend did Steve Satey observe regarding house flipping in Greater Vancouver?

Steve Satey noted that house flipping in Greater Vancouver has dropped to its lowest level in 25 years, indicating a shift away from speculative real estate investments in the area.

How is the drop in house flipping beneficial to buyers?

The drop in house flipping means more inventory is available for end users (buyers who intend to live in the homes), which is a positive development for those looking to buy homes.

What was the unemployment rate in Canada in November 2024, and why is it significant?

The unemployment rate in Canada increased to 6.8% in November 2024, which is the highest since January 2017 (excluding the COVID-19 pandemic years). This is significant as it may lead to further interest rate cuts from the Bank of Canada.

What connection was made between unemployment rates and mortgage arrears?

The mortgage arrears trend closely follows the unemployment rate. Historically, when the unemployment rate rises, mortgage arrears also tend to increase, although mortgage arrears are a lagging indicator.

What is the relationship between the Bank of Canada's interest rate and unemployment rates?

There is an inverse correlation between the Bank of Canada's interest rates and the unemployment rate. When the Bank of Canada lowers interest rates, unemployment tends to rise after a lag period of 6 to 12 months.

What is the current trend in Canadian real estate markets according to the latest data?

The latest data shows that most regions in Canada are experiencing declines in real estate prices compared to their peaks, with notable losses in areas like Peterborough, Durham, and Waterloo. However, some regions, particularly in Quebec and Montreal, have seen price increases.

Which regions experienced the biggest price declines from their peak values?

Peterborough saw the largest decline at 31.5%, followed by Durham Region at 27.1% and Waterloo Region at 26.5%. Many other areas, including Hamilton, Peel, and Barry Simcoe, experienced losses of 20% or more.

How does the current market imbalance affect real estate listings and sales?

The current market imbalance, particularly in colder months, has led to fewer new listings, which in turn creates a slower sales-to-listings ratio. However, many places are still in a balanced or overheated sellers' market, as demand continues to outpace supply in certain regions.