Canada Hits Population Milestone
Despite concerns following the banking turmoil that higher borrowing rates could make matters worse, the Federal Reserve raised its key interest rate by a quarter point on Wednesday. Any talk of rate increases has now turned to talk about rate cuts—and now the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements. How things can turn on a dime.
"It makes logical sense then, that 1) if money is just information and 2) money is being manipulated by Central Banks at an unprecedented rate to avoid a credit collapse of the system, then 3) Misinformation MUST be growing throughout the system (a second order derivative of that misinformation is that trust MUST be declining throughout the system)." – Finding Signal in a Noisy World by Jeff Booth
Buyer demand in the Lower Mainland has increased significantly compared to what we've seen in the last 8 months, with most desirable homes under contract within days of hitting the market. The tide is beginning to shift toward a more competitive environment. There were 1,184 sales in Greater Vancouver in mid-March. It's been a year since the Bank of Canada started hiking rates when the market was at its peak with 4,405 sales. More new listings are selling than the previous month as sellers are continuing to show reluctance to list their homes.
On a national level, sales are down 40% year over year, with the fewest home sales since February 2009. New listings are trickling in at the lowest levels since February 2003 across the country. The Home Price Index indicates prices are down 15.8% from a year ago, though that number is taken with a grain of salt considering the hyperlocal nature of real estate markets. In British Columbia, the average residential price in February 2023 was $941,575, a 15% decrease year over year, and the average MLS® price was slightly higher month-over-month up 8.5%, the highest since July 2022. The province's housing market is showing signs of recovery heading into the spring season, as prices are starting to stabilize and firm up at very low levels of listings and sales.
According to Stats Canada, the country's population grew by over 1 million (+2.7%) in 2022—a record high since the data was collected back in the 70s. International migration accounted for nearly all growth recorded (95.9%). Consequently, the vacancy rate for purpose-built rental units is at the lowest level since 2001. rentals.ca reported asking rents have moderated over the past 3 months after peaking last summer, indicating some softening related to reduced affordability in the rental market, a recent improvement in home-buying demand, and an increase in new supply from apartment completions. Canada will need 300K rental units to avoid the housing shortage quadrupling by 2026, RBC said in a report after analyzing vacancy rate data from CMHC. Interesting times.
Coming this spring is the new Tax-Free First Home Savings Account (FHSA). The official legislation comes into effect on April 1st, but Canada's big six banks say they're not quite ready for its launch date. To qualify, you must be a Canadian resident at least 18 years old and have not owned a home that you lived in as a principal residence at any time in the preceding four calendar years. The account will allow Canadians to make contributions of up to $8,000 per year to a maximum of $40,000 across their lifetime to save towards the purchase of a first home. Contributions to the account will be deductible against income, and any amounts as well as interest earned on investments within the account will also be tax-free upon withdrawal.