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Low supply, high demand lead to skyrocketing real estate prices – Woodstock Sentinel Review



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The total amount of homes sales in January was $43.5 million, a decrease of 18.8 per cent from January 2020.

While supply continues to be the greatest issue, it isn’t for want of trying. The city and Oxford County’s lower-tier municipalities regularly approve planning applications that bring in new residential developments.

In the city’s annual building report, the majority of the construction that took place in 2020 was for residential development. According to the city staff report, $176 million in construction was approved for 522 residential units.

In other parts of the county, subdivisions in Innerkip, Tavistock, Norwich and Thamesford will see construction crews as regular fixtures.

For Woodstock and Oxford County, the attractive location on the Highway 401 and 403 hub has led to significant interest to the region. The availability of jobs and one of the strongest economies in Southwestern Ontario has also made the region a popular spot.

The real estate board’s region only had 88 new residential listings last month  – a decline of 37.1 per cent from January 2020 – making it the fewest new listings ever for a January.

The area had 59 homes listed at the end of the month, which was the lowest amount in January in the past three decades.

The months of inventory, which is the amount of time it would take to sell existing inventories at the current rate of sales, is 0.9. At the end of January 2020, it was 1.6 months while the long-term average was 4.9 months.

“The unsustainably low overall inventory combined with new lockdown measures in the province are starting to have a major impact on sales and listings alike,” Porter said. “The headline story for real estate in our region right now is you cannot buy what is not for sale.”

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Red-hot Winnipeg real estate market proves tough for buyers – CTV News



Real estate is booming in Winnipeg, and with bidding wars and high prices, some buyers are having a tough time locking down a new home.

Buying your first home can be an exciting time in life, but for Michael Hill and his partner, it has been stressful.

“I think we started to figure out why it’s so difficult. The houses are sparse, the good ones are sparse, and the rates are so low where everybody’s able to just basically bid on kind of what they want,” Hill said.

Hill said they’ve been house shopping for the last couple of months, and despite putting down offers on two houses, they haven’t had much luck.

“A combination of being outbid and also having no conditions for the other bids,” said Hill. “One bid literally just said they didn’t have a finance condition, essentially meaning here’s $350,000 in cash.”

Jayesh Guliani, a realtor for Royal LePage, said this year has been extremely difficult for buyers.

“The low inventory, the low-interest rates, and of course pent up demand of people waiting to make their move. Now people are ready to make their moves but unfortunately, so are 30 to 40 other home buyers who are just as qualified and writing just as good offers,” Guliani said.

Numbers released by the Winnipeg Regional Real Estate Board show a 48 per cent increase in sales for Feb. 2021 compared to Feb. 2020. Year-to-date sales for 2021 are up more than 38 per cent compared to this time last year.

Peter Squire, vice president of external relations and market intelligence for the board, claims there’s been a decrease in the number of available listings as well.

“Essentially, demand’s outstripping supply, so that’s why those listings are depleted,” said Squire. “Our actives are down about 40 per cent.”

Squire said the historically low-interest rates happening right now are contributing to the increased demand.

Even with less than perfect timing, Hill isn’t being deterred from finding a home.

“We had our savings built up; we wanted to establish that and make sure that we wanted to do this. It just so happened to be at the time where everybody else is competing for this,” he said.

The Winnipeg Regional Real Estate Board said the city is a very steady market and even if there is a dip in sales later in the year, it doesn’t predict a severe drop-off.

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Canada Tried To Stop Real Estate Prices From Falling, And Created A Bigger Bubble – Better Dwelling



Last March, the Canadian government sprung into action when news of a pandemic struck. No, not for PPE as you might guess. An email shows they rejected an offer from a major N95 supplier, stating “masks are not a priority.” If healthcare wasn’t the government’s top priority, what was? Preserving real estate prices, it would seem. Here’s a brief list of measures taken that contributed to supersized home price growth.

Bank of Canada Cuts Interest Rates 3x

The most obvious contributor to the overheated real estate market is interest rates. The Bank of Canada (BoC) made not one cut, not two cuts, but three cuts to the overnight rate in less than a month. The overnight rate was 1.75% on March 4, 2020 and received a 50 bps cut on March 4. It was followed by another on March 16, with a third on March 27, 2020. The rate is now 0.25%, effectively making interest rates negative in real terms.  

This is one of those cases where it appears panic ruled over actual data. According to the BoC, it takes “between six and eight quarters” (18 to 24 months) to feel the full impact of a rate change. They may have had an argument as to why they did it (Fed needed debt, currency), but it still resulted in unexpected consequences.

They also made repeated cuts before they had a full assessment of the issue. Doing this always runs the risk of adding too much stimulus. Not surprising, since the general rule is to err on greater social inequality, than to err on lost profits.

Canada Eased The Mortgage Buyer “Stress Test”

The BoC also lowered the five year conventional mortgage rate, which is used for the stress test. The rate was 5.19% on March 11, 2020, and received three cuts along the way until it hit 4.79% on August 12, 2020. This added an additional ~4.5% in qualified buying power. The stress test only applies to OSFI-regulated lenders, but they’re the majority of activity.

The implementation of the stress test was bad to begin with, and should have been more responsive. Non-OSFI regulated lenders aren’t required to stress test. In fact, many lenders (including credit unions) qualify at the contract rate. Banks are also allowed to exempt a certain percent of borrowers, as long as they manage the risk properly.

It was pretty useless in my opinion, but even so the timing of the cuts added fuel. Credit is supposed to tighten during a downturn, not loosen. If access to credit is expanded beyond relief during a downturn, it’s a prioritization of the economy over borrowers.

The Bank of Canada (BOC) Bought Billions In Mortgage Bonds

In January 2019, the BoC began to add Canada Mortgage Bonds (CMBs) to their balance sheet. The move was similar to the one the US Federal Reserve made in 2009, to stimulate home price growth after the crash. The BoC assured people this was just a routine operation. They would only be buying it on a non-competitive basis. At the time, it was questioned if they were putting in place a mechanism for quantitative ease (QE) when needed.

Fast forward to March 2020, and the BoC announces a program to begin buying CMBs on a competitive basis. The central bank began actively competing with investors, to drive rates lower. A QE program was born, and it already had mortgage tools. Neat coincidence.

The program only existed for a few months, before being discontinued in October 2020. By December 2020, they held $9.66 billion worth of CMBs, an 1,803% increase from a year before. This move suppressed yields, and injected billions in liquidity into the system. It’s not the size of the program, but the amount of excess it provides that matters. In this case, a sh*t ton. 

Banks Didn’t Have To Put Aside Money For Mortgage Deferrals 

Last March, Canada did what many countries did – rolled out mortgage payment deferrals. Unlike other places, Canada didn’t require a reason for a payment deferral. It was just a break from paying your bills, and an interest free loan. CBA statistics show 16.7% of mortgages at member banks granted payment deferrals. That’s one in six mortgages held by member banks. The rate of deferrals was even higher than the peak unemployment rate.

No, this isn’t about granting people payment deferrals. Banks aren’t supervillains. They always try to grant mortgage payment deferrals for people that need them. Typically they have to put aside capital for the mortgages they defer, as a safety measure. Regulators allowed banks to skip that during special treatment. Consequently, they handed them out like candy, and got a liquidity injection. Can you see a trend here?

Canada More Than Doubled Lost Income 

The Canada Emergency Response Benefit (CERB) was a popular program with everyone. The amount chosen, and the lack of targeting, was a little odd though. The government ended up replacing the lost income with almost 3x the amount of income lost. Even the partners of politicians took the government up on the offer, despite not exactly facing hardship.

The result of handing cash to people that didn’t need it, is an elevated savings rate. Economists have stated they expect this to help push real estate sales further. Future expectations play a large part in setting current behavior. This added gas to FOMO-driven real estate markets.

Banks Get A $300 Billion Injection of Credit Liquidity

The domestic stability buffers are extra cash the largest local banks have to put aside. In December 2019 Domestic Systemically Important Banks (D-SIBs), were told to raise buffers. In a note from OSFI, the banks were notified to raise the buffers from 1.0% of risk-weighted assets, to 2.25%. This was to go into effect on April 30, 2020, giving them a few months.

The reason was “key vulnerabilities … remain elevated, and in some cases show signs of increasing.” They further add a list of vulnerabilities, which “includes Canadian household indebtedness” and asset imbalances. At the time, they were worried households held too much credit, largely mortgages. 

Banks can’t just scale up the capital they reserve by one point all at once – they need time to do it. That means by March, they would have largely put aside most of the cash needed for the buffer. On March 13, 2020, OSFI announced they were reversing the measure.

This injected $300 billion of cash into … what’s that? You know this one? That’s right, liquidity. All of a sudden household vulnerabilities didn’t matter. It was more important to issue credit as quickly as possible, which was largely mortgages.

The US has a similar set of rules in place to increase bank liquidity, but on a timeline. The rules are set to expire on March 31, 2021, with senators fighting to make sure they expire. The lack of liquidity is no longer the threat. Too much liquidity is now the issue they’re trying to tackle. Canada isn’t even having this discussion yet.

This Was Far From A Comprehensive List

Now, this was just a short-list of some of the measures that impacted home prices over the past year. This isn’t a criticism of whether these were the right or wrong moves, just a partial list of price influences. That said, front-loading stimulus for real estate is generally a really bad idea.

When you do that, you aren’t just trying to forecast when a real estate price will happen. You’re trying to forecast when home prices will crash, then trying to stop it. Figuring out how much home prices will fall is a hard enough task. Add trying to figure out how much cash you need to lend people to prevent it, makes it impossible. 

In March, the government thought the world was going to end… at least for real estate. The BoC was expecting arrears to rise over 300%. The CMHC was expecting real estate prices to drop 11% on average. The government planned their response with the same data, and tried to prevent it. 

When the world didn’t end, they had already delivered a “response” to fix it. The average home price didn’t drop by 11%, like they thought. It only fell *checks notes* oh, it increased by 23.5% over the past year. If you think the CMHC forecast was bad, you should ask the Fed how they determined the amount of stimulus needed.

Now, let’s circle back. This isn’t a comprehensive list of measures that impact prices, but it’s a lot of them. By the end of March, they had started cutting interest rates, reducing stress test rates, buying mortgage bonds, giving payment deferrals, replacing income in excess of wages lost, and injected hundreds of billions into credit liquidity at just the big banks. A couple months later, Canada suggested maybe wear a mask

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Canadian Real Estate May Get Cooling Measures As Early As This Month: Scotiabank – Better Dwelling



One of Canada’s big banks expects cooling measures for real estate soon. Derek Holt, Scotiabank’s Head of Capital Markets Economics, sees the Spring Budget including cooling measures for real estate. In a note penned to investors, the economist highlights how policy has been overly loose. He feels the next budget likely includes measures to cool the market, which can come as early as the end of the month.

Canadian Home Sales Are Unusually Strong For A Pandemic

Canadian home sales are extremely strong. Not just for a recessionary environment, but in general – they’re better than they were in Canada’s best economy. Holt points to Toronto home sales reported earlier this week. Sales were up 15.9% for the previous month, when  seasonally adjusted (SA). This follows a 3.1% monthly increase in January, which followed a 21% monthly increase in December. He also notes these increases are accompanied by fast rising home prices.

Greater Vancouver also reported an equally hot market just a day before Toronto. National sales data will be released later this month, and is likely to show similar trends across Canada. This is occuring in the winter, which Holt emphasized multiple times. He further adds, “Apparently, there are a lot of masochists out there who are not fussed one bit about moving in -20’C or colder weather and heavy snow!”

Canadian Home Permits Increased Over 7% 

Canadian new home permits are also a point watching, according to Holt. He highlights house permits increased 7.3% m/m in January. This breaks down as 15.1% m/m for singles, and 4.1% m/m for multiples. This doesn’t just highlight a rapidly expanding market, but “reinforces the move to the ‘burbs” narrative, he stated. 

“If Canadians are taking out permits and buying resales at such a pace during the winter, what does that say when the key Spring housing market and vaccines arrive?” Holt wrote. Adding, “Policy is arguably overly easy and macro prudential changes may be afoot in a Spring budget.”

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