Housing
Economics
Finance
Real Estate
Affordability
methodology
bedrooms
Canada Real Estate
Housing Price Data
CREA HPI
Property Type
Sales Mix
NonHPI Numbers
Condos
Townhomes
Composite Benchmark
Canada Real Estate ๐งต: The housing price data used is from CREA HPI. HPI is a methodology based on the value home buyers assign to various housing attributes (property type, #bedrooms, etcโฆ) 1/21 @kittysquiddy
Iโve used the Single Family Detached Benchmark to provide an โapples to applesโ comparison (not-seasonally adjusted). 2/21
The changing sales mix between prop types make non-HPI numbers harder to interpret as lower priced housing sales have increased due to their greater affordability. Including condos and townhomes in a composite benchmark conflates the numbers even more 3/21
Some regions in Canada have seen large declines starting around February 2022. Only larger cities that have had drawdowns >4%. Even with the recent drawdowns the gains from 2005 have been tremendous 4/21
The recent drawdowns need to put in context as they have brought the pricing levels back to about where they were 9-12 months ago. Only a small subset of recent purchase with high loan to values will be currently at risk of default 5/21
Canada home sales have declined YTD from recent highs but are not that different from the pre-pandemic numbers 6/21
Mortgage payments have spiked as a percent of median income (Data to June 30, 2022) due to a combination of higher mortgage rates and high home prices approaching the peak in the early 80โs when mortgage rates were around 20% 7/21
Banks dominate mortgage lending. OSFI, Canadaโs federal regulator, prudently implemented a stress test in 2017/18 where banks and other federally regulated institutions are required to ensure that borrowers can afford a rate at least 2% greater than the contractual rate 8/21
This stress test was put in place to protect against the rising rates we see now. Credit Unions are typically provincially regulated and arenโt subject to the stress test although some follow OSFIโs rules 9/21
The majority of homes worth less than $1,000,000 are insured if down payments are less than 20%. This protects the lending institution if case of default. If the home costs > $1,000,000, mortgage loan insurance is not available and down payments will be greater than 20% 10/21
Home insurers includes CHMC (crown corporation, 100% federal guarantee) and two private mortgage (90% federal guarantee) insurers Canada Guaranty (privately owned) and Sagen (public traded, but liquidity is very low) 11/21
CIBC has the largest exposure to residential real estate and BMO the lowers as a percent of Bank Total Assets. The % of insured mortgages has decreased since 2019 primarily due to the increasing % of homes that are sold at prices > $1M 12/21
The majority of mortgages have fixed rates, but variable rate mortgages (most impacted by recent rate increases) have been increasing especially in the Uninsured Market. 13/21
Average Household Balance Sheet: 46.1% of household assets are Real Estate and mortgages are 10.5% but averages can be deceiving 14/21
The distribution of LTV for mortgages in Cananda is shown below with data end 2021 Q1. The majority of the 80% or greater mortgages are insured. The greatest risk lies in the 75-80% LTV uninsured mortgages 15/21
Current delinquency rates are very low (<0.2%). In 2009, delinquency rates were 0.4% while they were almost 6 times higher in US 16/21
Real Estate has been growing as a percent of GDP. The chart below is residential investment (construction). 17/
Real Estate, rental & leasing industry includes firms that rent/lease, help sell/buy real estate, and appraisals. Much smaller industries not involved in R/E are also included (eg automobiles, machinery, patents). This industry has been gradually increasing over the period. 18/21
Reasons not to short Canadian banks discussed in another kitty thread
The demand for housing from immigration are among the forces that will bolster Canadian housing demand and protect the downside 19/21
The top alternative mortgage lenders (not large banks or credit unions) that are publicly traded are listed below are potential candidates to make a bet on Canadian Real Estate 20/21
Toronto historical declines: The 1989 decline took almost 20 years to recover in real terms. Many Canadians seem unaware that large, prolonged declines have occurred in the past. This current rising rate environment could be another of those periods 21/21
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