Paying For The Crazy Years: Home Prices Leading Economy Down

The largest headwind for Canadian households, lenders and the economy in 2019-20 is the same force that worked as a tailwind in the decade before: real estate. Naturally, the leaders of the boom years–the greater Vancouver and Toronto areas– are now also leading the deflation cycle. And a popular plan to ‘list this spring’ suggests homes on offer are set to rise significantly in the weeks ahead.

The Vancouver market already has 12,774 homes for sale, 52% more than a year ago and 10.2% more than a month earlier. Now spring listings are coming on stream amid the lowest March sales month for Vancouver in 33 years. Although 8% cheaper than a year earlier, the benchmark composite index price for a Vancouver home is still $1.01 million today–an impossible 12.5x the $80,000 median household income in the city.

The Real Estate Board of Greater Vancouver (REBGV) reported today that a total of 1,727 homes were sold in the region in March, down 31% from a year earlier and 46% below the 10-year March sales average–the lowest sales total for the month since 1986. (See:  Prospective home buyers remain on the sidelines in March.) Of course, the REBCV President blames governments for higher lending standards and new taxes that deter speculation, but not un-affordable prices and the decade long credit party that has left the nation with a massive debt hangover that will take years, not months, to reduce.

Canada is a stand out in this problem, but we’re not alone. According to Knight Frank, a London-based real-estate consulting firm, inflation-adjusted home-price gains have significantly outpaced income growth over the last 5 years in 18 of 25 world cities. (See:  Affordable housing crisis spreads throughout the world.)

Now as prices fall, sellers may dig at high list prices and hope for a rebound. But new buyers have every reason to wait and watch as shelter prices come back in line with long-term affordability metrics. Paying for the last 10 years of crazy is going to take some time.