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The market is progressing exactly in the direction that we anticipated. Things are settling down but not crashing. Think of the market in the last year as something like a Chicken Little scenario from the 1943 Disney Movie. For the last 6 months or a year the market has been running around with his hands waving in the air screaming and yelling that the sky is falling. In other words, the absorption was ridiculously high, the inventory was ridiculously low, monthly sales we’re breaking all historical records and price increases we’re breaking all historical records. What’s happening now is Chicken Little is settling down. The absorption in all three zones has now dropped to between 40 and 50%. The inventory is still very low and sales have dropped to a reasonable level. However, let’s keep this in perspective. Absorption between 40 and 50% is still off the charts for our area. A balanced Market is considered to be 12 to 18% depending on which expert you listen
to. Below 12% indicates that you can expect price decreases and it is also considered a strong buyer’s market. Above 18% is considered a seller’s market and you can expect price increases with this level of absorption. 40% is a long way above 18%.
The key question is where is the market going to go from here and why? In order to answer that question from a statistical perspective you have to ask yourself what has to change in the statistics in order for prices and sales to drop dramatically. Look at the inventory for July 2021 in the stats machine in all three zones. Now look at the inventory in July of 2020 and July of 2019. In all 3 zones this July is less than half the other 2 year averages. Another factor to consider when looking at inventory is that in general the housing inventory gradually increases over time because of construction and development. They are simply building more houses all the time. In order for the market to change dramatically to even approach a balanced Market the inventory has to increase dramatically; likely more than double. We will not get rid of multiple offers on the same property until that inventory increases. That is just basic logic. I think we will see this present direction of the inventory, absorption and sales start to level off at these relatively higher levels. The market has settled down from its Chicken Little level to its normal place in the regular cycle.
From Canadian Real Estate Wealth (canadianrealestatemagazine.ca)
Softer real estate activity won’t hurt the economy: CIBC
by Neil Sharma on 29 Jul 2021
The Canadian economy isn’t as reliant on the real estate market as you might think.
So says a report from Royce Mendes, executive director and senior economist at CIBC Capital Markets, who reminded that residential real estate investment comprises construction and renovations in addition to “ownership transfer costs,” the latter of which still accounted for the bulk of economic activity. And while softening market activity will cause “this component of GDP to come back down to earth,” other sectors of the economy are awakening from their long pandemic-induced slumbers.
“The reopening that is underway also seems to be coinciding with a slowdown in other components of residential investment, such as construction. But, by that same token, companies not doing business in the housing market are also feeling more confident about making investments rather than stockpiling cash, given that vaccinations have reduced the likelihood of another round of harsh shutdowns,” said the report.
“If so, it would see the abnormal negative correlation between housing and business investment continue for a little while longer. But, keep in mind, that a fall in residential investment will not cause a rise in business investment, it’s still that other variable driving both: the pandemic.”
For its part, the Bank of Canada stated earlier this month that the country’s economy will grow at a slower-than-expected pace this year—it forecasts 6% growth, down from its previous estimate of 6.5%—and anticipates 4.6% growth in 2022, up from its initial projection of 3.7%.
The central bank added that with the easing, even rescission, of COVID-19-related health restrictions, consumer spending would increase. With travel prohibited, restaurants shut and major sporting events closed to spectators, Canadians’ non-essential outlays decreased during the pandemic, resulting in households saving an estimated $200 billion of cash, which is just waiting to be unleashed into the economy.
The Bank of Canada does not believe the end of federal aid programs will adversely impact consumer spending since more people will be returning to work with the end of the pandemic in sight.
“The reopening of the economy and the strong progress on vaccinations have given us reason to be more optimistic about the direction of the economy,” said Bank of Canada Governor Tiff Macklem during a July 14 press conference. “But we are not there yet, and we are mindful that the process is likely to be bumpy, and some scars will remain.”
