Canadian Housing Situation Gets Worse

Good day,

Stats Canada reported that Canadian home values dropped last year for the first time in 30 years.  Approximately $30 billion in value has been wiped out from the balance sheets of Canadian homeowners.  This represents a 0.6% average price decline but if you dig into housing stats of cities like Toronto and Vancouver, you realize that homeowners in these cities have seen much deeper declines. 

Beyond the stats, real-life stories paint a dismal picture.  A realtor in West Vancouver and another in Edmonton both told me that 2018 was the worst year they had in their multi-decade careers.  I’ve heard of homes in expensive Vancouver neighbourhoods selling for 20%-40% below their 2017 listed values.

Both the federal and provincial governments have introduced tough rules and taxes on home ownership, and this has spooked both sellers and buyers. This is a controversial topic and while I see both sides, I believe overly interfering with market forces can have negative long-term repercussions.

The unfortunate truth is that Canadians are highly levered and last year, the debt to disposable income ratio hit a record 174% according to Stats Canada.  (See chart below).  When we spend a large majority of our income on servicing debt, we don’t have as much to spend on other goods and services, and this puts strain on our economy which is already fragile given our high business and personal income tax rates and our inability to move Alberta oil.

This January, home prices have fallen further (chart below) and I can’t see why housing demand would ramp up anytime soon especially since some of the new housing-related provincial taxes just took effect or take effect this year.

We’re keeping an eye on Morneau’s budget this month, meanwhile, global diversification in all asset classes including real estate is key.

Have a good weekend.    

Daniel Popescu CFP, CIM, FMA, FCSI

President & CEO


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