May 8, 2023 | Moral Victories

Happy Monday Morning!

We get readers of all stripes on this newsletter. Policy makers, bankers, property developers, and every day people trying to figure out what’s going on in the crazy world of Real Estate up north. We’ve hit nearly seven thousand subscribers now which i’m incredibly grateful for. I’m not sure if David Rosenberg is one of them, but the esteemed economist echoed many of my thoughts this past week. Here’s Rosie in his widely followed Breakfast with Dave newsletter.

You don’t say.

Political pressures are poised to ramp higher as home prices begin climbing once again. April data points to a continued rebound across most major markets.

Here in Vancouver, home prices have increased for three consecutive months as measured by the home price index. Multiple offers are back in full swing, especially for entry level product. This has confused a lot of prospective home buyers considering mortgage rates are still hovering near 5%. However, when looking at standing inventory its really not that hard to figure out, the number of homes listed for sale on the MLS as of the end of April stood at 8263, an eighteen year low.

In other words, it’s pretty hard to find a home right now, which is stoking bidding wars, higher prices, and worsening affordability.

Same thing in the GTA. New listings fell 38% from last year, and inventory remains illusive. Here’s a chart of single family inventory across the GTA. Ugly.

It’s worth noting that this inventory crunch is not unique to Canada, It’s happening in most major housing markets around the world. The US, Australia, you name it. We were told rising rates would crush housing, forced sellers galore. The big crash lasted nine months. Is it already over?

Either this is one big suckers rally before the bottom falls out or something bigger is going on here. Perhaps Real Estate is doing exactly what it’s supposed to do as a hard asset in an inflationary environment. Here’s Greater Vancouver home prices when priced in gold, flat to down for the past two decades.

I think about this a lot. We always take about how much house prices have gone up, but never about how little a dollar buys you today.

Here’s another spoiler. Housing, particularly in major global cities, hasn’t traded on incomes for a long time either. Many housing markets, such as Vancouver & Toronto are equity based markets. Pushed higher by a sea of capital from ASSET RICH investors and existing home owners. The last decade of monetary policy has only exacerbated this.

This upsets a lot of people, and it probably should. But I don’t make the rules. You either play the game, or the game plays you. There are no moral victories here.

Steve Saretsky May 8th, 2023

Posted In: Steve Saretsky Blog

Next: DiMartino Booth on the Fed’s financial demolition »