May 15, 2023 | Nowhere to Hide

Happy Monday Morning!

Anyone following this newsletter since about January knows that the housing market has surged back to life. Inventory has fallen off a cliff at the same time buyer sentiment has rebounded, coinciding with the BoC’s Tiff Macklem taking his foot off the gas.

In the GTA, home sales ripped 27% month-over-month in April on a seasonally adjusted basis. That’s the largest bounce since the depths of the pandemic. On the West Coast, seasonally adjusted home sales in Vancouver have jumped 50% over the past three months, inching closer to their long term average despite inventory at two decade lows.

The result has been meaningfully higher prices since bottoming in the fall. This is hard to rationalize given mortgage rates remain elevated and affordability remains illusive. We might be inching closer to a recession but buyers don’t seem to care. According to National Bank, housing affordability hasn’t been this bad since the 1980s.

Undoubtedly this is pushing prospective home buyers into the rental pool. Now add one million new migrants over the past twelve months and you can see where things start to go wrong.

According to a recent rental report from Zumper, the national vacancy rate slipped below 2% last month. Halifax, Quebec, and Toronto one bedroom rents are up more than 20% year-over-year in April. Vancouver is up 18%, and in Calgary rents are up an eye watering 42% and 32% for two bedroom units!!

Remember those “Alberta is calling” ads? They might be working…

I have a few rentals in Calgary myself. I can tell you things are red hot there. Tenants are really feeling the squeeze. It hasn’t been this way since 2014, just before the oil boom collapsed. Given the green politics and outright assault on oil production in this country one could argue there’s much better support for structurally higher oil prices this time around which bodes well for the housing market. But then again, Calgary has a habit of overbuilding so we shall see.

In other news, did you see this headline?

A Bloomberg reporter called me last week asking if one bedroom rents in Vancouver could hit $3000 by 2030. She did not like my answer. Honestly, the math is pretty simple though. A one bedroom rents for about $2600 today, assuming annual rent growth of 3% over the next 7 years and you exceed $3000 pretty quickly. Just for context, rent growth in Vancouver has averaged 4.7% over the past ten years, and 3.7% over the past twenty per CMHC.

Unless you’re betting on governments finally expediting a lot more supply or turning off the immigration taps i’d argue 3% is fairly conservative.

Buying or renting, there is seemingly nowhere to hide these days.

Steve Saretsky May 15th, 2023

Posted In: Steve Saretsky Blog

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