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Canadian House
Prices |
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This chart shows the detached housing
prices for Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montréal. In
February 2010 SFD prices in
Vancouver and Toronto rose to new record highs with Vancouver being the most unaffordable place to buy real
estate according to demographia.com.
The rest of the cities covered also got a boost in SFD prices but there are
some signs of fatigue showing up in condo prices (scorecard). The west is completely overbought and price
affordability increases rapidly as we
head east where in Montreal you need only 1.1 average wage earners to qualify
for an average house purchase. In Toronto you need 1.8, in Calgary you need 1.6, but in
Vancouver you need 3.2 average wage earners to make the payments. Vive un ménage à trois (housework for three). |
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Vancouver
Real Estate Prices |
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This chart shows Vancouver detached,
attached and apartment (condo) prices. In February 2010, the average
detached house price advanced another 1.6% M/M and continues to blow away the
previous record high set in April 2008.
It took 7 years to run the prices up from the flat price channel of
of 2001 to the peak in April 2008. Then an 8 month 16% decline led
to the first relief rally beginning in January 2009 which has so far held up
for 14 months and has advanced 23.5% off the December 2008 low. Only real
men trade Vancouver real estate.
(Apologies to Bob Hoye) |
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Year/Year Rate of Change |
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This chart shows the year over year rate of change in the price of Vancouver, Calgary, and Toronto detached housing as well as the S&P TSX
Real Estate Index. In February 2010 all units continued
their positive Y/Y trends measured against last year's equity wipe out. This
month Calgary and Vancouver price momentum ticked up while Toronto met with
resistance but that did not stop the cash buyers of the TSX Real Estate Index
pushing momentum up to an increase of nearly 60% over last year. This is an
extreme reading; be prepared for a
reversal in sentiment when the TSX Real Estate Index trend line
curls over as momentum
stalls. |
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Real Estate vs.
TSX Indices |
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This chart shows the S&P TSX Real Estate, Gold, Energy and Financial Services Indices
as well as the Bank of Canada Commodities Index (CRB) all valued in CA$.
In February 2010 Gold and Energy stalled and Real Estate and the
Financials ticked up. The CA$ CRB broke out in December 2009 as the US$
rally got traction. This
change in currency values is causing the current
excitement and provides an opportunity to shed debt. Revaluation is what is going on in every
business that holds or is related to real estate which is a "slow"
asset. Check your asset value with this
evaluator before you are forced
to. |
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Ratio of Gold/RE & CRB/RE |
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This chart shows the ratio
of CA$ Gold
Bullion over the TSX Real Estate Index (Gold/RE) as well as
the ratio of the CA$ CRB (Commodities) Index over the TSX Real Estate Index (CRB/RE). Housing is a bundled
commodity (lumber, steel, copper, materials) and although the CRB/RE and the
Gold/RE ratios had been moving in narrow channels parallel to each other up
until the fall of 2005, by the beginning of 2006 the Gold/RE ratio began to
diverge and by the spring of 2009 peaked at a reading of 12.2 in February-09
(High Gold/Low RE). Since the summer of 2007 Gold (money)
had been trading inversely to real estate up until September 2009 when both
gold and real estate headed into new highs. In February 2010, the Gold/RE
ratio remained flat as both gold and real estate rallied. |
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Housing Valued in Gold |
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This chart shows Vancouver, Calgary and Toronto detached housing priced in ounces of gold valued in CA$. Gold
bullion loses demand when commodities and financial assets boom but rises in value as
those assets sell off. Gold mining
share prices rise as the "real price" of gold rises (eg: the
Gold/Commodities ratio
http://stockcharts.com/h-sc/ui?s=%24gold%3A%24CRB)
because the commodity cost (fuel, materials, equipment) is falling against the
nominal price. Bullion attracts investment when credit
markets contract because of its classic use as a hedge against currency
depreciation and its ability to act as money. The millionaire metric allows
you to see what your dollar is worth and the (declining) amount of gold you
need to be a millionaire. In February 2010 gold ticked up off its near term
consolidation and so the Millionaire metric
continued its journey down which is good if you are long gold. |
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Yield Curve |
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This chart shows the
Bank of Canada Interest Rate Yield Curve ratios of the Benchmark
Average 30 year Bond yield over the 10 year Bond yield, the 10 year Bond yield over
the 2 year Bond yield and the 2 year Bond yield over the 2 month Treasury Bill yield. In the spring
and summer of 2004 the Canadian yield curve renewed its trend
to narrowing and set off on a path towards inversion igniting along
the way a 4-5 year buying spree of over-leveraged assets,
(commodities, real estate, junk bonds). In the
spring of 2008, the curve shot up
as short administered rates plummeted against firming long
rates. In February 2010 the middle of the curve (10's / 2's)
narrowed and the spread between
the 10 year and the 2 year bond (dotted yellow line) is keeping mortgage
rates in check for the moment, but watch this space; when the trend
reverses, lenders will demand a bigger premium for increased market and term
risk. Canadian mortgage lenders raised their 5 year fixed rate loans by
60bps in June-09 despite the Bank of Canada's near zero rate policy.
Inevitable rate increases at the long end is a future of
progressively greater expense for debt holders. |
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Interest Rate
Spreads |
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This chart
shows that in February 2010 the spread between the Bank of Canada rate
and the Commercial 5 year mortgage narrowed by 10 bps. The
sudden 35 bps spike of fear in October is a warning that the current real estate rebound out of
the December 2008 gloom is going to be shut down eventually; credit is being
scrutinized and risk
appetite can turn to aversion by lenders. Finance Minister Jim Flaherty
picked up on the Bank of Canada’s
warning, saying "The government is monitoring household debt levels,
and could introduce regulatory changes that would make it more difficult for
Canadians to get mortgage insurance .... there’s lots of money being lent
and I do ask Canadians to be mindful of the fact that interest rates will
not be low indefinitely" It's not if, but when. Notice the
CPI is rising and real rates are negative.
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