Andrew's Monthly Musings
Andrew Unsworth
Management Consultant | Startup Founder | Licensed Real Estate Broker, BA (Hons.)
The Leaves are Changing
The Canadian real estate market has been navigating a challenging landscape, with high inflation driving up interest rates and mortgage rates. Despite these headwinds, the market has demonstrated an impressive degree of resilience. While sales in October dipped by 5.8% year-over-year, property prices have managed to hold firm. This can be largely attributed to a scarcity of listings until last month.
Contrary to sensationalist headlines about a surge in fire-sales, the uptick in new listings by 40% compared to last year merely signifies a return to the five-year average—suggesting a transition toward a balanced market with around four months of inventory.
However, there are looming concerns. Persistent inflation, undeterred by climbing interest rates, points to deeper issues. Echoing the perspective of renowned hedge fund magnate Ken Griffin, I argue that unchecked government spending and soaring national debt are the real accomplices in fueling inflation, rather than pure demand and consumption dynamics. An expanded money supply, whether by quantitative easing or surging debt, has been a hallmark of the current fiscal policy. With an increase of one-third in Canada's money supply over the past three years and an unabated deficit of $46 billion, fears are mounting. Our national risk profile is under threat, leading to higher bond yields—interest rates demanded by lenders. There is an unsettling possibility that transient inflation may entrench itself due to our ballooning borrowing costs and penchant for profligate spending, potentially embedding itself for the coming decades.
?Expect the term 'stagflation'—the bane of the 1970s' economies—to resurface in conversations as we possibly mirror those tumultuous times. Despite the Bank of Canada’s holding interest rates at 5%, there is speculation that cuts won't materialize before April 2024, with the door left open for future hikes.
?The real economy feels the squeeze, now ostensibly in a recession. The preconstruction condo market, for one, has seen a dramatic 50% drop in sales, triggering postponements in the development of approximately 15,000 units. Meanwhile, ambitious measures to tackle the housing supply shortage, such as new vacancy taxes, remain topics of hot debate.
Silver Lining
Amidst the turbulence, there are positive currents that could lead to recovery. Record immigration, exceeding a million this year with a sustained target of 500,000 annually, is one such force. Newcomers cluster predominantly within our major cities, a pattern likely to continue due to inhospitable cold in more remote regions, further exacerbated by the carbon tax and rising energy costs.
?Toronto remains the beacon, its robust housing demand undimmed despite our rocky times. My role as an advisor keeps me vigilant, guiding clients to navigate this cautiously and advising them to remain agile for emerging opportunities. Importantly, the current moratorium on foreign buyers continues, easing price pressures and offering potential advantages for those looking to upgrade, find bargains, or invest.?
Real estate, by my estimation, may tread water for the foreseeable future, yet this also sets the stage for an explosion of pent-up demand that could herald significant growth. It's worth observing the absorption rate of existing inventory—a third of which are revised listings now priced lower—indicating that sellers might be adjusting to market realities and diverging from the 2021 peak.
In other News
In response to these market dynamics, I am forging an additional path with the founding of?DevNorth?Capital, a private lending services firm poised to inject order, clarity, and professionalism into a sector that has been traditionally opaque and disjointed. With banks tightening their coffers, there's an escalating need for alternative financing—just the space DevNorth Capital aims to fill.
?I invite you to explore our website and would welcome any discussions or inquiries about our initiatives and how we can collaborate in this evolving landscape
.
Sotheby’s International Realty Canada Toronto
1867?Yonge Street, Suite 100,?Toronto,?Ontario,?M4S 1Y5
Chief Operating Officer at PO Capital Markets Pty Ltd.
1 年Great article Andrew, insightful. Many similarities to Australia as well in terms of government spending, inflation and immigration. Sydney just became the most expensive city in Australia to rent is a real issue, pushing cost of living pressures too high for many.