May 4, 2021 | The Housing Story Is Far From Over

The Real Estate Board of Greater Vancouver is expected to release April’s housing data today. Brace yourself for some eye-popping media headlines. Home sales across Greater Vancouver surged 340% year-over-year. Yes you read that correctly. The move is almost entirely due to weak base-effects from last year, when housing activity collapsed at the onset of the pandemic. However, let’s unpack this a little further.

April home sales still hit record highs, regardless of base-effects. The median sales price increased 15% to $920,000. I expect the Real Estate Boards home price index, which is the number the media likes to report on, should show gains of around 12%. Months of inventory for sale remains incredibly tight, at just 2.1 months of supply- a reading which suggests prices will move higher- and they will. All in all, the data looks incredibly bullish and the media will have fun gobbling this one up.

However, for fortunate readers of this newsletter, i’d like to share a few additional insights. Despite the obviously bullish data, please keep in mind that the way sales data is reported means it is ultimately a lagging indicator. So while prices will continue to move higher over the coming months, as noted by the lagging home price index, there appears to be a sentiment shift in the market over the past several weeks. There are fewer showings, fewer offers, and an element of buyer fatigue appears to be setting in. This view is nearly synonymous across the Real Estate industry. I will stop short of making any predictions, but a slowdown in the housing market appears inevitable.

This does not mean a bust is imminent, but rather, a much needed pullback seems probable. Across the nation home prices have ripped to new highs, growing 20% on an annual basis- this is not, nor was it sustainable. And while, the housing market remains hot, we should not be surprised to see that it is now cooling. I discussed this at length in my recent interview with Yahoo Finance, and my co-host John Pasalis also noted the same thing is taking place in the Greater Toronto Area.

Again, I want to emphasize that the recent fizzle in the housing market won’t show up in any data this month, and perhaps not next month. However, it is typically anecdotes and sentiment that lead markets. I am far from proclaiming an end to the recent bull market, but logically a slowdown makes sense after the recent run-up, and as the economy nears closer to a re-opening, people will be desperate to get out of their homes and thinking less about Real Estate and more about summer vacations.

Let’s keep an eye on this, it is early, but an interesting development. As we all know, housing remains a key pillar to the economic recovery. As noted by the often outspoken David Rosenberg last week, total residential construction has surged 22.5% in the past year and that has taken the housing share of GDP to a record high of 9.3% — double the historical norm. Strip out housing, and GDP contracted 3.5% in the past year.

The housing story is far from over.

Three Things I’m Watching:

1. Greater Vancouver home sales bounce 340% in April due to weak base-effects.

2. Canadian home price growth far outstrips other countries. (Source: Globe & Mail)

3. The cost of lumber continues to surge, potentially crippling future new housing starts. (Source: Bloomberg)

Steve Saretsky May 4th, 2021

Posted In: Steve Saretsky Blog

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