Toronto | Easy Money

The three-month average home price in the Toronto area is down a record 14.2% following a flood of new listings and an interest rate hike by the Bank of Canada.

Sales fell most in eight years. Did Canada’s housing bubble just burst?

Bloomberg reports Chill Descends on Toronto Housing as Prices Drop Most Since 1988.

Total home sales in Greater Toronto dropped to 5,977 in June, the lowest level since 2010 and down 15.1 percent from the month prior, data from the Canadian Real Estate Association show. Average prices are down 14.2 percent since March — the fastest 3-month decline in the history of the data back to 1988 — while the ratio of sales to new listings sits at its lowest level since 2009.

The June data comes after a series of measures by policy makers to tighten access to the market — and before the Bank of Canada hiked its benchmark interest rate last week, the first increase since 2010 that will further pinch mortgage eligibility. Prices and sales also fell in nearby regions such as Hamilton-Burlington and Kitchener-Waterloo, CREA data show.

Lawmakers, concerned that escalating prices could lead to a disorderly correction, imposed measures including tightened mortgage eligibility rules and a tax on foreign buyers. Toronto’s market has lost momentum, while in Vancouver sales plummeted last year on similar measures but have since rebounded.

The economists expect Toronto to follow Vancouver’s path — price adjustment at the top of the market with less impact at lower prices. Meanwhile, cities like Montreal and Ottawa look strong.

Vancouver rebounded after the restrictions and economists expect Toronto will do the same.

But at some point sanity will return. The bottom in both markets is a long way down.

By Mike “Mish” Shedlock

“Unprecedented deflation are pushing rates down. However, investors are holding 1/3 outstanding shares of ETF | TLT short: Betting that rates will go up.”

Article and video commentary by Christine Hughes

In a totally unexpected move, the Bank of Canada cut the overnight interest rate by 25 basis points on Wednesday. This of course should make you wonder what the Bank of Canada knows that the rest of us don’t! I mean usually the Bank indicates a bias towards cutting interest rates, but this was just out of the blue. It signals that the oil shock on the economy is going to be a lot more significant than anyone expected.

The Canadian dollar dropped vs. the US dollar thanks to the surprise move. Gold and silver prices climbed on safe-haven demand. Canadian bond yields plunged. As per Bloomberg: “’It’s a big shock,’ David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “They’re going to try to provide the necessary medicine here for the soft landing from slowing debt growth, from slowing investment in the oil sands, and I think they thought it needed some stimulus here.”

No one probably stands to hurt more from plunging oil prices than Alberta.

Energy companies have started cutting capital expenditure, and this means job losses, which means a slowing housing market. In fact, plunging oil prices have seen home sales in Calgary tumble 37% in the first half of January, compared to a year earlier. Prices dropped 1.5%. And active listings soared by nearly 65%.

As you can see in the chart below, while you may have thought Toronto was a hot housing market these past several years, you’d be wrong. It was Calgary.

What’s the most worrisome about this is that everyone thinks Canada’s mortgages are different than what caused the US housing market to blow up. Well, not exactly. See, mortgage standards vary by province, and things in Alberta don’t look good.

There are two types of mortgages Alberta can issue: recourse and non-recourse. In a recourse mortgage, the bank can cease your house, sell it, and you will still owe the remaining balance of your mortgage. In a non-recourse mortgage, the bank can seize your house, and you the borrower can walk away. If the asset doesn’t sell for at least what you owe, then the bank has to absorb the loss.

Below is a chart, courtesy of RBC Capital Markets, which outlines that 35% of all Alberta mortgages (by the big 6 banks) are non-recourse. They can walk away! Pay attention to Royal Bank especially:

There’s definitely a reason why the Bank of Canada is very concerned! By Christine Hughes