The title may seem odd so let me explain. First I will give a recap of the February data (apologies if I missed Jan but I have been jammed at work) for the City of Toronto's real estate market and then I will make a comment about the Royal Bank of Canada (and its CEO's most recent comments). I wrote much more extensively about the Canadian housing market last June which you can read here: highrockcapital.ca/pauls-blog/archives/06-2017
Here is the recap for February's data. Remember, we are only looking at the City of Toronto (not the GTA) and only for Detached, Semis and Condos. YOY (year over year) and MOM (month over month) are reflected.
Active Listings - 1,453, +14% mom, +121% yoy
New Listings - 1,134, +36% mom, +2% yoy
Sales - 524, +39% mom, -34% yoy
Avg Sales Price - $1,282,240, 0% mom, -19% yoy
Months Supply - 2.8 months, -18% mom, +235% yoy
Active Listings - 247, +13% mom, +101% yoy
New Listings - 244, +31% mom, -4% yoy
Sales - 146, +55% mom, -27% yoy
Avg Sales Price - $985,902, +5% mom, -9% yoy
Months Supply - 1.7 months, -27% mom, +174% yoy
Active Listings - 1,767, +7% mom, +36% yoy
New Listings - 1,687, +12% mom, -10% yoy
Sales - 1,142, +27% mom, -30% yoy
Avg Sales Price - $570,276 +5% mom, +11% yoy
Months Supply - 1.5 months, -16% mom, +94% yoy
As you can see, the trend continues for demand to back the lowest-cost type of housing (condos and, to a lesser degree, semis). The fact of the matter is that new OSFI Mortgage Qualification rules (B-20) are having a bit of an affect on the amount of housing buyers can afford. If you want to own a house, but can only afford a condo, given how you qualify under B-20, then a condo you buy. Also, demographically speaking, the two largest buckets of people are millenials and baby boomers and both create demand for condos - millennials because that is all they qualify for and baby boomers because they want to down-size (and take out some cash to retire).
I still think that over a longer period of time than 2-5 years that detached houses are where the real value is. As the city grows (110,000 immigrants into the GTA each year) the supply will come from condos while detached housing is locked up. It's all about land value and what will soon be scarcity value. Condo Supply vs Detached Demand.
Now onto the Royal Bank (RBC). I have show this before but for different reasons...just sort of ironic that the CEO of RBC made a comment yesterday at a speech in NYC about how foreigners are using Canadian houses as a "piggy bank". More on that in a minute and maybe even more tomorrow. For today, I want to show the Total Return of the City of Toronto Detached and Condo Housing market (Avg Sales Price) for the past 20 years and compare that to the RBC stock over the same period ending Feb 28, 2018. Keep in mind that on the housing side, the price appreciation does not show all of the costs of running the property (utilities, insurance, property taxes, renovations, etc), all of which can add significant value to a house over 20 years but, to be fair, it also does not take into account that if you did not own your own house, you would have to rent. And the RBC stock includes dividends paid by RBC and re-invested back into RBC stock.
Detached - Feb 28, 1998 at $225,000 to Feb 28, 2018 at $1,282,240 for a 20 year compound annual return (CAGR) of 9.1% or a Total Return of 470% (again, this excludes any renos over 20 years which would dramatically change the CAGR, even if we added rent back).
Condos - Feb 28, 1998 at $124,000 to Feb 28, 2018 at $570,275 for a 20 year CAGR of 7.9% and a Total Return of 357%.
RBC Stock - Feb 28, 1998 at $49.39 (adjusted for splits) to Feb 28, 2018 at $101.09 for a 20 year CAGR of 12% and a Total Return of 874%.
So, Mr McKay (RBC President/CEO), why is it that the City of Toronto housing market is so expensive?
What really gets me is this notion that our housing market in Canada is all being driven by foreign money (and the assumption that most/all of that foreign money is from ill-gotten gains...maybe some is, I am not privy but the real estate boards across the country are supposed to have Anti Money Laundering systems in place, as we do as an asset management firm. And anecdotally, I can say that there is no foreign money in my neighbourhood and that new neighbours moving in are all domestic families. I will have more to say on this notion of foreign capital tomorrow and it will be purely from an economic perspective.
For now, there is your snapshot of the state of the housing market and just one relative value gut-check on two separate asset classes and how they have performed over the past 20 years.