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That caused the company’s share price to plunge 65% on Wednesday, an one-day drop at an all-time high. The shares of other Canadian mortgage providers also fell sharply. For example, Equitable Group fell 32%, and Equitable Group Street Capital Group fell 9.77%, first National Financial Corp. It closed down more than 10%.
Coincidentally, just hours before the regulatory quarterly report was released, the Canadian Mortgage and Housing Corporation (Canada Mortgage and Housing Corporation, CMHC), the country’s housing regulator, said in the quarterly report of the Housing Market Review (HMA) on Wednesday that there were strong signs that the property market was in a state of overall problem (overall problematic conditions).
Although the overvaluation of the Canadian real estate market has eased since January, the number of key cities nationwide has shrunk from eight to six, and the problem of overbuilding has also eased, indicating signs of improvement in the real estate market. However, there is moderate evidence (moderate evidence) that there are still signs of accelerated price rise (acceleration) and overheating (overheating) across the country, leading to problems in the national housing market as a whole.
From a regional perspective, house prices in Montreal, Quebec and Regina have improved, but signs of overvaluation in Victoria on the west coast have deteriorated from “medium” to “serious”. The supply and demand fundamentals of the local housing market cannot explain the excessive increase in house prices.
In addition, prices in Toronto and nearby Hamilton, the capital of Ontario on the east coast, continue to face “accelerated price rises”, “overvaluations” and “overheating”, with demand for rents, existing homes and new home sales outstripping supply, causing prices to soar.
The housing market in Vancouver, the largest port city on Canada’s west coast, showed moderate signs of “accelerated rise” and strong signs of “overvaluation”, leaving it in a more serious problem.
Regulators define a “problem state” as a single or mixed phenomenon such as overconstruction, overvaluation, overheating and rising house prices, indicating that market supply and demand deviate significantly from the historical average. The purpose of CMHC’s quarterly report is to provide a professional analysis of the current situation of the Canadian housing market, with a view to providing an “early warning system” to maintain the stability of the Canadian financial and real estate market.
In fact, regulators are not the only ones who have noticed the risks in the Canadian property market. National Bank of Canada Investment Banking (National Bank Financial) recently warned in a report that despite low mortgage rates, affordability has deteriorated sharply. “affordability has declined for seven consecutive quarters, the longest continuous deterioration in nearly 30 years.”
In its report, NBF also focused on the real estate markets in Vancouver and Toronto, arguing that housing affordability problems in these two markets were already so serious that raising mortgage rates would lead to a “repayment shock”:
The burden problems in Vancouver and Toronto have been limited to the non-apartment sector for some time, but the real estate boom has spread to the apartment sector. The result is that the affordability of these urban apartment markets has not been optimized for years.
If the five-year interest rate were raised by 100 basis points, monthly mortgage payments in Vancouver and Toronto would increase by 9 per cent and 7 per cent, respectively. We doubt whether the current house prices can withstand the impact of higher interest rates.
Just how big is the Canadian housing bubble? NBF compares house prices in the United States and Canada. The shaded area below shows the recession in the Canadian real estate market. Compared with the housing crisis in the United States, the last brief recession in the Canadian housing market is negligible.
Wall Street has mentioned that house prices in Toronto, Canada’s largest city, surged 33% in March from a year earlier, the biggest monthly increase in nearly 30 years. One of the possible reasons is that buyers moved eastward from Vancouver at the beginning of the year. because the city has increased tax measures for overseas home buyers.
Wall Street gold short seller Marc Cohodes has been shorting the Canadian real estate market since 2015, betting on bubbles in Vancouver, Toronto and Calgary, which could be detonated by anything. His specific approach is to short Home Capital Group’s share price.