No, Montreal Real Estate Is Not The Next Vancouver Or Toronto. Here’s Why

[IluvMTL]

https://betterdwelling.com/city/montreal/no-montreal-real-estate-is-not-the-next-vancouver-or-toronto-heres-why/

SEPTEMBER 22, 2017

Montreal real estate isn’t hot, and it’s not being driven by foreign buyers fleeing Toronto and Vancouver. There’s significant media coverage on how Montreal is the new real estate hot spot, especially in the luxury segment. It’s certainly attention grabbing, so we pulled some sales data from theCanadian Real Estate Association (CREA) and the Greater Montreal Real Estate Board (GMREB). Turns out Greater Montreal real estate is doing okay, but to say it’s booming is a bold faced lie.

Prices Are Up A Whopping $200… Yeah, You Read That Right

The price of a home in Montreal is getting more expensive, but it’s not climbing all that high. The benchmark price, which is the price of a typical home, rose to $326,400. That’s up a whopping 0.06% from the month before, which works out to $200. Compared to same month the year before, this price is 4.64% ($14,500) higher. To contrast, the annual benchmark price increase for all Canadian urban centres was 11.24%.  Montreal had a good climb, but it’s underperforming the national composite.

Greater Montreal Composite Home PricesCompositeJan 2006Feb 2007Mar 2008Apr 2009May 2010Jun 2011Jul 2012Aug 2013Sep 2014Oct 2015Nov 2016$200,…$240,…$280,…$320,…$360,…Canadian Dollars

Date	Composite
Jan 2006	207,500
Feb 2006	209,400
Mar 2006	210,600
Apr 2006	211,600
May 2006	212,700
Jun 2006	214,300
Jul 2006	215,000
Aug 2006	215,800
Sep 2006	216,200
Oct 2006	217,900
Nov 2006	218,700
Dec 2006	219,300
Jan 2007	220,300
Feb 2007	221,800
Mar 2007	223,200
Apr 2007	224,500
May 2007	226,100
Jun 2007	227,600
Jul 2007	229,700
Aug 2007	230,700
Sep 2007	231,300
Oct 2007	232,100
Nov 2007	233,000
Dec 2007	233,600
Jan 2008	234,800
Feb 2008	237,500
Mar 2008	239,000
Apr 2008	240,600
May 2008	241,700
Jun 2008	243,300
Jul 2008	245,200
Aug 2008	247,000
Sep 2008	247,700
Oct 2008	247,900
Nov 2008	248,100
Dec 2008	247,500
Jan 2009	247,900
Feb 2009	247,900
Mar 2009	247,700
Apr 2009	248,100
May 2009	248,700
Jun 2009	249,700
Jul 2009	251,000
Aug 2009	252,200
Sep 2009	253,500
Oct 2009	255,100
Nov 2009	256,400
Dec 2009	257,400
Jan 2010	259,500
Feb 2010	263,800
Mar 2010	267,100
Apr 2010	269,000
May 2010	270,700
Jun 2010	271,900
Jul 2010	272,900
Aug 2010	273,300
Sep 2010	273,800
Oct 2010	274,600
Nov 2010	275,600
Dec 2010	276,200
Jan 2011	278,100
Feb 2011	281,400
Mar 2011	283,700
Apr 2011	284,900
May 2011	285,200
Jun 2011	284,900
Jul 2011	285,400
Aug 2011	285,600
Sep 2011	286,000
Oct 2011	287,000
Nov 2011	285,800
Dec 2011	282,500
Jan 2012	284,500
Feb 2012	285,400
Mar 2012	289,700
Apr 2012	291,400
May 2012	292,000
Jun 2012	293,000
Jul 2012	292,000
Aug 2012	292,200
Sep 2012	292,400
Oct 2012	292,400
Nov 2012	291,400
Dec 2012	291,600
Jan 2013	291,800
Feb 2013	293,800
Mar 2013	296,300
Apr 2013	297,400
May 2013	302,100
Jun 2013	299,900
Jul 2013	299,200
Aug 2013	299,200
Sep 2013	299,200
Oct 2013	299,200
Nov 2013	299,000
Dec 2013	297,600
Jan 2014	297,400
Feb 2014	300,900
Mar 2014	302,100
Apr 2014	301,900
May 2014	302,100
Jun 2014	302,100
Jul 2014	300,900
Aug 2014	299,700
Sep 2014	299,400
Oct 2014	299,700
Nov 2014	299,200
Dec 2014	298,400
Jan 2015	298,800
Feb 2015	300,300
Mar 2015	303,200
Apr 2015	305,000
May 2015	305,000
Jun 2015	305,500
Jul 2015	306,100
Aug 2015	304,400
Sep 2015	303,600
Oct 2015	303,800
Nov 2015	303,600
Dec 2015	304,000
Jan 2016	303,000
Feb 2016	305,200
Mar 2016	307,900
Apr 2016	309,200
May 2016	310,400
Jun 2016	311,000
Jul 2016	311,000
Aug 2016	311,900
Sep 2016	311,700
Oct 2016	311,500
Nov 2016	312,900
Dec 2016	313,900
Jan 2017	314,300
Feb 2017	315,200
Mar 2017	318,500
Apr 2017	321,000
May 2017	322,400
Jun 2017	323,900
Jul 2017	326,200
Aug 2017	326,400

 

Better Dwelling, Source: CREA.

The average sale price showed even more conservative gains. The average home in Greater Montreal sold for $374,333, a 4.1% increase from the same month last year. Once again, it’s a healthy market –  but only a notch above inflation.

Greater Montreal Change In Composite Home PricesChangeJan 2006Feb 2007Mar 2008Apr 2009May 2010Jun 2011Jul 2012Aug 2013Sep 2014Oct 2015Nov 2016-404812Percent Change

Date	Change
Jan 2006	7.29
Feb 2006	7
Mar 2006	6.36
Apr 2006	6.12
May 2006	6.19
Jun 2006	6.67
Jul 2006	6.81
Aug 2006	6.78
Sep 2006	6.19
Oct 2006	6.29
Nov 2006	6.27
Dec 2006	6.56
Jan 2007	6.17
Feb 2007	5.92
Mar 2007	5.98
Apr 2007	6.1
May 2007	6.3
Jun 2007	6.21
Jul 2007	6.84
Aug 2007	6.9
Sep 2007	6.98
Oct 2007	6.52
Nov 2007	6.54
Dec 2007	6.52
Jan 2008	6.58
Feb 2008	7.08
Mar 2008	7.08
Apr 2008	7.17
May 2008	6.9
Jun 2008	6.9
Jul 2008	6.75
Aug 2008	7.07
Sep 2008	7.09
Oct 2008	6.81
Nov 2008	6.48
Dec 2008	5.95
Jan 2009	5.58
Feb 2009	4.38
Mar 2009	3.64
Apr 2009	3.12
May 2009	2.9
Jun 2009	2.63
Jul 2009	2.37
Aug 2009	2.11
Sep 2009	2.34
Oct 2009	2.9
Nov 2009	3.35
Dec 2009	4
Jan 2010	4.68
Feb 2010	6.41
Mar 2010	7.83
Apr 2010	8.42
May 2010	8.85
Jun 2010	8.89
Jul 2010	8.73
Aug 2010	8.37
Sep 2010	8.01
Oct 2010	7.64
Nov 2010	7.49
Dec 2010	7.3
Jan 2011	7.17
Feb 2011	6.67
Mar 2011	6.21
Apr 2011	5.91
May 2011	5.36
Jun 2011	4.78
Jul 2011	4.58
Aug 2011	4.5
Sep 2011	4.46
Oct 2011	4.52
Nov 2011	3.7
Dec 2011	2.28
Jan 2012	2.3
Feb 2012	1.42
Mar 2012	2.11
Apr 2012	2.28
May 2012	2.38
Jun 2012	2.84
Jul 2012	2.31
Aug 2012	2.31
Sep 2012	2.24
Oct 2012	1.88
Nov 2012	1.96
Dec 2012	3.22
Jan 2013	2.57
Feb 2013	2.94
Mar 2013	2.28
Apr 2013	2.06
May 2013	3.46
Jun 2013	2.35
Jul 2013	2.47
Aug 2013	2.4
Sep 2013	2.33
Oct 2013	2.33
Nov 2013	2.61
Dec 2013	2.06
Jan 2014	1.92
Feb 2014	2.42
Mar 2014	1.96
Apr 2014	1.51
May 2014	0
Jun 2014	0.73
Jul 2014	0.57
Aug 2014	0.17
Sep 2014	0.07
Oct 2014	0.17
Nov 2014	0.07
Dec 2014	0.27
Jan 2015	0.47
Feb 2015	-0.2
Mar 2015	0.36
Apr 2015	1.03
May 2015	0.96
Jun 2015	1.13
Jul 2015	1.73
Aug 2015	1.57
Sep 2015	1.4
Oct 2015	1.37
Nov 2015	1.47
Dec 2015	1.88
Jan 2016	1.41
Feb 2016	1.63
Mar 2016	1.55
Apr 2016	1.38
May 2016	1.77
Jun 2016	1.8
Jul 2016	1.6
Aug 2016	2.46
Sep 2016	2.67
Oct 2016	2.53
Nov 2016	3.06
Dec 2016	3.26
Jan 2017	3.73
Feb 2017	3.28
Mar 2017	3.44
Apr 2017	3.82
May 2017	3.87
Jun 2017	4.15
Jul 2017	4.89
Aug 2017	4.65

 

Better Dwelling, Source: CREA.

Montreal’s Luxury Market Is Not Booming

This is the interesting part, agents have been boasting of a boom in luxury buying. The number they use is above $1 million, so let’s look at the number of sales in that price range. August saw 64 sales above a million dollars, compared to 59 the same month last year. This is 8% growth, a touch under the 8.1% growth of all sales in the region. Sales over $1 million accounted for 2.2% of all Montreal sales. This isn’t a huge portion of sales, nor is it huge growth – regardless of how agents manipulate that statistic.

Greater Montreal Real Estate Sales Over $1 MillionSalesAugust 2016August 2017020406080Sales

Month	Sales
August 2016	59
August 2017	64

 

Better Dwelling, Source: GMREB.

To contrast, let’s look at Toronto luxury sales – which are generally over $2 million. The number of sales in August above $2 million were 132, roughly 4.8% of the market. If we tallied up the number of sales over a million in Toronto, that number would shoot up to 15%. August was also a bad month for detached sales in Toronto.

Toronto’s Foreign Buyers Don’t Make Sense In Montreal

News outlets are reporting that foreign buyers are driving Montreal’s “huge” gains. There’s two major types of foreign buyers – immigrants, and urban land bankers. Toronto primarily has the first one, the kind that are immigrating.Toronto Real Estate Board (TREB) statistics show 91.5% of the city’s foreign buyers bought their home to occupy. TREB also found the majority of these buyers were moving from the United States. You know, because Toronto is a global financial center.

A good number of Toronto’s foreign buyers move there for things like employment. A tax does not change employment opportunities overnight, or send jobs elsewhere. Foreign buying of condo pre-sale assignments remain, but they aren’t taxed anyway. A non-resident tax is applied when the land registers, so they can still buy and flip it tax free. Point is, a tax doesn’t send people moving for jobs to another city. It likely delays the buy, until it’s clear to the new resident that they don’t have to pay it.

Vancouver’s Foreign Buyers Don’t Make Sense In Montreal

There’s a lot of immigration to Vancouver, but the real problem are buyers using homes as a store of wealth. See, Vancouver is a very special place where global real estate buyers use homes as an inflation sensitive hedge. An inflation sensitive hedge, for those that don’t know, is a commodity bought to preserve capital when asset inflation goes out of control. This is something that took trillions of dollars, and over 30 years to establish.

In Vancouver, these homes aren’t purchased aren’t for living in. You buy them, and sell them when you need money. Just like the gold bars you have stashed away in a Swiss bank account. Census numbers peg the number of vacant, or occasionally occupied homes in Metro Vancouver at a mind boggling66,719. An analysis we did last fall showed that 1 in 10 homes being resold had never been lived in, as identified by the seller… some for over 20 years. Don’t take my word for it though. The world’s most powerful banker, and Canada’s largest developer have already explained Vancouver real estate is used this way.

The foreign buying tax did dampen Vancouver buying. However, China’s change to currency controls is what slowed new capital from just reappearing. China also deployed a400,000 person army to make sure they could do it. Cities likeAuckland, and London are seeing a reduction in Mainland Chinese buying without a tax. Montreal doesn’t have a magic exemption.

Vancouver’s foreign buyers aren’t going to set up a new banking capital overnight. The slow capital build up in the city means home prices don’t just drop. This value retention is what continues to make it attractive. They would sooner findloopholes in the tax, than spend another 30 years turning Montreal into a new bank. These are after all, long-term deposits. They last through many, many governments – and taxes.

Narrative Crafting Is Hitting Montreal

Montreal real estate is performing just a notch above inflation, which is where it should be. However, the city’s real estate industry is flashing early signs of narrative crafting. This is when the industry uses observations that can’t be proven to drive FOMO from buyers. Buy now, or a mysterious person from the East will lock you out of homeownership in your own city!

Once this fear hits, domestic speculators will start driving prices – attracting global speculators. This is when it turns from a healthy market, to a speculative one. They’ll play against each other, until growth tapers. They leave as quickly as they come, and locals are usually left with nothing more than a pile of debt.

Next week we’ll try to publish a pricing model for Montreal. I do think prices will go higher in the city, but not for the reasons most people think it will.