29 Oct

Residential Market Commentary – Interest rate signs point up


Posted by: Kimberly Walker

As expected the Bank of Canada has boosted its trend-setting overnight rate by a quarter of a percent to 1.75%.  It is the 5th hike since rate increases began in mid-2017.  The bank rate is now above 1.5% for the first time since December 2008.

The central bank has also signaled its intention to continue raising rates.  In the statement that accompanied the October 24th setting the Bank dropped the word “gradually” from its description of the pace of future increases.

That change has some market watchers forecasting that the BoC is planning a string of consecutive increases, which could start as early as December.  The Bank also says its rate will have to rise to its “neutral stance” in order to keep inflation in check.  Right now the Bank estimates “neutral” as being 3%.  A “neutral” rate is one that is neither stimulating nor supressing the economy.

The central bank also addressed one of its key concerns about the Canadian economy: the imbalance in the household debt-to-income ratio.  It still stands at about 170%, or $1.70 of debt for every $1.00 of take-home pay.  However, the Bank says those imbalances – while still elevated – are edging lower as Canadians make adjustments to earlier interest rate increases and tougher mortgage rules.

The Bank expects consumer spending to remain strong, but says it will be supported by rising wages and confidence rather than low interest rates and debt.

26 Oct

Overvaluation is easing but vulnerability remains says CMHC


Posted by: Kimberly Walker

Conditions of overvaluation are easing nationwide and there is improvement in the vulnerability of the hottest markets.

CMHC has published its latest Housing Market Assessment and says that even in four markets where overvaluation is detected – Vancouver, Toronto, Victoria, and Hamilton – house prises are returning to levels that are supported by housing market fundamentals such as income, mortgage rates, and population.

This shift does not eliminate overall vulnerability in these hot markets though.

“For the ninth consecutive quarter there continues to be a high degree of overall vulnerability at the national level, however, we are seeing conditions of overvaluation easing for Canada as a whole,” said Bob Duggan, CMHC’s chief economist. “Tighter mortgage rules, rising interest rates and weaker growth in inflation-adjusted personal disposable income—likely led to reduced demand for housing, resulting in the decline of house prices.”

The HMA is for 15 CMAs and uses data as of the end of June 2018 and market intelligence as of the end of September 2018.

The highlights
Nationally,  the moderate rating of overvaluation is maintained, as a longer period of improved alignment between house prices and fundamentals is required for overvaluation to be deemed low.

However, evidence of overbuilding remains high in Edmonton, Calgary, Saskatoon, and Regina. That means those markets continue to receive a moderate degree of vulnerability in the overall assessment.

A low degree of overall vulnerability is sustained for Ottawa, Québec City, Moncton, Halifax and St. John’s where house prices continue to follow the path of fundamentals.

Montréal’s resale market is close to overheating, creating significant upward pressure on prices as a result of a sharp tightening between supply and demand.

In Winnipeg, evidence of overbuilding as well as the degree of overall vulnerability changed from low to moderate, reflecting increases in the inventory of newly completed but unsold units.

23 Oct

1 in 3 fear rate rises could move them towards bankruptcy


Posted by: Kimberly Walker

With the Bank of Canada widely expected to increase interest rates Wednesday, a poll from debt advisors MNP shows rising concern over higher rates.

The survey, conducted by Ipsos, found that 1 in 3 Canadians are worried that rising interest rates could push them towards bankruptcy, up 6% since June.

More than half (52%) of respondents said that they are concerned about affording their debts as rates climb, that’s up 3% since June.

The share of those who say they are feeling the effects or recent rate rises; and the share who say future rises could put them in financial trouble; both hit 45%.

Almost two thirds of both Millennial and Gen X respondents are concerned about the impact of interest rate rises on their ability to service debts, while Boomers are less concerned (40%).

The poll reveals that 80% will cut back on spending to counter the effects of rising rates and there is some optimism about debt situations with 28% saying theirs has improved in the past year, 39% expecting improvement in the next year, and 50% saying improvement will be within 5 years.

Two in five said they regret the level of debt they have.

Albertans (20%) are most likely to say their current debt situation is worse, followed by residents of Atlantic Canada (17%), Saskatchewan and Manitoba (15%), Ontario (13%), Quebec (10%), and British Columbia (8%).

Quebec residents (49%) are most likely to rate their personal debt situation as good, followed by residents British Columbia (45%), Ontario (38%), Saskatchewan and Manitoba (34%), Alberta (33%) and Atlantic Canada (28%).

18 Oct

B.C. government moves ahead with speculation tax on vacant homes


Posted by: Kimberly Walker

B.C.’s finance minister has introduced legislation to move ahead with a controversial speculation tax on vacant or underutilized properties.

The bill ends months of speculation about how the province planned to use the new levy to help deal with runaway housing prices in some B.C. communities, outlining a range of tax rates from 0.5 to two per cent and a number of exemptions.

If the legislation is passed, the new tax will apply to all properties in designated regions of B.C. These include most parts of Metro Vancouver and the Capital Regional District (excluding the Gulf Islands), along with Abbotsford, Mission, Chilliwack, Kelowna, West Kelowna, Nanaimo and Lantzville.

Homeowners who live at their properties — or rent them out — will receive an exemption by filing an annual declaration form.

For the remaining properties, a tax rate of 0.5 per cent of the assessed value will apply for 2018.

In 2019 and subsequent years, B.C. residents with vacant or underutilized properties will continue to pay that rate, while Canadian citizens or permanent residents who are not B.C. residents will start paying one per cent.

Foreign homeowners will pay more

Foreign homeowners or “satellite families” who make 50 per cent of their income outside B.C. will pay two per cent on all properties, unless they rent them out.

The goal is to prevent housing speculation and help turn vacant properties into rentals, said Carole James, B.C.’s finance minister.

“As a government, we have a responsibility to act, to make sure that people can afford a home in the communities where they live and work,” she said. “The speculation and vacancy tax is a critical piece if we want to moderate our overheated housing market.”

Some opposed mayors in regions where the tax is set to apply had called on the finance minister to allow an opt-out clause, but James declined.

“When you face a major provincial crisis, it is the responsibility of the provincial government to act, not to let municipalities pick and choose about whether they want to address affordable housing,” James said.

‘NDP arrogance and hypocrisy’

However, the opposition Liberals say the tax punishes people in B.C. who want to have a retirement home and it will do little to improve housing affordability.

“This is the height of NDP arrogance and hypocrisy,” said Liberal leader Andrew Wilkinson.

“Our goal is to defeat this bill because it is a phony tax. It accomplishes nothing except to grab revenue for the NDP.”

Green Leader Andrew Weaver, who has been critical of the tax in the past, said he’s still reviewing the fine print to determine if his concerns have been addressed, and any changes that may be necessary.

“I still have concerns that Canadians are not being treated equally and that there is an insufficient role for local governments in determining what happens in their communities,” Weaver said in a statement.


The legislation also includes a number of exemptions for what the province calls special circumstances, including major home renovations and divorces.

Properties that are under development or renovation are also exempt — something that will keep the tax from discouraging more housing to come online, James said.

It’s estimated that more than 99 per cent of people in B.C. won’t pay the tax, James said.

17 Oct

MPC urges officials to protect the Canadian Dream


Posted by: Kimberly Walker

Mortgage industry representatives met with around 50 members of parliament and other government officials to urge them to reconsider some of the measures introduced to curb the housing market.

Mortgage Professionals Canada highlighted the continued negative impact of the stress test and discussed housing affordability.

“Fewer Canadian now are able to obtain the mortgage they need to acquire a home, and many sellers now find fewer buyers to sell their home too,” said Paul Taylor, President and CEO of Mortgage Professionals Canada. “As we first outlined at the time of the mortgage rule changes, it’s now clear that our concerns regarding the cumulative impact of said changes are decreasing competition and increasing costs for consumers.”

While acknowledging the intent behind the policy changes that have impacted the housing market, MPC says that the measures have made it harder for many Canadians to achieve their dream of homeownership, something previous generations have enjoyed.

“We ask that the government reconsider and recalibrate these policies to ensure the Canadian Dream is as achievable for this generation as it was for their parents and grandparents,” said Mark Kerzner, MPC Board Member. “We have outlined five clear asks that reflect the growing national evidence being felt by Canadians from coast to coast, which includes uncoupling the ‘stress test’ from the Bank of Canada 5-year benchmark rate and be set to 0.75% above the contract rate set by the lender, as well as changes to the B-20 ‘stress test’.”

15 Oct

Home price index flat but in line with historical average


Posted by: Kimberly Walker

A leading national measure of home prices was decidedly average in September.

The Teranet-National Bank National Composite Home Price Index was flat at 226.23 (up 0.05% from August), but in line with the historical average for September since 2010.

Of the 11 metros included in the survey, five gained – Winnipeg (1.1%), Montreal (0.5%), Victoria (0.5%), Hamilton (0.2%) and Ottawa-Gatineau (0.1%) – the weakest diffusion in 6 months.

Vancouver and Edmonton indexes were flat month-over-month while there were declines for Toronto (−0.1%), Calgary (−0.1%), Halifax (−0.2%) and Quebec City (−0.6%).

Taking out seasonal effects, the index edged up in September, recovering some of the ground lost in previous months, especially in Toronto.

But for Vancouver and Calgary the seasonally adjusted indices extended a string of declines, consistent with the weakness in home sales reported by the respective real estate boards of these two metropolitan areas.

Annual rise greater than in August

On a year-over-year basis, the national index gained 2.1%, a larger gain than in August as the index began declining in September 2017.

The largest gains were in Vancouver (6.2%), Victoria (5.5%) and Halifax (4.8%) thanks to gains earlier in the year while recent advances resulted in relatively large 12-month gains in Ottawa-Gatineau (5.1%) and Montréal (4.8%).

Winnipeg (2.8%), Hamilton (1.4%) and Quebec City (0.7%) also gained but there were year-over-year declines for Edmonton (−0.5%), Toronto (−0.8%) and Calgary (−1.3%).

The indexes reflect percentage gain/decrease from a base value of 100 in June 2005

10 Oct

Survey: This is the number 1 concern for real estate pros


Posted by: Kimberly Walker

Several challenges continue to concern real estate professionals but there is still optimism for the sector in the year ahead.

A new report from PwC Canada and the Urban Land Institute shows that the industry’s concerns include tariffs and interest rates which could further weaken affordability.

For those developers, investors, lenders and other leading experts involved in the residential real estate sector, land supply is the top concern heading into 2019.

“Dealing with the affordability issue is a shared responsibility between government and developers. While government addressed demand by introducing measures like tighter mortgage rules and foreign taxes, they neglected the supply side,” says Frank Magliocco, National Real Estate Leader, PwC Canada. “Reducing regulation and making more land available for development in a timely manner will help address the affordability issue.”

With the proportion of household income needed to service the costs of a single-family home rising to 53.5% in the first quarter of 2018 (and as much as 119.3% in Vancouver), the impact of rising interest rates and tariffs on steel are also large concerns.

Commercial sector
For the commercial real estate sector, multi-family remains strong along with industrial, which should benefit from demand for growing facilities for Canada’s burgeoning cannabis sector.

The struggles for retail continue as the sector faces more competition from ecommerce. This sector is being forced to reinvent itself.

Coworking space is driving demand in the office sector and is projected to make up 30% of corporate real estate portfolios by 2030.

There is also growth expected in the seniors sector with the aging population driving demand for this housing type.

Technology continues growth
Despite growth in the PropTech sector, including new lending platforms and digital real estate brokerages, just 10% of executives said they were concerned about the speed of technological change.

According to the report, PropTech is forecasted to add US$5.2 billion in new investment globally across 454 equity deals in 2018, after reaching a record US$3.4 billion in 2017 across 367 deals.

Drones are considered the top tech disruptor for the real estate sector, the poll found, followed by autonomous vehicles, cybersecurity and construction technology.