In its latest outlook, The Conference Board of Canada stated that residential starts and non-residential construction in Canada will see notable deviations from each other in 2017, with the former slowing down and the latter exhibiting stronger activity.“Not only is the residential construction industry seeing a downturn in housing starts, spending on home renovations is now showing signs of weakness too. In all, we expect price-adjusted spending growth in the residential construction industry to average less than one per cent per year through 2020,” the Board’s director of industrial trends Michael Burt said. “A slowdown in multi-unit construction, particularly in the apartment and row house segment, is expected to drag down industry output by 0.2 per cent in 2017. Signs of this downturn have already shown up in recent housing starts data, with multi-unit housing starts down 2.3 per cent in 2016. Multi-unit housing starts will take another step back in 2017, and will struggle through 2021,” the Board said in its announcement. However, “despite weaker residential construction activity, pre-tax profits are forecast to grow by 4.7 per cent this year to reach $4.2 billion.” Meanwhile, “non-residential construction output is forecast to expand by 3.7 per cent this year, led by growth in the institutional segment,” as well as “increased investment in warehouses and hotels.” “Providing support to the industry’s commercial segment is the rise of online shopping, which is beginning to see a faster rate of adoption in Canada. This will help support a U.S.-style buildup in warehouses across the country, although Southwestern Ontario will be a key beneficiary,” the Board added. “Industry profitability is expected to improve slightly over the next five years. Pre-tax profits are expected to reach $2.2 billion this year and grow by an average of more than 4 per cent between 2018 and 2021.” Related stories: Mortgage professionals’ organization reluctant about foreign buyers’ tax in GTA Record year for Canadian commercial sales points to a robust 2017 – CBRE
While various quarters have argued that the Canadian real estate sector’s current situation is nothing like the instability that characterized the U.S. housing industry prior to last decade’s crash, a commodities analyst warned that the two markets are more alike—and face more similar risks—than consumers are willing to admit.
In a contribution for Maclean’s, freelance journalist and financial observer Andrew Hepburn expressed bafflement at the chorus of voices (such as Moody’s and other specialists) declaring that the Canadian market will not fall into a U.S.-style recession any time soon.
Hepburn cited figures from the International House Price Database by the Federal Reserve Bank of Dallas, which found that, adjusted for inflation, Canadian home prices as of Q2 2016 are far more inflated compared to prices in the U.S. during the peak of its bubble in 2008.
Another factor that merits consideration is household debt, now at all-time highs in Canada and fuelled by steady sales volumes in the country’s hottest metropolitan markets.
“As with the U.S. bubble, a surge in household indebtedness (principally via mortgages) has provided the fuel to send prices soaring. If we examine U.S. and Canadian household debt-to-GDP ratios, we see that Canada recently exceeded the level reached by American households in the first quarter of 2008,” Hepburn explained.
“Turn on Canadian radio and television these days, or browse the Internet and social media, and you’ll encounter a near-constant barrage of pitches for condos, mortgages (as well as second mortgages) and real estate seminars, promising the secrets of easy real estate riches as taught by self-professed experts,” he added.
Hepburn cautioned that many observers have a misplaced—and dangerous—sense of the Canadian economy’s robustness against global pressures, and that these suppositions should not be taken as gospel truth.
“When the U.S. housing market collapsed, it kneecapped the global economy, and yet Canada emerged largely unscathed, with observers praising the health of Canada’s banks… Now as global growth slows, yet more observers are singing Canada’s praise for its embrace of fiscal stimulus, trade and newcomers, a stark contrast to the presidential candidacy of Donald Trump.”
“Canada better hope all this housing confidence is justified,” the analyst concluded “If there’s one thing the U.S. crash reminded us, it’s that housing bubbles can have very serious and long-lasting consequences—property values crater, mortgages become millstones, consumer spending plummets, and unemployment soars.”
Vancouver carries the greatest probability of a bubble – study
New rules will push first-time buyers out of the market faster
“We’ve been talking about this in the mortgage world for a while now. All these mortgage changes affect the monolines; all these capital requirements require rate increases and there are going to be capital requirement changes on the insurers,” Ron Butler, a broker with Butler Mortgage, told MortgageBrokerNews.ca. “Finally, in the end, there is going to be risk sharing, which requires more capital requirements. At the end of the day, all of the stuff requires higher rates.”
TD Bank was the first lender to act in response last month’s mortgage rules changes.
The bank announced in a note to brokers Tuesday that it was changing its mortgage rates, including increasing its mortgage prime rate to 2.85%.
And according to Butler, the other banks might follow suit.
“Starting in January, banks are going to be required to assign more capital to mortgages. All these banks are going to be pushed in some sort of direction to raise rates because of these capital requirements on the hot marketplaces,” he said. “But this is their first step – [TD was] just putting this out there and praying that the other banks will go.”
Raising rates is a natural reaction to the recent changes, Butler argues, and the lenders shouldn’t be blamed for passing the expense onto customers.
After all, no successful business will just eat the cost and settle for less profit.
“This is the result of the government’s moves. The government is increasing capital requirements in different layers and different levels of the mortgage business. And by doing so, they require banks to raise rates,” Butler said. “Every business passes government regulation change onto the consumer. TD is doing this because they feel they have to; there is a logical reason behind it based on capital requirements and other banks may change or may not.
“My position is this was not a TD thing. It’s not like TD is going to grab more profit off this.”
The board says 2,233 properties were sold in October of this year, down from the 3,646 home sales recorded in the same month last year.
Board president Dan Morrison says changing market conditions combined with a series of government interventions in the real estate market contributed to the decline.
Both the B.C. and federal governments have brought in a number of measures to address soaring housing costs, particularly in Vancouver.
In August, the provincial government implemented a 15 per cent tax for foreign nationals buying property in Vancouver in a bid to stabilize the city’s housing prices, which have been among the highest in North America.
Last month, the composite benchmark price for all residential properties in Metro Vancouver was $919,300 _ a 24.8 per cent increase compared to October 2015, but a 0.8 per drop from September of this year.
The Canadian Press
London-based think tank Legatum Institute ranks New Zealand, Norway, Finland and Switzerland above Canada with Australia just behind and the US in 17th place.
However, health and education are two areas where Canada is slipping, and overall prosperity has been half that of the UK and New Zealand. The report highlights that Canada has fared better than the US.
The report also warns that despite its prosperity Canada is not immune to economic growth failings seen in Latin America, noting that Canada “faces a similar challenge in keeping its prosperity rising, with oil producing provinces likely to be hit in their creation of prosperity by falling oil prices in a way that oil-consuming provinces will not be.”
More market update:
Sotheby’s signs deal with Chinese real estate portal
Confidence in real estate prices slides
Toronto home prices up more than 20 per cent
Laura Kane, The Canadian Press
Wednesday, Jun. 29, 2016
For Sale signs on Grandview Highway in Vancouver. Postmedia Network
VANCOUVER — A panel struck to restore faith in British Columbia’s besieged real estate industry is calling for hefty fines of up to $500,000 for misconduct and measures to end aggressive sales tactics.
The advisory group was launched by the Real Estate Council of B.C. in February amid allegations that some agents were deceiving clients to rack up commissions and inflate prices in Metro Vancouver’s overheated housing market.
The panel released a sweeping report this week with 28 recommendations, including that the province hike maximum misconduct fines to $250,000 for individual Realtors and $500,000 for brokerages — a significant increase from the current maximum fines of $10,000 and $20,000.
It’s also calling for a ban on agents representing buyers and sellers in the same transaction, for any profits received from misconduct to be returned to the client, and for a confidential hotline for whistleblowers to report complaints.
The real estate council is the industry-funded body that oversees licensed real estate agents in B.C. It’s currently made up of 14 industry members and three government appointees, and the panel recommended Tuesday that the portion of government appointees be increased to 50 per cent.
The superintendent of real estate, Carolyn Rogers, chaired the eight-member advisory group and she said its mandate was to examine whether the current regulatory regime adequately protects the public.
The panel didn’t examine affordability, she said, but skyrocketing prices were having an impact on the council’s role as a regulator and the recommendations were meant to address that.
“Any time there is extreme price fluctuation, you have people that rush into the market that try and make a quick buck,” she told a news conference.
“The regulatory regime for real estate services was designed for people who buy and sell homes, not people who are buying and selling investments. That is a different market. It requires a different regulatory rules, approaches and powers.”
She said the panel often began meetings by discussing predatory sales tactics they had seen, such as Realtors approaching homeowners on their property and pressuring them to sell. It recommended that council increase detection and deterrence efforts to end marketing and sales practices that target vulnerable members of the public, including seniors and immigrants.
The council quickly promised to adopt the 21 recommendations that were directed to it. The province is responsible for enacting the other seven, including raising the maximum fines.
Finance Minister Michael de Jong said in a statement that the government would announce actions to strengthen consumer protection on Wednesday.
“The report is a comprehensive examination of the practices and challenges plaguing the real estate industry right now, and paints a troubling picture,” he said.
Robert Fawcett, the council’s executive officer, said the council has created a committee that will establish timelines for swift adoption of the recommendations.
“We understand that for many British Columbians, buying or selling a home is the biggest financial transaction they will make in their lives,” he said.
“It is a stressful, often emotional experience and they count on real estate professionals to provide them with the information, guidance and advice they can trust.”
The advisory group didn’t consider a move away from self-regulation of the industry. Rogers said the decision to take away self-regulation rests with the government, but she is confident that the recommendations in report will create a more independent regulator.
David Eby, the provincial NDP’s housing critic, called the document an “incredibly damning” report into a failed regulator and demanded an end to self-regulation of the industry.
“When you add it all together, it is no surprise that they have recommended the near wholesale replacement of the board,” he said.
“I am surprised that they didn’t come to the inevitable conclusion, which is that self-regulation has failed here.”
Tags: Mortgages & Real Estate, Housing Market, Vancouver
Toronto condo king Brad Lamb delays Alberta projects amid oil slump: ‘The situation is worse than 2008’
Lamb Development Corp. is delaying construction of two condominium projects in Alberta as the slump in the price of oil guts jobs and housing demand
The report released Friday notes Toronto house prices are up 10.3 per cent from a year ago while Vancouver prices are up 16.3 per cent in the same period. Meanwhile the Brookfield House Price index for the entire country is up just under 5 per cent while Statistics Canada’s New House Price Index is growing at just under 2 per cent.
“Housing gains have been markedly slower in the other Canadian metro areas, particularly in the Prairie provinces, and growth has moderated further in recent months,” writes Alexander Lowy, an associate economist at Moody’s Analytics which is a division of Moody’s Corp.
The economist says two factors may bring the housing market’s “white-hot streak to a screeching halt” and predicts a softening of household demand over the coming years.
Moody’s Analytics says the bifurcation in the market could work against the overall Canadian housing market at some point.
“This split will make it difficult to manage the market in the event of adverse shocks, and a continued slowdown in smaller metro areas could eventually drag down the overall market,” says the report.
Lowy also predicts rising interest rates will take a bite out of the Canadian housing market. “Mortgage rates will almost certainly rise by the end of the year as the U.S. Federal Reserve continues its rate hikes, driving up longer-term government bond yields in the U.S. and Canada through 2016,” he writes, adding the expectations of higher rates may giving the market “artificial strength” as buyers and sellers rush to secure deals with attractive financing.
Eventually, all the activity that has been pushed forward could result in a quicker drop in demand than anticipated, if rates begin to climb in a dramatic way.
The economist thinks Canada’s central bank is eventually going to have no way to go but up, when it comes to its key overnight lending rate.
“The Bank of Canada’s low interest rate policies may help prop up house prices this year, but even Canadian policy rate tightening is inevitable. This could price many new borrowers out of the market and increase the risks for those faced with rolling over existing mortgage debt or attempting to draw equity out of their homes. The result will likely be a softening of household demand over the coming years,” said Lowy.
The BC Minister of Finance has announced several changes to the Property Transfer Tax program, effective Wednesday, which include:
- a property transfer tax exemption for Canadian citizens and permanent residents who purchase newly-built homes, condos and townhouses under $750,000. Purchasers must live in the property for at least one year. This is a potential savings in closing costs of up to $13,000;
- a one percent increase in property transfer tax to three percent for homes which are sold over the $2 million mark;
- the first time home buyers exemption will remain in place for homes under $475,000;
- buyers will need to start disclosing their country of residence in all property transactions;
- the beneficial ownership of properties held by corporations will also be tracked.