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Britain’s decision to leave the European Union last week plunged governments worldwide into a pit of economic and political uncertainty. The ripples of the referendum will have an unmistakable impact on global economies and, by association, on global real estate markets. But only temporarily. It may be a way to attract foreign investors away from already hot markets like Vancouver and Toronto. Get PropertyGuys.com’s Walter Melanson’s take on how the Brexit could effect Canadian Real estate.
B.C. Premier Christy Clark has put the province’s real-estate industry under government oversight, declaring the industry’s self-regulating body has failed to protect the public from cut-throat and illegal practices and has lost the public’s confidence in its ability to police itself. The announcement comes a day after an independent advisory panel issued a report that included 28 recommendations for how the Real Estate Council of British Columbia should beef up its oversight ability to adjust to a market fuelled by speculation. “The point of regulation is to protect people, it is to protect consumers,” Ms. Clark said. “The real-estate sector has had 10 years to get it right on self-regulation, and they haven’t.”
Canada’s housing minister says he and his provincial and territorial counterparts are working toward the country’s first national housing strategy in four decades.
Jean-Yves Duclos said Tuesday that Canadians will have their say on a long-term strategy for the country through online consultations and other means.
There is no housing bubble, and any misguided attempts to fix one will cause bigger problems in the long run. That’s one of the main takeaways of a new report from Mortgage Professionals Canada, an industry group that represents 11,000 mortgage brokers across the country. “Housing bubbles do not exist in Canada,” the group’s chief economist Will Dunning says in the report, adding that it would be “tragic” if any misguided attempts to fix a problem that doesn’t exist were to happen. The report cites U.S. economist Joseph Stiglitz as saying a key requirement of bubbles is that the price of something is “high today only because investors believe that the selling price will be high tomorrow.”
Vancouver’s housing market is in an “outright bubble,” according to Gluskin Sheff’s David Rosenberg. In a Bloomberg TV interview on Wednesday, Rosenberg said that although the overall housing market is not frothy, Toronto and Vancouver are definitely in overheated territory. “At some point, there will be some mean reversion,” he said. “I’m not saying it’s around the corner, but the markets are extremely expensive.” Both markets are two of Canada’s tightest and most expensive. The national average sale price of Canadian houses rose 13.2% in May year-over-year, but gained 9.1% excluding Vancouver and Toronto, according to the Canadian Real Estate Association.
As home prices climb, taking 30 years to pay off mortgage is becoming new norm in Toronto and Vancouver
They are exactly the type of mortgages the government banned for about half of the borrowing Canadian public, but loans with 30-year amortizations, as opposed to 25 years, are slowly becoming the norm for consumers with a down payment of 20 per cent or more. That segment of the market is often referred to as the less risky, low-ratio mortgage market: Since the loans have more equity, it takes a more pronounced housing downturn before they are underwater. But what is becoming clear is that consumers in what is called the uninsured mortgage market — those with loans not backed by federal government guarantees — are taking advantage of financial institutions letting them stretch out their amortizations. The result is a smaller monthly payment that allows the consumer to borrow more in heated markets like Toronto and Vancouver, where resale home prices rose 16 per cent and 30 per cent, respectively, in May, from a year ago.
The federal government wants the Canada Mortgage and Housing Corporation to come up with ways to keep housing prices affordable in the country’s hottest markets — and do it by the end of the year. The first hints of what those measures could be will be in the government’s hands by the end of the summer, with a working plan due by Sept. 1 as the government signals it wants to find ways to quickly cool housing prices. The assignment to the CMHC was made official Monday in a letter sent to the Crown corporation’s president from the minister in charge of the government’s push to create a national housing strategy.
A robust resurgence in housing construction is underway in various parts of the country, according to a recent report by Statistics Canada. The study released last week found that investment in condo construction in Vancouver grew by almost 49 per cent on a year-over-year basis, while Toronto saw a 28 per cent rise in the identical category over the same period, as reported by Daniel Tencer of The Huffington Post Canada.
Housing markets in Toronto and Vancouver are extremely hot, and average prices are skyrocketing. Every new data release, real estate report, and housing related comment is scrutinized, debated and analyzed in painstaking detail. A red flag is raised, an alarm bell is sounded, a stern warning is issued or extreme caution is urged by both domestic and international housing analysts and economists almost daily. According to the Teranet-National Bank House Price Index, Vancouver has seen resale prices increase by 21.7% year-over-year in May. In Greater Toronto (GTA), existing home prices were up 10.6% annually. With rapidly increasing house prices, prospective homebuyers get priced out of the market or overextend themselves financially. Another major concern involves the arrival of short-term speculative buyers looking to flip homes, many of which are highly leveraged. These two groups are the most vulnerable to losses when a housing market contracts.
The existing regulatory regime governing mortgage qualifications in Canada has severe shortcomings that could lead to “over-leveraged” home owners and a future market crash, according to a Toronto-based analyst.
There’s little point in Finance Minister Bill Morneau setting up a study group to figure out what to do about over heated housing markets in Toronto and Vancouver. He already knows what to do. Last week, Morneau asked the Ontario and B.C. finance ministers and the mayors of Toronto and Vancouver to join him in a look at housing affordability in Canada’s largest cities. It seems what they’re really studying is how to tax the flow of offshore money pouring into these two markets. A better thing to study is what kind of housing they’re buying, where exactly they’re buying it and at what price points. At the moment it is unknown.
As Toronto housing prices continue to soar, Ottawa is taking action to tackle the red-hot market. Finance Minister Bill Morneau announced last week the creation of a new working group on the fever-pitch markets in Toronto and Vancouver. It will examine factors like supply and demand, affordability and the long-term stability of the housing market. William Strange, a professor of real estate at the University of Toronto’s Rotman School of management said Ottawa’s move signals the government is being prudent, and recognizes there is a serious bubble in both markets.
The Conference Board of Canada reports that the housing market in Hamilton is going to get tighter, according to statistics from May 2016. “It’s a hot market down there, there’s no doubt about it,” said Senior Economist Robin Wiebe. Listing levels in Hamilton have dropped almost 20 per cent since Spring 2015, and while it’s not a record low, the number of units on the market currently is “right down there,” said Wiebe. Reports show just under 17,700 units on the market right now. The Conference Board of Canada reports the record low for units on the market in Hamilton was 14,520 in January of 1999.
Researchers in British Columbia say they’ve found empirical evidence linking immigration to real estate prices for the first time. A study spearheaded by business professor Andrey Pavlov of Simon Fraser University looked at a now-defunct federal program designed to entice investor immigrants to Canada and the impact its suspension had on the housing market in neighbourhoods popular with newcomers. Communities favoured by Chinese immigrants in Vancouver saw a drop in housing prices over about a year relative to the overall housing market after the termination of the Canadian Immigrant Investment Program in 2014, Pavlov said.
A major Chinese bank has obtained a court order in B.C. freezing the assets of a businessman accused of fleeing China and buying “luxury” Lower Mainland homes after defaulting on a $10 million loan. In an application brought before a B.C. Supreme Court judge last week, lawyers for China CITIC Bank claim Shibiao Yan and his wife bought more than $8 million worth of properties in Surrey and Vancouver over a three-month period beginning in June 2014. The court case comes amid ongoing speculation about the role of offshore money and cash from wealthy Chinese investors in particular, in driving the out-of-control Lower Mainland real estate market. Last year, Canada’s anti-money laundering watchdog FINTRAC claimed to have stepped up enforcement activities in Vancouver’s real estate market. A report prepared for the agency suggested the real estate sector was at “significant risk” for money laundering. At the time, a representative of a company that works with foreign governments and banks to recover funds told CBC that he had been hired by a number of Chinese banks to track down money in B.C.
The provincial opposition is sure money laundering and speculation are the true causes of housing unaffordability in Metro Vancouver and it’s time to compile some proof. The BC NDP wants the BC government to form a task force to start prosecuting offenders. Leader John Horgan believes the time for study on what’s fueling unaffordability is over. He says it’s things like fraud, tax evasion and money laundering that are to blame and a group to stop it needs to be formed.
A protest rally in Victoria got heated as dozens of protesters tried to force their way into a meeting with housing ministers from across the country. About 30 housing advocates shouting “Christy’s cuts are class war!” tried to push past police officers and staff at the Grand Pacific Hotel. They’re demanding the federal government spend more than $10 billion annually to build 77,000 housing units per year in Canada.
An independent panel investigating misconduct by B.C. real estate agents is calling for stiffer fines to a maximum of $250,000 for individuals and $500,000 for brokerages. The current maximums are $10,000 and $20,000, respectively. “These will be applied for when individual agents or firms do not treat a consumer fairly,” Carolyn Rogers, B.C.’s superintendent of real estate and panel leader, told a Tuesday morning news briefing that released a long-awaited report. Critics, however, zeroed in on the problem of continuing to allow the Real Estate Council of B.C., which oversees the industry, to be self-regulated, which it has been since 2005.
The dramatic leap in housing prices in British Columbia has pumped hundreds of millions of unexpected tax dollars into provincial coffers, but Bert Woldring wonders why so little of it has been shared with the province’s poorest residents. Woldring is among a hundred or so campers who have turned the area behind Victoria’s provincial courthouse into a makeshift tent city.
Some Calgary homebuilders say their sales numbers are starting to show some signs of improvement after a slowdown caused by the energy sector slump. The latest numbers from Statistics Canada show investment in all types of new housing construction dropped by 28 per cent between April 2015 and April 2016.
But between March and April this year, investment climbed by 8.5 per cent.
Gavin is a media relations consultant and news junkie based out of Collingwood, Ontario.