1.Talkin’ ‘bout interest rates, talkin’ ‘bout mortgages
Canada’s top banking watchdog said it would require mortgage insurers to hold bigger capital cushions for home loans taken out when housing markets are particularly frothy, the latest in a series of measures aimed at easing risks posed by soaring house prices in two of the country’s biggest markets. Residential mortgage default insurance premiums are likely to increase for homes in hot real estate markets as a result of beefed-up capital requirements for Canada’s mortgage insurers coming into force next year.
Mortgages are also getting tougher to obtain for foreign residents. Effective immediately, the Bank of Montreal will require all applicants in its new-to-Canada lending programs to include documents that verify their wealth and source of income when applying for a mortgage. Bank of Nova Scotia made the same change to its policy last week amid widespread concern about overheated housing markets.
These increase costs might soon be offset by even lower interest rates. Mutterings of interest rate cuts in the near future have intensified amid the latest financial numbers, which pointed to an economy hobbled by weakened consumer spending and a trend of lower prices. Updated figures released by Statistics Canada on September 23 revealed that the Canadian annual inflation rate declined by 1.1 per cent last month, the most significant drop since October 2015. The core inflation rate also fell from 2.1 per cent to 1.8 per cent, lower than the record set back in July 2014.
Low interest rates have lately gone hand-in-hand with substantial quantitative easing. The U.S. Federal Reserve alone has printed about $3.8 trillion since 2009. That’s enough to buy 38 million million-dollar homes. The American central bank has printed more money than the entire Canadian economy generates in two years. Most of it was spent buying U.S. government treasury bonds — basically creating money with one hand of government and handing it to the other to spend.
Of course, the money printing distorted everything. As intended, it drove down interest rates to nearly zero, punishing old-fashioned, “virtuous” behaviour, robbing savers of return on their investments, while rewarding those who live beyond their means and bailing out scoundrels.
Those looking to buy a home in this low interest rate environment often ask whether they should wait until having saved enough for a 20-per-cent down payment or just make a 5-per-cent down payment and invest the rest of the money in long-term investments. But anyone who has gone bankrupt is worried about the ability to get a mortgage.
More bankruptcies might be on tap should interest rates rise. Rising interest rates would be a real concern for Toronto’s condo market. During the past decade there have been approximately 200,000 new condos added to the GTA’s housing market stock, all of them delivered in an environment of declining interest rates. Speaking of bankruptcies, Royal Bank of Scotland Group Plc will pay $1.1-billion to resolve claims that it sold toxic mortgage-backed securities to credit unions that later failed, the U.S. National Credit Union Administration (NCUA) said. The resolution comes as RBS prepares to settle a number of U.S. cases where it is accused of mis-selling mortgage-backed bonds and brings the U.S. regulator’s recoveries against various banks to $4.3-billion over their sales of such securities before the 2008 financial crisis.
2.They said add a foreign buyer tax, I said no, no, no!
The heads of two prominent real estate associations in Ontario are lobbying government leaders not to follow B.C.’s lead with a tax on foreign homebuyers, a move that comes as the spotlight shifts from Vancouver to Toronto’s hot housing market. In letters sent to Ontario Finance Minister Charles Sousa and Toronto Mayor John Tory, the presidents of the Toronto Real Estate Board and the Ontario Real Estate Association warned that matching British Columbia’s 15-per-cent tax in Metro Vancouver for buyers who are not Canadian citizens or permanent residents would harm the economy. Although critics say the province has little choice but to copy British Columbia’s tax, which took effect on Aug. 2, or risk adding fuel to Toronto’s overheated market.
Ontario Premier Kathleen Wynne is one person who is worried about Toronto’s skyrocketing housing prices – but says her government needs more information about what is driving the problem before deciding whether to bring in a foreign-buyer tax similar to British Columbia’s. Toronto’s housing hysteria reminds us that one can have too much of a good thing. Explosive increases are not only unaffordable, but unsustainable.
3.A development built on cable bills
Almost 60 years after Ted Rogers bought a swath of farmland in Mississauga to play host to transmitters for his radio station CHFI, the late telecom entrepreneur’s family is investing in a $1.5-billion condominium development on the property on the western downtown edge of the fast-growing city. Dubbed “M City,” the project is part of Mississauga’s master plan for developing its downtown core, and will feature two acres of public parkland as a backdrop to 10 towers of varying design with both residential and commercial space. Edward Rogers – the son of Ted, who died in 2008 at the age of 75 – was at the project site at Burnhamthorpe Road and Confederation Parkway, along with local politicians, planners and developers, on Tuesday morning to announce the development.
4.AirBnB for you and me. Rental housing, not so much!
Vancouver’s mayor wants to ban Airbnb rentals for those who aren’t living in the homes they are listing, while requiring everyone else to hold a business licence.
Mayor Gregor Robertson has revealed the city’s approach to regulating short stays facilitated by vacation-rental websites, which he says are contributing to a “dangerously” low vacancy rate. “Our approach is to strike a balance between regulating short-term rentals and ensuring that some people can continue to do that, but focusing on our long-term rentals,” he told a news conference Wednesday. As evidence that Vancouver’s rental housing market has slipped from expensive to dangerous, the mayor points to demands for sex from some Vancouver landlords uncovered in a CTV News hidden camera investigation. Apparently, only 320 Airbnb hosts in Vancouver rent out their properties often enough to make more money than they would from long-term renters, according to new data released by the company as the city prepares to launch new regulations for short-term rental services. That represents only 0.11 per cent of the almost 300,000 housing units in the city, says the author of the report, Airbnb’s head economist, Peter Coles. Most of the rest of Airbnb’s hosts don’t rent out their housing enough to compensate for the loss of the average $2,000 a month possible for long-term rentals, he said. Average earnings by hosts are only $6,600 a year.
Meanwhile, a new report is sounding an alarm about the effects of Airbnb listings on the availability of rental housing in Toronto. The report was released Thursday by the Canadian Centre for Policy Alternatives’ Ontario office. It found that just 13 per cent of hosts in the city account for 37 per cent of total Airbnb listings in Toronto. In July, that same group accounted for 46 per cent of total estimated Airbnb revenue in Toronto. While the company bills itself as a home sharing service, the report also found that nearly two thirds of Airbnb listings in Toronto are for entire homes.
5.As the Coast Turns: The continuing saga of Vancouver real estate
“Real house prices have increased by more than 25 per cent since 2014 in the wake of a weak Canadian dollar which apparently stimulated Asian demand even further,” the bank said, in its 22-page report released Tuesday. “Moreover, loose credit conditions have offset the economic slowdown due to weak commodity prices. Mortgage growth rates have been accelerating lately. In response to still-high foreign demand, the local government has introduced an additional property tax for non-resident investors. The risk of substantial price correction appears very elevated.” But, China’s richest man, real estate magnate Wang Jianlin, has warned the country’s property market is the “biggest bubble in history” — the latest alarm bell to be sounded on China’s faltering giant economy.
Speaking of bubbles, B.C.’s tax on foreign home buyers in Metro Vancouver introduced more uncertainty into a market that was already cooling, with international transactions slowing to a trickle in August after hundreds of such buyers rushed to close almost a billion dollars in deals just before the new levy took effect. In Metro Vancouver, there were 1974 home sales involving foreign nationals in the period from June 10 to August 1. That fell to just 60 from August 2 to August 31. Total dollar value of home sales in Metro Vancouver fell from $14 billion to $6.5 billion. B.C.’s Ministry of Finance released data that compared two periods of different duration: 53 days between June 10 and August 1, and 30 days between August 2 and 31. Home sales to foreign buyers dropped 94 per cent between the two periods, when the number of deals in the first period is averaged over a 30-day period.
Even with the drop in foreign purchase some Vancouver residents are banding together to worry about their future in the city. NDP MLA David Eby is on their side. He is calling on the B.C. government to hire more tax auditors to examine the Metro Vancouver phenomenon of homeowners who report poverty-level incomes, but own homes worth millions. And he is once again calling for changes to the tax system after compiling new data on land titles in Vancouver. “I don’t believe Revenue Canada is treating this seriously. I don’t think the province is treating this seriously,” said Eby at a news conference where he unveiled more data, compiled by the NDP, on who owns property on Vancouver’s expensive West Side. The data looks at 250 properties in Mackenzie Heights, traditionally a middle-income neighbourhood located between Dunbar, Kerrisdale and Shuahgnessy. Of those homes, 26 were owned by people who identified their occupation as homemaker, while another six owners said they were students. In total, they owned $107 million in property — and Eby is questioning where that money came from.
Now the city’s housing planners say it’s time for a dramatic rethink of the 10-year strategy developed to improve housing options in the city back in 2012, while a senior B.C. economist predicts Metro Vancouver house prices will more than double over the next 25 years, as supply continues to be tight and more people move to the region. Already, some folks are being completely priced out of buying in the region and can’t even afford to rent. But an increase in the number of apartments and condominiums under construction in the City of Kelowna could help alleviate a local rental vacancy rate that hasn’t been this low since 2007. It might also be helpful to refurbish the 60 abandoned townhouses that are part of the Hoy Creek Housing Co-op in Coquitlam.
The best of the rest
The Trudeau Effect hasn’t just boosted Canada’s foreign relationships, image, or voter morale. The one-year-old Liberal government has also helped to buoy residential housing in the nation’s capital, according to recent housing statistics and Ottawa-based experts. Close to 6,850 residential homes were sold in the first half of 2016, up almost 6 per cent from the same period last year. Meanwhile, condominium sales in Ottawa rose close to 5 per cent. Michael Bird, a lawyer and sessional instructor in real-estate law at the University of Ottawa, says this trend is indicative of history with Liberal governments.
But The Trudeau effect has not been all positive. There have been a lot of cries of ignominy across the country because of Liberal staffers Katie Telford and Gerald Butts, who have claimed relocation costs. Casey Kachur and Nate Edwards know a thing or two about relocation costs. The pair have launched Virtuo, a service that pairs movers with a personal moving assistant to manage the entire moving process from appointing agents to mortgage advisers and arranging yard work to setting up mail forwarding. The reality is that moving in and out of our largest city is not an inexpensive proposition and the numbers tell the story. Legal fees, disbursements, discharging the current mortgage, capital gains taxes… selling a home often comes with an abundance of seemingly never-ending costs that can send your stress levels soaring. The commissions buyers and sellers typically pay on real estate trades came under scrutiny last week after the two top aides to the Prime Minister racked up some hefty moving expenses.
Unlike Telford and Butts, who moved because of their high profile careers, ordinary Canadians may feel tempted to buy a home on impulse, thinking if they don’t act now, they will miss their opportunity to settle into their dream home. However, in most real estate transactions there is no cooling off period, which means you can’t change your mind. Meanwhile, aging Canadian homeowners are increasingly cooling on the idea of moving, deciding to stay where they are and renovate instead, especially since more adult children are still living under their roof. That was one of the conclusions of a CMHC report on Ontario’s housing market Tuesday, which looked at the booming market for home renovations. Ontarians spent an estimated $25 billion on renovations last year – a figure that the housing agency says is forecast to keep increasing in the coming years.
High real estate costs are not just a Canadian problem, however. Real estate prices are soaring across the whole British realm, relative to local currencies. As a reult, London mayor Sadiq Khan is to launch the UK’s most comprehensive inquiry into the impact of foreign investment flooding London’s housing market, amid growing fears about the scale of gentrification and rising housing costs in the capital. Khan said there are “real concerns” about the surge in the number of homes being bought by overseas investors, adding that the inquiry would map the scale of the problem for the first time. Still, concedes The Guardian, London’s problems aren’t as bad as what is happening in Vancouver.
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Gavin is a media relations consultant and news junkie based out of Collingwood, Ontario.