Archive for July, 2013

Bank of Canada maintains overnight rate target at 1 per cent

Wednesday, July 17th, 2013

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The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Global economic growth remains modest, although the pace of economic activity varies significantly across the major economies. The U.S. economic expansion is proceeding at a moderate pace, with the continued strengthening in private demand being partly offset by the impact of fiscal consolidation. In Japan, fiscal and monetary policy stimulus is contributing to a rapid recovery in economic growth. In contrast, economic activity in the euro area remains weak. While stronger than in the advanced economies, real GDP growth in China and other emerging market economies has slowed, exerting downward pressure on global commodity prices and, as a consequence, the Bank has downgraded slightly its global growth forecast. The global economy is still expected to pick up in 2014 and 2015.

In Canada, economic growth is expected to be choppy in the near term, owing to unusual temporary factors, although the overall outlook is little changed from the Bank’s projection in its April Monetary Policy Report (MPR). Annual GDP growth is projected to average 1.8 per cent in 2013 and 2.7 per cent in both 2014 and 2015, supported by very accommodative financial conditions. Despite ongoing competitiveness challenges, exports are projected to gather momentum, which should boost confidence and lead to increasingly solid growth in business investment. The economy will also be supported by continued growth in consumer spending, while further modest declines in residential investment are expected. Growth in real GDP is projected to be sufficient to absorb the current material excess capacity in the economy, closing the output gap around mid-2015, as projected in the April MPR.

Inflation has been low in recent months and is expected to remain subdued in the near term. The weakness in core inflation reflects persistent material excess capacity, heightened competitive pressures on retailers, relatively subdued wage increases, and some temporary sector-specific factors. Total CPI inflation has also been restrained by declining mortgage interest costs. As the economy gradually returns to full capacity and with inflation expectations well-anchored, both core and total CPI inflation are expected to return to 2 per cent around mid-2015.

Against this backdrop, the Bank has decided to maintain the target for the overnight rate at 1 per cent.  As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate. Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.

Bank of Canada sticks to low interest rate policy

Wednesday, July 17th, 2013

Other

In its first policy announcement under new governor Stephen Poloz, the Bank of Canada dropped the reference that interest rates are likely to remain unchanged for a period of time. Photograph by: Sean Kilpatrick , THE CANADIAN PRESS.

OTTAWA — The Bank of Canada is mostly sticking to the same script under new governor Stephen Poloz, maintaining the trendsetting policy rate at the super-low level of one per cent and declaring the monetary stimulus will remain until conditions improve.

Some analysts had anticipated that the first policy announcement and quarterly economic report since Poloz took charge on June 1 would be an opportunity to set a new course from his predecessor Mark Carney, but except for some new, expansive language, there was little sign the men see the world differently.

“As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate,” Poloz told a news conference Tuesday.

“Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the two per cent inflation target.”

Still, the Canadian dollar shed nearly half a cent on the release of the statement, which offered more clarity about when Canadians can expect higher interest rates.

CIBC chief economist Avery Shenfeld said he believes markets had priced in an earlier move than the central bank had intended on rate hikes, and the new language makes clearer that low borrowing costs are here to stay for a considerable time.

“They did decide to clarify under what conditions policy will begin to tighten, but other than rewording it, there wasn’t really anything dramatic,” he said.

“Perhaps the market seeing the clarification of the wording of when rates would rise did a bit of rethinking.”

Bank of Montreal chief economist Doug Porter largely concurred, saying Poloz brought “a slightly different style to the bank, but so far no real change in the substance of their view.”

The bank did adjust upwards Canada’s growth rate for this year to 1.8 per cent from its previous call of 1.5 per cent, but that was almost entirely due to a stronger than anticipated first quarter.

As well, the bank sees the just completed second quarter being set back by the Alberta floods and a mid-June Quebec construction strike to one per cent growth, but with both disruptions ending, the third quarter will make up the difference with a 3.8 per cent rebound.

The hit on second-quarter growth was estimated at 1.3 percentage points, meaning without the extraordinary shocks, the economy was expected to grow by 2.3 per cent in the April-June period.

Evening out the choppy quarters, the bank expects the economy to expand at a rate of 2.7 per cent in 2014 and 2015, little change from the April forecast of 2.8 and 2.7 growth in the two years.

“While real (gross domestic product) growth in the first quarter of 2013 was stronger than expected, the bank foresees a somewhat more challenging external environment over the projection horizon than previously anticipated,” it explained.

“This reflects slightly reduced expectations for global economic growth, which contributes to a lower profile for commodity prices.”

The Poloz-led bank did change the language on the tightening bias pointing to higher interest rates, dropping the reference to “considerable monetary policy stimulus” likely remaining appropriate “for a period of time.”

But it is a distinction without a difference.

The new forward guidance makes clearer that as long as there is considerable slack in the economy, which won’t be absorbed until mid-2015, inflation pressures remain muted and household finances continue to improve, the current interest rate setting remains appropriate, adding:

“Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the two per cent inflation target.”

That suggests Canadians should expect to enjoy super-low borrowing rates until at least the end of 2014 and possibly well into 2015.

The bank also dropped its specific reference to the “persistent strength of the Canadian dollar” as a drag for exports, instead substituting the more generic “ongoing competitive challenges.” The loonie has weakened in the past few months and is currently hovering around 96 cents US.

Still, the bank is counting exports to eventually take the Canadian economy out of the slow lane as demand in the U.S. picks up, which it believes will also boost confidence and boost business investment.

“After picking up sharply in the first quarter, exports are projected to continue to increase at a solid pace,” the bank says. “The further recovery in U.S. business and residential investment should particularly benefit those export sectors that have lagged thus far, notably machinery and equipment and lumber products.”

It expects exports to add 0.8 percentage points to gross domestic product output this year, followed by 1.4 points next and 1.3 percentage points in 2015.

As it did in April, the bank welcomes the moderation in borrowing by Canadians despite the low interest rates, noting that household credit has continued to slow to a rate below its historical average.

The bank takes some notice of the recent rebound in the housing market, although it says it expects residential investment to decline further from historically high levels to a “more sustainable path.”

On the global economy in general, the bank has downgraded growth this year by 0.2 percentage points to 2.8 per cent, with rebounds of 3.5 per cent and 3.7 per cent in 2014 and 2015, both moderately lower than it had previously projected. The change reflects slowing economic growth in China and other emerging countries, the bank said, and continued weakness in Europe.

Edgewater Casino gets extension

Tuesday, July 16th, 2013

Bob Mackin
Van. Courier

The Edgewater Casino will stay at the Plaza of Nations until the end of 2016. Photograph by: Dan Toulgoet , Vancouver Courier.

Edgewater Casino can stay at the Plaza of Nations until the end of 2016 after receiving unanimous approval Monday from the city’s Development Permit Board.

The Paragon Gaming-owned casino’s temporary use of the Enterprise Hall and 138 parking spots was to expire July 31. Edgewater opened Feb. 4, 2005 with a four-year sunset clause that was extended to 2013 after Las Vegas-headquartered Paragon bought the casino out of bankruptcy in 2006.

Paragon announced a deal with B.C. Pavilion Corporation in March 2010 to build a $450 million casino and hotel complex connected to B.C. Place Stadium’s west side. In April 2011, city council unanimously rejected the proposed expansion from 75 gambling tables to 150 and 600 slot machines to 1,500. In a compromise, Paragon was permitted to move the existing licence and received rezoning of the PavCo site in November 2011.

Last year, Edgewater extended its lease with Plaza of Nations landlord Canadian Metropolitan Properties until the end of 2015. The B.C. Place project is in limbo while Paragon seeks partners.

With no fanfare, Paragon and PavCo quietly launched a new website in June about the project called Site10a.com. The website said a new master development agreement was signed in March, before the provincial election, and that PavCo is expecting $3 million annual lease revenue for a 70-year term from the new Edgewater. The payments are intended to lessen PavCo’s debt for the $514 million B.C. Place renovations. The original lease was supposed to be worth $6 million a year.

The website contains no new architectural drawings or indication of whether the complex will be substantially smaller than originally planned.

“We’re not prepared to talk about that at all,” Paragon vice-president of planning John Cahill told the Courier Monday. “Today’s focus was getting the extension.”

Asked to confirm or deny whether one of the partners Paragon has approached is Burnaby-based Gateway Casinos, Cahill said. “I’m not going to talk about that at all, its not appropriate at this time.”

The only speaker at the meeting was Sandy Garossino, who led Vancouver Not Vegas’s successful 2011 anti-expansion campaign. She said Paragon, PavCo and B.C. Lottery Corporation owe the public answers on what is being proposed, including who would finance and operate the new Edgewater.

“All of those things are material and are in the public interest to know,” Garossino said. “I still think [Paragon president] Scott Menke was telling the truth when he said two years ago that this was an all or nothing deal, that the current amount of slot machines and gaming tables weren’t enough.”

Edgewater sent almost $6.1 million in royalties to city hall for the year ended March 31, 2013, substantially less than the $10 million to $12 million envisioned in 2006.

“I can’t imagine how they can increase their costs, bear the incredible infrastructure, build a parkade at the same amount of revenue,” Garossino said. “There has to be more and we’re not being told.”

Garossino said Vancouver Not Vegas is proceeding with its petition to the B.C. Supreme Court to quash the Edgewater move because it claims neither the city nor PavCo followed procedures.

While Paragon is in talks with partners to bring the new Edgewater to fruition, Menke and CEO Diana Bennett were contracted last month to manage the struggling Riviera Hotel and Casino in Las Vegas. Paragon is also exiting its River Cree Casino partnership with the Enoch Cree First in Edmonton. River Cree defaulted on a $111 million loan in April 2012 but continues to operate.

Early Jan. 20, Surrey City Council voted against Gateway’s proposal for a $100 million South Surrey casino. Gateway’s backer is Toronto private equity firm Catalyst Investment Group. When Deputy Premier Rich Coleman was also the gambling minister, he met Feb. 5 with Catalyst chairman Gabriel de Alba and Feb. 12 with de Alba and CEO Newton Glassman. Coleman’s agenda does not list the reasons for the meetings. Glassman did not respond to an interview request.

© Copyright (c) Vancouver Courier

BCREA revisions to Standard Forms

Friday, July 12th, 2013

Other

The Real Estate Council of BC has introduced new rules (3-3.1 and 3-3.2) that deal with designated agency. There have been revisions to a number of Standard Forms to reflect these new rules.

These changes centre on the obligation of the brokerage to remain neutral under designated agency and help clarify that the fiduciary duties of the designated agent does not apply to the brokerage or other licensees within the brokerage.

The following forms have been updated. Members should only use the new version of these forms:

  • Authority to Lease
  • Buyer Agency Acknowledgement
  • Exclusive Buyers Agency Contract
  • Exclusive Tenants Agency Contract
  • Exclusive Authority to Lease
  • Limited Dual Agency
  • Limited Dual Agency Competing
  • Multiple Listing Contract
  • Working With a REALTOR® brochure

New form and education guide – available on July 2

  • New form and education guide – Contract of Purchase and Sale Business Assets

Revised forms (minor change* – previous version can still be used) available on July 2

  • Contract of Purchase and Sale
  • Contract of Purchase and Sale – Commercial

*Minor change: On the information page – added (plus GST) beside Real Estate Commission under Costs to be Borne by the Seller.

BCREA mortgage rate forecast

Friday, July 12th, 2013

Interest rates jump, mortgage rates to follow?

Other

The Canadian five-year posted mortgage rate once again fell back to its historical low of 5.14 per cent in the second quarter, its lowest level since early 2012. The decline in fixed mortgage rates followed an equally historic dive in five-year Canadian bond yields, which reached an all-time low of 1.15 per cent in May. Indeed, rates across the long-end of the Canadian yield curve swooned in the second quarter but have since spiked sharply back to where they were to start the year.

Historically low funding costs for Canadian banks translated to deep discounting of mortgage rates for homebuyers with most lenders offering 5-year fixed mortgages equal to the prime rate of just 3 per cent. In fact, and in spite of attempts by some policymakers at discouraging lower rates, some lenders continue to advertise fixed-rate mortgages at well below prime.

However, depending on the sustainability of the recent rise in interest rates, those discounts may become scarce. It is difficult to cite a definite cause for the recent rise in interest rates, and much of the rise in Canadian interest rates may have more to do with what is going on in the United States than in the domestic economy.

Generally, rising medium and long-term interest rates result from one of three scenarios. Markets may be concerned about government debt burdens and therefore demand higher interest rates.

In addition, comments by central bankers may drive the market to perceive a more hawkish stance for monetary policy, which would push long rates higher. Finally, markets may be pricing in a more positive global economic outlook and therefore a return to a more normal shaped yield curve. Each of these scenarios implies a mix of different behaviours in asset markets as shown in the table.

There are other factors at work, but given recent trends in equity, bond and currency markets in the United States, the recent rise in interest rates is likely being driven by expectations of a stronger US economic recovery. Regardless of the root cause of higher rates, given where yields currently stand, we anticipate a modest increase in the 5-year fixed-rate back to 5.24 per cent with the possibility of a further move up to 5.44 per cent if five-year yields continue to rise. As for one-year fixed rates, we expect very little, if any, movement over the next year and a half.

Cottage Time

Thursday, July 11th, 2013

Better Jump In Now

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Somerston Lane In Port Coquitlam

Thursday, July 11th, 2013

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Mortgage analysts urge: Lock and Load

Thursday, July 4th, 2013

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REBGV Stats Report June 2013

Wednesday, July 3rd, 2013

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The land market hasn’t crashed, it has “evolved,” and there is no fear that values will fall further

Tuesday, July 2nd, 2013

RUDY NIELSEN
Other

A good friend recently asked: “When will British Columbia’s recreational market recover?”

I checked the numbers (and my gut) and, in my opinion, the wording is wrong. The market hasn’t crashed, there’s nothing to “recover.” Like all healthy markets it has simply changed and, like all healthy markets, it is best get aboard while you can and before the next round of “upside” kicks in, the next round of appreciation.

In one aspect the market has shrunk; sales volume is way off its 2006-07 peak. But in other ways it has evolved, becoming exclusive, maturing, consolidating. And there’s no big reason for values to fall.

I define “recreational” as vacant rural land: lots, acreages, fields, forests and waterfront, fresh and saltwater. Anything with even a steady, clean creek sells for a premium. I don’t count rural condos, resort chalets or cottages, just land.

Landcor Data numbers

Prior to 2001 the market was flat: around 1,900 sales a year at about $75,000 per handshake. But, as the millennium turned, so did the market. Sales rapidly ramped up, peaking at nearly 5,000 sales annually just prior to the recession in 2008.

Supply and demand. Prices got excited and, as usual, inertia carried values past the volume peak. Average land sale prices topped out at around $200,000 in early 2008.

But sales volumes plunged. Currently sales are just over 1,200 a year, far below the peak and even below the activity of a decade earlier.

When volumes crashed prices dipped, but mostly held firm. The average recreational land price is now $150,000 on far fewer sales, which means fewer vendors. Just my guess, but those earlier owners are holding onto what they’ve got for cheap, and the resulting lower inventory keeps price reductions in check.

Because of the nature of recreational, the current ownership and the financially secure buyers it attracts, I can’t see prices reversing and/or volumes rising in the foreseeable future.

B.C. is envied for clean air, potable and abundant water and livable density. As the world becomes ever more congested, this envy will, in my opinion, turn into action from new local and a growing cohort of “foreign” buyers seeking personal recreational escapes and longer-term “legacy” investments, not from over the Rockies but overseas. Not immediately, but I see it coming.

Like all real estate markets recreational has its cycles. But, unlike those other markets, recreational land has a unique self-limiter – there’s only so much to go around. Land is steady, fixed and finite – and with B.C. recreational, it’s surprisingly scarce.

Scarce land

B.C. covers a whopping 233,449 million acres. Landcor Data sliced away Crown Land, First Nations, the Agricultural Land Reserve, residential, industrial, commercial and other build properties, and pulled the remaining and most recent “vacant land/rural” titles, registered addresses and total acreage. The figures are interesting.

Basically, ownership remains firm. Back in 2010 there were 89,256 titles. In 2011 it slipped to 88,542, dropped further to 87,921 (2012) and increased to 89,103 titles in the first quarter of this year.

Of these 89,103 titles, 87,025 or almost 98 per cent are registered to Canadian addresses: 80,060 in B.C.; 5,678 in Alberta; 713 in Ontario; and 574 scattered in other provinces. The foreign contingent: 1,551 U.S.; 159 Germany; and 103 U.K., with 265 other titles sprinkled around the globe. China and Kenya owners guard the rear at one title apiece.

Although the title count is firm, total acreage size of the transactions grew from 4.371 million acres (2010) to 4.367 million (2011) to 4.384 million (2012) and, in the first quarter of this year, 4.453 million acres – still a mere 1.91 per cent of the entire province.

As a finite desirable asset, I believe B.C. recreational land is on a comparatively slow – but fundamentally solid – series of appreciation cycles. The numbers might dip here and there, but the upward price trend is on firm ground, literally and figuratively.

Meanwhile, get it while you can.

Rudy Nielsen is president and founder of real estate analyst firm Landcor Data Corp. and NIHO Land & Cattle Co., one of the largest owners and developers of recreational land in B.C. For more than 40 years, Nielsen has been involved in the B.C. real estate industry as a developer, appraiser, entrepreneur, adviser and dealmaker; in one 10-year period alone, he sought and successfully closed more than 1,000 deals. Nielsen may be contacted through the Landcor Data website at www.landcor.com.


from Western Investor May 2013