Home stocks drop due to weakening real estate market

Bloomberg

Investors hoping for a respite in the pummeling of two of the stock market’s weakest sectors instead were treated to more pain.

Financial stocks in the S&P 500 dropped 2.1 percent to a one-year low while homebuilders had their 12th decline in 14 days. Bearing the brunt in lenders were New York Community Bancorp, Comerica Inc. and Huntington Bancshares Inc., losing more than 3.8 percent each, while MDC Holdings, KB Home and Lennar each fell more than 3.5 percent in the construction space.

“It’s almost like a series of mini-corrections are going on in the marketplace right now,” Shawn Matthews, former chief executive officer of Cantor Fitzgerald LP who launched a hedge fund called Hondius Capital this year, said on Bloomberg Television. “In a typical cycle, these interest-rate specific areas are going to take the hits first.”

The two groups, both exposed to weakening sentiment in real estate, have tumbled as investors rotated into defensive industries like foodmakers and utilities. The S&P Supercomposite Homebuilding Index is down 36 percent in 2018, poised for the worst year since the financial crisis, while the S&P 500 Financials Sector gauge has dropped 14 percent from its high in January.

“Home stocks are always going to be first and foremost going to take a hit,” Matthews said. “Then you’re going to go through and you’re going to look at the financials space because the curve has flattened and then you’re going to start to look at other areas.”

Home stocks haven’t been able to catch a break this year, and losses have worsened in October. The 30-year mortgage rose above 5 percent this month for the first time since 2011 at the same time data from the industry has come in weak. Atlanta-based PulteGroup Inc, which fell more than 3 percent in Monday’s trading session, will kick off earnings for major homebuilder stocks tomorrow and slowing industry demand will be in focus, according to Bloomberg Intelligence.

U.S. housing starts fell in September, declining 5.3 percent. The drop followed a downward revision of August’s growth rate to a 7.1 percent gain, from 9.2 percent. The disappointing data came as BTIG analyst Carl Reichardt cut builder EPS estimates by an average of 1 percent for 2018 and 6 percent for next year amid concern over a slowdown in housing demand.

Rising rates have left the housing market “at the end of its affordability rope and prone to further downside,” Deutsch Bank analyst Nishu Sood wrote in a note. This is the first time since World War II that high prices are halting housing momentum at what should be the middle of the cycle.

Regional banks have suffered. The largest ETF that tracks the group of smaller lenders has plunged 19 percent since reaching a record in June. It’s down 11 percent in October to the lowest in 13 months. Zion Bancorp fell 3.5 percent Monday even after reporting earnings that topped estimates as investors grew concerned about higher rates and a slowdown in the housing market. Fifth Third Bancorp, Huntington and Regions Financial report results Tuesday.

Energy and raw-materials stocks also fell Monday, sending the S&P 500 down for the 11th time in 13 days.

“It’s a very fickle market at this stage, especially for stocks that don’t have very strong perceptions of their growth outlook in the market,” John Vail, chief global strategist at Nikko Asset Management, said by phone. “People are feeling testy. Certainly people have had a bit of a shock with the market downturn and people are coming to the realization that the Fed isn’t kidding about wanting to slow down risk taking to some degree and wanting to keep the economy from growing too fast.” 

Copyright Bloomberg News

Copyright © 2018 Key Media Pty Ltd

Multi-residential buildings sales fueled by high rents

Ephraim Vecina
Canadian Real Estate Wealth

Multi-residential apartment buildings in Toronto yielded a record-breaking $1.2 billion in investments during the third quarter of 2018, according to the latest report from commercial real estate firm Avison Young Canada.

Bill Argeropoulos, principal and practice leader of Canada research at Avison Young, attributed the dynamism to sustained growth in rents.

“Buyers looked to take advantage of record-low vacancy and rising rental rates across most asset types — all amid elevated asset values and the prospect of higher interest rates,” Argeropoulos explained.

Avison Young added that a major portfolio sale of more than 3,100 units to two different buyers was another major contributor to the Q3 numbers.

Toronto’s total commercial investment exceeded $4 billion in the quarter, with demand continuously outpacing supply. Total commercial real estate investment year-to-date was at $12.3 billion, which was 10% higher compared to the same time frame in 2017.

As for sales, overall year-to-date numbers stood at $2.1 billion, almost double the volume of investment during the same Q1-Q3 period last year.

Office sales went up by 25% from Q2 to Q3 2018, reaching $888 million. Retail assets saw $572 million in sales during the third quarter, reaching $1.9 billion year-to-date.

Copyright © 2018 Key Media Pty Ltd

Consumer Debt Index reported 1/3 of Canadians fear bankrupcy

Ephraim Vecina
REP

The latest Consumer Debt Index by insolvency practice MNP LTD reported that 1/3 of Canadians are concerned that rising rates could push them towards bankruptcy.

Over half (52%) of the study’s respondents also said that rate hikes will affect their ability to service their existing debts.

“It’s been over a year now since the first interest rate increase and as rates continue to inch higher, more Canadians are feeling it. With little decrease in household debt and the pace of rate hikes expected to accelerate, we will likely see a more immediate and significant effect on borrowers with rate increases in the future,” MNP LTD president Grant Bazian stated.

Meanwhile, 40% of Canadians are concerned about their existing debt loads, the highest proportion ever since MNP started tracking this metric in June 2017. Another 43% regretted the amount of debt that they have taken on in their lives.

“Rising interest rates have forced people to take a more serious look at their debts. Still, many are reluctant to get professional help. They may not know where to go or they feel helpless,” Bazian said.

Young Canadians most acutely feel the pressure of these fears. The study found that 50% of millennials are already feeling the worst effects of interest rate hikes, compared to 48% of Gen X’ers and 38% of boomers.

The millennial demographic is also more likely to express concern about interest rate hikes and their impact on debt repayments (62% of millennials vs. 57% of Gen X’ers and 40% of boomers), or the risk of bankruptcy (46% of millennials compared to 38% of Gen X’ers and 22% of boomers).

“Millennials have never experienced a time when credit wasn’t cheap and easily accessible. Some have over extended themselves on their homes and vehicle payments and are in the habit of relying on credit to cope with any kind of unexpected expense,” Bazian said.

Copyright © 2018 Key Media Pty Ltd

Tech industry in Toronto about to explode

Neil Sharma
REP

Thanks to the city’s thriving technology sector, Ron Sally believes real estate—and condos in particular—are going to be the hottest commodity in town.

“Our tech industry in Toronto is about to explode,” said broker of record and owner of REMAX Millennium Real Estate. “It’s been slowly climbing up the ranks; it hasn’t reached its peak yet but it’s about to come out into the open. It’s currently ranked number two in North America and number four in the world.”

Sally added that Toronto’s financial sector is ranked third in North America.

“As of 2017, the ranking is number 11 globally for the financial sector,” he continued. “What this means is that in the world, Toronto is the eighth-most liveable city and our job sector is going to grow, as well, in the next few years. Toronto’s condo market is undervalued, so whoever can get a piece of Toronto real estate should do it while it’s still available.”

Toronto is presently rated an Alpha city, and joining Singapore and Tokyo as Alpha+ cities isn’t unfathomable.

“Our transportation system is being improved—the city is changing implementation,” said Sally. “A lot of changes are going to turn this into a global city. Right now everyone knows where Toronto is. We had 28,900 new tech jobs created in Toronto, and that’s more than the San Francisco Bay Area, Seattle and Washington D.C. combined.”

Indeed, Microsoft, Uber, Shopify, Airbnb and Google Sidewalk Labs are all setting up shop in Canada’s largest city and economic heartbeat. Coupled with the fact that new tech sector jobs will be created in the years ahead, and the fact that supply already lags well behind demand, Toronto condo valuations are on pace to surge.

“Downtown on King St., condos are selling for $1,500 to $1,600 per square foot; Pemberton is also selling one at $1,200 per square foot,” said Sally. “Things are slowly changing and those who see the big jump coming in the next two or three years understand it’s the same jump we had in 2014 and 2016. We have one million immigrants entering Canada in the next three years.”

According to Matt Smith, a broker with Engel & Völkers in Yorkville who specializes in the luxury market, the city’s thriving tech sector has been fuelling demand for high-end homes.

“A new trend is on the horizon that will continue to push Toronto’s housing market and its luxury segment, and it’s the impending tech boom,” said Smith. “In the last five years, Toronto has created 82,000 tech jobs, more than Silicon Valley and more than any other city in North America.”

Copyright © 2018 Key Media Pty Ltd

After a slump in inquiries, third quarter sees leap in Metro Vancouver searches on Chinese real estate portal Juwai.com

Frank O’Brien Joannah Connolly
Western Investor

Nine months after the B.C. government raised the foreign-buyer tax on Metro Vancouver homes to 20 per cent of the property’s values, searches by potential buyers in China have surged through Juwai.com, China’s biggest international real estate portal.

But the founder of the Vancouver chapter of the Asian Real Estate Association of America, who recently returned from addressing a Beijing real estate conference, advised home sellers to damper theif enthusiasm.

“As much as we don’t like to think so, Canada is not as important to China’s buyers as other places, especially the United States,” said Tina Mak, an agent with Coldwell Banker Westburn Realty in Vancouver. Mak contends that searches through Juwai.com are up for virtually every country as worried Chinese investors attempt to get money out of the country. “Canada was barely mentioned at the Beijing real estate conference,” she noted.

However, the number of inquiries on Metro Vancouver real estate between July and September exceeded even the height reached in 2017’s first quarter, the international property website reported in response to an inquiry by Glacier Media.

In raw numbers, searches rose from approximately 350 in the second-quarter to nearly 800 in the third quarter.

This follows a significant lull over the previous four quarters, where Chinese interest dropped dramatically and focused on other Canadian cities, especially Montréal. Metro Vancouver has this year slipped to being the fifth most searched-for city for Chinese buyers, after Greater Toronto, Montréal, Calgary and Ottawa – whereas in 2016 it was second only to Toronto, reported the website.

B.C. introduced the foreign-buyer tax, at 15 per cent, in August of 2016 and then raised it to 20 per cent  in the provincial budget this February. 

“We have seen an increase in inquiries from China buyers recently,” said agent Michael Hu of Re/Max Westcoast in Richmond, the city that led the province in foreign-home buyers prior to the introduction of the foreign-home buyer tax. Richmond was still among the top destinations for foreigners buying property in the first half of 2018, but they accounted for just 2 per cent of residential transactions, according to the Ministry of Finance.

Carrie Law, CEO and director of Juwai.com, said: “Our inquiry data shows that Chinese demand plummeted during the first half of the year. This matches the official data showing that foreign buying in Greater Vancouver was down to just 1 per cent of activity in the first half of 2017. In the second quarter, Chinese buyer demand actually hit its lowest level since early 2015. It’s like a sinkhole opened up and swallowed all the buyers. That was the result of several quarters of plunging demand.”

A dramatic increase in inquiries turned this around in the third quarter, with searches up 130.8 per cent from the trough seen in Q2, and up 30.4 per cent over the third quarter of 2017.

Law said, “This is an upswelling of demand that we frankly didn’t expect. What we can’t tell you yet is how many of these buyers will go all the way and acquire a home, despite the foreign buyer tax. Given the time it takes to research and complete a transaction, those who do purchase should begin to show up in the official statistics only from the first quarter of 2019.”

Yu and other local realtors say the increase in inquires has not yet translated into many sales. “Foreign buyers are hard to close,” Yu said.

Vancouver real estate agents say a drop in home prices this year is making real estate more of a bargain for China-based investors.

“House prices are down 18 per cent to 20 per cent on the Westside, [compared to 2017]” said Faith Wilson, president of Faith Wilson Group, Vancouver, “So there is the [foreign-buyer] tax right there.”

Law agrees that Vancouver may appear a relative bargain for Chinese buyers.

“Vancouver still offers Chinese the prospect of homes or apartments at a relatively low price compared to similar property in China. The price per square metre for an apartment in downtown Vancouver is 37 per vrny lower than in Shanghai, according to Numbeo,” Law wrote in a statement to Glacier Media.

“In China right now there’s a great deal of insecurity about the real estate and economic outlook. Most middle-class and upper-middle-class Chinese owe much of their financial security to their homes and investment properties in China, which have appreciated massively over the past two decades. But determined government policy seems to be bringing an end to price appreciation and could even cause prices to fall for the first time. In addition, political changes, the trade war, and the falling currency combine to make Chinese very nervous about their personal finances.”

Common public perception is that Chinese buyers seek out high-priced properties to invest huge sums of cash, but this is not borne out by Juwai.com’s data. The website reported that the average inquiry price for Chinese buyers in Metro Vancouver area in 2018 so far is $831,000.

Juwai.com also said that Canada remains the fourth most popular country in the world for Chinese buyers.

In global terms, B.C.’s 20 per cent foreign-home buyer tax is not that high a barrier compared to other countries.

This year New Zealand stopped all foreigners from buying real estate after strong demand, primarily from China, drove property prices skyward. Australia has banned the country’s four major banks from lending to foreign property buyers who do not earn income in Australia.

© Copyright 2018 Western Investor

The speculation tax is going to slam the door shut on outside buyers

Les Leyne
Western Investor

The speculation tax is going to slam the door shut on outside hustlers who are gaming real estate out of reach of young families, fund more home-building and produce a $200-million pool of revenue for social housing. Alternatively, it’s going to hang a “closed for business” sign on the province that will spark an economic recession and stand as a profound insult to other Canadians.

Those are the opposing views after the legislation imposing the tax was finally introduced last week, eight months after it was first outlined.

But after a deal between the NDP and the Green Party that produced some amendments just two days after it was introduced, there’s a third potential outcome.

What if the speculation tax doesn’t do anything at all?

The current version up for debate is such a pale shadow of what was suggested, there’s the possibility that its net impact will amount to almost nothing. The eight months of prep work between the announcement and the amended bill look like a steady retreat from the initial burst of determination to make as big a splash as possible.

The initial rhetoric was about bold, significant new measures never attempted before in Canada. But that shifted to continual reassurances about minimizing the impact on B.C. taxpayers.

Finance Minister Carole James’ main point now is that 99 per cent of British Columbians won’t be affected at all.

The stance has changed from dramatic interventions in the market toward moderating and scaling back.

The first vague outline in the February budget was of a new annual tax on vacant homes in prime areas, aimed mostly at outsiders. At two per cent of assessed value, it would have amounted to a huge new annual bill on people who own vacant homes, even with exemptions for B.C. citizens.

In a matter of weeks, the scaling back started. The five key regions covered were refined and reduced. The rate was cut for Canadians outside B.C. and reduced some more for British Columbians. Tax credits for B.C. citizens provided more protection.

In May, James provided an estimate of how many homes would be taxed. It was 32,000, of which 20,000 were owned by B.C. citizens.

The question is whether a new tax on 32,000 of the two million homes in B.C. is going to make a difference.

The idea is to prompt owners to rent them out, or sell them to people looking for permanent homes. But a share of them are high-end homes that owners wouldn’t consider renting, or rustic cabins that wouldn’t fit the rental market.

The number of prime-target homes the government seems to be aiming at — empty condos in the five overheated markets — is some fraction of 32,000. And every modification to the tax reduces the impetus to sell or rent them out.

Many can escape the speculation tax. Others are presumably wealthy enough to pay the premium and carry on.

This week, it got watered down again. Concerned about B.C. Green caucus opposition to the tax, James struck a deal with Green leader Andrew Weaver.

Three amendments from the Green Party were accepted. The main one cuts the rate on Canadians outside of B.C. to a half per cent, from one per cent. So all Canadian owners of vacant homes will be taxed at the same rate, although British Columbians will have other exemptions.

This move will cut $30 million in expected revenue, and further reduce the pressure to do something with those vacant units.

Foreign owners of 12,000 vacant homes will still pay the full two per cent tax. The question is whether it will make much difference.

Just So You Know: The arguments will rage in the house about whether it’s a disaster in the making or a great idea. Other arguments will take place offstage.

Greens initially wanted municipalities to have the right to opt out of the tax, but the NDP wouldn’t budge on that.

So one of the amendments is a compromise — the mayors who oppose the tax will get a guaranteed meeting once a year with the finance minister where they can yell at James about the tax.

Copyright © 2018 Western Investor

TD forecasts slower pace in home activity

Steve Randall
Canadian Real Estate Wealth

There is little dispute among economists that the Bank of Canada will increase interest rates again this week.

Wednesday’s hike will be accompanied by explanation as to why this is necessary in the context of better-than-expected economic growth in the third quarter and core inflation is on target.

TD Economics senior economist Fotios Raptis says the hike is “a done deal” but notes in a report that the impact of rising interest rates is starting to bite.

He highlights weaker retail and consumer spending data with nominal spending declining in Saskatchewan, Quebec, Alberta, and British Columbia.

National home sales were also weaker in September and growth in home prices was weaker. TD is forecasting a slower pace of home activity in the months ahead as mortgage costs and affordability weigh.

Headline inflation, Raptis points out, was also down sharply in September with the CPI rising 2.2% year-over-year, well below the expected 2.7%.

However, with a strong business outlook, tight labour market, and rising wages, he believes that the BoC has reason to believe the economy can withstand another rate rise.

Rate rises will remain gradual Meanwhile, CIBC Economics’ Avery Shenfeld says the BoC will remain cautious on rate rises following this week’s near-certain hike.

Apart from the NAFTA-replacement USMCA trade deal, not much has changed since the central bank last spoke of gradual rate rises.

Although Shenfeld expects Governor Poloz to avoid too much forward guidance although there should be positive talk regarding growth in 2018 and 2019.

Copyright © 2018 Key Media Pty Ltd

BC?s speculation and vacancy tax another cash grab

Neil Sharma
REP

British Columbia’s speculation and vacancy tax has become so whittled down that an advisor on the original proposal believes it no longer serves a purpose.

“The original proposal called for municipalities to decide if they wanted to enact it or not, but there was no obligation,” said Andrey Pavlov, a Simon Fraser University professor of finance. “The taxes were supposed to be spent locally, in the same municipality and even in the same neighbourhood. The original proposal was also supposed to be revenue neutral, which means you collect that extra tax but you use it to reduce the property tax for everybody else in that neighbourhood. What we got instead wasn’t revenue neutral; the money is not going to be spent where it’s collected and it’s not up to the municipalities to make their own decisions. They’ve been forced into this and they object.”

Late last week, the tax was amended because the governing NDP needs support from the Green Party to pass the legislation this fall. Among the changes, British Columbians with a second, and vacant, property will only be taxed 0.5%, down from 2%, meaning that 75% of proposed revenue will be lost, and 50% of proposed revenue from Canadian residents who reside outside of B.C. are also eliminated.

Given the cost of enforcing compliance, Pavlov doesn’t think introducing the tax is worth it anymore.

“The lower taxes makes it less impactful—the smaller the amount, the less it matters,” he said. “How much revenue are they going to collect and is it worth the trouble? When the government does that calculation, they don’t think about the costs people incur for compliance.”

Foreign speculators will still pay the full 2%, however, after considering how difficult pulling money is out of countries like China, Pavlov says the tax is a paltry price to pay.

“The people who will be affected are people from the U.S.,” he continued. “Those people might not have a problem taking money out of their country, so to them the 2% might be very significant and you might lose that portion of investors, which I think is unfortunate because in my view they’re legitimate investors who want to help our economy and aren’t absentee owners.”

LandlordBC, which encourages filling vacant units with renters, is circumspect about the tax. According to the organization’s CEO, there are other ways to dissuade property owners from keeping their units vacant.

“We’d prefer to see a carrot approach or even tax breaks for these owners to put them in the rental pool,” said David Hutniak. “The government has applied a tax, and I don’t know that it’s the most effective way to do it. It could generate some money, but with the concessions they’ve given, it’s going to generate even less cash than originally predicted.”

Copyright © 2018 Key Media Pty Ltd

Realtor.ca the No.1 real estate website in Canada

Barb Sukkau
REM

You take pride in the things you own.

Look no further than your house; you want people to be impressed the minute they walk in the front door. After all, you worked hard to get it and you work even harder at maintaining it.

Well, CREA has given you a reason to be proud of something else you own: Realtor.ca. The No. 1 real estate website in Canada has undergone a “renovation” and now features a sleek design with a more powerful search engine, enhanced homebuyer calculators and access to hyper-local information.

And, coming soon, sold and historical data will be made available on Realtor.ca listings, making it easier for consumers to get the information they want.

Just so we’re all on the same page here: as a member of CREA, you own the website that has, on average, 300,000 accurate Realtor listings at any given time. Not to mention the 264 million visits and the 2.6 million leads generated from Realtor.ca – at no additional cost – last year alone. With the largest number of listings, Realtor.ca is the only real estate website combining board/association MLS systems feeds from every real estate board in Canada and remains the most trusted brand by consumers and Realtors.

That’s something to be proud of and it’s something our American counterparts to the south envy.

Third-party, non-Realtor websites flood the U.S. real estate landscape and there is currently no trusted nationwide listing management system there. Some of the bigger sites will charge a premium to advertise a listing, meaning some leads get buried, or worse, won’t even get to the original listing agent.

What makes Realtor.ca so special is its investment of time and resources to help you succeed. The consumer-trusted, advertising-free website is where many consumers begin their real estate journey. In fact, 97 per cent of visitors use Realtor.ca and its apps as their primary or secondary source for viewing property listings and 92 per cent of Canadians are aware of Realtor.ca.

However, this isn’t the time to slow down. Technology is advancing the industry at an unimaginable rate, and Realtor.ca is constantly evolving to meet these new-age demands consumers have. The latest redesign of Realor.ca, released in October, targets desktop users and delivers an improved and responsive website for all.

After leading many presentations and speaking to thousands of Realtors over the last several months, I can tell you there’s a lot of excitement building over the new Realtor.ca

You wanted school boundaries added to your listings? You can now view properties for sale within a particular school’s catchment area.

You wanted improved mortgage, land transfer tax and affordability calculators? Done.

You wanted to promote your personal brand on the site? Every Realtor has a customizable profile on Realtor.ca so you can refer your page to potential clients and generate leads.

It’s important to point out Realtor profiles were viewed 6.1 million times last year, meaning consumers are definitely searching for you.

All of these make for impeccable business tools, but one of Realtors.ca’s more refreshing and consumer-focused highlights has been the addition of the Living Room blog. It features Canadian industry experts tackling a variety of home-related topics including market trends, home improvements, neighbourhood guides, design files and unique homes. The latest stats show 45 per cent of visitors to the blog are new to Realtor.ca and those who view the articles are almost twice as likely to contact a Realtor.

I could go on and on about Realtor.ca, but really it comes down to you embracing all that it has to offer. Become familiar with it, try the new features, and should you need a helping hand, the CREA member support team is an email away. You don’t truly know the powers of Realtor.ca until you discover them for yourself.

We work in an ever-changing industry and Realtors need to embrace innovation. So, be proud of the fact something you own continues to push the envelope and is seen as an industry leader.

© 2017 REM Real Estate Magazine

Mortgage info gathered online by buyers

Ephraim Vecina
Mortgage Broker News

The internet has clearly emerged as a preferred avenue of mortgage information among Canadian would-be home buyers, according to the CMHC’s wide-ranging annual Mortgage Consumer Survey.

In fact, only around 1/4 of those surveyed conducted their research solely offline. Most Canadians now use devices such as computers and mobile apps to access information about mortgages.

Respondents cited lenders’ websites as the primary sources of such information, emphasizing the need for financial institutions to keep their online portals as streamlined and up-to-date as possible.

Aside from collecting information, approximately 80% of Canadian buyers used online mortgage calculators and interest rate comparison portals.

Despite the abundance of online tools meant to assist in making home purchase decisions, however, only 51% of first-time buyers and 40% of repeat buyers have completed financial self-assessments.

Even lower were the ratios of those who submitted online pre-qualifications (39% of first-time buyers and 26% of repeat buyers) or pre-approval applications (34% of first-time buyers and 32% of repeat buyers).

The CMHC study also found that Canadians consider online portals as just waystations, although around half of the respondents said that they would not hesitate using more technology to arrange future transactions. Fully 6 out of 10 still gave importance to face-to-face interactions and discussions with brokers.

Copyright © 2018 Key Media