Home prices are set to be flat for the rest of this year

Steve Randall
Canadian Real Estate Wealth

Home prices are set to be flat for the rest of this year before picking up in 2020.

A panel of economists and analysts convened by Reuters says that lower mortgage rates and strong economic conditions will drive prices higher next year.

But homeowners and investors hoping for a new Canadian housing boom appear to be out of luck; the panel expects growth to be a modest 1.8% in 2020.

The strong labour market and population growth will be key factors in next year’s price increases.

“There are views that the factors are in place for continued recovery, but then again it will be a slow recovery, not a sharp snapback,” RBC’s senior economist Robert Hogue told Reuters.

Tale of two cities

Home prices in Toronto have already picked up and are now predicted to post a 2% gain for 20198 compared to a previous estimate from the panel of 1.3%.

However, prices in Vancouver are now expected to post a sharper decline in 2019 than previously thought; the panel believe a 5.5% decrease compared to the 4% they were predicting in May. There will be a modest rebound in 2020.

Demand for housing is expected to rise – 13 of the 17 on the panel said so with three calling for a hold-steady and 1 expecting a decrease.

Copyright © 2019 Key Media Pty Ltd

One MLS system to serve 22 boards

Sohini Bhattacharya
REM

“We talk about disruptors in the industry, but if you’ve been around in the industry long enough, you realize that the greatest disruptors are our members themselves,” says Bill Duce, executive officer of the Kitchener-Waterloo Association of Realtors.

Duce was part of the team that recently co-ordinated an agreement between two regional real estate MLS systems in Ontario. In January, the Ontario Collective (OC) – representing more than 5,000 Realtors and comprising 12 boards and associations – and the Ontario Regional Technology & Information Systems (ORTIS), representing 8,500 regional Realtors and 10 boards, signed a transition agreement to combine their two separate MLS systems into one comprehensive regional one. Technically not a merger, it will allow members of all the boards to access listings across the system.

It is projected to go live in the first quarter of 2020.

“Our members do the same job, they have the same needs, the same wants, the same concerns that are keeping them awake at night,” says Duce, adding that with ORTIS and OC joining hands, their members are better served collectively than they would be individually. “It’s that whole concept of we smarter than me,” he says.

More than a year ago, the groups came to the realization that Realtors and consumers were doing most of their real estate research online and that “the access to data had blown way beyond what anybody thought it would be,” says Kati Strickland, project manager of the OC. After a few initial and minor integrations between the two groups to access each other’s data, the synergies and the overlapping boundaries between the two became clear quickly.

With each of the 22 partner associations having their own history, maintaining a singular vision and managing their expectations has been, so far, the greatest project hurdle for ORTIS and OC.  “It’s like going out with a group of friends and agreeing to have dinner, but then deciding where exactly to eat in order to accommodate everyone’s diet and preferences,” says Duce.

While correcting legacy issues inherited through years of data duplication, directors of ORTIS and OC remain mindful that the transition project “isn’t just about giving our members what they had before but with more data, but also enhancing the quality and amount of services in order to support brokers’ and salespeoples’ ability to be competitive in the current and future real estate landscape,” says Duce.

On the technical side of the operation, the biggest challenges were to ensure that the “database fields and selections captured the diverse needs of all 22 of the associations involved,” says Steve Francis, vice president of information services at ORTIS. One of the goals was mapping to the Real Estate Standards Organization (RESO) standard to provide users a superior interface with the data from IDX, websites, apps and other marketing technology. Albeit tedious, Francis adds that it was “a necessity, since doing so ensured we future-proofed the system and designed a database that will directly benefit the members and consumers.”

With the transition to an integrated MLS well underway, ORTIS and the OC have launched IntraMatrix, a system that allows Realtors of both groups to access each other’s data. The only drawback is that it’s not one database.

The advantage, says ORTIS chair Brad Johnstone, is that members now have access to all the data that, in the past, they could access only as members of multiple boards. “As an interim measure, it’s very positive. The goal will be when we go live on our new system, that duplication will be removed and Realtors and consumers will have one complete database,” says Johnstone.

Recognizing that Realtors will have a learning curve to adjust to the new and integrated MLS system, Johnstone foresees online and townhall meetings, along with live training sessions for their members, to ensure they have a full understanding of how to work with the changed system.

Allaying fears that some members might have of losing their autonomy, Steve Dickie, chair of the OC says, “In any board you’ll have agents who work in the interior of that geography and from their perspective, that may not affect them very much, but it’s mostly the agents who work on the borderlands of the board who’ve, in the past, been forced to belong in two or three or multiple boards to get at the data. Now they don’t have to do that.”

The integrated MLS system is set to work equally well across all types of properties with greater focus on commercial and waterfront properties. “There are certain boards that are more recreational, more waterfront, commercial or industrial. But by ORTIS and the OC coming together, we’re taking the best of everybody’s input and building a better system,” says Johnstone.

© 2019 REM Real Estate Magazine

Canadian retail sales were unchanged in June

BCREA

Canadian retail sales were unchanged in June, as stronger sales across most sub-sectors were offset by lower sales at motor vehicle and parts dealers and gasoline stations. Retail sales were down in 4 of 11 sub-sectors in June, representing 48% of sales. Provincially, Saskatchewan reported the largest decline (-2.7%) and Manitoba reported the largest gain (1.3%). In B.C., retail sales declined 0.4% from the previous month to $7.16 billion. Vancouver also reported a 3% decline in sales. Provincial sales were down in most sub-sectors, except at electronics and appliance stores, sporting goods/hobby/book/music stores, and miscellaneous retail stores. On a year-over-year basis, B.C. retail sales were up 1 per cent in June.

Excluding the volatile motor vehicle and parts dealers and gasoline sub-sectors, June national retail sales increased 1.7%. This is a positive hand-off to the third quarter. Keeping in mind that some of the gains were due to the Toronto Raptors games in the NBA finals (as reported by Statistics Canada), supporting increased sales at clothing and sporting stores

© BCREA

Costs pushing some owners to sell off luxury dwellings in downtown Vancouver

John Mackie
The Province

If you’re in the market for a luxury condo in Downtown Vancouver, you’ve got a lot of choice. There are 15 condos for sale at Trump Tower on 1151 West Georgia St., priced from $1.298 million to $5.88 million.

Across the street at the Living Shangri-La at 1128 West Georgia St. and 1111 Alberni St., there are 17 condos for sale, ranging from $950,000 to $5.788 million.

There are 13 listings in the three-tower Harbour Green development at 1039-1069 West Cordova St. and 277 Thurlow St. in Coal Harbour. All of the listings are over $4 million, six are over $10 million and one has a list price of $38,888,000.

The glut of high-end listings even applies to buildings that aren’t built yet, like 1550 Alberni. The 43-storey structure designed by Japanese “starchitect” Kengo Kuma won’t be completed until 2020, but there are already 12 condos for sale there, from $1.74 million to $5.6 million.

What’s happening? To some degree, non-resident owners are selling their local pied-a-terres because they don’t want to pay vacancy taxes introduced by the city and the province.

“Many of these homes were purchased as second homes or third homes,” said real estate consultant Michael Geller. “People loved having a nice place in Vancouver for when they came here. Then we got the empty-home tax. That’s one per cent, but then the province comes in with the speculation tax, and if the unit is worth more than $3 million, then you have a (school) tax as well.

“Even if they’ve got a lot of money, at a certain point people say this is too much.”

A good example is a 58th-floor condo at Trump Tower that is on the market for $5.88 million. Realtor Wendy Tian said her client is selling because of the vacancy and speculation taxes.

“That’s the reason they want to sell,” said Tian, who works for Luxmore Realty. “My client bought it a couple of years ago. They wanted to use it as a vacation home, but now it’s impossible.”

Layla Yang of Dracco Pacific Realty is selling a 43rd–floor condo at Trump Tower for $3.98 million. She also says the vacancy and speculation taxes are spurring people to sell.

“Some of my clients never wanted to sell,” she said. “They bought it for like a vacation home (that) sometimes they can live in, and all of a sudden they have to pay this kind of an empty tax. They feel like it’s a lot of money … they feel it’s not worth it, so they list their property.”

This has led to a lot of inventory. Real estate sources say two to three per cent of properties are typically for sale in condo buildings. Trump Tower has 290 units, which means there would normally be six to nine units for sale, not 15.

There are 293 units in the two Living Shangri-La buildings, so it would also normally have six to nine units for sale, not 17. The Harbour Green complex has 209 units, so typically four to six condos would be for sale, not 13.

Josh Gordon of Simon Fraser University’s School of Public Policy isn’t surprised many luxury condos have been put up for sale.

“Both (taxes) are going to hit pretty hard,” said Gordon, an assistant professor at SFU. “If you leave a place empty, you could potentially be subject to three per cent (of the assessed value).”

That could be expensive — a property assessed at $4 million could face a tax bill of $120,000. In theory an owner could avoid the taxes by renting out their place, but Gordon said owners are “loath” to rent luxury condos.

“It’s one thing to rent a run-of-the-mill place, but with these high-end places, it’s hard getting a tenant who can pay you enough,” he said. “And you’re going to be very wary of any damage to a place like that, so that changes the dynamic.

“The other thing is (using a condo as) a long-term store of value. If you have this new policy regime which discourages foreign ownership through the satellite family and foreign-owner component (of the provincial speculation tax), then that changes your calculation.

“A lot of people will be selling, not necessarily because they’re subject to the tax, but because they think the price (of their property) is going to go down.”

Prices have dipped downtown, and some units are taking a long time to sell. A condo on the 67th floor of the Trump Tower recently sold for $2.95 million, but it took over a year to sell, and was reduced over $400,000 from the original sale price of $3.389 million.

Still the seller did well: they bought the condo for $2,038,346 in November 2016.

© 2019 Postmedia Network Inc.

Chaos, unrest making return more enticing

Douglas Quan
The Vancouver Sun

As riot police clashed with protesters in Hong Kong in recent days, it focused attention on the estimated 300,000 Canadian passport holders — most of them Hong Kong-born — who live in the port city and fuelled speculation of a surge in “re-return migration” back to Canada.

Hong Kong observers say they had already begun to see an uptick in the phenomenon of so-called “re-returnees” — those who moved from Hong Kong to Canada in the 1980s or 90s, returned to Hong Kong and are now back in Canada — beginning around 2014 and expect the recent political turmoil will accelerate it.

“Back in the 1990s, their parents moved to Canada because they worried Hong Kong one day would be a city of China. Right now, their worries have been actualized. … China has undermined the autonomy of Hong Kong. The next generation are making the same decision as their parents did,” said Kennedy Wong, co-investigator of an unpublished UBC study on re-returnees.

Hong Kong serves as a key trading hub in Asia for Canadian products and ranks third as a destination for Canada’s export of financial, engineering and other professional services.

In addition to shared business interests, Canada also has deep-rooted historical ties with Hong Kong. During the Second World War, the then-British colony was the first place Canadian troops fought a land battle. They suffered great casualties against the Japanese — 290 died in combat, nearly 500 were wounded and another 264 died as prisoners of war.

“There has been a long and strong ties between Canada and Hong Kong,” said Leo Shin, a professor of Chinese history at UBC.

While there was some migration from Hong Kong to Canada in the 1950s and 60s, the numbers swelled to about 380,000 from the mid-1980s to mid-1990s in advance of the handover of Hong Kong from British rule back to China. Many families did not, however, completely cut off ties to their homeland as evidenced by the “astronaut family” phenomenon, in which the breadwinner — typically the father — spent the bulk of his time overseas.

In the handover’s aftermath, fears subsided as China established a “one country, two systems” model of governing that allowed Hong Kong to maintain its economic and political autonomy. As a result, there was an outflow of migration of these now-naturalized Canadian citizens back to Hong Kong in the 1990s through the mid-2000s.

Many of those returning to Hong Kong had Canadian university degrees, weren’t married yet, and had the luxury of mobility. From their point of view, going back to Hong Kong was a no-brainer — the economy was booming, opportunities for climbing the corporate ladder were plentiful, and their Canadian schooling and English skills meant higher salaries. Many Canadian-born citizens of Chinese descent joined this outflow to Hong Kong — driven not only by job prospects but also a desire to connect with their ancestral homeland.

The fact they all carried Canadian passports offered peace of mind, Wong said. If things went sideways in Hong Kong, they could always come back to Canada.

“You can pick Canada or Hong Kong,” he said.

In 2011, the Asia-Pacific Foundation released a study that estimated the number of Canadian citizens in Hong Kong to be around 300,000 but possibly as high as 500,000 — making the Canadian diaspora in Hong Kong the largest outside of the United States. Most were naturalized Canadians; only 16 per cent were thought to be Canadian-born.

The study was based on the results of a phone survey of more than 500 Canadian citizens in Hong Kong.

Forty-six per cent of respondents said they considered Canada home “sometimes” or “all the time,” while 37 per cent said they “never” consider Canada home. Reflecting the push-pull dilemma facing many of these residents, about one-third said they would most likely return to Canada within five years.

And that’s what started to happen, experts say, citing a number of triggers.

In 2012, an idea was floated to introduce in Hong Kong’s public school curriculum civics courses intended to promote greater patriotism and identification with mainland China. The idea was panned by critics who worried about “brainwashing” and was ultimately scrapped.

But it sowed fear, observers say, about growing influence of Chinese politics in education, the economy and other sectors.

“They started to be more sensitive and aware of these things,” Wong said.

As part of his study on re-return migration to Canada, Wong interviewed about 20 people who had decided to settle in Vancouver and Toronto. One interviewee said the decision was tactical. “After 2008, the whole political situation has been getting worse. … And you can see how they (the government) wanted our children to be raised … to learn about something that is nonsense, or to learn to be a robot.”

That sort of fear intensified in 2014 when Beijing was accused of trying to interfere with the electoral process in Hong Kong, sparking protests that came to be known as the “Umbrella Movement.”

On top of the changing political climate, many in Hong Kong have been returning to Canada for personal reasons. Some are raising young families or nearing retirement age and prefer the quieter Canadian lifestyle over the chaos of Hong Kong, which has become notorious in recent years for overcrowding in hospitals and kindergarten classes. Some also have aging parents living in Canada.

“I told myself clearly that (if I make this decision), I am at a point of no return. Because I want to get settled in a place,” said another interviewee in the study.

While there is no hard data to show the number of re-returnees, there is anecdotal evidence to suggest it is on the rise. When the UBC alumni association in Hong Kong held a paid seminar at the start of this year titled “Thinking of Moving Back to B.C.?” more than 70 people showed up, higher than expected.

In June, the South China Morning Post cited census data to show that the number of Hong Kong-born people in Canada had been steadily declining since 1996 but then increased from 209,775 in the 2011 census to 215,750 in the 2016 census. The newspaper attributed the increase to the new phenomenon of “double reverse migration.”

In recent weeks, as violent clashes between police and pro-democracy demonstrators — upset over a proposed bill that would’ve allowed for the extradition of Hong Kongers to face trial in China — have intensified, observers have speculated that the turmoil is likely to fuel more departures.

“We can tell obviously people are not just worrying about democracy. They’re worrying about the freedoms that Hong Kong people have been enjoying,” said Miu Chung Yan, a UBC professor of social work who worked with Wong on the re-return migration study.

Wong said he has friends who have lived in Hong Kong all their lives but who have recently expressed interest in having a “working holiday” in Canada. “The push factor is much higher,” he said.

Migration consultants in Hong Kong have similarly been reporting sharp increases in young people inquiring about emigrating to other parts of Asia, Australia, the United States and Canada.

One of them, John Hu, told Global News this week the number of inquiries he’s received has doubled.

“Before June, when we answered calls, they were thinking about immigration,” he said. “But now, we are taking calls from people who are already determined to migrate.”

© 2019 National Post

First-Time Home Buyer Incentive Housing Affordability

Matt Mayers
BCREA

In September, the federal government will launch the First-Time Home Buyer Incentive, an interest-free loan that doesn’t require monthly payments. The incentive is intended to help reduce monthly mortgage payments without increasing the amount needed to save for a down payment.

How does it work?  Eligible homebuyers with the minimum down payment for an insured mortgage can apply to finance a portion of their home through a shared equity mortgage with the federal government. This means that the government shares in the upside and downside of the property value.

For an existing or manufactured home, the incentive will be five per cent of the total borrowed amount. For a newly constructed home, the homebuyer can choose either a five or ten per cent incentive.

The homebuyer will need to repay the incentive based on the fair market value of their property. Repayment occurs when the homeowner sells the property or after 25 years, whichever comes first

Eligible homebuyers can apply for the incentive as of September 2, 2019.

Who’s eligible?  To qualify, a homebuyer needs:

• to be a first-time homebuyer or have gone through a breakdown of a marriage or common-law partnership or, in the last four years, not occupied a home owned by the homebuyer, current spouse or common law partner,
• to be a Canadian citizen, permanent resident or non-permanent resident who’s legally authorized to work in Canada,
• at least the minimum down payment of five per cent,
• a maximum down payment of 9.99 per cent for the ten per cent incentive or a maximum down payment or 14.99 per cent for the five per cent incentive,
• a maximum annual pre-tax household income of $120,000, and
• total borrowing (mortgage plus the amount of the incentive) that’s limited to four times the maximum household income.

Your clients can use this Eligibility Calculator to determine if they meet the requirements as a first-time homebuyer.

How can I apply?  To apply for the incentive, a homebuyer needs to fill out the application documents once they’re available and take them to their lender.

Will your client benefit?  The most expensive home that can be bought using the incentive is $565,000, meaning that with an average BC MLS^® price of $684,497 in July, many homes in BC won’t allow first-time homebuyers to meet the eligibility requirements. In the next Market Intelligence Report, BCREA’s Economics Department will analyse the expected uptake of the incentive across BC.

• Government of Canada First-Time Home Buyer Incentive website
• June CREA townhall with federal Minister of Families, Children and Social Development Jean-Yves Duclos discussing the incentive and other measures to support first-time homebuyers

Copyright © 2020 British Columbia Real Estate Association

When it comes to mortgages, a few percentage points can make a big difference

Sam Kamra
REW

We invited the mortgage experts from mortgagecalculator.ca to talk a little bit about the Bank of Canada’s recent lowering of the mortgage stress test percentage rate. Enjoy this great read full of useful information and tips for new buyers and homeowners alike. – REW  

Finally, we have a long overdue break for people that are in a position to renew their already existing mortgage or people that wish to secure their first mortgage loan. The Bank of Canada has dropped their mortgage qualifying rate from 5.34% down to 5.19%.   

For homeowners and home buyers, this is fantastic news. Though it may seem like a difference of only a few tenths of a percent, the decrease provides prospective buyers a well-deserved leg up financially. Before outlining the immediate benefits to the lower percentage rate, let’s quickly explain how the Bank of Canada’s stress test works.  

What is the Mortgage Stress Test?

The stress test that is imposed on a mortgage loan borrower or a mortgage loan renewal/refinancing homeowner is a means of making sure that the borrower can comfortably afford to take on the mortgage loan over an extended period of time. The Bank of Canada doesn’t just want borrowers to prove they qualify for a mortgage loan – they also require new borrowers to pay additional money over a 5-year ‘stress test’ time span. For borrowers that do not require mortgage loan insurance, the lender must charge the borrower either the conventional 5-year mortgage rate set by the Bank of Canada, or, the interest rate that is negotiated by the borrower and the lender with an additional 2% interest added (whichever interest rate is higher).   

If the borrower does require mortgage loan insurance, the lender will impose either the conventional 5-year mortgage rate set by the Bank of Canada or the interest rate negotiated with the lender, whichever is higher.  

Mortgage loan insurance is sometimes a requirement by a lender as a means of reassurance that the mortgage loan will be paid back in full, in case the borrower defaults on the loan for any reason.  

 

Major Bank Mortgages vs Private Lenders

Something to consider: Only major banking institutions are regulated by the federal government and must impose the laws set by the Bank of Canada. Private mortgage lenders, mortgage brokers and other mortgage related lenders aren’t subject to the same regulations and have far more flexibility when it comes to approving mortgage loans without the ‘stress test’ involved.  

If you’re trying to figure out how much mortgage you can qualify for or afford, getting answers to your financial questions is easy when using any of the mortgage calculator tools found at sites like https://mortgagecalculator.ca. Mortgage calculators can also be found on your bank’s website or other real estate websites (for instance, right here on any REW.ca listing page). They’re easy to use, free and can be customized multiple times to narrow down financial information for you.  

One of the biggest perks to the decrease in the Bank of Canada’s stress test rate (besides saving money) is that home buyers and homeowners looking to refinance or renew will have the freedom to seek a higher dollar amount on their mortgage loan. That perfect home that caught your eye, but was out of reach financially may be within reach and actually affordable.  

An increase of purchasing power for prospective buyers and homeowners offers a dual benefit: Qualification for a higher mortgage loan with a stronger position for negotiating an even better interest rate with a lender. Happy hunting!

© 2019 REW. A Division of Glacier Media.

Fewer mortgages applied for in Q2

Steve Randall
REP

There was a continued decline in mortgage originations in the second quarter of 2019.

Originations fell 8.9% year-over-year with younger Canadians (18-25 years) showing a 13.4% drop according to the Q2 2019 Industry Insights Report from TransUnion Canada.

Although the report acknowledges the multi-factor impacts on mortgage originations including home prices, interest rates, consumer sentiment, and unemployment levels; it says that the regulatory changes introduced in 2018 have had a material effect on originations.

“The new mortgage regulations seem to be having the intended effect in cooling the overheated housing market and broadly preventing consumers from overextending themselves with mortgage debt. This is now the fourth consecutive quarter we have seen a decline in both mortgage originations and balances,” commented Matt Fabian, director of financial services research and consulting for TransUnion Canada.

He added that there are signs of some potentially unintended consequences.

“We have started to see an uptick in co-borrowing as the means of getting a foothold on the property ladder, where multiple consumers make an application together – in effect combining the power of their salaries. Although this is nothing new, it is now often with the help of a parent, other relative or a friend rather than just a partner or a spouse,” said Fabian.

Other debts are rising

While mortgage originations were lower, the report shows that Canadians continued to load up on other debts.

Overall consumer credit balances continued to grow in the second quarter—up 4.3% compared to the same period a year ago—bringing total outstanding consumer credit to $1.88 trillion.

The number of consumers with access to credit grew 1.7% year-on-year (YoY) in Q2 2019.

The average non-revolving balance per consumer grew 6.2% year-over-year to $31.4K in Q2 2019. This figure was primarily made up of installment and auto loans but excludes mortgages.

Borrowing for revolving products (including credit cards and lines of credit) saw a slight drop, down 1.2% YoY to end Q2 2019 at $18.5K.

The increases in overall borrowing have been driven by lower interest rates and low unemployment; and consumers have been managing their debts well so far with delinquency rates stable over the past year.

However, as the economy slows and risks of an economic downturn remain prevalent, it will be important for consumers to manage these higher debt levels diligently to remain current on their obligations,” warned Fabian.

Line of credit originations were the strongest in Q2, up 13.9% year-over-year.

Gen X lead debts

The largest cohort in terms of total debt balances in the second quarter was Gen X with a combined $767.4 billion, an increase of 3.4% year-over-year.

However, Millennials are catching up fast with a 12.33% year-over-year increase taking their overall debt to $515.9 billion. Gen Z gained 50.53% to $24.8 billion.

Older Canadians reduced their overall balances: Baby Boomers by 1.8% to $514.3 billion and the Silent Generation by 7.45% to $52.5 billion.

“At a headline level, the consumer credit market continues to grow. However, growth hasn’t been uniform, and in major categories like mortgages, we continued to see a decline in origination volumes when compared to the same period a year ago,” continued Fabian. “The shift in focus toward non-revolving credit products is something we’ve seen over recent quarters. The rise of Millennials, who have equaled and slightly surpassed Baby Boomers when looking at outstanding balances, is having a fundamental impact on the approach lenders take to how they market to and service their customers.”

Copyright © 2019 Key Media Pty Ltd