National Bank of Canada predicts price decrease in real estate

Ephraim Vecina
Mortgage Broker News

National Bank of Canada is predicting the largest ever price decrease in Canadian real estate this year, at an average of 9.8% from 2020 to 2021.

This will outstrip the historic 9.2% decline during 1981, as well as the 6.3% drop that the Canadian property market saw during the previous global recession, data analysis hub Better Dwelling reported.

The impact of this market weakness will be most apparent in Toronto and Vancouver, with predicted 2020-21 decreases of 13% and 12%, respectively.

Montreal, which saw its unemployment levels spike by 51.67% annually to reach 9.1% as of the end of March, is also projected to see a 7% drop in real estate prices.

NBC also forecasted that low interest rates stemming from the Bank of Canada’s multiple rate cuts will not deter these declines.

“During past recessions, lowering interest rates helped to stabilize real estate markets. This is expected to have a smaller impact this time, since rates were already very low to begin with,” Better Dwelling said. “When home prices are at record highs, and mortgage rates at record lows – lenders now face a high risk and low reward prospect.”

This mirrored recent statements by Moody’s economist Abhilasha Singh, projecting home prices to fall by around 10% this year.

“The COVID-19 pandemic along with the collapse in oil prices will create a perfect storm this year for both home sales and residential construction,” Singh said last month. “Not even lower interest rates will be enough to save the housing market.”

Copyright © 2020 Key Media

In the pink: Giant Vernon waterfront estate up for sale

John Mackie
The Province

Realtor Mark Lester specializes in selling unique properties.

“I’ve sold waterfront estates, I’ve sold private islands,” said Lester. “I sold the Douglas Lake Ranch. I’ve sold forestry land, I’ve sold golf courses, marinas.”

The common thread is that the properties are so unusual they “might be more difficult to market, they might be more difficult to value … I do the types of properties other people don’t really know what to do with.”

Case in point: his latest listing, the Chelsea Estate in Vernon.

Located just inside Vernon’s city limits at 9747 Cameron Rd., the waterfront property includes a 1912 heritage home and 234 acres of land.

The caveat is that 190 acres of the estate are in the Agricultural Land Reserve, and aren’t ripe for development. But the property is already divided into 11 separate land titles, nine of which have waterfront on Okanagan Lake.

“What’s unique about (the property) is the walk-on low-bank waterfront and the privacy that it has,” said Lester, a senior vice-president at Colliers International.

“There’s three bays. The bay where the house is built has total privacy: it’s sort of a little headland on one side, a point on the other side, and a beautiful sandy beach and lawn that stretches out in front of it.

“The unusual thing about the sandy beach is in that particular part of the Okanagan, the beach has a pink hue to it, it’s really interesting.”

The current assessed value of the property is $16,531,536. But Lester hasn’t put a price tag on it – interested parties have to contact him.

The property was originally owned by a retired British army officer who built a Tudor-style home he dubbed “Chelsea.” Over the years it was used as a farm and a ranch. The last incarnation was the five-cottage Crystal Bay Resort, which operated from 1966 to 2018.

It was a natural as a resort because it’s bordered by Ellison Provincial Park to the south and Predator Ridge golf resort to the east. The Sparkling Hill Resort spa and wellness centre (which is owned by the

SwarovskiCrystal family) is also nearby.

The family has decided to sell it as one piece, rather than sell it lot by lot.

“They’d rather sell it in one transaction, and know that they don’t have to worry about it,” said Lester.

“If they sell it individually they have to decide ‘Well, do we sell this particular title with this one, because they work well together, or do we sell this one up here?’ You’ve got to get into a whole different issue of decision making.”

Who would be interested in buying a property this big, and complicated?

“I think there are different kinds of profiles, and I think that’s what demarcates a property like this,” said Lester.

“It could be a high net-worth individual who says ‘I love this piece of property and I want to keep it the way it is.’ (But) there is development potential on the property, so it could be somebody who says, ‘I want to retain this portion, but I want to sell some other chunks.’

“ ‘I want to have the jewel in the crown, let’s say the estate portion of the property, and I want to develop some duplexes or townhouses on the chunk that’s up above, or build out some of the other waterfront lots, build out some of the view lots.’ ”

It may take awhile to sell, especially during a pandemic. But Lester has done big properties before — he sold the Douglas Lake Ranch for “just under $100 million.”

© 2020 Postmedia Network Inc.

BCREA May housing market activity

BCREA

The British Columbia Real Estate Association (BCREA) reports that a total of 4,518residential unit sales were recorded by the Multiple Listing Service®(MLS®) in May2020, a decline of 45.2per cent from May2019. The average MLS® residential price in BC was $728,898, a3.2per cent increase from $706,394recorded the previous year. Total sales dollar volume in May was $3.3billion,a 43.5per cent decrease over 2019.

“There were encouraging signs of recovery in May,” said BCREA Chief Economist Brendon Ogmundson. “While activity is still far below normal, both sales and listings are up significantly from April’s lows.”

New listings activity started to normalize around the first week of May, reversing a slide in total active listings. However, active listings are still down close to 24 per cent year-over-year and are more than 10,000 listings below where they would normally be in the spring months.

Year-to-date, BC residential sales dollar volume was down 6 per cent to $18.6 billion, compared with the same period in 2019. Residential unit sales were down 14.2 per cent to 24,695 units, while the average MLS^® residential price was up 9.6 per cent to $753,155. 

® BCREA 2020

BC developer to acquire troubled Toronto condo site

Kelsey Pudloski
Livabl

On Friday, Vancouver-based developer Concord Pacific announced it had acquired ownership of The Clover on Yonge, one of three under-construction condominium projects by Cresford Development Corporation to enter into receivership. 

Concord Pacific confirmed to The Toronto Star that it had agreed to the terms set by the Ontario Superior Court of Justice, paying the property’s $180 million debt to the primary mortgage holder, British Columbia Investment Management Corporation (bcIMC).

Construction on the 44-storey high-rise, situated near the intersection of Yonge and Wellesley, is approaching completion and the site has remained active throughout the proceedings. Its 499 units are expected to be resold at prices higher than what pre-construction buyers contracted to purchase them for in 2016.

While these arrangements have yet to be finalized, buyers will likely have to shell out more money for their units, albeit with a price per square foot discount, or retain their deposits with interest and walk away.

In late March, PricewaterhouseCoopers (PwC) was appointed as the receiver for the three Cresford projects, The Clover on Yonge, Halo Residences and 33 Yorkville. PwC intended to put forth a stalking horse agreement, in which a minimum bid is set to avoid low-ball offers, for The Clover on Yonge and Halo Residences.

The court opted to revise the receivership plan after Concord’s Senior Vice President Cliff McCracken proved the company had an agreement to acquire ownership of Cresford prior to when the order was granted on March 27th. The court agreed to side with Concord so long as they paid off the Clover debt owed to bcIMC.

There’s been no word yet on whether Concord will also purchase Halo Residences, a sold-out 45-storey tower located slightly farther south on Yonge Street.

© 2019 BuzzBuzzHome Corp.

The assessment Appeal Board reports a spike in appeals in both 2019 and 2020 to more than 5,000 annually

Derek Holloway
Western Investor

There’s nothing like an economic meltdown to expose a skewed property assessment system in British Columbia’s commercial real estate market.

Many B.C. communities have looming 2020 budget shortfalls that could have been surpluses if large, sophisticated properties were correctly assessed by BC Assessment.

For example, when a $500 million property has 10 per cent shaved off its assessed value, up to a million dollars of rebated taxes must then be absorbed by thousands of smaller taxpayers. When you extrapolate for hundreds of these high-profile properties, it means little taxpayers are absorbing tens of millions of dollars each year.

Small businesses –  whether owners or tenants  – haven’t the revenue to pay high property taxes. These taxes are a local government’s primary source of revenue: other sources are minuscule in comparison.

How did we get here?

The property assessment system has been rigged by past provincial governments, high profile property owners and their army of agents and lawyers. Assessment appeals have become a large and costly lobby, crushing the assessment system.

The strategy is to flood the system with appeals. BC Assessment (BCA) is grossly under-staffed to properly address thousands of appeals each year, especially with large and complicated properties. When maximum leverage is applied, BCA crumbles, giving away something to simply make appeals go away. 

In good times this is simply unfair.  In these, the worst of all times, it’s egregious, especially for small businesses. 

In 2020, property taxes were already going to be shifted from residential to commercial, hurting small commercial tenants..COVD-19 amplified the problem.

When small businesses can’t pay their property taxes, local governments try to help them. At the same time, and within the same property tax class, big property owners frivolously appeal properties they know to be fair, then withdraw up to 60 per cent of them. 

Does BC Assessment get these large valuations wrong in the first place?        Are all parties to these appeals just playing a silly game until it’s time for BC Assessment to capitulate, giving the appearance of the system’s efficacy?

It is time for the Union of BC Municipalities to take a harder look at this problem.

As most of us know, small properties are usually accurately assessed: large ones not so much.

If there’s political will, the solution to this problem is very simple but rarely considered.

Many large individual property owners, along with real estate investment trusts, mutual funds, commercial mortgage-backed securities, pension plans, etc., have independent valuations done for federal and provincial statues, regulations, and reporting requirements.

These valuations are required by pension commissions, securities commissions, the Office of the Superintendent of Financial Institutions, along with the recent International Financial Reporting Standards and, last but not least, the Canada Revenue Agency (CRA).

Further, there are independent valuations for everything from partnership agreements to divorce settlements. The point is that there’s a wealth of independent property appraisals available to the assessment system.

They’re in provincial and federal government files too, but local governments don’t have access to them.

Why does B.C.’s assessment system ignore these independent valuations?

I suggest many large property owners have the ear of most governments –local and provincial – and they donate heavily to politicians. This an obvious and age old challenge. 

Current BC Assessment legislation and its Appeal Board rules belie an unconscionable waste of taxpayer resources in duplicating valuations already done for a variety of non-assessment purposes. One value for the CRA, pension commission, or others, and one value for property assessment.

It is the uninformed local governments and smaller taxpayers who suffer.

Let’s be crystal clear: this change would not take away the right to challenge an assessment.

What’s proposed are slight tweaks to B.C.’s already internationally lauded assessment system – changes intended only to make the system more equitable.

Two terrific examples of the B.C. Minister of Municipal Affairs and Housing helping the little guy are housing the homeless and ramping up affordable rental housing. But, if property taxes continue shifting from large to smaller taxpayers, small business owners won’t survive. They’re a huge portion of the economy and are truly B.C.’s biggest job creators.

My beleaguered BC Assessment ex-colleagues are buried in a system in need of simple, reasonable reforms. They need the proper tools to administer a property assessment process that’s fair for all taxpayers.

This would help the little guy, especially in this time of crisis, but there’s an added bonus: the assessment system’s costs could be dramatically reduced, which is a good idea in a time of ballooning government deficits. 

 

Copyright © Western Investor

The credit score will change from 600 to 680

Clayton Jarvis
Mortgage Broker News

As with most announcements from the Canadian Mortgage and Housing Corporation, the rollout of the organization’s new underwriting guidelines on June 4 has kicked off a storm of criticism, confusion and anxiety. Of the three changes to be implemented on July 1 (what a great Canada Day this one’s going to be), the most controversial is arguably the increase CMHC is making to the minimum credit score required for insured mortgages.

The increase in Beacon score from 600 to 680 has largely been met with consternation.

“The credit score is an imperfect measure,” says Dominion Lending Centres’ Dr. Sherry Cooper. “I know from personal experience that it has nothing to do with your income or wealth. If you have a lot of credit available to you on your cards, even if you don’t use it, it lowers your score.”

Jimmy Hansra of Centum FairTrust Financial Group is another industry veteran who thinks the new guideline, which fails to take into consideration the vast array of individual economic circumstances faced by Canadians, is flawed.

“It isn’t fair,” Hansra says of the CMHC’s reliance on one-size-fits-all policies. “And it doesn’t work.”

Matt Fabian, TransUnion’s director of financial services research and consulting, has a more forgiving view of the changes.

“I don’t think it’s a significant or controversial shift,” he says, “because if you look at the total population of mortgages that we track, only about eight percent are under 680. And a bunch of them, at the time they were originated, might have been above 680 and just dropped down.”

Fabian says a “very small proportion” of mortgages being originated to day involve borrowers with a sub-680 Beacon score, and the ones that make it over the line usually involve manual overrides, high down payments or other fiscal gymnastics on the part of brokers.

But, like most people interviewed about CMHC’s new guidelines, Fabian found their timing surprising.

“How does this help if there’s a significant downward trend in the origination market as a result of the crisis and lockdown anyway?” he wonders. “It’s also interesting that the other two large issuers [Canada Guaranty and Genworth] have decided not to adopt those rules.”

680 – The new magic number
Even though the new minimum credit score has been raised more than 13 percent, Fabian doesn’t see it impacting that many potential buyers.

“It’s a significant shift, but I don’t think it represents a massive chunk of the mortgage population,” he says, estimating that “five to 10 percent of total mortgage applicants” will be shut out of the market by the new standard.

“It’s going to disqualify a certain segment, but depending on an individual lender’s risk appetite, they may not want them in their portfolio from a mortgage perspective anyway,” he says.

It’s not only sloppy credit users who will be squeezed further to the margins. Canadians with short credit histories will be hit hard. That includes two vital populations of potential buyers – millennials and newly landed immigrants; the former makes up one of the largest population demographics in Canada, the latter is responsible for the country’s population growth, diversity and much of its economic might. Both groups will be at an acute disadvantage when they approach the market after July 1.

“Everybody has a story,” Hansra says, referring to CMHC’s assumption that a high Beacon score is the key factor in determining an individual’s credit worthiness. That’s simply not true for immigrants. Someone new to the country and attempting to establish herself – new credit cards, new apartment, new car – is inevitably going to be subject to a high number of credit inquiries.

“Your credit score’s going to go down because you have all of these credit inquiries, not necessarily because you have bad credit,” he says. “All of a sudden, your score can drop from 800 to 660. You’re not seeking credit, you’re just trying to establish yourself in a new country.” A policy change that impacts Canada’s immigrant community at a time when the world is debating the evils of institutional racism is a case study in bad optics.

“A lot of the big lenders have new-to-Canada programs,” Fabian says. “Some of the rules and products are adjusted to reflect that, so there are opportunities and options for this population.” TransUnion research suggests that new Canadians tend to perform as well or better than established Canadians. Many were experienced, responsible credit users abroad, but their credit score, if that’s all one sees, doesn’t tell that side of their story.

Fortunately, Fabian says consumers with Beacon scores of below 680 can bring them up relatively easily by making their payments and monitoring their credit for any forgotten, lingering debt that may be bogging them down.

“It’s not a huge leap for consumers to migrate forward,” he says. “In a given quarter, we see anywhere from 15 to 20 percent of consumers move up in risk tiers.”

Copyright © 2020 Key Media

Home prices fall 10% from pre-pandemic market

Sean MacKay
Livabl

Average Canadian home prices are projected to fall 10 percent from their pre-pandemic levels as high unemployment, rent declines and mortgage payment struggles caused by COVID-19’s economic impacts take their toll.

The forecast from Capital Economics’ Senior Canada Economist Stephen Brown arrives at the end of a week that saw home construction post an encouraging bounce back, with newly released May data pointing to resilience in this segment of the industry after a difficult April.

However, with weak housing demand dampened by the sharp rise in unemployment and a worrying proportion of Canadian mortgage payments currently being deferred, the economist doesn’t expect home prices to be as resilient.

These factors, among others, have led Capital Economics to forecast a 10 percent drop in average Canadian home prices from pre-pandemic levels. Brown also said that the firm expects a five percent drop in the Teranet Home Price Index, which tracks price changes for homes that have been sold at least twice over a period of time at the national level.

Forecasts based on average home prices look simply at the average sale price for all homes sold during a particular period, while the Home Price Index-based forecast looks at the price changes “like-for-like homes.” Brown wrote that changes in prices tracked by the two distinct methods can be different during a downturn.

Although home prices have been reasonably steady up to this point, Brown believes some Canadians currently deferring their mortgage payments may be forced to sell in the fall when the deferral period expires. He also pointed to the fact that Canada has a higher level of mortgages currently being deferred (16 percent) compared to the level seen in the US (8.5 percent).

Furthermore, the economist sees investor interest in major Canadian real estate markets waning.

“In some countries, the prospect of near-zero interest rates for a long time means that real estate now looks like a relatively more attractive investment,” Brown wrote.

“But in Toronto and Vancouver, rental yields were already low and, for the newest properties, new investors often face negative cash flows after including all costs. The case for investing in housing in these cities could still be made when rents were rising strongly, but that is no longer true,” he continued.

Capital Economics is far from the only voice claiming that Canadian home prices are set to fall in the coming months. At the end of May, National Bank of Canada published a special report forecasting an approximately 10 percent decline in Canadian home prices, a fall that would be “sharper than in any of the country’s last three recessions.”

A trio of RBC economists this week refrained from providing a precise forecast on how far prices may fall, but predicted that the second half of the year would see prices struggling.

“Low levels of immigration (another byproduct of the [pandemic] crisis), and an elevated unemployment rate will likely curb the rebound in the housing market with sales likely to fall by almost 20% and prices, which have held up well so far, likely to come under stronger downward pressure over the second half of the year,” they wrote.

© 2019 BuzzBuzzHome Corp

Watchdog probe reveals Quadriga mystery was simply a case of old-fashioned fraud

Barbara Shecter
The Vancouver Sun

Following the death of the founder of Canadian digital currency platform QuadrigaCx, investigators at Canada’s biggest securities regulator dug into the mysterious case that had stranded more than $200 million of investor funds and assets.

What they found was an old-fashioned fraud wrapped in a new technology, according to a 33-page report made public Thursday.

The Ontario Securities Commission, which investigated alongside an RCMP probe, concluded that Gerald Cotten, who died during a trip to India in 2018, carried out the fraud by himself.

“Staff determined that Quadriga collapsed due to a fraud committed by Cotten,” the OSC said, adding that he had opened accounts under aliases and credited himself with fictitious currency and crypto asset balances, which he then traded with unsuspecting Quadriga clients. 

When he died, the 30-year-old founder of the crypto-currency platform was also the only one with access to the keys, or passwords, to the digital wallets of more than 100,000 investors. Those wallets were supposed to hold their crypto assets and cash, and the investors have been pressing since Cotten’s death to find a way to access their investments. 

But what the OSC revealed Thursday is that their money was largely gone two years before Cotten died — lost to unsuccessful trades in cryptocurrencies including Bitcoin and Ether or taken by Cotten to fund a “lavish” lifestyle.

By 2016, Quadriga had morphed into what was more or less a Ponzi scheme, the regulator says, with new investor funds being used to pay out old investors who made withdrawal requests.

“Cotten sustained real losses when the price of crypto assets changed, thereby creating a shortfall in assets available to satisfy client withdrawals,” the OSC explained, adding that he “covered this shortfall with other clients’ deposits — in effect, operating a Ponzi scheme.”

The OSC calculated that the bulk of the $169 million in unrecovered client losses  —  approximately $115 million — arose from Cotten’s fraudulent trading.

An additional $28 million was lost to trading on other platforms.

“Staff also determined that Cotten misappropriated millions in client assets to fund his lavish lifestyle,” the regulator said Thursday.

Following Cotten’s death, the Quadriga case grew sordid, with investors questioning whether he was really dead and seeking last year to have his body exhumed.

His widow, Jennifer Robertson, said in legal filings that she had received threats.

Quadriga filed for protection from creditors in February of 2019, and entered bankruptcy proceedings a couple of months later. Ernst & Young is the trustee in bankruptcy and was able to recover $46 million in assets to pay out to clients, according to Thursday’s report.

But the OSC report said Quadriga was “already in crisis before Cotten’s death, and most likely would have collapsed even if Cotten had lived.”

When he died in December of 2018, reportedly from Crohn’s disease, the crypto platform owed about $215 million to clients but had almost no assets to cover these liabilities.

“By November 2016, Cotten had injected so many fake assets into the platform that its eventual insolvency was all but assured,” the regulator concluded.

With Cotten dead and the company in bankruptcy, the OSC determined it was not “in the public interest” to bring an enforcement action in the case. But the regulator still wanted to tell investors and the public what happened.

“In this case, our mandate is best fulfilled by sharing enforcement staff’s findings publicly,” the regulator said.

“While public release of a report of this nature is rarely done, we believe that making this review of the facts widely available may help prevent this type of situation from recurring.”

The OSC said its months-long probe included collecting evidence from Cotten’s widow, Robertson, as well as several Quadriga clients who reached out to the regulator.

Attempts to speak to Michael Patryn, one of Quadriga’s co-founders, were not successful, the regulator said, noting that evidence indicated he had ceased to be associated with Quadriga after 2016, and that the majority of client funds were deposited after his departure.

The OSC did not have access to encrypted devices owned by Cotten, which Ernst & Young handed over to the RCMP.

The securities regulator’s investigation included several months of data analysis, with external blockchain experts tapped to help analyze the movement of assets to and from Quadriga, the OSC report said.

A dozen Canadian and international regulators assisted with the collection of evidence from jurisdictions outside Ontario.

© 2020 Financial Post

Genworth (and Canada Guaranty) vs CMHC: Good for the mortgage industry

Clayton Jarvis
Mortgage Broker News

Canadians of all stripes were blindsided on June 4, when the Canadian Mortgage and Housing Corporation suddenly revised certain key underwriting guidelines. The story got a little more interesting on Monday, when CMHC’s competitors in the mortgage insurance space, Genworth Canada and Canada Guaranty, both announced they would not be following suit.

“Genworth Canada believes that its risk management framework, its dynamic underwriting policies and processes and its ongoing monitoring of conditions and market developments allow it to prudently adjudicate and manage its mortgage insurance exposure, including its exposure to this segment of borrowers with lower credit scores or higher debt service ratios,” said Stuart Levings, Genworth Canada’s president and CEO.

In an online statement, Canada Guaranty said “[O]ur underwriting policies are consistently updated to reflect evolving economic environments and emerging mortgage default patterns. This philosophy has resulted in the lowest loss ratio in the industry.” The statement went on to question the logic of CMHC’s lowering of debt servicing ratios, arguing they are not a “significant predictor of mortgage defaults.”

There tends to be a lot of static whenever CMHC makes an announcement; this time will be no different, especially among Canadians who may not be familiar with the intricacies of the mortgage insurance space. That would be almost all of them.

“First-time homebuyers don’t really know who Genworth is, or who Canada Guaranty is,” says Centum FairTrust’s Jimmy Hansra. “The majority of them only know CMHC.”

Many of these buyers, once the only mortgage insurance company they’ve ever heard of tells them they’re ineligible, are going to think they’ve been shut out of the market completely. They’ve never been taught that most lenders work with all three companies, or that credit unions and even behemoths like Scotiabank regularly work with Genworth or Canada Guaranty.

Hansra says CMHC’s tighter lending guidelines may simply drive more business toward its competitors, particularly if they are able to reach first-time buyers with the message that their homebuying window of opportunity hasn’t been nailed shut. 

While there may be some short-term confusion among headline-gobblers following the divergence of policies at CMHC, Genworth and Canada Guaranty, one thing is clear: The added competition should benefit everyone.

“It’s great for borrowers. It’s great for brokers, too. CMHC has programs that Genworth doesn’t have, and Genworth has specific mortgage programs that CMHC doesn’t have. Canada Guarantee is a nice little niche mix in there, too,” Hansra says.

“When you have good people like that out in the market, it definitely helps the consumer, and it helps the broker because there’s more choice. You always want your clients and your lenders to have more choice.”

Some still baffled by CMHC’s underwriting changes

CMHC’s underwriting changes haven’t drawn much support, a less than shocking development considering they are expected to decrease spending power by 11 or 12 percent. CMHC’s decision to slow homebuying seems in direct opposition to federal, provincial and central bank policies meant to increase liquidity as a means of nurturing Canada’s economic rebound from COVID-19.

“How else does [CMHC CEO Evan Siddall] expect the economy to get humming along again?” wonders Hansra. “You’re going to handcuff the real estate market, which tends to account for a large percentage of your GDP.”

Leor Margulies of Robins Appleby Barristers and Solicitors, who deals with a range of Schedule 1 banks, private and alternative lenders, was slightly more incensed.

“Why now?” Margulies asks. “People are suffering now, so let’s make it even more difficult? Are people buying houses like crazy right now?”

For Margulies, blame for the potential damage CMHC’s recent moves will inflict on first-time buyers belongs to Siddall himself, who Margulies sees as being overly paranoid of a Canadian housing crash.

“It’s this view that real estate is bad,” he says. “‘If we don’t put a lid on it – and squeeze the lid down – there’s going to be an explosion. People will take on too much debt and it’s going to be 2007 in the U.S.’ It’s ridiculous. It’s never happened before. It didn’t happen in 2008 here. It didn’t happen here 1990 to 1995.”

“[Siddall’s] said some terrible things,” Margulies goes on. “And he continues to say terrible things. He wants to ratchet this industry down. He sees it as a real threat to the economy.”

In Hansra’s eyes, Siddall may have tipped his hand on May 19, when he first told Canadians that CMHC is expecting a decline in average home prices of up to 18 percent, an estimate few have echoed.

 “CMHC needed to justify why they came out of the blue, without any actual facts or hard figures, and said home prices are going to drop by nine to eighteen percent,” he says. “In my opinion, they needed some validation. ‘Let’s go out in the market and say this is going to happen, and then this gives us an excuse to change our mortgage underwriting guidelines.’ That’s my take on it.”

The controversial new guidelines – and their arrival in the midst of a global pandemic – were enough to break a long-standing habit of Genworth and Canada Guaranty following CMHC’s underwriting path. The break is largely one of philosophy: Do you try to administer a tailored underwriting process that attempts to take into consideration each borrower’s unique circumstances, or do you make those borrowers, as diverse as they and their circumstances are, follow a single standard that will inevitably cause many of them to suffer through no fault of their own?

“It’s really taking away the common sense of lending,” Hansra says of CMHC’s sledgehammer approach. “And it’s going out the door because CMHC has a fear that the real estate market is going to go down by nine to eighteen percent.”

Copyright © 2020 Key Media

COVID-19 has slowed the housing market

BCREA

Two years on from being buffeted by demand-stifling government policies, the BC housing market was set to record a relatively normal year in 2020. However, hopes for a return to normal were upended by a worldwide pandemic that has thrown a blanket of uncertainty over the entire global economy.

With much of the economy at a standstill, and households and the real estate sector adhering to social distancing, activity in the housing market has slowed dramatically. Sales in the early spring fell to unprecedented lows and we anticipate that sales will remain below normal through the summer months.

However, as the economy “re-opens” and measures to mitigate the spread of COVID-19 are gradually eased, we expect home sales will start to rebound, aided by record-low mortgage rates and pent-up demand. We are forecasting that provincial MLS® sales will fall 21.3 per cent this year to 60,885 units before posting a strong recovery to 88,490 units in 2021.

The impact of the current pandemic and associated recession on prices is largely determined by the reaction of supply. If the inventory of listings accumulates significantly, and particularly if that inventory represents foreclosures or motivated selling by those impacted by rising unemployment, prices will be more severely impacted. However, given the unusual nature of COVID-19, the supply of listings for sale has declined for at least the first month of the pandemic. Even when social distancing measures ease and normal recession dynamics take over, the total supply of homes for sale will likely peak at a lower level than would be expected given the underlying economic turmoil.

A muted rise in for-sale inventory along with plummeting interest rates and pent-up demand may translate to home prices remaining relatively firm in 2020. We are forecasting the provincial MLS® average price to finish the year up 1.8 per cent and increase a further 5.6 per cent in 2021

© BCREA 2020