Archive for the ‘Real Estate Related’ Category

The share of indebted Canadian households that were behind on their repayments for at least 60 days spiked from 1.92% at the end of 2021 to 2.16% in Q4 2022

Monday, March 13th, 2023

Bank of Canada reveals current extent of consumers’ financial risk

Ephraim Vecina
CMP

The central bank has engaged in an unprecedented campaign of rate jumps over the past year

The spate of interest rate hikes over the past year and the resulting increases in borrowing costs have led to greater financial vulnerabilities in Canadian households, according to new data from the Bank of Canada.

In Q4 2022 alone, 28.75% of new mortgage originations had debt service ratios greater than 25%, a share that was 12% higher compared to the same period in 2021, the central bank said.

“All else being equal, a household that spends a large portion of its income on mortgage payments may be more vulnerable to financial stress – it may be more likely to fall behind on debt payments if a negative income shock or a rise in mortgage interest rates were to occur,” the BoC said. “The bank uses the share of new mortgages with a mortgage DSR greater than 25% to identify the most vulnerable households.”

The same period also registered a drastic decline in the number of mortgage originations, with Q4 tallying 148,835 originations – significantly lower than the pandemic-era peak of 279,682 originations seen in Q1 2021.

At the same time, the share of indebted Canadian households that were behind on their repayments for at least 60 days spiked from 1.92% at the end of 2021 to 2.16% in Q4 2022.

“Because mortgages are typically the last product to go into arrears, missed payments on other types of debt can be early signs of financial distress,” the BoC said.

Royce Mendes, head of macro strategy at Desjardins Securities, said in a recent investor report that these increases in vulnerabilities are a key reason for the BoC’s rate freeze decision earlier this month.

“The question is whether the economy and inflation will cooperate soon enough to allow central bankers to remain on hold,” Mendes said.

 

Copyright © 1996-2023 KM Business Information Canada Ltd.

The sky-high cost of housing in Canada represented a “very serious” problem that showed little signs of improvement | Marc Meehan

Monday, March 13th, 2023

Affordability, supply remain big challenges in 2023: report

Fergal McAlinden
CMP

Commercial real estate analysis highlights the strain being put on the multifamily sector by lack of inventory

While green shoots are appearing in commercial real estate prospects for 2023, steep housing affordability challenges are likely to continue pushing Canadians into the multifamily rental sector and highlight lack of supply in that space, according to a new report.

Commercial real estate services firm CBRE said in its Canada real estate market outlook for the year that with affordability plummeting to an over-30-year-low, renting had become the only option for scores of families, meaning demand looks set to continue outstripping supply on the multifamily front.

Marc Meehan (pictured top), CBRE’s divisional research director, told Canadian Mortgage Professional that the sky-high cost of housing in Canada represented a “very serious” problem that showed little signs of improvement.

“I think it comes down to: What are the types of cities we want to be?” he said. “Do we want to emulate the San Franciscos and Hong Kongs of the world where essentially, housing is not affordable to nurses, firemen, construction and tradespeople?

“I think that as demand continues to outstrip supply, that causes a real issue from a social point of view And we also need to reconsider the ways that we try to solve this issue – I don’t think that policies and changes that affect the demand side are really going to fix the supply side of the equation, because the supply side of the equation is really where we’re lacking.”

 Immigration targets for the coming years, which will see Canada welcome upwards of 400,000 newcomers a year until 2025, could also put those supply issues into sharper focus, Meehan said – particularly with the national housing agency, Canada Mortgage and Housing Corporation (CMHC), having indicated a rapid pace of homebuying across the country is needed by 2030 to meet red-hot current and future demand.

How can Canada’s housing supply crisis be solved?

There are no quick fixes to the current crisis. Support is particularly essential within the purpose-built segment, according to Meehan, who also emphasized the importance of distinguishing between various types of housing structures and differentiating low-density single-family homes from condo development and purpose-built rental.

“I think purpose-built rental should be a large part of the solution in this housing affordability crisis,” he said. “But it does need more support to meet that demand, and what support could look like would be an elimination of HST; it could mean elimination of development charges specifically for purpose-built rentals.

“And so until we find ways to support the supply side of the equation, housing affordability is going to continue to be an issue.”

The challenge of decarbonization

Another prominent challenge for commercial real estate identified in CBRE’s report is decarbonization. Supporting carbon retrofits will require creative financing solutions in the years ahead, CBRE said, with “very significant” amounts of commercial real estate inventory required to decarbonize.

That will present both an opportunity and a risk, according to Meehan, with 2023 likely to see big developments where decarbonization is concerned.

“That’s one area of commercial real estate we’re expecting 2023 to see a lot more change [in],” he told CMP, noting that a Canada Green Building Council study had found that many carbon retrofits in the office segment across the country had proven financially viable and profitable.

CMHC’s MLI Select scheme, a multi-unit mortgage loan insurance product that allows successful applicants to access reduced premiums and longer amortization periods in return for meeting affordability, accessibility and climate compatibility goals, has been a successful one, Meehan added.

“I think that MLI Select comes at a really good point and it hits at a really crucial time, especially given that financing is a challenge in this elevated-interest-rate environment,” he said. “I think the other thing that’s really interesting about the MLI Select program is that it doesn’t just cater to the E in ESG [environmental, social and governance].

“The first one is on production of electricity or energy usage, but the other levers within that program around accessibility of units and affordability of units [are] a really thoughtful approach by CMHC that really aligns well with the spectrum of ESG. I think it’s a very interesting program that couldn’t come at a better time.”

 

Copyright © 1996-2023 KM Business Information Canada Ltd.

Canada interest rates remain high despite the Bank’s decision to hit pause on hikes

Friday, March 10th, 2023

The Bank of Canada has hit pause on rate hikes. What’s next?

Fergal McAlinden
CMP

Further hikes in 2023 can’t be ruled out, says chief economist

The Bank of Canada’s decision to leave its benchmark rate untouched in its March announcement signals a “conditional” pause that will see rates remain as they are unless economic trends change unexpectedly, according to BMO’s chief economist.

Doug Porter (pictured) told Canadian Mortgage Professional that the central bank’s policy rate statement on Wednesday, which was its first for over a year not to include a rate hike, featured an “absolutely non-controversial” description of the economy that gave it breathing space either to keep the rate unchanged or increase it further in the months ahead.  

“I think the key takeaway here is it’s a conditional pause,” he said. “If the economy continues to operate largely as they expected, the Bank won’t move on rates, but they’ve definitely left themselves with the ability to hike rates.”

Fed’s pull-no-punches approach could prove significant for Canada

The aggressiveness of the US Federal Reserve, whose chair Jerome Powell has indicated that it’s ready to raise rates even further, could present complications for the Bank of Canada down the road, Porter said, especially in the event that the loonie continues to plummet as the possibility of deviation between the Canadian and US approaches.

Variable interest rates in Canada remain high despite the Bank’s decision to hit pause on hikes – and upward pressure on longer-term rates via the bond market has also recently been a feature of recent weeks.

“The fact that US inflation and growth have been stronger than expected has spilled over into Canadian bonds and has tended to put a bit of upward pressure on some of the longer-term rates,” Porter said. “I think that’s something we’re going to be dealing with at least through the first half of the year: a Fed that’s still breathing fire, still pushing rates higher.

“As Powell said, there’s a lot more to do in the US, though he might just be talking very tough and in reality might not live up to [that] rhetoric. But he’s talking very tough indeed, and so I don’t think there’s going to be any relief for Canadian borrowers, and there still is a pretty significant risk that the Bank of Canada will also decide they need to lift rates a little bit further.”

What happens if inflation stays high?

The Bank still expects CPI (consumer price index) inflation to sit around 3% by the middle of this year, marking no change from its January announcement. While Porter said that headline figure is likely to decrease in the coming months, so-called core inflation – price changes in goods and services excluding the price of food and energy – cold prove more resilient.

“Provided energy prices don’t do anything too dramatic in the next three to six months, we should just by the arithmetic of these things see the headline inflation come down a fair bit,” he said. “Now, the debate is whether it comes down enough to satisfy the Bank or not.

“And we still believe that some of the underlying price measures might be a little bit sticky in the months ahead, and there might be a little bit of disappointment on so-called core inflation in the next six months.”

All in all, the Bank’s announcement should be taken as one with upsides and downsides, Porter said. It has reached a possible endpoint on rate hikes more quickly than its international counterparts – but the uncompromising language of the Fed means further increases later in the year can’t be ruled out.

“That is an important step by the Bank of Canada. The last major central bank outside of the Bank of Japan that did not increase interest rates at a decision was the European Central Bank, way back last June,” he said.

“Since the middle of last year, every single central bank has used every single opportunity to raise interest rates. So it is a pretty important step that the Bank has taken here by moving to the sidelines – that’s the good news. The bad news is we’re not necessarily done, and some of that pressure is definitely emanating from the US.”

What was your reaction to the Bank of Canada’s latest policy rate announcement? Let us know in the comments section below.

 

Copyright © 1996-2023 KM Business Information Canada Ltd.

 

TD Economics anticipating a “sizeable” slowdown in consumer spending and job losses in the US and Canada

Friday, March 10th, 2023

How serious is the risk of a recession in 2023?

Ephraim Vecina
CMP

TD Economics breaks down the factors that could trigger a slowdown

By most indications, the current risk of recession is elevated, with TD Economics anticipating a “sizeable” slowdown in consumer spending and job losses in the US and Canada, coupled with an extended period of sub-trend economic growth.

Such a downturn is not likely to arise naturally based on the trends seen in the last few months, but the Bank of Canada’s benchmark interest rate remaining frozen at 4.5% for a prolonged duration would be the most likely catalyst of such a deceleration.

This is despite the marked divergence in the BoC’s language from its counterpart in the United States.

“The central banks’ fastest tightening cycle in the history of inflation targeting will take many months to affect the economy and prices,” TD said in a new analysis. “Unfortunately, there is considerable uncertainty about how these policy lags will play out, so we won’t know if central banks went too far with the policy rate until … well, they do.”

However, a 2023 deceleration could also shape up to be a more modest episode compared to previous full-fledged recessionary periods, TD said.

“Consumers on both side of the border still have sizeable savings that should support consumption,” TD said. “The labour market is also coming from a period of remarkable strength. Even, with some cooling, we think the job market should remain resilient relatively to past economic slowdowns.”

At the same time, even a “gentler” downturn will not be a walk in the park for Canadian households.

“In Canada, a big portion of [consumer savings] will be directed towards covering a rising cost of debt servicing – the reason we have a much softer growth outlook for the Great White North,” TD said.

 

Copyright © 1996-2023 KM Business Information Canada Ltd.

The central bank will continue to seek more proof of the economy cooling and inflation decelerating in response to the rate hikes, Rogers says

Friday, March 10th, 2023

Further evidence required to keep rate unchanged: BoC deputy governor

Ephraim Vecina
CMP

Carolyn Rogers noted that productivity “isn’t trending in the right direction so far”

Despite the Bank of Canada’s latest decision to keep its benchmark interest rate frozen at 4.5%, the institution has not yet ruled our further rate hikes, according to the bank’s senior deputy governor Carolyn Rogers.

In the meantime, the central bank will continue to seek more proof of the economy cooling and inflation decelerating in response to the rate hikes, Rogers said.

“We’ll need to see more evidence to fully assess whether monetary policy is restrictive enough to return inflation to 2%,” Rogers said in a Thursday speech to the Manitoba Chambers of Commerce.

Rogers added that the current freeze is a “conditional pause” that is subject to revision if future economic trends don’t go as planned.

“If strong wage growth isn’t accompanied by strong productivity growth, it will be hard to get to 2% inflation,” Rogers said. “Well, we noted that data last week showed labour productivity in Canada fell for a third straight quarter, so productivity isn’t trending in the right direction so far.”

For Scotiabank economist Simone Arel, an extended hike pause would be easier said than done.

“While the BoC left the door open to further rate hikes, if necessary, its communique sounded much more dovish,” Arel said. “The BoC indicated that price pressures are expected to ease due to ‘weak economic growth in the next couple of quarters,’ ‘making it more difficult for businesses to pass on higher costs to consumers.’”

However, a complete disconnect from the US Federal Reserve’s trajectory will place significant downward pressure on an already weaker Canadian dollar, Arel warned.

“If the BoC persists, we could see the CAD moving toward the low-end of its 8-yr range (US$0.69 to US$0.82),” Arel said. “In addition, we note that core CPI still hovers above 5%, which is well above its target.”

Scotiabank is anticipating the BoC benchmark rate to reach a terminal level of around 4.75% by fall 2023.

 

Copyright © 1996-2023 KM Business Information Canada Ltd.

Bank of Canada is keeping its key interest rate at 4.5 per cent

Thursday, March 9th, 2023

Vancouver realtor says holding key rate could provide ‘sense of stability’ to slumping housing market

Kevin Charach
CTV News

Many mortgage-holding homeowners are breathing a sigh of relief with news the Bank of Canada is keeping its key interest rate at 4.5 per cent.

The bank’s decision comes after a year filled with increases intended to slow down the economy and decrease record-high inflation levels.

In a news release Wednesday morning, the Bank of Canada said it was able to hold the key rate due to economic growth slowing down and inflation decreasing in January.

However, the Bank of Canada noted the 5.9 per cent inflation rate is still high, and said the key interest rate could later be used to help reach its goal of two per cent. 

“I do think there are storm clouds on the horizon,” said Vancouver-based economist Jason Clemens. “It’s not clear to me at all that we are now in a trend of lowered inflation.”

Clemens believes it’s far too early to see Wednesday’s Bank of Canada announcement as a sign of hope.

“It takes anywhere between 6-12 months for the effects of monetary policy to show up,” said Clemens. “The bank only started raising rates a year ago and so the full effects from even the first set of interest rate hikes has not fully made its way to the economy.”

One Vancouver-based realtor told CTV News the Bank of Canada decision could impact the slumping housing market.

“I think a pause will really help homebuyers, especially start to feel there’s a sense of stability in the marketplace,” said Ryan Dash, partner with Vancouver Life Real Estate Group.

He said the flow in available credit can influence prices in the market. However, he believes a lack of supply remains a top issue.

“Inventory in Vancouver is just as big a story as interest rates.”

The Bank of Canada said it will continue to assess the economy and inflation, and still expects the inflation rate to cool down to three per cent by the middle of the year. The next announcement is scheduled for April 12. 

 

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2,794 sqft commercial building in Dawson Creek, B.C. sells for $260,000

Thursday, March 9th, 2023

Dawson Creek commercial building trades for $260,000

Western Investor Staff
Western Investor

The 2,794-square-foot property is zoned commercial on a large corner lot in the northern B.C. city.

Re/Max Commercial, Dawson Creek, B.C., for Western Investor

Property type: Commercial building

Location: 1500 101 Avenue, Dawson Creek, B.C.

Property size: 2,794 square feet

List price: $289,000

Sale price: $260,000.

Brokerage: Re/Max Commercial, Dawson Creek, B.C.

Broker: Jessica Kulla

 

© 2023 Western Investor

27 units of multi-family rental building sells for $6.2M located 116 Prideaux Street, Nanaimo, B.C.

Thursday, March 9th, 2023

Nanaimo 27-suite multi-family sells for $6.2 million

Western Investor Staff
Western Investor

Sale price was $100,000 over list for property close to downtown, with all rentals as one-bedroom units. It sold at a 5.09 per cent cap rate, agents say.

 

Macdonald Commercial, Vancouver, for Western Investor

 

Property type: Multi-family rental building

Location: 116 Prideaux Street, Nanaimo, B.C.

Number of units: 27

List price: $6.1 million

Sale price: $6.2 million

Brokerage: Macdonald Commercial, Vancouver

Brokers: Chris Shulz and Chris Winckers

 

© 2023 Western Investor

 

Canada’s housing market was still in the process of correcting itself but showed signs of “gradually letting up”

Wednesday, March 8th, 2023

The end is nigh for Canada’s housing market downturn, RBC reports

Mary Or
CMP

But the road to recovery is a long one uphill, it warns

Royal Bank of Canada (RBC) has published its report and outlook on the country’s housing market and sees the market downturn headed towards its conclusion.

Speaking for RBC Economics, Robert Hogue said that Canada’s housing market was still in the process of correcting itself but showed signs of “gradually letting up”. RBC expected housing activity to bottom out “sometime this spring”, followed by prices finally levelling on the condition that the Bank of Canada held off on raising interest rates.

RBC predicted a 15% peak-to-trough drop in the national RPS home price index – meaning that half of the damage was still to come – before the recovery phase could take place.

The bank’s forecast was a relatively bright one, but Hogue warned housing bulls against too much optimism, as what would happen after prices levelled – assuming they did – would only disappoint them.

“We see the recovery phase starting slowly later this year as affordability issues and a weaker economy continue to hold back buyers,” Hogue said in the Royal Bank report. “The pace should progressively pick up in 2024 once the economy clears its soft patch, inflation returns to target, and the Bank of Canada reverses part of the massive rate increases it’s imposed since March 2020.”

The influx of immigrants would fuel demand for housing in the medium to long term, which in turn raised the possibility of further supply shortages across the country if homebuilding failed to step up.

And homebuilding would prove to be the key to restoring long-term balance to the Canadian housing market, RBC said. It described Canada’s recent track record for construction as “underwhelming”, having picked up over the last three years from under 190,000 units in 2019 to around 220,000 in 2022 but “nowhere near enough to meet supercharged demand”.

The report projected that housing stock across the country had to grow by at least 270,000 more units every year by 2025 in order to sufficiently house Canada’s growing population and rebound from the housing affordability crisis.

“It’s unclear, though, whether the construction industry has the capacity to do so in the face of significant labour shortages,” Hogue said.

Canadian home resales were back to recession levels and “the quietest [they have] been” since the 2008/2009 global recession, RBC reported. This marked the official end to back-to-back years of the housing market frenzy triggered by COVID-19 last March 2020.

 

Still, RBC noted that the country’s resale slowdown has not been as slow since the fall.

The reason for this was simple. “Activity is now deeply depressed in most markets,” Hogue said, “and unless the economy craters – not our base case – there’s little downside left.”

RBC predicted that resale activity would bottom out in the next coming months, with some markets – such as Ontario and Atlantic Canada – hitting their lowest ahead of others – such as Quebec and the Prairies.

Another driving force behind the resale slowdown moderation was the Bank of Canada’s rate-hiking cycle – or, more accurately, the pause it was likely in. The Royal Bank projected that the BoC’s 25-basis-point rate hike last January was the final uptick to the historic, 425-basis-point interest-rate climb, and that market sentiment would brighten as soon as participants came to the same conclusion.

“Any downward drift in longer-term bond yields … is also likely to be viewed as a positive sign of a turnaround,” Hogue added in the report. “But these factors will help stabilize the market, not prop it up. We see the interest rate environment remaining restrictive for a while, and the Bank of Canada abstaining from cutting rates until 2024.”

The Royal Bank also projected that the housing affordability crisis, which lingered since 2021, would linger for a while longer before it eased up. This was especially true of B.C., Ontario, and other expensive markets across Canada, where prices burgeoned over the pandemic.

 

 

Home prices would thus continue to decrease in the next months, with markets in B.C. and Ontario still bearing the biggest downside risk.

“Our peak-to-trough price forecasts range from -19% in Ontario and -16% in B.C. to -6% in Alberta and -5% in Newfoundland and Labrador,” the report said.

What are your thoughts on the Royal Bank of Canada’s housing report? Let us know in the comments below.

Copyright © 1996-2023 KM Business Information Canada Ltd.

0.83 acres land assembly in Mission sells for $3.5 Million

Wednesday, March 8th, 2023

Mission, B.C., three-lot land assembly sells for $3.5 million

Western Investor Staff
Western Investor

Assembly totals 35,000 square feet and has potential for four duplex residential lots

Royal LePage Commercial/Wheeler Cheam Realty, Mission, B.C., for Western Investor

 

Type of property: Land assembly

Location: 32568, 32578 and 32592 Williams Avenue, Mission B.C.

Size of assembly land: 35,000 square feet (approx.)

Land size in acres: 0.83 acers (approx.)

Potential: Four duplex residential lots

Price: $3.5 million

Brokerage: Royal LePage Commercial/Wheeler Cheam Realty, Mission,  B.C.( buyer agency) HomeLife Advantage Realty, (Central Valley)Chilliwack, B.C.

Broker: Jag Cheema (Royal LePage); Sonny Chahal (HomeLife).

 

© 2023 Western Investor