Local real estate market not in danger over high prices but should look to Calgary for warning about impact of recession, says Central 1 Credit Union

REW
Other

Vancouver’s housing market is not at risk of collapse because of its record prices – a much greater risk is a recession, according to a report issued November 18 by Central 1 Credit Union.

In his latest Economic Commentary, Helmut Pastrick, Central 1’s chief economist, predicts that Vancouver home prices will keep rising, driven by demand and limited supply, until such a time as it is hit by an economic recession.

“High prices and overvaluation will not cause a housing correction,” said Pastrick. “No housing recession in Canada or elsewhere has been caused by high prices alone – a something triggers the recession and subsequent price decline.”

Pastrick adds that the current reduction in Calgary home sales and prices, due to falling oil prices, is indicative of what would happen if Vancouver faced a similar economic downturn. Home sales in Calgary have fallen 30 per cent over the past year and prices have dropped five per cent. Pastrick said he expects prices will slide further, as in 2008-2009, when they dropped 15 per cent.

“Today’s house prices in Vancouver … are not overvalued from a long-term perspective, or for a long-term investor,” said Pastrick.

He said that even in the event of a housing recession, the situation for homeowners would not be dire and that the market would recover, to then repeat the cycle.

“Outcries about unsustainable prices, worsening affordability, rising vulnerabilities and heightened risks will continue until the next housing recession,” said Pastrick.

“Economic and housing recessions are usually temporary lasting between one to two years depending on the severity of the recession’s cause. Market supply will decline to meet the new, lower level of demand thereby stabilizing prices. The long-term price uptrend will resume when demand grows more rapidly once again and we will hear another round of outcries in popular land-constrained markets.”

There are few signs that speculation is driving the market, he added.

“Since the 2008-09 recession, flipping activity has been relatively low at around five per cent of sales. Compared to the hotter markets of 1979-81, 1987-89 and 2005-07, speculation is currently not a significant factor driving prices.”

© 2015 Real Estate Weekly

Ryan Smith
Other

Even as supply can’t keep up with demand in booming markets like Toronto and Vancouver, some areas are finding more and more homes standing vacant and unsold.

A recent report by ATB Financial shows that new homes that haven’t been sold or rented has skyrocketed in Alberta suburbs.

In Edomonton, the number of unabsorbed homes has spiked by 30% in the past year, according to the report. Calgary hasn’t seen quite that number, but its unsold and unrented homes still spiked by 5%.

Calgary is in slightly better shape, and continues to see a demand for new homes because of its higher-paying jobs, according to a CBC News report. Currently there are 403 unabsorbed homes in the city, and that number is falling. In Edmonton, however, that number is 949 and rising, CBC reported.

And some ATB economists believe that economic conditions in the province will swell the number of completed but unabsorbed homes, according to the CBC. And Calgary is already in the depths of a vacancy crisis as the oil slump drives businesses out of office properties.

In Calgary, office vacancies have jumped to 14%, the highest level since 2010, and there may be as many as 2 million square feet of so-called “shadow vacancy” – space leased but sitting empty – which could push the rate to 16%.

Copyright © 2015 Key Media Pty Ltd

Ryan Smith
Other

Toronto has the highest housing prices in relation to its rental rates in a new list comparing 26 other housing markets across the world, according to survey by the Economist.

Canada joins Britain and Australia on a list of countries with “notably over-valued real estate markets,” according to the survey. Canada’s markets, the survey found, are more than 30% overpriced.

“Renting may provide more short-term value in the Canadian market,” the survey concluded.

The Economist found that Canada topped the charts in comparing countries’ housing prices to their respective rental rates. Countries like Australia, Sweden and Britain were also near the top of that list.

The survey found that property prices were on the rise around the world, rising at a median pace of 4.7% annually.

Of the countries surveyed, only China, Singapore, France, Greece and Italy were seeing a drop in housing prices.

Copyright © 2015 Key Media Pty Ltd

Other

Those worried that the high home prices in Canada’s hottest markets will collapse under their own weight can breathe a sigh of relief – at least according to one economist.

Central1 chief economist Helmut Pastrick said that the spiking prices in markets like Toronto and Vancouver aren’t enough, in and of themselves, to spark a housing collapse.

“No housing recession in Canada or elsewhere has been caused by high prices alone,” Pastrick told News 1130.

A catastrophic housing collapse would require a broader economic recession, Pastrick said. He cited Calgary, where the oil=price collapse has driven down property values.

“In Calgary, people are beginning to leave – migrate out – and housing has simply followed,” he said. “So housing sales are down on the order of 30% so far this year and housing prices continue to decline, albeit at a slower rate.”

Pastrick also nixed the idea that house flipping was unnaturally inflating the markets in Vancouver and Toronto.

“There are few signs that speculation is driving either market,” he told News 1130. “House process in Vancouver and Toronto are not overvalued from a long-term perspective, or for a long-term investor.”

Pastrick did warn, however, that the booming markets would take the hardest fall if a full-scale recession did hit Canada.

“Usually markets with the fastest price growth prior to the recession undergo the steepest price declines during the recession,” he said. “The most vulnerable homeowners during a housing recession are low-equity buyers, who are often more recent entrants.”

Copyright © 2015 Key Media Pty Ltd

The BC Real Estate Association says the average BC home price in 2015 will be $626,000. So what exactly does that buy in various regions? Here are five hot listings

Vashti Singh
Other

Last week we reported on the BCREA’s projections that the average home resale price in the province will increase to $626,000 this year. But with averages being so vague, what exactly does that buy you in different cities and regions?

Here are five BC homes that are currently listed at around the BCREA projected figure – see for yourself just what that will get you in Vancouver, Surrey, West Vancouver, Whistler and Victoria. You might be surprised at where the lowest cost-per-square-foot home is located… (Hint – it’s in the most expensive city of all these markets!)

Click through each property for more amazing photos and to see the full listings.

© 2015 Real Estate Weekly

Matt Maurer
Other

The Ontario Superior Court has once again underscored how completing a seller property information statement (SPIS) can be a risky move for vendors.

When it comes to the purchase and sale of real estate the starting point for any analysis is “buyer beware”. For those looking to impress at cocktail parties, the specific expression is “caveat emptor, quit ignorare non debuit quod jus alienum emit,” which translates into “let the purchaser, who is not to be ignorant of the amount and nature of the interest, exercise proper caution.”

This general rule of buyer beware applies to defects that a purchaser could have discovered by means of a routine inspection (known as a “patent defect”) and also “latent defects” (those not discoverable by routine inspection, which are unknown to the vendor).

Notwithstanding the purchaser’s obligation to do their own due diligence, the rule of buyer beware goes out the window once the vendor has made a misrepresentation.

A SPIS is a standard form document that was drafted by the Ontario Real Estate Association. It will contain information relating to defects, renovations and other pertinent property information based on the seller’s knowledge and experience.

A vendor is not obligated to complete a SPIS and if the vendor elects to do so they open themselves up to significant legal risks.

The law in Ontario is that once a vendor completes a SPIS it creates the relationship necessary in law to hold a vendor legally responsible if the information contained in the SPIS is wrong or misleading. Although the buyer has a duty to investigate, the buyer is not required to challenge the honesty of the vendor and is entitled to rely on the representations made by the vendor as though they were true.

A recent decision (Ménard. v Parsons, 2015 ONSC 4123 [CanLII]) illustrates how the courts are willing to expand the vendor’s obligation to make full and fair disclosure once they have elected to complete a SPIS.

In Ménard, the property in question was a beautiful home that had been constructed by the vendor on two large manicured lots. The only catch is that the home was built on top of a discontinued landfill site, a fact well known to the vendor.

The vendor completed a SPIS. The two pertinent questions and answers for the purpose of the litigation were as follows:

1. “Are you aware of possible environmental problems or soil contamination of any kind on the property or in the immediate area? E.g.: radon gas, toxic waste, underground gasoline or fuel tanks etc.”

Answer: “Unknown”

2. Are there any existing or proposed waste dumps, disposal sites or landfills in the immediate area?

Answer: “Yes”

Of particular interest for this article is how the court treated the answer to question number two.

Around the time of the transaction there was a “notorious battle” in town and the surrounding area concerning the prospect of a chemical disposal site being constructed. This battle was constantly in the local news. The purchasers testified at trial that they believed the answer to question two to be in reference to the proposed chemical disposal site. The court held at trial that answering “yes” without any further explanation in the circumstances of this transaction was misleading to the point that it constituted a legal misrepresentation.

The purchasers discovered the existence of the discontinued landfill prior to the closing of the transaction and refused to close. The vendor ultimately sold the property to another purchaser for $100,000 less and sued the initial purchasers for the loss. The court dismissed the plaintiff’s claim and awarded the initial purchasers their out of pocket expenses in respect of the aborted transaction for a number of reasons, including the misrepresentation that was held to have been made in respect of question number two.

Again, vendors are under no obligation to complete a SPIS. In doing so, vendors open themselves up to liability and displace the fundamental principle of buyer beware.

The Ménard decision and the court’s treatment of the answer to question number two is demonstrative of the risks that vendors expose themselves to by completing a SPIS.

© 2015 REM Real Estate Magazine

Steve Randall
Other

The former chairman of the Federal Reserve says that Canada has some tools to cope with the hot housing market, something that was not the case in the US housing crash.

Ben Bernanke, while talking at an event organised by the Globe and Mail, said that “Canada has made some progress” in areas such as requiring higher downpayments and other mortgage lending restrictions.

He noted that the largest risk is not of a price correction but the potential impact on the wider financial system, which he said must be protected.

As he reflected on his time at the Fed during the financial crisis, he said that the housing market’s impact on the economy was due to a regulatory system with “a lot of gaps in it.”

Copyright © 2015 Key Media Pty Ltd

Other

“It’s clear that we need to capture more detailed information on foreign investment, to better inform the Canadian government and housing market participants,” Evan Siddall, chief executive officer of the Canada Mortgage & Housing Corp., said in the text of a speech delivered in Toronto Tuesday. “A lack of accurate and reliable data makes it difficult to determine if or how foreign investment may be affecting the market. Most of the available information is anecdotal. And the problem is that many foreign investors may prefer to hide their ownership.”

Foreign money may be more likely to leave a market quickly, increasing volatility, he said. Options the Ottawa-based agency is considering include getting information from local realtors, developers and land registry offices on annual residential sales to foreign buyers for homes and condominium units. The agency already surveys property managers about how many of their units are owned by foreign buyers.

Siddall also highlighted the potential risks of foreign money in the country’s housing sector. He said it’s “very possible” offshore buyers make up a “substantial portion” of the demand for high-end luxury homes in Vancouver and Toronto.

Home prices in Vancouver increased 14 percent to C$722,300 ($543,900) in September from a year ago and Toronto home prices jumped 10 percent to C$567,000.

Spread Risk

Foreign ownership is one of the mortgage insurer’s four data-gathering priorities outlined in the speech. It will also aims to collect information on the total volume of mortgages for a given time period, new condo sales, and on the rental market.

The agency is considering publishing the results of its stress tests, which Siddall said earlier this year in an interview CMHC conducts regularly. A U.S.-style crash scenario where there’s a 30 percent drop in housing and a 5 percent rise in unemployment, would still leave the agency in a strong capital position.

Such a scenario would mean an eight-fold increase in insurance claim losses to as much as C$13.2 billion over five years and cumulative net income would swing to a C$2.8 billion loss from a C$7.5 billion profit. Those losses would be borne by the agency, with none taken by the banks and lenders that originated the loans, Siddall said. The government would have to absorb the losses in such a stressed scenario, he said.

“Insurers would not design a situation this way,” he said, reiterating the agency is exploring ways to spread the risk.

Copyright © 2015 Key Media Pty Ltd

Ryan Smith
Other

Vancouver is already Canada’s most expensive housing market, and a new report suggests prices will continue to rise well ahead of the rate of inflation for the next two years.

A report by Central1, an association for credit unions in British Columbia and Ontario, predicts that the median sale price of Greater Vancouver homes will rise 6.1% in 2016, after a 4.5% rise this year. The report projects a 3.8% jump in 2017, according to the Financial Post.

“Metro Vancouver home prices have remained in the spotlight, keeping the housing affordability debate percolating in the news and social media,” economist Bryan Yu wrote in the report.

Meanwhile, sales in the Vancouver area were 19.3% higher in October than they were a year ago, and running 36.2% above the long-term average for the month, according to data from the Real Estate Board of Greater Vancouver.

Prices have gained 15.3% over the period studied by the board, based on its benchmark price index, according to the Financial Post. That index stood at $736,000 at the end of last month. In the detached home category, the board found Metro Vancouver prices had risen 20.1% from October of 2014 to $1,197,600.

Yu said that while overall price growth has been moderate, detached home prices are skyrocketing, posting double-digit increased year over year.

“This trend is showing few signs of stopping given the severe shortage of inventory in Metro Vancouver and long-term trends of limited land availability for low-density construction,” he wrote.

And the price momentum in the Metro Vancouver area is spilling into neighbouring areas, Yu said. Central1 projects median prices throughout British Columbia to rise another 5.5% this year, with further price gains of 5.9% in 2016 and 2.7% in 2017. Sales, meanwhile, are expected to rise by 21% this year, but only 2.3% in 2016 and 0.5% in 2017.

Copyright © 2015 Key Media Pty Ltd