Neil Sharma
Mortgage Broker News

A year after the federal government introduced a slew of mortgage rule changes, including a stringent mortgage stress test, Dominion Lending Centres argues that the entire housing market could be imperilled if left unrectified.

“If the rules don’t change, you’re going to see an impact in the marketplace, and it’s a domino effect,” Dave Teixeira, DLC’s vice president of operations, public relations and communications, told MortgageBrokerNews.ca.

Teixeira claims the average Canadian now has up to 20% less buying power, and the long-term ramification is a stunted market.

“If you don’t have young people getting out of rental space and into homes, then we deplete our rental stock, which, in some markets, are very, very low. If you deplete the rental stock, you’ll have families who will be less able to find rental properties and climb that property ladder. It’s an issue that can harm the entire housing market as time goes on. If you look across Canada, you’re not seeing rental stock rising or new builds happening as quickly or efficiently as in the past. Now Canadians unable to get refinancing are staying in the rental pool, or at mom and dad’s.”

The government’s intervention has also deleteriously affected the mortgage industry, he added, by sending more consumers to big banks because monoline lenders haven’t been able to service them.

“When you give Canadians less choice of where they can go to purchase a home, across the board our business has shifted greatly to banks instead of monolines,” he said. “What’s good about us is we’re agnostic, so if you change the rules that push consumers to banks, we can manoeuvre, but Canadians who are self-employed or bankrupt, some banks won’t touch them.”

DLC is lobbying government to pause the implementation of any new rules and properly study their potential impacts, and to take regional approaches to their application. Teixeira added DLC wants amendments made to portfolio insurance requirements because some monoline lenders can no longer insure mortgages, which has stifled competition in the industry.

“They made an adjustment to portfolio insurance, so now there’s 80% evaluation that we’d like to drop to 75%. It’s created problems, not just with new homebuyers, but throughout the marketplace.”

DLC collected stories from consumes country-wide about how they’ve been negatively impacted by these rules changes, hoping the federal governments heeds its advice.

Copyright © 2017 Key Media

Dan Fumano
The Vancouver Sun

Real estate developer Mark Chandler is fighting this week to keep his troubled Metro Vancouver condo project out of receivership, as his creditors attempt to recover millions of dollars they allege they’re owed.

Meanwhile, Chandler simultaneously faces a number of other ongoing legal challenges, and court documents filed in connection with some of those matters describe where the longtime Vancouver condo developer allegedly spent his money in recent years, including an American private jet leasing agency, a Vancouver yacht charter company, a Ferrari Maserati dealership and a waterfront Hawaii getaway.

Chandler’s lawyer filed a response in court Tuesday opposing an application launched last week by Forjay Management, a private mortgage lender that helped finance Murrayville House, Chandler’s 92-unit condo development in the Township of Langley.

Forjay seeks to have a licensed receiver appointed to take over management of Murrayville, “to protect and preserve the Lands, to complete construction and to sell the Lands to repay the indebtedness,” according to the notice filed last week, which alleges Chandler and his company owe more than $16.5 million.

Lawyers for both parties are set to appear Wednesday before a judge in the New Westminster courthouse.

Construction on Murrayville House was expected to be completed in early 2016, according to Forjay’s filings, but occupancy permits were only issued in August of 2017.

Postmedia reported last month that Murrayville had become entangled in a number of lawsuits, and, subsequently, that Chandler’s company was served with an emergency order from B.C.’s real estate watchdog. Superintendent of Real Estate Micheal Noseworthy issued the order, requiring Chandler to place all deposit funds in a trust account held by a trustee, after determining “it was in the public interest to make the order urgently without a hearing,” according to a statement from his office. The order cited a “serious concern” the developer had sold some Murrayville units to multiple buyers.

As of this week, it appeared none of the Murrayville sales had closed and no residents had yet moved in, said Grant Morrison, Forjay’s lawyer.

“There’s been, essentially, a logjam and nothing has closed,” Morrison said. “It’s an avalanche of issues that are coming out.”

Chandler and his lawyer did not return phone calls and an email Tuesday. But a response filed Tuesday in court on Chandler’s behalf outlines their arguments against the receivership, stating that after “substantial cost overruns and delays” at the Murrayville project, the units are now “ready for occupancy.” The developer has been trying to “complete as many sales as possible,” the response says, claiming “the principal obstacle to completing sales has been, and remains, disputes among the lenders.”

“A receivership order will accomplish nothing, because it will not address the problem that needs to be dealt with immediately, namely a means to get the initial strata lot sales completed,” Chandler’s response says. “For a number of purchasers, further delay in completing the sales will result in hardship, in that these purchasers are elderly, and are now staying in hotels or other temporary accommodation waiting to move into their units.”

Meanwhile, US authorities are trying, as they have been since 2015, to secure Chandler’s extradition to face allegations he ran an investment fraud scheme involving a proposed Los Angeles condo development.

According to documents filed in connection with the extradition request, an FBI special agent is expected to provide evidence that Chandler spent investors’ funds “to support his lifestyle, including $90,000 to rent an exclusive, waterfront vacation home in Kihei, Hawaii.”

The FBI agent’s review of Chandler’s bank accounts, which are outlined in a record of the case certified by an Assistant U.S. Attorney and expected to be introduced as evidence, found transactions in 2010 and 2011 which “appear related to personal travel and expenses,” including a $51,204 wire transfer to Mercedes-Benz, payments to a Vancouver yacht charter company, a purchase at Ferrari Maserati Vancouver, and a $558 bill at a bar in Coal Harbour.

Last August, Chandler’s company Newmark entered a lease agreement with Delaware-based Transcon International to rent a private jet for US$61,000 per month, according to documents filed in B.C. Supreme Court this year as part of a lawsuit by Transcon. Now, Transcon is seeking repayment, claiming Newmark defaulted on its obligations and owes US$306,747 which was, according to a May court filing, “past due, owing and payable by Chandler.”

The jet, known as a Legacy 600, has an engine made by Rolls-Royce, according to Transcon’s lease documents. The Legacy 600 model was mentioned in British media reports this summer, when William and Kate, the Duke and Duchess of Cambridge, used that type of aircraft for a European trip with their children.

The most recent filing on the case appears to be Newmark’s June response, alleging Transcon had breached their agreement, and claiming “the defendant Mark Chandler is not liable to the plaintiff pursuant to the Lease Guaranty as alleged, or at all.”

© 2017 Postmedia Network Inc.

REP

Home sales in the Greater Toronto Area were down 35 per cent in September compared with the same month last year, although prices generally continued to increase.

The Toronto Real Estate Board says sales of all major types of residential property were down but the biggest decline was a 40.4 per cent drop in sales of detached homes.

The average selling price for all types of property sold in September was up 2.6 per cent from a year ago, rising to $775,546.

The board says high-priced detached homes accounted for a smaller share of sales than in September 2016 and that the average price for that market segment was flat.

Meanwhile the average price for condos was up 23.2 per cent to $520,411 and average prices for semi-detached houses was up 7.4 per cent at $752,379.

TREB’s benchmark price index, which adjusts for different property types, was up 12.2 per cent from the same time last year.

Copyright © 2017 Key Media Pty Ltd

Steve Randall
REP

By the end of October we should have a clear idea of proposed changes to mortgage lending regulations with updated B-20 rules implemented within two to three months.

Speaking at an event in Toronto, OSFI superintendent Jeremy Rudin said Tuesday that much of what will become the updated regulations will be what the regulator set out in July which includes a stress test for all uninsured mortgages.

He told the Economic Club of Canada audience that the Office of the Superintendent of Financial Institutions is concerned about the high levels of consumer debt and high real estate prices in some markets.

“We are not waiting to see those risks crystallize in rising arrears and defaults before we act,” Mr Rudin stated.

The superintendent says that it has never been more important for mortgage lending underwriting criteria to be strong and that the system needs a “certain integrity.”

Mr Rudin said that although there is a risk of more borrowers using unregulated lenders for mortgages that did not preclude OSFI from taking necessary steps within its mandate.

Copyright © 2017 Key Media Pty Ltd

The average sale price of a home climbed almost 6% from August, but sales are down 35% from the year before

Garry Marr
The Vancouver Sun

The average sale price of a home in Toronto climbed almost six per cent from August, but sales across the region continued to sputter compared to a year ago.

The Toronto Real Estate Board said Wednesday the average sale price for a home sold in September in the Greater Toronto Area was $775,546, up from the average of $732,292 a month earlier.

The board said its sale price was up 2.6 per cent from a year ago but the MLS Home Price Index composite benchmark rose 12.2 per cent on a year-over-year basis.

“A key reason for the difference in annual growth rates between the average price and the MLS HPI composite is the fact that detached homes – the most expensive market segment on average – accounted for a smaller share of overall transactions this year compared to last,” the board said.

There were 6,379 sales through in September 2017, down by 35 per cent compared to a year earlier. August sales across the GTA were 6,357.

Supply continues to rise in the market with new listings climbing to 16,469 in September, up by 9.4 per cent year-over-year.

“The improvement in listings in September compared to a year earlier suggests that homeowners are anticipating an uptick in sales activity as we move through the fall,” said Tim Syrianos, president of the board, in a release. “Consumer polling undertaken for TREB in the spring suggested that buying intentions over the next year remain strong. As we move through the fourth quarter we could see some buyers moving off the sidelines, taking advantage of a better-supplied marketplace.”

Prices in the condo market continue to appear to be strong with the average one selling for $520,411 across the GTA in September, a 23.2 per cent increase from a year ago. The average condominium sold for $507,841 in August. September condo sales were off 27.5 per cent from a year ago.

The average detached home sold for $1,015,067 in the GTA in September, flat from a year ago. The average detached home sold for $968,494 in the GTA in August.

“With more balanced market conditions, the pace of year-over-year price growth was more moderate in September compared to a year ago. However, the exception was the condominium apartment market segment, where average and benchmark sales prices were up by more than 20 per cent compared to last year,” said Jason Mercer, director of market analysts for TREB. “Tighter market conditions for condominium apartments follows consumer polling results from the spring that pointed toward a shift to condos in terms of buyer intentions.”

© 2017 Financial Post

Pre-sale condos now harder to flip

Joanne Lee-Young
The Vancouver Sun

Condo sales and prices are on fire. And now, developers of a prominent condo project in Vancouver’s West End, which won’t be completed until 2019, are hiking the fee they charge for letting a pre-sale buyer of a unit re-assign (sell) their contract to another buyer.

It’s the latest example of developers and buyers figuring out who benefits when there are steep gains in value. This is happening because prices are climbing in the years between when a buyer signs a pre-sale contract and when a condo is completed, handed over for occupancy, and the sale is legally complete.

It’s also a reflection of amount of speculation in the pre-sale condo market. The Real Estate Council imposed new rules on the “assigning” of single-family homes in May 2016, but these were not extended to apply to pre-sales by developers of condos.

In late 2015, Reliance Properties Ltd. and Jim Pattison Developments started to pre-sell condos at their One Burrard Place. This will be a 53-storey tower off the Burrard Bridge at Drake Street that is destined to be one of the city’s tallest and most luxurious.

At that time, prices started at $400,000 for a 450-square-foot unit, or about $890 a square foot. By early 2016, all 354 of the units were pre-sold. Since then, condo prices have rocketed and the per-square-foot cost of a similar unit would be about $1,250, an increase of about 40 per cent, according to realtors.

In the past few weeks, Reliance has been telling buyers who want to sell their rights to a completed condo before the units are completed that they have to sign a “modified” agreement. It stipulates that instead of paying the developer 1.5 per cent of the initial purchase price to get permission for an assignment sale, they have to pay 25 per cent of the profit made on the assignment. 

To illustrate with random numbers: If, in the past, if Buyer A bought a pre-sale condo for $500,000, he or she could assign it to Buyer B for $600,000 by paying the developer 1.5 per cent of $500,000, or $7,500. Now, the developer is charging 25 per cent of the $100,000 profit, or $25,000.

The change is designed to discourage speculation, says Jon Stovell, president of Reliance Properties.

“There has already been a regulatory shift in the single-family market where it is automatic in all contracts that if there is any ‘assignment lift’ the proceeds will go back to the homeowner,” says Stovell, referring to the Real Estate Council’s new rules in May 2016 about the re-assigning of single-family homes before the sale is registered.

In recent months, Stovell says there has been a rapid increase in requests by buyers to re-assign pre-sale condo units at One Burrard. As well, there have been reports of “unauthorized advertising of (One Burrard) assignments” online, in particular on private realtor websites and through emails and social media.

Stovell says the new policy aims to dampen this activity and create a “level playing field” for all buyers seeking to assign. There was also a need to balance the needs of “purchasers with bona fide reasons (such as a sudden change in personal circumstance, including death, divorce or a job change) who may need a way to assign a condo purchase.”

Some buyers in the midst of assigning to a second buyer are irate that the developer is suddenly taking a slice of what they consider as gains made on a risk they the buyer took.

To this, Stovell says buyers are welcome to wait to sell the condos when they are completed, handed over and the sale is finalized.

It’s hard to gauge the number of buyers seeking to re-assign units this far ahead of the building’s completion. They don’t tend to get listed on the MLS until later, but there at least a dozen postings for One Burrard Place assignments on other sites and apps.

Some developers do not allow assignments. It’s been standard for others to charge a small fee, typically between 1.5 per cent and two per cent of the purchase price.

© 2017 Postmedia Network Inc.

Industry reacts to CMHC announcement

Neil Sharma
Mortgage Broker News

The CMHC’s announcement that it may level the playing field for self-employed borrowers, as well as Canadians new to the country, is being lauded by industry insiders, with some saying it’s long overdue.

Paul Von Martels, Director of Single-Family Residential Underwriting (prime) at Equitable Bank, warns it’s too early to speculate what the rule changes might be, but welcomed providing self-employed borrowers and new Canadians more options with which to secure mortgages. He also believes the CMHC is trying to compete private lenders.

“The tax changes are making it less lucrative to be a small business owner, but from a mortgage standpoint they’re giving them more options,” said Von Martels. “The other thing is if you look specifically at the product, like what Genworth offers for self-operators, the CMHC doesn’t really have that product.

“I look at it and see that it’s maybe less strategic than some people are positioning it to be. (CMHC) sees good business there and they’re not competing. They are competitors to private lenders and they’re looking at it more practically, saying, ‘let’s get in that business.’”

The Crown Corporation announced Monday it is currently reviewing how it treats certain clients, arguing current policies discriminate against entrepreneurs.

Still, there will be months of waiting before CMHC rolls out its amendments. Pino Decina, executive vice president of residential mortgage lending at Home Trust, says he, like most people, was surprised by the announcement, but that it’s nevertheless a step in the right direction.

“From what I see here, they’re looking at different ways to open up those segments of the market for new immigrants and the self-employed, and I think those are good moves,” he said.

Decina has also noticed a growing cohort of underserved customers in recent years, because they fall into the categories CMHC is trying to redress.

“What we have noticed in the last few years is there are more customers falling into that underserved market, either because they’re self-employed and they may not have the same proof of income a salaried individual would, or they’re new to the country and they don’t quite meet the requirement,” he said. “But certainly both of those segments have increased in the last few years, and we’ve seen that on our end.”

Mortgage broker Dwight Trafford of The Mortgage Centre Rock Capital Investments Inc. says the pendulum has swung too far and amendments are in order.

“Amendments are needed for sure and they don’t necessarily need to apply for everybody, and we need to stay away from the extremes of 10 years ago that made no sense whatsoever,” said Trafford. “Right now the pendulum has swung so far the wrong way that it’s almost impossible for anybody who’s self-employed to get any money whatsoever.”

He also believes the self-employed are safe bets.

“History shows the arrear problem was not related to self-employed people,” continued Trafford. “Less than half of 1% ever got, or will ever get, into arrears.”

Copyright © 2017 Key Media

Technical charts point to prolonged house price slide, technical analyst contends

Frank O’Brien
Western Investor

The average price of a detached house in Greater Vancouver will decline 21 per cent from its recent peak to $1.5 million by 2019 and will stay at that level until a recovery begins in late 2021, according to a forecast based on historical trading patterns.

“Sell now and begin buying again in four to five years,” is the advice from Dane Eitel, a North Shore realtor who has applied the discipline of technical charting used in the equity market to forecast Greater Vancouver’s housing market.

His call is for the average detached-house price to fall from the recent peak of $1.8 million to $1.48 million to $1.5 million in the latter half of 2019. Prices will remain in that range for two years before bottoming in 2021. 

Eitel concentrated on detached housing because it does not have the supply swings common to the condominium or townhouse sectors. “It all starts with detached houses,” he said.

By looking at 40 years of Greater Vancouver detached-house sales and average price cycles, Eitel is confident that a trading pattern is established that will play out over the next five to seven years.

He noted that the last long-term cycle began in October 1987 and ran to 1996, during which time average house prices increased 190 per cent and peaked at $286,000 in February 1995. The average price then dropped 19 per cent to bottom out in December 1996. 

Prices did not recover to the earlier price peak until November 2002, six years later.

We are seeing a similar pattern today, Eitel said.

“The current Vancouver detached-housing market has been on a long term uptrend line established during the 2008-09 recession,” he said. “We have tested this long term uptrend line six times since its inception in November 2008, which was the bottom of that cycle. At that time the average sale price was $750,686. In each of the six instances, the line has held true and propelled the market higher. 

“This time, however, we will be seeing a similar event as during the 1990s, with a growth percentage of 144 per cent over the uptrend, which started from the low point in November 2008 and topped out in May 2017. By 2019 we will be on another collision course with two divergent trends converging on middle ground of the trading range to see which one will win out. This time we do have such downtrend occurrence positioning itself, eerily similar to the ‘90s. The time is upcoming for another long-term [downward] trend of more inventory, less volatility and lower average sale prices,” he explained. 

Eitel claims that residential investors can use technical charting to successfully time the market.

“From all data collected from the Real Estate Board of Greater Vancouver [REBGV] dating from January 1977, the real estate market has acted in a predictable manner. This has not been noticed to date as a prevalent factor in the real estate community. Equity markets have been using technical charting all over the world on a daily basis. While this may come as a shocking revelation to some in the real estate community, the fact remains that technical charting works.” 

Eitel noted that his theory of technical forecasting dates back to Charles Dow, who founded both the Wall Street Journal and the Dow Jones industrial average more than 100 years ago. Dow, Eitel said, proved that “history repeats itself and human psychology for buying and selling in a marketplace could be prognosticated using technical analysis.”

Political factor

Eitel said that current conditions mirror the 1990s in that the Greater Vancouver housing market is also at the peak of a 10-year price growth cycle with similar price increases, and the political environment is also similar. 

“The last time we had a Liberal prime minister and an NDP premier in B.C. was from November 1993 when Jean Chretien was elected and the NDP’s Michael Harcourt was already in power, since November 1991. The average detached sale price in November 1993 was $347,300. The two parties remained in power until June of 2001. The total price growth of the Greater Vancouver detached market during that period of time was 6 per cent,” he said. 

“I do expect the market to come off from its highs and sell in the lower half of the trading range starting late in 2019 and lasting for years. However, I also firmly believe in Vancouver’s property values long term. At any time, you can buy a detached house and 10 years later that property will be worth more.”

Current conditions 

Sales of Greater Vancouver detached houses in August 2017 reached 901 units, a 26 per cent increase from the 715 detached sales recorded in August 2016. The benchmark price for detached properties as of August was $1,615,100. This represents a 2.2 per cent increase from August 2016 and a 0.2 per cent increase compared with July 2017, reports the REBGV. 

This appears to challenge Eitel’s forecast of falling sales and higher inventory leading to a prolonged decline in detached house prices.

However, Eitel explains that the board uses benchmark prices, not average prices. He contends average prices provide a more accurate reading of real market conditions. He says that average Greater Vancouver house prices peaked in May 2017 at $1.8 million, and have been declining ever since. 

Eitel also notes that the REBGV reports that total sales of detached houses in Greater Vancouver have fallen 33 per cent in the first eight months of this year compared with 2016, to 8,268 units. In three municipalities, benchmark prices are lower now than a year ago.

His advice to speculators: sell now and begin buying back into the Greater Vancouver detached housing market in the fourth quarter of 2021, which will be the bottom of the market. The breakout will begin then with a new price peak reached in mid-2023, Eitel contends.

© Copyright 2017 Western Investor