Parents help with downpayment for first home

Josh Sherman
other

Without some help from their parents, those looking to buy a home in BC this year weren’t having much luck, a new report suggests.

According to the BC Notaries Association, 83 percent of first-time buyers in the province received assistance with their downpayment in 2018, up from the 57 percent who got a helping hand in 2015.

“While it’s great to see that many first-time buyers are finding ways to get their first home, increased restrictions and the potential for higher interest rates is making some cautious or decide to wait on the sidelines to mass more of a downpayment,” says Daniel Boisvert, president of the BC Notaries Association, in the 2019 Real Estate Report.

Meantime, 59 percent of notaries surveyed for the report say they saw the number of first-time buyers decrease, with only 13 percent reporting an increase and 28 percent noting no change.

So what are the major challenges for first-time homebuyers who appear to be getting pushed out of the BC market?

Well, unsurprisingly, 76 percent of notaries surveyed agree that home prices are an issue in their local market, with 20 percent saying prices aren’t an issue and 4 percent claiming no opinion.

Respondents who say home prices are an issue were asked to list the three factors having the biggest impact on their local market, with the three most popular answers being increased mortgage restrictions, rising interest rates and lack of supply.

Survey findings are based on the responses of about 170 notaries across the province.

© 2019 BuzzBuzzHome Corp.

NEW YEAR, NEW MARKET

Daniel Tencer
other

With house prices at astronomical levels in many cities, a growing number of Canada’s would-be homebuyers are hoping for a market crash. In Vancouver, North America’s least affordable housing market, a recent poll showed nearly two-thirds of residents, including many homeowners, want to see house prices come down.

And as we head towards 2019 with a weakened Toronto housing market and a Vancouver market in free fall, many sense this may be the year they get their wish.

The experts aren’t so sure. Yes, the global economy is slowing down, and at a time when Canada’s real estate markets are already under pressure from rising mortgage rates and the federally mandated mortgage “stress test.” But there is still plenty holding up Canada’s housing markets, they say, including strong immigration levels and a robust job market.

Watch: Canada’s most expensive condo for sale just got a big price cut. Story continues below.

Still, the experts are largely unanimous that the days of rapid house price growth are over in pretty much all Canadian housing markets. The next few years are likely to see slower sales and tepid, if any, price growth.

Here are four things that will (and won’t) happen in Canada’s housing markets in 2019.

1. More homeowners will default on their debts

It’s been a year-and-a-half since the Bank of Canada started raising interest rates, putting pressure on borrowers. By the bank’s own models, that’s about the amount of time it takes for rate hikes to be felt in the housing market. So the impact of higher borrowing costs is about to become an even tougher headwind for housing.

A recent forecast from the country’s licensed insolvency trustees industry group predicted a spike in defaults among Canadian households starting in early 2019. However, recent data from the Canadian Bankers Association suggests that the increase in defaults has already begun, a little ahead of schedule.

2. Housing affordability will be an election issue

According to Royal Bank of Canada, housing affordability is at its worst levels ever in Toronto and Vancouver, and at its worst in three decades countrywide.

A poll carried out by Abacus Data earlier this year found housing affordability has climbed to be the top issue for millennials, who next year will make up the largest voting cohort in the federal election.

Fully 64 per cent want the federal government to do something about house prices, compared to 48 per cent who want the government to fight climate change, and 33 per cent who want a focus on infrastructure.

Rob McLister, co-founder of RateSpy.com, believes politicians will “try to win the minds of first-time buyers” by making mortgages more accessible.

He sees “one of three policy tweaks” happening in 2019: An upper limit to the interest rate used in the mortgage “stress test”; the return of 30-year mortgages for first-time buyers; or an exemption from the stress test for those who switch lenders.

3. Affordability won’t get much worse (because it can’t)

On home affordability, “those hoping to get a meaningful break in 2019 will likely be disappointed,” RBC said in its latest affordability index, released in December. “We expect the Bank of Canada to hike the overnight rate two more times next year, which will sustain upward pressure on ownership costs.”

But RBC’s economists don’t see affordability worsening much either, thanks to softening price growth (or outright price declines) in some markets.

A lack of affordability may be a permanent fixture in Canada’s largest urban centres.CPA Canada

And there is another reason affordability won’t worsen much: it can’t. At current price levels and mortgage rates, home affordability is at its worst levels since the early 1990s, when a housing bubble and rising interest rates sent ownership costs through the roof.

Canada’s housing market has reached a similar peak of unaffordability today, as the chart below from RBC shows. Homebuyers are reaching the mathematical limits of what they can afford, and fatigue is setting in. 

RBC EconomicsRoyal Bank of Canada’s home affordability index measures the percentage of income an average household would have to spend each month to afford an average home. The higher the number, the less affordable the housing market. For single-family homes (gray line), affordability is the worst on record.

4. The market won’t crash

Canada’s unusually high levels of household debt are why the country has been named one of the likeliest places to experience a financial crisis. That has many wondering whether the country is in for a housing bust of the sort that took place in the U.S. a decade ago.

Barring a major economic crisis in Canada next year, it’s unlikely.

The largest contributors to the U.S. crash were subprime mortgages, many of which saw a spike in rates around 2007, exposing many borrowers to payments they could never have afforded. Canada’s mortgage borrowers are much more credit-worthy, according to a recent study from Chartered Professional Accountants (CPA) Canada. 

CPA CanadaHousehold debt in the U.S. began declining after the country’s housing bust a decade ago. Not so in Canada.

And despite rapidly rising house prices, the creditworthiness of Canada’s borrowers has actually improved in recent years, the study noted. The share of new homebuyers with very good or excellent credit quality rose to 82.4 per cent from 79.4 per cent between 2013 and 2017.

Unlike the case in the U.S. a decade ago, “this suggests that home price gains are being driven by those who can actually afford such prices,” CPA Canada chief economist Francis Fong wrote in the study.

High household debt levels are still a risk to the economy, CPA Canada noted. But sadly for homebuyers, “a lack of affordability may be a permanent fixture in Canada’s largest urban centres.”

Copyright © 2018 TheHuffingtonPost.com, Inc.

Joe Parente, 40, isn’t allowed to reapply for his realty licence until 2020

Rhianna Schmunk
other

A former real estate agent in Metro Vancouver has been barred from practice for sending unsolicited, inappropriate messages to a stranger, his neighbour and his boss — and after being accused of offering a bag of weed to renters last year.

Guiseppe “Joe” Parente, 40, lost jobs more than three times in three years over his behaviour, but continued to land new positions with different brokerages around Burnaby and Vancouver.

He lasted a year or less at each before a new complaint surfaced, according to a consent order from the Real Estate Council of B.C.

Parente was reached by phone for comment Thursday morning, but hung up.

‘Personal problems’

Parente’s behaviour over the years is laid out in the order, published Wednesday. 

It said the inappropriate messages began when Parente was a ReMax agent in Vancouver. The order said he sent a sexual photo to another real estate agent he’d never met before over Facebook Messenger in December 2014.

She ignored him, but he followed up with another message and three more photos a few months later. 

Parente apologized in an email after their managers got involved.

Two months later, ReMax surrendered Parente’s licence to the council but said he was leaving because he was “changing brokerages.”

It wasn’t until the council started investigating Parente that ReMax said he’d actually been fired for failing to “address personal problems.”

In the meantime, Parente transferred to ReMax City in Vancouver.

He worked there for a year until he was let go for repeatedly trying to contact a past customer — despite them asking him to stop — and for appearing intoxicated at a work event, according to the order.

Parente insisted he left over a commission dispute.

The brokerage surrendered his licence on July 29, 2016 — but, again, council was initially told Parente was “changing offices.”

The very same day, Parente got another job with Team 3000 Realty in Burnaby.

The order said that lasted about six months.

“In a misguided attempt at humour, Mr. Parente sent an inappropriate text message consisting of an offensive image of a sexual nature to Mr. M, his managing broker,” the decision read.

Parente was ultimately dropped by the Burnaby office in February 2017 after “sporadically” sending unsolicited text messages to a neighbour, who’d given him her contact information thinking he could help her with a real estate investment.

That behaviour led to a formal caution from RCMP.

Parente got a new job at Team 3000’s Vancouver location a month after leaving Burnaby.

Offered tenants weed and wine: order

Parente was hired to list a house on Turner Street in April 2017. The agent phoned the tenants, referred to as DM and CS in the order, to arrange a meeting to talk about staging.

DM told the council Parente offered to bring her “some weed” during that call.

She said she thought he was kidding, but that he showed up at their appointment with a bottle of wine and a bag of marijuana anyway.

The tenant also said Parente appeared intoxicated, swore and made sexual as well as racial comments in front of guests and two children.

Parente denied swearing, bringing weed and making inappropriate remarks — but the order said he did admit his behaviour could have been “perceived by others” as offensive.

Penalties handed down

On Nov. 15, 2017, Parente’s licence was surrendered for the final time.

It expired on July 28, 2018, amid disciplinary proceedings, which were sparked by complaints from the public.

The real estate council has now banned Parente from applying for his real estate licence for nearly two years. If he does choose to reapply, he’ll have to take a college-level course on interpersonal skills in the workplace first.

Parente has also been ordered to pay $3,000 in enforcement expenses.

©2018 CBC/Radio-Canada.

Empty home tax helps low income renters

Steve Randall
REP

Vancouver’s empty homes tax will be used to help address housing supply issues for vulnerable and low-income renters; and help reduce costs for homeowners who want to build secondary or basement suites.

The City Council and Mayor have approved the proposed budget for 2019 which includes measures to tackle housing supply and affordability challenges in the city.

Among the measures approved new investments to increase housing supply and affordability and improve availability and supports for renters and vulnerable citizens.

Some of the money raised from the empty homes tax will be used to help reduce the cost of permitting, licensing, and planning for residents wanting to create secondary or basement suites.

Property tax increase The council also approved a property tax increase of 4.5%, a reduction from the 4.9% proposed tax rate in the draft budget, through reductions in the Innovation Fund and the Council Contingency.

Council staff were also requested to engage the Property Tax Policy Review Commission to explore a 2% property tax shift from commercial to non-commercial taxpayers, with the goal of supporting small business and retail.

“With limited sources of revenue, it’s a real challenge for the City to find ways to address all of the issues that are important to our residents. Over the past several weeks we’ve listened to feedback and made adjustments in this approved budget which reflect what we heard. Now we can all look ahead to 2019 and getting to work building affordable housing, reducing homelessness, tackling the opioid crisis, and supporting small businesses,” Mayor Kennedy Stewart said.

Copyright © 2018 Key Media Pty Ltd

The biggest story of the year has been the stress test

Neil Sharma
REP

Canadian real estate has been red-hot in recent years, and it’s for that reason that nobody can argue 2018 has been an uneventful year.

B-20 The biggest story of the year has been the Office of the Superintendent of Financial Institutions’ Guideline B-20 that stress tests new mortgage originations 200 basis points. However, should borrowers want to shop around their existing mortgage for a better rate, they too will be subjected to the stress test, effectively handcuffing them to their current lender. 

“In five years, people will mortgages up for renewal will be used to it—anybody who refinanced or purchased would have qualified under the stress test—but it’s these people coming due in the next two, three years: they’re the ones who will have a terrible time,” said Doreen Walsh, First National’s regional sales manager for Ontario and Atlantic Canada.

During the second quarter of 2018, refinances in the private mortgage channel surged 67% over the same quarter in 2016. It’s just one reason why Benjamin Tal, deputy chief economist of CIBC World Markets, believes B-20 has set a course of unchartered territory.

“I supported B-20 because I believe we need to save from Canadians from themselves,” Tal said in October, during a keynote speech at the National Mortgage Conference in Montreal. “However, I do believe that, at this point, alternative lenders are the fastest growing segment of the mortgage market. They’re transferring risk from the regulated part of the market to the unregulated market. They’re transferring risk from where there’s light to where it’s dark.”

Vancouver and Toronto cool The two most frenzied housing markets in the city finally cooled in 2018, largely because of B-20, but in the Vancouver’s case also because British Columbia’s provincial government implemented a series of cooling measures. The provincial government increased the foreign buyer tax from 15% to 20% and introduced a 2% vacancy tax to curb speculation. Vancouver is also hobbled by demand vastly outpacing supply.

“Vancouver has slowed down based on concerns of government intervention and a shortage of inventory, so people are on the sidelines and there’s a mismatch between buyers’ and sellers’ expectations on price, and activity level has slowed down,” said Sotheby’s International Realty Canada’s President and CEO Brad Henderson. “Product stays on the market longer and sells at a discount of what it would have been at the end, even the beginning, of 2017.”

Toronto, meanwhile, felt the weight of the new mortgage stress test and the market went cold until about June, when it briefly rebounded before cooling again during autumn. Like Vancouver, Toronto cannot get housing supply to market fast enough to satisfy demand, and as a result, prices have not come down. Fewer homes are being listed because the mortgage stress test has reduced choice.

“[Toronto] is suffering from lack of inventory because people are afraid that if they sell their house they won’t be able to find anything else,” said Henderson.

Montreal attracts foreign buyer attention In the wake of B.C. increasing its foreign buyer tax by 25%—not to mention Toronto’s existing 15% tax on international buyers being dissuasive—Montreal has become a hotbed of foreign speculation.

But according to Carrie Law, CEO of Juwai.com, a Chinese international real estate website, Montreal probably won’t supplant Toronto.

“If you are asking, will buyers fall in love with Montreal and lose interest in Toronto, the answer is no. Montreal is a wonderful destination that deserves a good deal more international investment than it now receives. Toronto has demand drivers that won’t disappear, including the English language, educational system, and job market.”

Interest rates are rising Canada is officially in a rising rate environment and that could make stress testing mortgages a tenebrous affair for a great many Canadians. It’s also led to Tim Hudak, CEO of the Ontario Real Estate Association, to call for the stress test’s annulment.

“Every economist may not agree on the timing, but interest rates are heading up, which means mortgage rates are heading up, and if you add 200 basis points onto every increase, you’re really pushing a lot of first-time homebuyers out of the market and impairing the dreams of move-up buyers who have kids and want a little more space,” he said.

“Our point of view at OREA reinforces the federal government to take a second look at the stress test because every time the interest rate goes up, the stress test goes up 200 basis points above that, making it even harder to get a mortgage and penalizing millennials, new Canadians and entrepreneurs trying to get into the housing market,” continued Hudak. “We certainly support government programs that encourage responsible and sustainable borrowing, but this pile-on of all kinds of new rules, regulations and taxes harms aspiring homeowners and sets back the potential of our economy.”

Copyright © 2019 Key Media Pty Ltd

Low office vacancy stimulates growth

Neil Sharma
Canadian Real Estate Wealth

As Vancouver’s vacancy rate for office space remains among North America’s lowest, there’s growing appetite for strata office developments in the city.

Driven primarily by low downtown vacancies and, consequently, surging rents—and compounded by large companies like Amazon, Apple and Deloitte buying hundreds of thousands of square feet of office space—Vancouver has become inhospitable to smaller businesses looking to set up shop. Not surprisingly, savvy investors have taken note and are beginning to fulfill this need in the marketplace.

“There is great opportunity for investors looking to purchase space, particularly when you consider the many strong, local businesses looking to lease space in a AAA building,” said Matt Carlson, vice president of Colliers International. “These businesses are often unable to find a landlord who is willing to lease less than 10,000 square feet, or in some cases less than 20,000 square feet. Investors purchasing smaller units will have many tenants interested in renting space from them at historically high rental rates.”

Chard Development has capitalized on the demand and built The Yukon in the Mount Pleasant neighbourhood, with strata units designed for creative or light industrial ventures and for businesses with as many as 30 employees.

Byron Chard, principal and chief financial officer of Chard Development, notes that the neighbourhood’s appeal alone has attracted investor attention. A slew of residential and retail developments line the streets of Cambie and Main and within the Olympic Village, quickly turning it into one of Vancouver’s most desirable neighbourhoods.

“Strata office ownership isn’t exclusive to those looking to relocate or establish a business within their purchased space,” said Chard. “Savvy investors are also able to take advantage of this opportunity and to lease their space to business owners looking to set up shop in this coveted neighbourhood. In our experience, we have had many buyers purchase multiple units—one for themselves and one for investment or future growth planning.

“With our Mount Pleasant projects, we’ve seen interest from the creative class of businesses who have long appreciated that neighbourhood—including architects, design firms and furniture retailers—as well as the high-tech businesses who have made this area home in recent years. With the Yukon, we’ve seen interest from smaller professional firms, as well as film production companies, breweries, coffee roasters, and food uses that have a production component.”

Copyright © 2019 Key Media Pty Ltd

Price corrections driven by policy measures not job-loss

Josh Sherman
other

Government policy triggered a recession in BC’s housing market this year, but the situation could have been worse, a new forecast from credit union Central 1 suggests.

“Price corrections in large urban markets will be modest given they are driven by policy measures rather than a broader job-loss inducing economic recession,” writes Bryan Yu, Central 1’s deputy chief economist, in the B.C. Housing Forecast Update 2018–2021.

Central 1 forecasts the median price of a BC home to finish the year at $530,000, up 6 percent from 2017 before falling by 1.9 percent, or about $10,000, in 2019. Over the following two years, prices will remain relatively flat.

Meantime, Central 1 predicts 81,465 homes will change hands this year, plunging 17.4 percent compared to 2017. But by 2019, a recovery in activity is expected to begin with transactions inching up by 0.6 percent. In 2020 and 2021, further increases of 3.8 percent and 2.2 percent are expected. Overall, Central 1 says sales over this period will trend at levels observed between 2012 and 2014.

There are three main causes of this frostier outlook. One is new mortgage stress testing, which this January the federal government expanded to target uninsured mortgages. Then there are demand-side policy measures implemented this year like BC increasing the foreign-homebuyer tax for Metro Vancouver to 20 percent. And amid these changes, interest rates have been rising.

However, a number of factors are still supportive of sales activity. “Moderate economic growth, higher employment, wage gains and population expansion will remain supportive of demand,” says Yu.

Central 1 says the rate at which homebuilders start new homes is going to slow down in the coming years. By the end of 2018, developers will have started work on 40,000 homes, but housing starts are estimated to fall to an annual rate of about 32,000 units for the next two years.

“New housing construction will reflect the slowing market conditions, inducing builders to scale back in a market with weaker demand and slower presales,” writes Yu.

© 2018 BuzzBuzzHome Corp.

Weak BC housing market to remain slow in 2019

Steve Randall
Canadian Real Estate Wealth

The weak performance of the BC housing market in 2018 is set to continue in the new year, although sales should start to tick higher over the coming two years.

A housing market report from Central 1 Credit Union calls for resale home transactions to decline 17% in 2018 to 81,465 units with large urban markets suffering the sharpest declines.

 “The federal government’s ‘stress tests’ cut potential buyers’ purchasing power, which in turn, has severely affected home sales. Further dampening demand have been higher mortgage rates and various provincial policy measures,” commented Brian Yu, Central 1’s deputy chief economist.

With the median resale price in BC expected to dip 2% to $520,000 in 2018, Yu says the days of rapid escalation are over.

“Sales in B.C.’s combined metro markets of Vancouver, Abbottsford-Mission, Kelowna and Victoria are down 40% compared to the end of 2017, led by the Lower Mainland markets.” This reflects higher price levels in these areas and down payment constraints,” added Yu.

However, sales should edge 0.6% in 2019 to 81,990 units and 4% in 2020 to 85,110 units.

Starts to slip further Urban starts have dropped sharply, trending at about 31,000 annualized units since September compared to 40,000 units for the first eight of 2018.

“We predict B.C.’s housing starts will fall to about 32,000 units in both 2019 and 2020 following nearly 40,000 units this year and 43,500 units in 2017,” Yu said.

The report says that the housing starts slowdown is set to continue through 2020 reflecting weaker housing demand.

Copyright © 2018 Key Media Pty Ltd

‘Mild’ housing recession forecast for B.C. through 2021

Cheryl Chan
The Province

B.C. is in a “mild” housing market recession, with the Lower Mainland shifting from a seller’s market to a “mild” buyer’s market, according to a new housing forecast report.

A recession is usually used to describe a period of significant decline in the economy, but that term also applies to a B.C. housing market marked by a sharp decline in home sales, eroding prices, and a slowdown in housing starts, said Bryan Yu, deputy chief economist of Central 1 Credit Union, which released its B.C. housing forecast for 2018 to 2021 on Tuesday.

“When we look at it through these lens, it’s the first time we’ve seen these slowdowns, a cycle where there’s a decline in the number of transactions, erosion of home prices … and new home construction activity seeing a contraction,” said Yu.

Resales of residential properties dropped 17 per cent from 2017 to 2018, said the report, while housing starts slowed by 10 per cent, with another 18 per cent drop forecast for 2019.

Aggregate sales in the province’s urban centres — the Vancouver, Kelowna, Victoria and Abbotsford-Mission CMAs — fell 40 per cent from the end of 2017, but even medium and small markets were hit with a 10 to 20 per cent reduction in activity.

“When you add all these factors together, from a buyer’s standpoint, you have less access to credit and less confidence in the market as well,” said Yu, who expects these factors to be reflected in prices in the coming year.

While median resale prices recorded a six per cent increase in 2018 compared to the previous year, it’ll dip a modest two per cent in 2019 to $520,000, said the report.

The trend will be more pronounced in the Lower Mainland/southwest region of B.C., where prices are expected to drop 3.6 per cent next year to $651,000.

But because the downturn is driven by policy measures such as the federal government’s mortgage stress test, the province’s introduction of the speculation tax and school tax, and Vancouver’s empty homes tax, and not by a broader economic slump, economists don’t see a major crash in housing prices.

There’s room for buyers to negotiate, but on the flip side, “the economy is strong enough that there aren’t that many sellers who have to bring down their price,” said Yu. “For most sellers, they don’t have to sell … It puts a cushion under the market.”

The report also examined B.C.’s rental housing market.

It said “renters will continue to experience stressful conditions,” with the province’s low rental vacancy rate of 1.4 per cent expected to hold steady through 2021 as renters struggle to shift into home ownership given tighter mortgage qualification requirements and continuing strong demand.

“Options are very limited,” said Yu. “There’s not a lot of supply out there.”

© 2018 Postmedia Network Inc.

Vancouver seeing an undoing of the gains from 2015-2016 rapid increases

Steve Randall
Canadian Real Estate Wealth

The slowdown in Canada’s housing market is likely to weigh on the economy according to a new report from CIBC Economics.

With interest rates and other policies already having a noticeable impact on the housing market, especially in the hottest cities, “the sun has officially set on the days of heady housing market growth fueling Canada’s national economy” say economists Benjamin Tal and Royce Mendes.

This comes as the housing market is more important to the Canadian economy than ever, the economists highlight, and they say that the Bank of Canada’s argument that markets are stabilizing is “difficult to agree” with.

They say that the BoC’s workhorse model states that it takes six quarters for the full impact of interest rate rises to be seen in the housing market, but market indicators are already allowing five quarters from the first hike of this cycle.

Tal and Mendes note that longer term, the tighter mortgage lending restrictions will lead to safer mortgage and stable housing markets, but for not much of the mortgage stock is from before standards tightened.

Vancouver, Toronto The report says that the market-rise in Vancouver in 2015/16 was an unusual period, with speculation playing a significant part. Coupled with a natural easing in the market, together with policy changes, and interest rates, the market is now seeing an undoing of the gains from that period.

In Toronto, things are better than Vancouver, but Tal and Mendes believe the condo sector in particular will soften in 2019.

Despite their call for a slowing of activity which will weigh on GDP, the duo expects prices to find their equilibrium in 2019.

Copyright © 2018 Key Media Pty Ltd