Poloz to cut interest rates due to the downturn in market

Steve Randall
Canadian Real Estate Wealth

The Bank of Canada will make two interest rate cuts during 2019 according to Capital Economics.

That’s because BoC governor Stephen Poloz may have underestimated the downturn in the housing market and the wider impact to the economy, senior economist for Canada Stephen Brown told BNN Bloomberg.

He said that with condo presales in Toronto and Vancouver in 2018, developers have found it harder to secure investment in new projects. That, says Brown, is likely to have an impact on employment and consumption, making a big dent in the country’s output.

“Condo developers have to sell about 70% of the units in their condo before they start construction, in order to secure financing,” Brown said. “So the current housing starts represent homes that were actually sold, as pre-construction units, around 18 months ago.”

He noted that the figures he’s looking at are niche and not being widely considered.

On interest rates, Brown and his team are forecasting a drop this year to 1.25% from the current 1.75% which will be facilitated over two rate cuts.

Copyright © 2019 Key Media Pty Ltd

New home prices unchanged for 2nd month

Steve Randall
REP

Builders across Canada reported flat or declining prices for new homes according to Statistics Canada.

The weakness was reported in 18 of the 27 census metropolitan areas surveyed; it was the second consecutive month that new home prices were unchanged at a national level.

Toronto prices declined for the second month in a row while Vancouver saw a 0.1% increase following four monthly declines as builders reported improving market conditions.

In Gatineau, prices were up 0.4% due to increased construction costs; this was also seen in Sherbrooke and Trois-Rivières (both up 0.2%).

Victoria posted a 0.4% decline, the largest nationwide, with builders reporting worsening conditions and lower negotiated selling prices.

Year-over-year Compared to 12 months earlier, new home prices in March gained just 0.1% nationally.

Of the 27 CMAs surveyed, Ottawa (+3.7%), Windsor (+3.1%) and London (+2.9%) posted the largest gains, while Regina (-2.8%) recorded the largest decrease among the 12 CMAs that had year-over-year decreases.

Oshawa (-1.3%), Toronto and Edmonton (both down 0.7%) also reported year-over-year decreases.

The Statistics Canada New Housing Price Index measures changes in the selling prices of new homes agreed between the buyer and the contractor at the time of signing the contract.

It tracks singles, semi-detached and townhouses or row homes but not condos or apartments.

Copyright © 2019 Key Media Pty Ltd

BC home sales were essentially unchanged from March

BCREA

The British Columbia Real Estate Association (BCREA) reports that a total of 6,652residential unit sales were recorded by the Multiple Listing Service® (MLS®) in April, a decline of 18.9per cent from the same month last year. The average MLS® residential price in the province was $685,304,adecline of 6.2per cent from April2018. Total sales dollar volume was $4.6billion, a 23.9per cent decline fromthe same month last year.

“BC home sales were essentially unchanged from March on a seasonally adjusted basis,” said BCREA Chief Economist Cameron Muir. “Prospective home buyers continue to grapple with the decline in their purchasing power caused by federal government changes to mortgage policy.” Total MLS®residentialactive listings increased 33.6per cent to 38,672units compared to the same month last year. The ratio of sales to active residential listings declined from 28.4per cent to 17.2per cent over the same period. Year-to-date, BC residential sales dollar volume was down 29.8 per cent to $13.9billion, compared with the same period in 2018. Residential unit sales decreased 24.5per cent to 20,479units, while the average MLS® residential price was down 7per cent to $680,671.

Read Full Article

© bcrea.bc.ca

Government looking at mortgage changes

Mortgage Broker News

The Canadian government is monitoring whether tougher mortgage rules are having the desired effect but doesn’t favour allowing longer mortgage terms, Prime Minister Justin Trudeau said.

Trudeau, speaking to an industry group Thursday, was asked about raising the maximum amortization of a mortgage to 30 years, from 25 years, for first-time buyers. The prime minister said he opted instead to introduce a program that sees the government take a stake in some home purchases, as well as increasing the funds a buyer can take from retirement savings.

“We’re looking at things that are not going to disrupt the market in unexpected ways,” Trudeau said at the Canadian Home Builders’ Association conference in Niagara Falls. “We’re listening to everyone about their concerns and we are going to keep watching that stress test and make sure that it is having the desired effect, but we are seeing fewer and fewer people take on those overreaching debt-loads, particularly in the higher sectors of the market.”

Canada’s housing market has been a preoccupation of policymakers for years — grappling with a surge in prices in Vancouver and Toronto, and fears that a bubble could develop. Officials have tightened mortgage eligibility rules and imposed other measures to curb runaway growth. Bank of Canada Governor Stephen Poloz said this week he’s confident the sector will return to growth.

Trudeau said his government tried to take measures that would stabilize Vancouver and Toronto but not “have an overly negative impact elsewhere around the country.”

The tougher stress test for mortgage eligibility was about “taking some of the froth out of those markets but also ensuring that people weren’t stretching themselves further than was wise, particularly given the fact that we can see interest rates rising in the future, and recognizing Canadians carry a high level of personal indebtedness that we need to respond to.”

He acknowledged the industry’s call for 30-year mortgages, but said “yes, it can lower your mortgage payments on a monthly level but actually, overall, increases the amount that you’re going to be paying out in interest over time. Which is why, when we looked at all the different measures we had, we really, really liked the shared equity program.” 

Copyright Bloomberg News

Copyright © 2019 Key Media

Mortgage Broker Act to be overhauled

Neil Sharma
Mortgage Broker News

After last week’s bombshell reports on money laundering in British Columbia, the expert panel that prepared one of them wants the Mortgage Broker Act completely overhauled—a move the Canadian Mortgage Brokers Association-British Columbia supports.

“This is the most critical one, and it’s something we’ve been advocating for: A complete rewrite of the Mortgage Broker Act, which contains lot of gaps and problems,” said CMBA-BC CEO Samantha Gale. “It’s a key recommendation that impacts our sector because the managing broker—what we call the Designated Individual—is not a licensing category. Once you have a licensing category, you can create expectations, standards and due diligence requirements for managing a brokerage. If you had anti-money laundering requirements of a mortgage brokerage, you’d need to fix that problem.”

Canadian Mortgage Brokers Association-British Columbia collaborated with other real estate sector associations to prepare recommendations that they believe would curb the proliferation of dirty money in the province’s real estate market—which the expert panel says resulted in a 5% price hike in 2018 alone.

“We’re working on developing an anti-money laundering course,” said Gale. “Our members can currently do voluntary reporting, but the recommendation is to make it mandatory. That is going to be inevitable. It will happen. We’re getting a course ready for our members to take so they know what to look for.”

The Financial Transactions and Reports Analysis Centre (FINTRAC) doesn’t share information it collects, which confounds the British Columbia Real Estate Association. In April, BCREA recommended to the provincial government that FINTRAC proactively share information with the public.

“Right now, when a real estate office is examined by FINTRAC, the feedback is slow or even non-existent,” said BCREA CEO Darlene Hyde. “Realtors have long been asking FINTRAC to provide immediate, specific suggestions for how they can improve their compliance systems. BCREA hopes the B.C. government can work with FINTRAC to bring about the changes realtors have been asking for.”

Added Gale: “One of big challenges is FINTRAC needs to have more dialogue with the industry about the value of the data. It’s not just a red tape-laden exercise; we understand as an industry why it’s important and the value of us participating in the process.”

In the report prepared by Peter German—a former RCMP deputy commissioner—which identified red flags, there was a glaring misconception, according to Gale, that she says CMBA-BC will soon work with German to rectify.

“The Peter German report makes the point that private lenders are not licensed and they referred to them as ‘unregulated lenders,’ so one thing we’re going to be doing is advising Peter German of the licensing requirements of private lenders,” she said. “Here in B.C., private mortgage lenders are required to be licensed, and so too are their employees. We’ll talk to them about some misconceptions.”

There’s another recommendation in German’s report that CMBA-BC feels is too sweeping and has potential to implicate innocent people.

“There’s a recommendation for something called ‘unexplained wealth order,’ which would potentially enable the government to seize assets from people if they think they have unexplained wealth without any evidence of criminal activity,” said Gale. “We’ll be looking at this particular issue to make sure it doesn’t overstep the individual rights of property owners, because it may.”

Copyright © 2019 Key Media

Lease payment obligations halved; construction subsidy provided earlier than required

Glen Korstrom
Western Investor

Questions swirl around whether taxpayer money was used wisely in courting the Parq Vancouver entertainment complex development given that project’s financial woes. Other uses for the land, such as condominium development, may have been more profitable for taxpayers, suggest critics.

Parq Vancouver’s future is uncertain in the wake of S&P Global Ratings downgrading owner Parq Holdings LP’s credit rating earlier this month to “selective default.”

Parq announced May 10 that it has restructured its debt to lower its annual interest payments, which had totalled $112.2 million per year on close to $560 million in debt related to project funding to build the complex, but the company did not reveal too many details of that pact. 

It separately revealed that it has brought on a new equity partner, but it did not immediately reveal what company that is, other than that the partner is “a domestic Canadian company with hospitality holdings in several markets.”

The entire Parq project, however, came into existence thanks to financial help from the publicly owned BC Pavilion Corp. (PavCo) and British Columbia Lottery Corp. (BCLC).

The B.C. government was also separately involved in financing the emerging entertainment district by providing loans to pay for a renovated BC Place stadium with a new retractable roof – a project that totalled $514 million.

Former B.C. tourism minister Pat Bell defended the move at the time by saying that, for that price, the public got a stadium that would have cost $1.3 billion were it built from scratch in a new location.

However, the government’s decision to upgrade the stadium was seen as key for the Parq development because the new stadium was envisioned to be a main destination for people who would also visit hotels, restaurants and bars.

Part of the money that PavCo used to renovate BC Place came from a $150 million loan from the B.C. government in the 2010 fiscal year. PavCo planned to use lease payments from the Parq development and funds from a corporate sponsor that would buy naming rights to the stadium to help pay off that debt.

The B.C. government, however, scuttled the only deal for naming rights in 2012 by rejecting a $35 million offer from Telus Corp., because it said the deal was not good for taxpayers.

PavCo’s most recent financial disclosure, for the 2018 fiscal year, showed that its debt to the province stood at more than $140.4 million, following an annual payment of $2.64 million on the loan and $4.64 million toward interest.

PavCo has not made a serious dent in its debt to the government partly because it is generating much less income from its land lease to help pay off the debt than was originally expected.

PavCo first signed a 70-year lease with Paragon Gaming, which conceived of the Parq development, and it announced that agreement in early 2010. Paragon later partnered with Dundee Corp. and PBC Group to create Parq Holdings.

Paragon’s agreed terms in the lease included building and operating an entertainment complex and paying PavCo $6 million per year to use the land.

Paragon expected Vancouver city council to approve Paragon’s request to expand Edgewater Casino’s number of slot machines to 1,500 from 600, and tables to 150 from 75, when it moved the casino into the new development.

However, while council agreed in April 2011 to allow Edgewater to move to the new development, it unanimously rejected any expansion of operations.

To keep the Parq project on track, PavCo in 2013 renegotiated the 70-year lease that it had with Paragon and allowed Paragon to pay $3 million per year, or half of the originally agreed-upon sum, with the lease rate rising with inflation after 2027.

PavCo also signed a side deal to allow Paragon to pay $8.5 million of the first $9 million in lease payments to the Musqueam Indian Band, instead of PavCo, as part of a reconciliation effort with Indigenous people.

Cutting Paragon’s lease rate in half was controversial.

“If you have a bidder who cannot complete on the terms of the agreement, you put it out for bid again – put it out for highest and best use,” said Sandy Garossino, who led the campaign to prevent Edgewater from expanding. “There was some thought a few years ago that the highest and best use would have been to put in condos.”

She noted that PavCo’s lease renegotiation will cost the Crown corporation $210 million plus whatever money would be generated by lease-rate increases after 2027.

PavCo executives, however, are unwavering in the belief that it was a good deal.

“PavCo expects to receive more in lease revenue from the site than it would from a one-time sale,” the company told BIV in an email.

Another bugbear for Garossino is that Paragon also received what she called “subsidies” from BCLC.

The provincial lottery corporation agreed in 2014 to allow Paragon to temporarily keep what was the equivalent of a 2 per cent commission on revenue that Paragon generated from gambling at Edgewater until 2017, to help Paragon pay for a future underground parkade in the Parq development.

That “facility development commission” subsidy was worth millions of dollars.

BCLC CEO Jim Lightbody told media at the time that it was given because of the parkade’s cost and complexity.

Copyright © Western Investor

Listing inventory builds up across the province, although some regions remain in seller?s market territory

Joannah Connolly
Western Investor

There has been only a meagre spring awakening when it comes to B.C. home sales this year, with April maintaining the trend for dampened activity.

A total of 6,652 residential unit sales sold via the MLS in April, a drop of 18.9 per cent from the same month last year, according to British Columbia Real Estate Association (BCREA) figures released May 14.

However, that’s a month-over-month increase of 16 per cent from March’s slow sales, and in terms of the annual drop in transactions, an improvement over March’s 27 per cent annual decline.

The month-over-month rise is typical of this time of year, said the BCREA. “B.C. home sales were essentially unchanged from March on a seasonally adjusted basis,” said Cameron Muir, BCREA’s chief economist.

The BCREA continued its assertion that the slowdown in sales has been caused by the federal mortgage stress test making it harder to buy homes. Muir added, “Prospective home buyers continue to grapple with the decline in their purchasing power caused by federal government changes to mortgage policy.”

The number of homes for sale on the MLS across the province continues to build up. Active residential listings rose 33.6 per cent year over year to 38,672 units. The ratio of sales to active listings fell over the past year from 28.4 per cent (a seller’s market) to a balanced market of 17.2 per cent.

This increased choice of homes, combined with the reduction in buyer purchasing power, has reduced the average price of a B.C. home sold on the MLS in April by 6.2 per cent year over to $685,304. However, this is slightly higher than the average price of a B.C. home sold year to date, down seven per cent year over year to $680,671.

While all the boards across the province reported a decline in their sales-to-listings ratios, some are still in seller’s market territory – including Victoria, Vancouver Island and Kamloops. Greater Vancouver is the closest to being a buyer’s market at 12.3 per cent.

Only five of the 12 boards reporting to the BCREA cited an average annual price decline, with Kamloops, Vancouver Island and Prince George all seeing notable price increases. However, the significant declines seen in the larger markets of Greater Vancouver and the Fraser Valley pulled the provincial average down. 

Copyright © Western Investor

If elected Andrew Scheer will review stress test

Josh Sherman
other

Changes to Canada’s mortgage stress test could be coming, depending on the outcome of the October federal election.

Official Opposition Leader Andrew Scheer says he’s “absolutely committed” to reviewing the stress test that policymakers introduced in January 2018 — though that hinges on the head of the federal Progressive Conservative defeating Liberal Prime Minister Justin Trudeau.

Scheer’s remarks were delivered this past Friday in Niagara at the Canadian Home Builders’ Association’s National Conference.

“Clearly there are some major unintended consequences that this new policy has had,” Scheer continued.

The new rules Scheer was addressing require uninsured-mortgage applicants to qualify at a rate 200 basis points higher than what their federally regulated lender is offering.

Scheer notes it’s important to make sure credit markets aren’t exposed to risk that leads to major problems. But he also emphasized first-time homebuyers who can keep up with mortgage payments shouldn’t be shut out of the market.

Under the current stress test rules, existing borrowers looking to switch lenders are required to pass the stress test again, even if they’ve already done so with their current lender.

“I don’t see the public policy goal that that achieves — having that provision in — so that’s something that we’re committed to removing,” says Scheer.

“That has the consequence of the bank that you’re with kind of having you over the barrel,” he adds.

The prime minister hopeful is not alone in this view.

Earlier this year, Phil Moore, president of the Real Estate Board of Greater Vancouver, recommended the exact change Scheer is now proposing.

“They’re held hostage by the first bank,” Moore told Livabl, referring to how having to face the stress test again makes it harder for borrowers to shop around for better rates. “Now, that’s not fair to Canadians.”

© 2019 BuzzBuzzHome Corp.

Vancouver is certainly pricey, but average per-square-foot price for a downtown condo pales in comparison with some global cities

Joannah Connolly
Western Investor

We all know Vancouver is an extremely expensive real estate market – especially in terms of affordability, when compared with local average incomes. But even Vancouver’s high average per-square-foot condo price is relatively modest compared with some cities around the globe.

Vancouver, being a young city with a relatively underdeveloped housing market, tends to have much more space in condos than a lot of expensive world cities. This brings down the average price per square foot – so you get a lot more condo for your buck.

Real estate website Point2Homes has published an analysis of condo prices per square foot in 11 pricey real estate markets around the world – Vancouver, London, New York, San Francisco, Singapore, Paris, Hong Kong, Tokyo, Zurich, Geneva and Monaco.

Point2Homes looked at the price of a typical 185-square-metre (1,831-square-foot) condo in downtown Vancouver on its website, which it found to be a whopping $2,660,000. That comes in at $14,378 per square metre ($1,452 per square foot).

The analysts also found that the average price across all downtown Vancouver condos is $11,605 per square metre ($1,078 per square foot).

That number may be high, but it pales in comparison with Monaco, where the equivalent large downtown condo would cost nearly $14.9 million. In this European resort city, the average downtown condo costs $82,766 per square meter, or $7,689 per square foot.

Hong Kong was found to be the second most-expensive downtown condo market, in terms of price per square metre, followed by London, Singapore and New York.

In fact, on a cost-vs-size basis, Vancouver was the least-pricey downtown condo market of the 11 cities studied.

The study authors wrote, “The results show that Vancouver might be expensive, but only for Vancouverites. The other cities in our analysis completely eclipsed Canada’s most exorbitant market.”

© Copyright 2019 Western Investor