Real estate speculation a big concern in today’s market

Ephraim Vecina
Mortgage Broker News

BMO chief economist Douglas Porter has warned that the greatest risk to the Canadian market considering current trends is not a housing crash, but a significant reversion to “nosebleed levels of price growth.”

This is because while lower interest rates are a godsend for borrowers, the trend might also encourage a renewed surge of speculation by moneyed foreigners taking advantage of Canada’s housing markets.

“Domestic policymakers [in Canada] may need to consider other ways to control [real estate] speculation – especially from abroad – in a world where interest rates stay below inflation, or even below zero,” Porter cautioned in a recent client note, as quoted by the Vancouver Courier.

Fifty of Canada’s largest metropolitan markets saw over 20% growth in the share of empty residential properties from 2006 to 2016, according to research by Point2 Homes.

Up to 1.3 million homes across Canada stood empty by the end of 2016, the study noted. Such properties are almost always vehicles of speculation, remaining empty while changing hands fairly rapidly – and the value steadily increasing with each transaction.

This was particularly serious in Grande Prairie (with a 181.4% increase in unoccupied homes during the time frame), Leduc (172.4%), and Ford Saskatchewan (146.8%). Other notable hubs were Winnipeg (42.7% growth), Montreal (36.3%), and Edmonton (32.5%).

In Vancouver, the pain was somewhat eased with the BC government’s introduction of its speculation and vacancy tax.

The provincial ministry reported last month that the levy generated around $115 million in its first year – much higher than the initial $87-million estimate.

A significant proportion of the 12,029 who paid the tax by July 2 were foreign owners (4,485 taxpayers), the ministry added.

Copyright © 2019 Key Media

‘Properly’ buying and selling homes in Calgary

Neil Sharma
REP

A new real estate start-up uses machine learning in lieu of sales agents and so far the results are promising.

Properly, which is Toronto-based but only operates in Calgary for the time being—although it plans to launch in Edmonton in the fall and more cities next year—buys homes from sellers in an expeditious manner, then sells them. Using a varied criteria and AI to determine future factors, it decides a purchase price. Should it later sell the home at a higher price, the original seller is refunded up to 75% of the price. Properly’s margins come from charging sellers a fee, which averages 7%.

Calgary-based Reggie Almerol and his wife sold their house to Properly in April, an experience he described as pleasant. Despite selling at a loss from what they paid in 2014, because of market conditions, they managed to upsize into a single-family home at a cheaper price.

“The experience with Properly was pretty flawless,” said Almerol, a commodity risk specialist with ENMAX. “I got an offer in a couple of days. It was a little less than we were expecting, but we knew the market was in a slump. They sent us a bunch of comparables and they had people we could speak to on the phone whenever we needed. They sold the house for more than they gave us and cut us a cheque for 75% of it. It was about $2,600.”

“In terms of what we had to do to sell the house, we took pictures and they had people come in to inspect the house to make sure it was in the condition we said it was, but we got an offer two days later around what they said it would be and we were pretty happy with it considering what other houses in our area were selling for.”

According to Anshul Ruaprell, Properly’s CEO, homeowners choose when to close—anything between five days and eight weeks. If a home sells for less money than Properly pays the seller, the company takes the hit, but, as in the case of the Almerols, refunds monies owed through its Money Match Guarantee program.

“We built proprietary technology on hundreds of factors, like active listings, comparable homes, historical sales, proximity to local schools, malls hospitals, even the amount of traffic on the street. We use machine learning, based on all those variables, to tell us the expected price the home will sell for,” said Ruaprell.

“Proplerly makes its margin on the fee alone, which is why if home sells for more than Properly paid, the majority of that price is refunded back to the seller. The goal is to provide a transparent and fair process for the home seller.”

Having just raised $22 million in Series A funding, $12m of which is in equity and the remainder in debt facility, the start-up intends to become an aggressive force in Canadian real estate markets.

To Almerol, that sounds like great news.

“I would use them again, and I’ve been recommending them to people looking to downsize, like my in-laws and people we know who bought more expensive houses when they got married,” he said. “Because we have two kids and a dog, I don’t think we’d have gone through a realtor to sell the house. I can’t imagine cleaning up for showings every single time. For us it was perfect. If we’d talked to realtors, I’m pretty sure we wouldn’t have put the house up for sale.”

Copyright © 2019 Key Media Pty Ltd

Reverse mortgages still fastest growing debt

Ephraim Vecina
Mortgage Broker News

Canada’s reverse mortgage balance has reached a new record high of $3.72 billion in May 2019, according to latest OSFI figures.

Despite a relatively slower annual rate of growth – a still-strong 27.63%, compared to the 28.15% level in April – this was still a considerable increase, ensuring that reverse mortgages “are still one of the fastest growing segments of debt.”

“The 1.58% monthly gain for the month is the third largest increase for the month in the past seven years. The 12-month change is the second largest for May over that time period as well,” Better Dwelling explained in its review of the OSFI numbers.

“The new record for reverse mortgage debt isn’t surprising, but the growth rate is huge. High interest rates with a lack of payments means the balance is expected to grow,” the analysis added, noting that at current trends, the balance would likely double its pace of growth every 36 months or so.

During the same month, the national balance of loans secured by residential property also reached an unprecedented $301.18 billion.

At 0.08% month-over-month, this increase was much smaller than average. However, when looked at an annual basis, the 5.73% growth from May 2018 was actually the second largest for that month in roughly seven years.

Of the overall home equity volume, fully $268.56 billion went into personal loans, likely pointing to a much increased incidence of borrowing to pay other bills. This was a 0.06% increase month-over-month, and 4.58% year-over-year.

Copyright © 2019 Key Media

The share of vacant homes in Canada rose considerably between 2006 and 2016

Neil Sharma
Mortgage Broker News

The share of vacant homes in Canada rose considerably between 2006 and 2016—a sign that speculators have been omnipresent in the country for quite some time.

According to a Point2 Homes, which tracked “ghost” homes in the country between 2006 and 2016, Winnipeg (42.7%), Montreal (36.3%) and Edmonton (32.5%) witnessed the biggest percentage increases of vacant homes in that 10-year span.

By 2016, there were 1.3 million empty homes in Canada, the report concluded.

Point2 Homes did look at 150 Canadian cities and determined Grande Prairie (+181.4%), Leduc (+172.4%) and Ford Saskatchewan (+146.8%) all had the biggest increases in empty homes. Conversely, Ajax (-53.1%), Burlington (-52%) and Port Moody (-50.4%) had the most significant declines.

Interestingly, the report also noted that, in 2016, Canada’s share of empty homes was five times bigger than it was in the United States.

Vancouver’s share of vacant properties increased 9.6% in that decade span, while Toronto decreased a modest 4.7%.

Carl Gomez, QuadReal’s chief economist, says that while the data period ended three years ago, speculative activity explains much of what happened in the period specified, as well as in the years hitherto.

“This is rearview mirror stuff because the data only goes until 2016 and we’ve seen a change in the drivers, but one reason the vacancy rate increased in Vancouver—and this has been a story around Vancouver for quite a period of time—is over that time you saw a lot of foreign and local investors and this is a big issue around empty homes in Vancouver,” said Gomez. “Residents bought these homes and probably lived offshore or in another province, but generally there have been a number of empty homes.”

He added that the British Columbia government has since brought in a slew of cooling measures that have curbed speculation, at least partially.

“I suspect these numbers have changed since 2016 but I also suspect Vancouver is dominated by speculators,” continued Gomez.

In Toronto, the condo market is investor-driven, however, their holdings do not typically remain empty.

“The investor-held units are occupied by renters,” said Gomez.

Copyright © 2019 Key Media

BC home sales climbed higher for the first time in 18 months

Cameron Muir
BCREA

The British Columbia Real Estate Association (BCREA) reports that a total of 7,930 residential unit sales were recorded by the Multiple Listing Service^® (MLS^®) in July, an increase of 12.4 per cent from the same month last year. The average MLS^® residential price in the province was $684,497, a decline of 1.6 per cent from July 2018. Total sales dollar volume was $5.43 billion, a 10.5 per cent increase from the same month last year.

“BC home sales climbed higher for the first time in 18 months on a year-over-year basis in July,” said BCREA Chief Economist Cameron Muir. Housing demand has also trended higher since March, rising 21 per cent on a seasonally adjusted basis. “Households appear to be adjusting to the tighter credit environment as the shock of the B20 stress test dissipates.” MLS^® residential active listings in the province trended lower in July, down 3 per cent from June and 6 per cent from April on a seasonally adjusted basis. Active listings were up 12.4 per cent to 41,621 units on a year-over year basis, while overall market conditions remained unchanged from 12 months ago with the sales-to-active listings ratio at 19.1 per cent. Year-to-date, BC residential sales dollar volume was down 18.9 per cent to $30 billion, compared with the same period in 2018. Residential unit sales decreased 14.4 per cent to 43,612 units, while the average MLS^® residential price was down 5.3 per cent to $687,413.

Copyright © 2019 British Columbia Real Estate Association

Fixed rates have dropped 0.8% this year

Ephraim Vecina
Mortgage Broker News

From a previous low of 2.49%, the best available 5-year fixed rate on Ratehub.ca has shrunken further to 2.39%, the site reported late last week.

The last time 5-year fixed rates were in a similar level was back in July 2017, “with the spread between fixed and variable rates further increasing by 22 basis points.”

In 2019 alone, fixed rates have dropped by 0.8%, the site added.

“Most borrowers considering their mortgage options today should choose a fixed rate in order to lock in one of the lowest fixed rates we’ve seen in recent years. Fixed rates also provide a level of payment certainty over a mortgage term, making it a great option for first-time buyers,” Ratehub co-founder and CanWise Financial president James Laird said.

“This rate decrease does not help Canadians qualify for a home, as borrowers will still be stress tested against the Bank of Canada’s 5-year benchmark rate of 5.19%. However, it does mean that household cashflow for borrowers will improve since locking in a lower mortgage rate will help decrease monthly mortgage payments.”

The current season is often the time “when all mortgage companies try to make sure they are on track to hit their annual targets,” Laird told CBC News last month.

“Anyone who’s behind at this point would be aggressive with the margins they’re willing to fund mortgages at right now.”

Loans of an average of 2.89% are now readily available to even higher-risk consumers. Together with Ratehub.ca’s offering, these are among the lowest levels seen since summer 2017.

“The hard cost of funding these loans is going down,” Laird explained. “And at the same time we are at the tail end of the most competitive market, when lenders fight for [business], so that’s when they are willing to thin out their margins a bit to attract volume.”

Copyright © 2019 Key Media

Average home price has slipped but total dollar volume is up more than 10 per cent

Joannah Connolly
Western Investor

With home sales making a significant year-over-year jump in the Lower Mainland in July, residential transactions for the whole of B.C. followed suit, according to stats released August 13 by the B.C. Real Estate Association (BCREA).

There were 7,930 home sales in the province last month, which is 12.4 per cent higher than July 2018, recovering around half the annual transaction losses seen one year ago. Most of the provincial increase was driven by the spike in sales in Greater Vancouver and the Fraser Valley.

With absorption increasing, active listings on the province’s MLS fell on a month-over-month in July, down three per cent from June and six per cent from April on a seasonally adjusted basis.

However, active listings were still 12.4 per cent higher than this time last year. The sales-to-active listings ratio matched that of a year ago, with a balanced market at 19.1 per cent.  

“B.C. home sales climbed higher for the first time in 18 months on a year-over-year basis in July,” said Cameron Muir, BCREA’s chief economist. “Households appear to be adjusting to the tighter credit environment as the shock of the B20 stress test dissipates.”

The association reported that housing demand has “trended higher since March, rising 21 per cent on a seasonally adjusted basis.”

The average residential resale price in the province in July was $684,497, which is a decline of 1.6 per cent from July 2018. Combined with the rise in sales, this took total sales dollar volume in July to $5.43 billion, which is a 10.5 per cent increase from the same month last year.

As ever, the picture varies when focusing in on different regional markets. Six of the 12 B.C. real estate boards reported a year-over-year rise in average sale prices (Vancouver Island, Chilliwack, Kamloops, Kootenay, South Okanagan and Northern Lights) – although some of those markets are small enough to have wide sale and price percentage fluctuations each month.

Most regions reported a sales-to-active-listings ratio in the 12-20 per cent balanced-market range, with Vancouver Island, Victoria, Kamloops and Powell River in seller’s market territory and only the small board of Northern Lights seeing a true buyer’s market.

To read the full BCREA report with regional breakdowns, click here. 

© Copyright 2019 Western Investor

The Canada Mortgage and Housing Corporation has reduced Vancouver?s real estate market to moderately vulnerable

Neil Sharma
REP

The Canada Mortgage and Housing Corporation has reduced Vancouver’s real estate market to moderately vulnerable from “highly vulnerable,” a designation it carried for three years.

The reduction is largely due to a sales pace that’s nowhere near as fervent as it had been before new mortgage rules were introduced in January 2018. Additionally, CMHC is not as worried anymore about price escalation in the city, reducing its concern from “moderate” to “low.”

According to CMHC, rapid price escalation occurs when there’s sustained speculative activity in the market. The government agency considers overvaluation the result of prices levels that aren’t congruent with local employment and wage gains.

Still, CMHC considers overvaluation to be moderate in Vancouver.

“When they talk about prices and affordability, it’s still very much in their red zone,” said Turcotte. “The reason the designation had to do with the slowing pace of sales and the slight reduction of pricing, but the latter alone wouldn’t have done it. It’s not an overheated marketplace where demand exceeds supply, which drives prices up at unprecedented levels. If we look at prices relative to local incomes, they’re still unaffordable and there’s no question we have to recognize we’re not only a local economy: we have global appeal with growth of high-income immigration. The strong demand here will, from a global interest perspective, keep prices high.”

The sales cycle is also rebounding in the city. July sales figures released by the Real Estate Board of Greater Vancouver show a 23.5% year-over-year increase, for a total of 2,557 sales, outdoing last year’s 2,070. It also marked a 23.1% increase over the 2,077 home sales recorded in June 2019.

And while sales in July were 7.8% below the 10-year average for the month, Turcotte reminds the previous decade has been an aberration.

“The 10-year averaged a number we will always struggle to meet because those were unprecedented 10 years,” he said. “I think the whole dynamic of the marketplace has changed in Vancouver, and what it shows us is that with ‘normal’ buying activity we see prices hold.”

Copyright © 2019 Key Media Pty Ltd

Canadian markets strengthened by apartment and rowhouse segments

Ephraim Vecina
Mortgage Broker News

Sustained high levels of activity in the apartment and rowhouse segments continue to strengthen housing starts in Canada’s urban markets, CMHC reported.

Latest numbers indicated that the national trend in housing starts was 208,970 units in July 2019. This was notably larger than the 205,765 units in June.

“The national trend in housing starts increased in July, despite a decrease in the level of SAAR activity from June,” CMHC chief economist Bob Dugan stated. “High levels of activity in apartment and row starts in urban centres in recent months continued to be reflected in the high level of the total starts trend in July.”

This was most apparent in Vancouver, where 85% of July starts were in the multi-unit segment. Most of these were situated in the City of Vancouver and the City of Surrey.

“Compared to the same period last year, the year-to-date single-detached home starts declined while the multi-unit starts increased,” CMHC reported. “Overall, continuous strengthening of economic fundamentals supported a steady growth of 25% in the year-to-date starts in the CMA between 2018 and 2019.”

Another major mover was New Brunswick, which enjoyed a 40% annual increase in its year-to-date total housing starts. Multi-unit starts in 2019 were the market’s highest readings ever for the first seven months since 2010.

“The increase largely reflects unprecedented levels of rental apartment construction, particularly in Moncton and Saint John,” CMHC added. “These two CMAs alone accounted for 75% of all new multi-unit construction in the province.”

Meanwhile, lower multi-unit activity in Toronto pulled down the market’s overall starts in July. However, this will not significantly dent demand and new construction in the long term.

“Pre-construction sales of multi-unit homes, particularly condominium apartments, have been strong for the last few years and will break ground at a varying pace throughout the year. Strong demand for relatively affordable higher density housing continues to persist among homebuyers in Toronto.”

Copyright © 2019 Key Media

There was an increase in Canadian housing starts in July

Steve Randall
Canadian Real Estate Wealth

There was an increase in Canadian housing starts in July but the national picture belies diversity across the main urban centres.

The 6-month trend for housing starts nationally was 208,970, up from June’s 205,765 according to newly released stats from the Canada Housing and Mortgage Corporation.

“The national trend in housing starts increased in July, despite a decrease in the level of SAAR activity from June,” said Bob Dugan, CMHC’s chief economist. “High levels of activity in apartment and row starts in urban centres in recent months continued to be reflected in the high level of the total starts trend in July”.

In the largest metro regions, the upward trend continued in Vancouver with multifamily starts dominating; year-to-date 85% of starts were multifamily and focused in the City of Vancouver and the City of Surrey.

Meanwhile, overall starts in the Toronto CMA were lower with multi-unit starts declining despite continued strong demand.

Starts were also lower in Victoria (down 12% year-over-year) and Regina’s starts are down year-to-date to little more than a third of the same period of 2018 amid higher construction costs and moderating home demand.

Lower starts for multifamily units were greater than the increase for single-family starts in Winnipeg, with overall starts lower than in June.

There were gains for Ottawa and Montreal though with condos and row starts driving the overall increase in Ottawa (up 5.3% year-to-date compared to the same period of 2018) while Montreal’s gains were entirely down to rental homes.

Standalone stats for July

The standalone monthly SAAR of housing starts for all areas in Canada was 222,013 units in July, down 9.6% from 245,455 units in June. The SAAR of urban starts decreased by 10.4% in July to 209,122 units. Multiple urban starts decreased by 12% to 162,722 units in July while single-detached urban starts decreased by 4.6% to 46,400 units.

Rural starts were estimated at a seasonally adjusted annual rate of 12,891 units.

Copyright © 2019 Key Media Pty Ltd