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Archive for July, 2022

BoC raises its interest rates to 2.5% since 1998

Sunday, July 31st, 2022

Bank of Canada Posts Largest Rate Hike in More Than 20 Years

CREA Staff
BCREA

The Bank of Canada recently hiked its target for the overnight lending rate to 2.5%, the largest rate increase since August 27, 1998.

With inflation persistently coming in (and expected to remain) above the Bank’s expectations, it raised rates by 100 basis points which, according to the Governing Council, was done “to front-load the path to higher interest rates”.

Shaun Cathcart, CREA’s Director and Senior Economist, Housing Data and Market Analysis, explained, “[A “front-loaded path”] implies the same end point for later this year, likely somewhere in the mid-to-low 3% range or slightly above what the Bank considers neutral (2% to 3%). That expectation hasn’t really changed since March, so the extra 25 basis points in July over and above what was expected may be 25 basis points they don’t do in either September, October or December. If that’s the case, then it’s like ripping off a BAND-AID—just get it over with because the fixed rate mortgage space has already priced most of it in anyway.”

The Bank noted several ongoing factors contributing to stronger inflation, stating, “while global factors such as the war in Ukraine and ongoing supply disruptions have been the biggest drivers, domestic price pressures from excess demand are becoming more prominent.” The Bank highlighted excess demand in Canada’s economy, tight labour markets, record low unemployment, labour shortages, and increasing wage pressures as domestic drivers of inflation.

The Bank also observed that with consumer and business expectations of inflation to remain higher for longer there’s an elevated risk inflation could become more rooted and difficult to combat. The Bank does not expect inflation to return to its 2% target until the end of 2024.

The Bank estimates Canadian economic growth was 4% in the second quarter of 2022 but is expected to slow due to a pullback in consumption and housing. Looking ahead, the Bank’s expectations for Gross Domestic Product (GDP) growth in the Canadian economy is now 3.5% for 2022, 1.75% in 2023, and 2.5% in 2024, with growth forecasts revised considerably lower this year and next compared to the Bank’s previous outlook published in its April Monetary Policy Report.

What does this mean for mortgages?

Canada’s major chartered banks are currently advertising five-year fixed mortgage special interest rates of around 4.81%.

Cathcart explains, “Rates have, very quickly, gone back to more normal levels…moreover, the Bank of Canada’s messaging increasingly suggests they’re planning on getting to the mid-to-low 3% range on the overnight rate but then stopping there. If that expected trajectory for interest rates is mostly priced into five-year fixed rates already, that means we’re already getting near the top for fixed borrowing costs.”

With the minimum qualifying rate for all mortgages being the greater of the mortgage contract rate +2% or 5.25% as set by the Office of the Superintendent of Financial Institutions and the Department of Finance, the stress-test hurdle in the fixed-rate space is now close to 7% for new borrowers. All mortgage applicants must qualify for financing based on an interest rate no less than the benchmark five-year lending rate, even if the mortgage is for less than five years.

The Bank of Canada’s next scheduled interest rate announcement will be on September 7, 2022. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in its Monetary Policy Report on October 26, 2022.

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B.C. announces 3-day cooling period to allow buyers to conduct due diligence on the property

Friday, July 29th, 2022

Has BC’s cooling-off legislation arrived at the wrong time?

Fergal McAlinden
other

Homebuying activity is expected to moderate further before the measure’s introduction

British Columbia’s latest steps to enhance consumer protection in the homebuying process saw the province announce a three-day cooling-off period to allow buyers to conduct due diligence on the property.

That measure, unveiled by provincial finance minister Selina Robinson on July 21, will give homebuyers the ability to organize an inspection and secure financing, and rescind their contract of purchase, within that window.

The policy, which had been recommended by the BC Financial Services Authority at the end of May, will come into effect on January 01, 2023. Still, its wisdom has been questioned by some observers – especially with the province facing a housing market that’s currently nowhere near as hot as it has been over the past two years.

Samantha Gale (pictured top), CEO of the Canadian Association of Private Lenders (CAPL) told Canadian Mortgage Professional that the announcement appeared ill-timed, with the market having already witnessed a protracted slowdown – and with activity likely to cool further before the policy comes into force.

“It’s not needed right now,” she said. “We don’t know exactly when we need it [and] when the market will change. We know it will change at some point, but it could be years down the road. Markets take time to move along.

Read next: Cooling-off legislation: What impact will it have on BC market?

“The government would suggest that there’ll always be a next time – that’s why they’re doing it now. It’s just obviously that the market is not moving. You don’t have multiple offers where you would need this right now.”

While the move is aimed at giving buyers more breathing room to get things in order before the purchase, Gale suggested that it provides a “very lightweight level of due diligence,” and a grace period that gives purchasers little leeway to arrange financing and inspections or appraisals.

“You’ve really got to have your financing [and] mortgage application well underway by the time you conduct due diligence under this three-day window,” she said. “It may work for some people; most private lenders can of course do approvals within that three-day window, but conventional financing will take longer.”

That said, “It doesn’t preclude purchasers from putting in conditions subject to clauses in the contract. So they can still put in a subject to financing clause that’s two weeks down the road. I think people will adjust to it.”

The new rule will apply to every transaction of a residential nature, regardless of whether a realtor is involved. The problem there, according to Gale, is that there are a series of technical ways of rescinding an offer during the cooling-off period that may not be well understood without a real estate professional involved, potentially leading to disputes or conflicts.

Notice of withdrawal of an offer by a buyer can be made by registered mail, effective as of the date that document is sent – but that could result in several days between sending and receipt, Gale said, during which a seller may be unaware that the contract is no longer valid.

Read next: The problem with subject-free offers

Another problem could arise by sending notice of a withdrawn offer by email, Gale said. “You can send notice of rescission by an email address, but the email address has to be held in the contract,” she explained. “And it has to be sent using a read receipt.

“Most contracts, purchase and sale, don’t include an email address and most people wouldn’t think to include a read receipt when they send the email.”

The legislation would have been better served, Gale argued, as an attachment to the conduct of how realtors sell, which would have avoided a “broad, sweeping application” to every residential transaction across the province.

The decision to impose a penalty of 0.25% of the agreed purchase price on buyers who withdraw from a transaction was a “sensible measure,” Gale said, and one that mirrors similar legislation in Australia governing real estate deals.

Ultimately, despite issues with the new measures, Gale said homebuyers and sellers were likely to become accustomed to them – and that they were unlikely to have a significant impact in the current calm housing market.

“There have been a lot of changes over the course of the last four or five years already, and people do adjust in the long term,” she said. “They get used to it. Unless you’ve got a highly competitive market, probably this won’t be an issue.”

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$7M from Feds to assist builders of the 11-storey tower to meet net zero energy and passive house standards

Friday, July 29th, 2022

Feds contribute $7 million for $81M passive house tower in Coal Harbour

Mike Howell
Western Investor

Vancouver MP: ‘Once completed, the fully electrical building will emit 94 per cent less GHG emissions than a standard building’

The $81-million project underway at Coal Harbour got a $7-million lift from the federal government Friday to assist the builder of the 11-storey tower meet “net zero energy and passive house” standards. Rendering courtesy City of Vancouver

The federal government announced Friday (July 29) a $7 million contribution towards the construction of an $81-million project in Vancouver’s Coal Harbour neighbourhood that includes social housing, a school and childcare.

The money is to assist builders of the 11-storey tower to meet “net zero energy and passive house” standards, according to Vancouver-Granville MP Taleeb Noormohamed, who made the announcement at city hall on behalf of Minister of Natural Resources, Jonathan Wilkinson.

“Once completed, the fully electrical building will emit 94 per cent less GHG emissions than a standard building,” Noormohamed said. “It will also improve indoor air quality, reduce water consumption and maximize the building’s overall energy performance, making those homes safer, more comfortable and more affordable.”

Waterfront land

“Passive house” is a world-leading standard to create energy efficiency in buildings. The construction concept is meant to reduce a building’s ecological footprint by adding features such as proper ventilation, insulation and thick pane windows to a project.

The building is under construction at 480 Broughton St. on waterfront land the city has owned since 1996. The site already has a community centre, which was completed about a decade ago.

The first three levels of the new development will provide a 340-student, 14-classroom elementary school with a gym, library and multi-purpose room. A licensed 65-space childcare facility will be built on level four and 60 social housing homes on levels five to 10.

Vancouver council approved the project despite pushback from some residents concerned about their waterfront views being blocked, more traffic coming to the neighbourhood and the suggestion that the area already had enough social housing.

’15-minute city’

Mayor Kennedy Stewart, who joined Noormohamed for the announcement, defended the project, saying it was a model for future developments because of the way it incorporates a school, childcare facility and homes for people on low incomes.

“Essentially, you’re building a 15-minute city right into one place for the life of the residents,” Stewart said. “So I do think that this is the best way forward for all cities in the middle of a climate crisis and affordability crisis.”

Stewart said change is “always tough” in neighbourhoods and acknowledged people are generally under pressure with affordability, inflation and interest rates and can’t take one more change.

“But I think this is a change that they’ll all get behind because it’s so wonderful for the families that are involved here,” the mayor said.

Taneen Rudyk, president of the Federation of Canadian Municipalities (FCM), told reporters that an estimated $700,000 will be split among Soroptimist International of Vancouver, John Howard Society of Victoria, the Sooke Region, Greater Victoria Housing Society, Capital Region Housing Corporation and Gabriola Housing Society to fund plans and studies for 497 future homes.

The total $7.7 million package announced Friday comes via the FCM’s Green Municipal Fund’s sustainable affordable housing initiative.

‘Ravages of the pandemic’

Rudyk noted how COVID-19 has had an impact on the country’s health care system, businesses and municipalities, yet efforts are still being pushed forward to fight climate change.

“Despite the ravages of the pandemic in communities across Canada, local governments — big and small — have continued to push towards fewer greenhouse gas emissions, net zero energy and environmental sustainability,” she said.

“Today is about orders of government working together for a vibrant and inclusive recovery. Solutions are possible and local governments are ready.”

As of 2017, all rezoning applications submitted to the City of Vancouver require projects to meet near zero standards or low emissions targets.

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Canadians’ ultimate ambition to own a home appears undimmed

Friday, July 29th, 2022

Canadians’ homebuying enthusiasm remains strong: report

Fergal McAlinden
other

News arrives despite growing concerns over interest rates

Even despite the affordability challenges of recent times – not to mention the current rising-interest-rate landscape – Canadians’ ultimate ambition to own a home appears undimmed, according to RE/MAX’s 2022 Housing Affordability Report.
That survey showed that 68% of respondents were willing to make at least one sacrifice to purchase a home within their price range, with just under two thirds (64%) indicating that they would be prepared to relocate to achieve that dream.
A willingness among many Canadians to cast a wider net to secure an affordable property is perhaps little surprise: among those surveyed, 43% cited high real estate prices in their area as a barrier to purchasing a home, while higher living costs, an unpredictable market and interest rate hikes also figured prominently.
For Christopher Alexander (pictured top), RE/MAX Canada’s president, the report affirmed that Canadians’ enthusiasm for housing remains as strong as ever, even despite rising borrowing costs and the recent rapid cooldown across the market.
“It just shows how far Canadians are willing to go to own real estate, and this desire runs as deep as ever despite all these changes,” he told Canadian Mortgage Professional.
“Canadians are really into buying real estate – which is a good thing. Traditionally, it’s been a really good wealth creation vehicle.”
Read next: Is Canada’s urban exodus on the wane?
Despite the willingness of many Canadians to relocate, survey respondents appeared split on how far they’d be prepared to move to purchase a home. Half said the furthest they’d travel would be less than 100 kilometres, although 38% said they would move to a different city, province, or region regardless of how far it was from their current location.
That shows that many Canadians remain wedded to their local environment despite the surging trend of interprovincial migration over the past two years, Alexander said – perhaps partly because of work considerations with offices and workplaces having reopened and fully-remote arrangements no longer possible in many cases.
“If you bought out of province and your employer’s asking you to come back to the office, it’s almost impossible to commute, even if it’s a couple of days a week,” he said. “All the affordability advantages you gained by moving to a less expensive area or community, you would lose if you had to fly in every week.”
Among the hurdles that Canadians said prevented them from entering the housing market, concerns over rising interest rates had climbed to 24%, an increase of 6% over last year, in a clear indication that the Bank of Canada’s rate hikes are looming large in many would-be buyers’ minds.
RE/MAX said in its report that while the record-low-rate environment of recent years had heralded an “excellent opportunity” for Canadians to enter the housing market, they had also added further intensity to a market that was already seeing high levels of activity.
As inflation surges and the Bank of Canada embarks upon some of its largest rate hikes for years, the report said that 57% of Canadians have now decided to wait to either buy or sell a home with speculation about a possible recession gathering pace.
Read next: Canadians’ debt concerns surge amid rising rates
Banking giant RBC said in a recent report that rate hikes, labour shortages and worsening inflation were all set to weigh heavily on the Canadian economy and push it into a “moderate” recession next year.
While the jobless rate is set to rise, the report said it would be to a “less severe” extent than in previous downturns – and added that higher rates were necessary to curb the threat of inflation.
The market typically takes some time to adjust when rates rise as prospective homeowners wait to see what they can afford under new scenarios, Alexander said.
Still, with the country’s longstanding housing inventory shortage continuing, he said he expected a busy market to resume as soon as the central bank has reached the endpoint of its plans for further hikes.
“When there are consistent rate hikes, that is concerning because people need time to adjust and historically speaking it takes them a little bit to understand, ‘OK, now I don’t have as much buying power, what’s my next move?’” he said.
“With continual rate increases, and a fast [pace] of increases, that is going to potentially pose challenges. But once things settle down and the market adjusts, I think because of our supply challenges it’s going to get competitive again.”

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Long-term growth is expected to continue despite fears surrounding higher interest rates

Thursday, July 28th, 2022

Survey: Home prices remain on a strong growth trend

Ephraim Vecina
other

Increases were particularly notable in suburbs and smaller communities

While interest rates have been on the rise for the past few months, the Canadian housing market continued to see price growth during the first six months of this year, according to the latest “Price Per Square Foot” survey by CENTURY 21 Canada.

The increases were particularly notable in suburbs and smaller communities outside metropolitan centres, spurred by a flight from the mounting unaffordability of the Greater Toronto Area and Greater Vancouver regions.

“While some markets have cooled after the boom that occurred during the COVID-19 pandemic, prices overall have continued to remain elevated for the start of the year,” CENTURY 21 said.

Long-term growth is also expected to continue despite fears surrounding higher interest rates.

“The highest point of the boom may have passed, but the trend is still towards higher prices, especially in suburbs where younger and first-time home buyers are looking to escape competitive metropolitan areas now that remote work has become more common,” said Brian Rushton, COO of CENTURY 21 Canada.

Read more: Cancelled projects bode ill for housing affordability, says CIBC’s Tal

Rushton said that more volatility is not out of the question as the full impact of rate hikes will become clearer as the months go on.

“What will be interesting is to compare the data we’ve received from the first half of this year with the data we gather in 2023 to see how the rising rates impact the market for the next six months,” Rushton said.

“We don’t want to get ahead of ourselves, we’re going to keep seeing how the market performs and whether or not it cools down after the frenzy of the past year. With inflation on the rise, folks may be less able to purchase but even a slight dip would only take us to the level of a few years back, possibly the 2018-2019 period.”

New development proposal for downtown Kelowna has been turned down by city council

Wednesday, July 27th, 2022

Kelowna says ‘no for now’ for three-tower downtown development

Wayne Moore
Western Investor

City council has turned down a proposal for a massive development on Coronation Avenue – but leaves its options open

A massive three-tower development proposal of Safari Capital that would redefine Coronation Avenue in downtown Kelowna has been turned down by city council.

At least for the time being.

The proposed development includes towers proposed to reach 33, 27 and 20 storeys in height situated atop one long podium stretching across a land assembly of more than a dozen properties.

As it did with a proposed 46-storey tower on Bertram Street 18 months ago, planning staff brought this plan forward for “early consideration” by council before staff and the developer invest more resources and money into a project planning manager Terry Barton calls a complex file that “sits well beyond our existing policy framework.

The overall development would feature more that 700 units, including two towers of market rental units and some condominium units.

It would also include an 85-room hotel and some ground floor commercial.

Barton says planning staff did not support the project because of the overall height, density and negative fit within a more low-rise neighbourhood.

Barton also called the project, “premature,” saying there are still so many unknowns, development-wise, in the downtown area.

He said it was staff’s view the project was largely predicated on the University of
British Columbia Okanagan (UBCO) tower which is “not approved, not built and not operating.

If UBCO is built, if Kerkhoff’s building [35 storeys] is built, if Mission Group’s rental tower at 17 storeys is built on Bertam, if some of the other tower proposals come forth and we are talking five or 10 years down the road, does this proposal make more sense – potentially,”

Coun. Luke Stack said he believed the development was too much for the site, specifically the single podium that would run the entire length of the development. He also suggested it would signal too much of a shift from the new Official Community Plan.

While council agreed with staff, they also left the door wide open for the developer to come back with something different at a later time.

“I really like this project, but I think it’s beyond where it needs to be,” said Mayor Colin Basran.

“I really encourage you to work with our planning staff because a consolidation like this doesn’t come along very often.

“We have a unique opportunity here that can be a win-win scenario, but I don’t think we are quite there yet.”

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