What the Bank of Canadas’ full percentage point hike means for the housing market and your mortgage

Stephanie Hughes
The Vancouver Sun

Surprise 100-basis-point increase will likely put the squeeze on homeowners’ budget
The Bank of Canada has hiked its benchmark lending rate to 2.5 per cent from 1.5%. It’s expected an increase of this size will turn up the pressure on Canada’s cooling housing market. Photo by Cole Burston/Bloomberg
The Bank of Canada’s surprise move to hike its policy rate by a full percentage point — with no indication it will stop there — will add to the financial squeeze faced by indebted homeowners and likely push more buyers to the sidelines of already cooling real estate sector, market watchers said Wednesday.
The move, which sent a statement about the central bank’s resolve in combatting inflation, brought the policy rate to 2.5 per cent and came in higher than the 75-basis point hike most had expected.
Industry experts expressed shock at the size of the move.
James Laird, Co-CEO of Toronto-based mortgage brokerage Ratehub.ca, said he was initially taken aback by the move until he considered the Bank’s language leading up to the decision, reiterating the need to “act more forcefully” to bring inflation down.

Laird said the oversized hike could put further downward pressure on cooling real estate markets across the country and push balanced markets across many regions to move toward buyer’s market territory.
Housing markets have been cooling off rapidly since the prospect of a rate hike cycle pulled demand forward into the latter parts of 2021 and the first months of 2022, ahead of the Bank’s first hike in March.
Laird said that with a hike this large, some Canadians who have purchased at the height of the pandemic may be underwater, but Canadian families are viewing their properties more as a home rather than an investment vehicle.
“There’s not as much regret as you might think,” he said. “People are generally happy to be in a place and be able to focus on other parts of their lives because the first-time homebuyer journey (is) so challenging.”
Ron Butler, mortgage broker and owner of Toronto-based brokerage Butler Mortgage, wrote in a tweet that prime rates and the cost of home equity lines of credit are moving up in a big way.
“Huge 100 bps increase … means bank prime is now 4.70 (per cent) and most HELOC rates are 5.20 (per cent),” Butler tweeted moments after the announcement. “The purchase of a rental property accessing a HELOC on an existing property for down payment is simply becoming unmanageable.”

Butler added that he expects home prices to decline steadily as a result, but that the Bank’s hawkish language means there could be more to come.
“Now our attention switches to the September prime rate announcement. Yep … this can and likely will gets worse in six weeks.”
The Bank of Canada has already delivered three rate hikes since March: one 25-basis point increase followed by two 50-point hikes. The increases, coupled with strong messaging from central bank Governor Tiff Macklem telling Canadians to expect interest rates to rise further this year, have been working to cool housing markets across Canada —particularly in major cities.   

Toronto home sales plunged just over 41 per cent in June compared to the same month a year ago while Vancouver saw its sales slip 35 per cent in the same timeframe. Home prices have been declining at a slower pace in both markets since early in the year. The market slow-down has been largely taken as a sign that prospective home buyers are treading more cautiously.
For Canadians who have already pulled the trigger on buying a home, rate hikes have been making mortgages more expensive and a full percentage increase will further weigh on household balance sheets. Canadians with a fixed-rate mortgage will not see changes to their payments until their mortgages comes up for renewal.
However, variable-rate mortgage holders can expect to feel the pinch within a few months. A recent report from the Canada Mortgage and Housing Corporation found that more Canadians have been piling into these kinds of mortgages during the pandemic, driving variables’ share of the market above 50 per cent.

A Canadian with a mortgage loan amount of $500,000 with a current variable rate of 2.85 per that amortizes over 20 years would have a monthly payment of around $2,735.
After a full percentage point hike brings that variable rate up to 3.85 per cent, the monthly payment would jump to $2,990. This means a Canadian in this situation could be paying $255 more a month or approximately $3,060 more each year.
Assuming an average variable rate of 1.60 at the start of the year, the combined cost of this year’s rate hikes would be approximately $554 more per month or $6,648 per year.

© 2022 Financial Post

 

Peter McCartney: Millions of new homes could make or break response to climate crisis

Peter McCartney
The Vancouver Sun

Opinion: Regulators need to be willing to set strict green building codes that come into effect now, not after these millions of new homes already exist

Construction cranes tower above condos under construction near southeast False Creek in Vancouver. Photo by DARRYL DYCK /THE CANADIAN PRESS
Canada’s foremost authority on housing has thrown down a gauntlet that will shape this country for decades to come. How it plays out could also have an enormous impact on the planet.
There are just over 16 million homes in Canada. By 2030, building at current rates, we’ll reach 18.59 million. According to the Canada Mortgage and Housing Corporation, to achieve any level of affordability we’ll need an additional 3.5 million by then. That’s a total of six million new homes.
Whether these homes come in the form of sprawling subdivisions or compact communities will determine if Canada succeeds in meeting its climate goals and safeguarding the natural world.
If all this new construction paves over wetlands, forests and fields to build endless cul-de-sacs that force everyone to drive a car, it will lock people into a polluting lifestyle.
A better path involves a total rethink of our communities to include more new neighbours, more green space and more public transit so all this new housing can actually help fight climate change. A recent U.S. study found that doubling the population density of an urban area cuts carbon pollution from household travel almost in half.

Transportation is second only to the fossil fuel industry in terms of Canada’s carbon pollution. Buildings, mostly due to gas furnaces and boilers, come up a distant third. While electric vehicles are better for the climate, they still take up valuable resources, space and money. Our best solution to reducing transportation emissions is to make it possible for most Canadians to take public transit, walk, roll or bike to work, instead.
Frequent transit service requires significant ridership. Meanwhile, we have millions of new homes to build. Putting them in existing neighbourhoods would enable both current and future residents to ride the bus instead of driving. Unfortunately, even in bustling cities like Vancouver and Toronto, the vast majority of the land is still reserved for single-family homes.

In these places, the solutions seem obvious if not inevitable. Build towers on top of subway lines and upzone the rest of the city for mid-rise apartments. That would create a whole lot more homes close to where there’s already pretty effective transit.
But what about communities built since the advent of the cul-de-sac? How does a place like Calgary or Kitchener or Abbotsford make taking the bus a viable option?
Picture a typical neighbourhood built around a modern strip mall. There’s usually a grocery store, a pharmacy, a bank, a dentist’s office, and often a chain restaurant or a local pub. In larger centres, you’ll also find a movie theatre, a few big box retailers and some fast food restaurants. But look on a map, and most of what you’ll see is parking. Much of the prime real estate in our cities is currently used to store people’s vehicles.

If you want to encourage transit use and build more homes, replace these spacious parking lots with apartments. They don’t necessarily need to be highrise towers, although some certainly should be, but even six storeys on top of ground-level retail shops would add thousands of new neighbours, customers and transit-riders to an area. Allow the surrounding single-family homes to slowly convert to multiplexes or townhomes, and you’ve got yourself a vibrant community and enough people within walking distance to justify a new major rapid transit station.
Regulators also need to be willing to set strict green building codes that come into effect now, not after these millions of new homes already exist. This means banning gas connections, requiring less polluting materials, designing for passive heat and cooling, and ensuring far better insulation. Having these measures come online in the 2030s, once we’ve already built millions of new polluting buildings, would be a catastrophic failure of climate policy.

Given the urgency of the many crises we’re facing, we cannot afford to tackle them one at a time. Our solutions to the housing crisis must also help us respond to the climate crisis. If we just keep building polluting homes and neighbourhoods, they will only wind up underwater or up in flames eventually.

© 2022 Vancouver Sun

Bank of Canada interest rate hike turns up heat on Metro Vancouver rental market

Derrick Penner
The Vancouver Sun

“The Vancouver market was already in crisis. This (rate increase) just heightens it even more.” – Paul Danison, content director Rentals.ca.

“The Vancouver market was already in crisis. This (rate increase) just heightens it even more.” — Paul Danison, content director Rentals.ca. Photo by Jason Payne /PNG
The Bank of Canada’s surprisingly steep interest rate increase Wednesday has the potential to turn up the heat on Metro Vancouver’s already stressed rental market, analysts agree.
Bank governor Tiff Macklem raised the institution’s key overnight lending rate by a whole percentage point, the biggest single increase since 1998, putting it at 2.5 per cent, as an inflation-fighting measure.
The expectation is that the higher rate will push up mortgage rates, making it harder for households to make the jump from renting into home ownership. And it will keep a lot of households in rental accommodations in Metro Vancouver’s already tight market.
“It’s hard to imagine anything more competitive than the rental market right now, and this (rate increase) obviously adds more stress to the market,” said Paul Danison, content director for the market website Rentals.ca.
Rentals.ca just published its latest rental report, which found that Vancouver posted the highest average asking rents in Canada, $2,412 a month for a one-bedroom apartment — up 19.17 per cent from the same month a year ago and $3,597 per month for a two-bedroom on average, which is up 26.5 per cent.

“The Vancouver market was already in crisis,” Danison said, with vacancy rates in the one per cent range for many communities and inflation depleting consumers’ pocketbooks. “This (rate increase) just heightens it even more.”
Wednesday’s rate increase won’t make “a huge difference” for buyers trying to qualify for mortgages now, said Deb White, president of the Mortgage Brokers Association of B.C., though her members are definitely seeing more buyers sitting on the sidelines.
Property sales in the Greater Vancouver Real Estate Board in June fell 35 per cent from the same month a year ago. In the Fraser Valley, they were down 43 per cent.

“The next rate hike will definitely hurt,” White said.
Bank of Canada rate increases are usually an effective way to tamp down inflation, said Sauder School of Business economist Tsur Somerville.
As home sales slow down, so do housing starts, renovations on existing homes and the purchase of household appliances.
“So it’s a very effective mechanism for slowing the economy,” said Somerville, a senior fellow in the Sauder School’s centre for urban economics and real estate at UBC.
“Historically, we haven’t read about what that meant for renters because usually there’s enough slack in the rental market, like normal levels of vacancy,” that would still leave space for people who can’t move into ownership as well as new tenants moving into the rental market.

Somerville added that a slowdown in housing sales typically triggers a slowdown in the rate of household formation that creates rental demand. Even if that happens now, it will be offset by Canada’s high rates of immigration.
“What it suggests is that this could actually worsen rental-price inflation,” Somerville said.
Metro Vancouver did add a net 1,500 new purpose-built apartments to its market in 2021, and a welcome increase in their numbers over the last five years, said Eric Bond, an economist and senior specialist with the Canada Mortgage and Housing Corp.
“That was quite an important increase when you consider, say, 10 years ago that we were losing rental units on a year-by-year basis,” Bond said.
“But we do need more in order to address higher rental demand that we’re seeing in the market,” Bond said. “Home ownership is becoming less accessible (which) contributes to rental demand as well, so more supply will help address that imbalance.”

© 2022 Vancouver Sun

Will there be a Canada housing market crash?

Fergal McAlinden
other

TD economist outlines what the future holds
TD’s latest Provincial Housing Market Outlook, released at the end of June, projected that home prices in Canada are set for a further fall in the current rising-rates environment, with a 19% peak-to-trough decline anticipated between the first quarter of this year and Q1 2023.
That report indicated little prospect of an overall housing market meltdown, noting that home prices are likely to grow modestly after 2023’s first quarter with “some recovery” expected in national housing demand.
Indeed, far from a crash, what’s in store for Canada’s housing market is best described as a “recalibration,” the author’s report, economist Rishi Sondhi (pictured top) told Canadian Mortgage Professional.
While home prices across the country will continue to moderate, they’re still set to remain significantly higher than they were at the beginning of the COVID-19 pandemic in March 2020, he pointed out.
“There’s a 19% peak-to-trough decline baked into the forecast – that only partially retraces the near-50% increases that we saw over the course of the pandemic,” he said. “So, it’s more of a recalibration.”
Perhaps inevitably, home sales and price deterioration are likely to be most pronounced in the British Columbia and Ontario markets, traditionally the country’s two hottest regions for real estate.
Alberta is expected to see a significant cooling-off from the record housing market highs of recent times – although it probably won’t rival BC and Ontario in terms of the extent of price and activity declines, Sondhi said.
Read next: Residential mortgage debt continues to surge, says CMHC
“It could surprise a few people that prices are falling there given that affordability is still quite good and that market was experiencing falling prices for several years,” he said. “You’d expect it to be one of those markets that could absorb fires and still do OK from a price perspective. But the level of activity got so far ahead of itself in 2021 – it’s correcting from extremely elevated levels of activity.
“That’s kind of behind the price decline there. But again, markets are quite a bit tighter in Alberta than they are in BC and Ontario for sure. So even if there is a price drop, we don’t think that it’s going to be as severe as the other two jurisdictions.”
Another noteworthy housing market trend this year has been that prices did not fall in Quebec between February and May, Sondhi said – something of a surprise, considering that affordability deteriorated there to a significant degree (although not as much as in Ontario and BC).
“One would expect downward pressure on prices in that market, which to a large degree hasn’t really materialized yet,” he said. “But that doesn’t mean that it won’t.”
Rising interest rates have been some of the main reasons for the overall slowdown in Canada’s housing market this year, and the Bank of Canada looks set to pour further cold water on sales activity in its decision today (Wednesday, July 12) on its benchmark rate.
An oversized rate increase, which would mark the central bank’s fourth consecutive rate hike of 2022, is widely anticipated, with a consensus emerging among leading economists that a three-quarter-basis-point raise is in the cards.
Read next: Bank of Canada – could it pause rate hikes as market slows?
To date, the Bank has increased its benchmark rate by 0.25% and in two half-point hikes in its previous three announcements. A three-quarter-point hike would replicate the last decision made by the US’s Federal Reserve, which increased its own policy rate by 0.75% in response to surging inflation.
A housing market slowdown almost certainly won’t cause the Bank to change its approach on its rate-hiking trajectory, Sondhi said, although higher rates and monthly mortgage payments will have an impact on other sections of the economy.
“Canadians [who are] highly indebted are probably more sensitive to rising interest rates,” he said. “What that has to do with the housing market is that they’re carrying a lot of mortgage debt. That’s another channel through which the housing market could flow through to other [areas], and slow economic growth.
“Our base case is that inflation is going to remain elevated. It’s inflation that [the Bank is] worried about. Not only would it take a downturn in the housing market, but it would take significant spillover to other parts of the economy, and slower than anticipated overall economic growth, for them to sort of change course.”

Copyright © 1996-2022 Key Media, Inc

No cause for panic on variable rates, says industry expert

Fergal McAlinden
other

Variable rates are expected to increase again after Wednesday’s Bank of Canada announcement
The surging popularity of variable-rate mortgages continued in the second half of 2021, according to new data from the Canada Mortgage and Housing Corporation (CMHC), in a finding that will come as little surprise to the nation’s mortgage brokers.
A majority of Canadians preferred variable mortgages in the final six months of last year, the crown corporation indicated, with the popularity of those options rising by 19% (from 34% in the first half of the year to 53% in the second).
Still, although that trend continued into the early months of 2022, it appears to have “plateaued,” CMHC said, as interest rates started to rise.
Variable-rate holders are expected to face another sizeable increase to their monthly rate after Wednesday (July 13), with another oversized rate hike by the Bank of Canada – probably by 0.75% – seemingly on the way.
That would represent the Bank’s largest single rate hike of the year to date and the fourth consecutive increase to its benchmark rate. However, while it would also mean higher monthly payments for variable-rate holders, it’s unlikely to make those mortgages unaffordable for the majority, according to a prominent mortgage broker.
Leah Zlatkin (pictured top), LowestRates.ca expert and licensed broker, told Canadian Mortgage Professional that variable-rate holders would have been stress-tested at a level of either 4.79% or 5.25%, meaning that with the prime discount on their mortgage, their payments would still be lower than they had been tested at.
Read more: Residential mortgage debt continues to surge, says CMHC
Canada’s prime rate currently sits at 3.70% and would rise to 4.45% with a three-quarter-basis-point hike to the central bank’s benchmark rate on Wednesday.
That said, the country’s present uncertain economic climate could pose challenges in the future. Canadian unemployment fell to a record low of 4.9% in June, a record low – but the economy lost 43,000 jobs and observers including RBC have sounded the alarm on a likely recession in 2023.
That recession will probably be “moderate and short-lived,” RBC has indicated. Still, potential job losses are a more potent cause for concern than rate hikes, Zlatkin said.
“For somebody who experiences a change in their employment status, that’s when you need to worry,” she said. “You don’t really need to worry just based on rates going up. That’s not something that’s going to be [hugely] concerning for people.”
There is one homebuyer segment that Zlatkin said should be paying particular attention to the central bank’s action on rates: those who were preapproved at the previous rate before the Bank’s impending change.
That’s because the stress test requires borrowers to be tested at either 5.25% or their contract rate plus 2%, whichever is higher. With future hikes likely to bring variable rates close to 4%, that means a borrower who was preapproved at 5.25% may now have to qualify at closer to 6%.
“If somebody was preapproved at 5.25%, their budget might be $500,000 for what they can afford in a mortgage,” she said. “The change there is going to be that if rates go up, that same person may only get approved for [a lower amount].
Read next: Bank of Canada – could it pause rate hikes as market slows?
“For those people who may have a preapproval in their hand who are going out bidding on a house, you’ve got to really watch out if you’re going in firm around the 13th, or even those two weeks after.”
CMHC’s findings were revealed in its biannual Residential Mortgage Industry Report, which showed that borrowers had swayed toward variable-rate mortgages as discounts on those options surged.
The share of mortgages with variable interest rates plummeted between 2019 and 2020 as the discount narrowed – but that figure has crept upwards since, and with the discount on variable rates hitting close to 1.25% by the end of 2021, Canadians’ interest in those options soared.
Variable rates usually rise and fall in tandem with the Bank of Canada’s trendsetting interest rate, which the central bank slashed to a rock-bottom 0.25% as the COVID-19 pandemic took hold in March 2020.
It kept that rate resolutely low throughout nearly two years of the pandemic but increasingly signalled that rates would need to rise as inflation began to grow.
It introduced its first rate hike of the year at the beginning of March, increasing its benchmark rate by a quarter point, before announcing two further hikes of a half point each in its next two policy rate decisions.

Copyright © 1996-2022 Key Media, Inc.

Demand for retail space is bouncing back in some Vancouver neighbourhoods: report

Joanne Lee-Young
The Vancouver Sun

Louwella Malda and Kyle Roberts launched The Filipino Noodle Joint in a mall on Keefer Street in Chinatown that has one of the highest 
vacancies in an especially hard hit area.
Louwella Malda, a co-owner of The Filipino Noodle Joint at Chinatown Plaza, which has a high vacancy rate. She is trying to bring in customers with a fun and lively Instagram presence. Photo by Francis Georgian /PNG
The retail landscape has been one of boarded-up windows, double-digit vacancy rates and discussion of empty store taxes, but now there’s talk of a few green shoots.
One commercial real estate broker is homing in on specific blocks of streets to see where there are tight vacancy rates and why. Meanwhile, some hardy entrepreneurs have started new businesses far from these locations and are trying to buck the trend by drawing online customers.
A few months ago, Louwella Malda and Kyle Roberts launched The Filipino Noodle Joint in a Chinatown mall on Keefer Street that has one of the highest vacancy rates with only about five of its 18 shop spaces occupied. Some customers live in nearby condos, but the couple is focused on enticing others with a lively Instagram presence that features giveaways, contests and fun videos of bubbling spaghetti sauces and freshly topped sisig bowls.
“We’re trying to create a presence,” said Malda.
Retailers are selling different products in slightly different ways and, beyond a physical store, they need to build awareness with an online base, said Madeline Nicholls, senior managing director at Colliers Vancouver.
“There is no doubt, a lot of retail has suffered and even, unfortunately, disappeared during the pandemic. It’s a great shame in many ways, but it has opened opportunities for a new wave of retail to come in. It’s important to acknowledge that, as much as there have been casualties, there are also opportunities,” she said.

Colliers recently looked at 13 retail areas in Vancouver to see where there is demand for retail space and why vacancy rates are lower even with many negative factors in the mix, including rising inflation, constructions costs and recessionary times.
“We looked at certain blocks on the streets, not entire streets,” said Nicholls.

On Robson between Thurlow and Burrard streets, there is still solid demand with the vacancy rate at only 2.2 per cent and median net rents between $180 to $240 per square foot a year. Photo by Jason Payne /PNG
In some areas, recovery has been uneven from one block to another. For example, on Robson between Thurlow and Burrard streets, there is still solid demand with the vacancy rate at only 2.2 per cent and median net rents between $180 to $240 per square foot a year. But one block over, between Thurlow and Bute streets, where a transition in tenants was been happening before the pandemic, the vacancy rate is much higher at 9 per cent and rents are lower at between $75 to $125 per square foot a year.
Overall, looking at these parts of the strongest retail streets in various areas of Vancouver, the Colliers index found that the average vacancy in these urban settings was a low 2.5 per cent.

“We are seeing from clients, both landlords and tenants, that there is demand for certain nodes that have foot (traffic) and are close to a higher density of residences.”
The lowest retail vacancies in Colliers’ index were posted from Kerrisdale at 0.0 per cent, Davie Village at 0.89 per cent, Cambie Village at 1.04 per cent and Yaletown at 1.3 per cent.
Main Street in Mount Pleasant from East Broadway to East 16th Avenue is an in-demand area with vacancies at 2.65 per cent and where rents before the pandemic were around $50 per square foot and now are in the $60 to $70 per square foot a year range.
Colliers notes that the downtown core, Chinatown and Gastown “suffered some of the largest swings in vacancy” during the pandemic and are still impacted by people working from home as well as a drop in tourism and conferences.

© 2022 Vancouver Sun

Bank of Canada decision: What’s next for the fixed-vs-variable debate?

Fergal McAlinden
other

Interesting developments could be ahead on a prominent debate in the industry

 The Bank of Canada’s next policy rate announcement, scheduled for Wednesday (July 13), is expected to see another oversized hike to its trendsetting interest rate – with a seeming consensus emerging that a 75-basis-point hike is likely.

That move, which would mirror a similar measure taken by the US Federal Reserve in June, would represent the single largest rate increase made by the Bank in 2022 and mark yet another step in the end of the record-low-rate environment that prevailed for the first two years of the COVID-19 pandemic.

It would also see variable-rate mortgage holders contend with another increase to their monthly payments in a trend that could have some interesting portents for the fixed-vs-variable question among homeowners and would-be buyers.

A 0.75% rate hike would see monthly payments increase by roughly $40 per $100,000 owed, according to RATESDOTCA expert and licensed mortgage agent Sung Lee (pictured top). That would mean an extra $200 on a mortgage size of $500,000, for instance, on top of the rate increases that have already taken place this year.

“For variable- or adjustable-rate holders, this isn’t the first time that they’ve had to make some sort of adjustment to their overall budget,” Lee told Canadian Mortgage Professional. “It definitely is adding up, and for those individuals that took variable but had pretty decent room for any kind of upward movement, I think they will start to feel the pinch.”

Read next: Variable vs. fixed – which rate has the upper hand?

After the Bank of Canada slashed its benchmark rate to 0.25% in response to the outbreak of the COVID-19 crisis, the popularity of variable-rate mortgages surged. Canada Mortgage and Housing Corporation (CMHC) said in its recently released Residential Mortgage Industry Report that 53% of Canadians opted for variable terms in the second half of 2021, an increase of 19% over the first six months of the year.

Variable rates are likely to remain a popular option even in the case of a 75-basis-point increase to the Bank rate – but some Canadians could also be taking another look at fixed rates even though they’re still much higher than variable options, Lee suggested.

“For those that were assuming the variable rates would stay lower for longer, they may want to consider what the fixed options are, if they want to convert,” he said. “Without really knowing where or how high the Bank of Canada’s going to go, there is a case to consider a fixed rate mortgage.

“The fact that [variable holders] had to make several budget adjustments throughout the course of the year, for someone to think about this happening potentially several more times over the short term – if that has them panicking, then converting it to a fixed and having just kind of a one-shot payment increase and being able to keep that for the next several years, if that helps them alleviate some of the stress, it might be worth considering.”

Another option for borrowers hoping to free up some cash flow might be speaking to their financial institution and exploring the options for stretching out their amortization. That’s not always the best choice, Lee cautioned, because most homeowners’ goal is to pay off their mortgage rather than extend it.

Read next: Variable rate mortgages in Canada – what will happen in 2022?

“But if someone is stretched so thin and if they’re at the risk of default, it might be worth considering that option, more of a temporary solution,” he added. “And then as rates start to turn the other way, they can still keep their payment where it is and then they’ll be able to shorten the amortization again.”

Flexibility and adaptability could be the name of the game for mortgage holders, particularly considering that rates rise and fall cyclically. Indeed, a new RBC report indicated that when inflation cools, rate hikes are likely to reverse – something that borrowers should be attuned to, according to Lee.

“One consideration could be if someone does want the stability, they could go with a shorter-term option, [for instance] a one- to three-year term on the fixed,” he said. “If there are some discounts out there, that might be a good solution so that when rates eventually do come down, then they can take advantage of going back to variable.”

With bond yields having recently dipped, that may provide room for some lenders to offer specials around the fixed rate to minimize the spread and create a more compelling offer – particularly considering other rumblings about variable-rate discounts shrinking. “The case for fixed rates might be a little bit more prevalent in the next little while,” he said.

 

Copyright © 1996-2022 Key Media, Inc.

Canada recession: It’s coming, RBC predicts, but how long will the downturn last?

Salarino Ho
other

Canada is headed towards a moderate recession, but the economic contraction is expected to be short-lived compared to previous recessions, economists with Royal Bank of Canada predict.

The Bank of Canada has been hiking its key overnight interest rate aggressively this year to combat skyrocketing inflation, which surged to 7.7 per cent in May, the fastest rise in nearly four decades and well above economists’ expectations.

With the central bank maintaining its two per cent target, more aggressive moves are expected this month and beyond to bring inflation down by 5.7 per cent. Economists are predicting a 75 basis point hike in July – mirroring the U.S. Federal Reserve’s move in June – and another 50 in September, a Reuters poll suggests.

The forceful strategy, in step with the U.S. Fed, has raised concerns that Canada is headed for a recession, with high borrowing costs leaving Canadian households carrying too much debt particularly vulnerable. Experts say lower income groups have the greatest exposure to the dual risks of inflation and rising interest rates.

According to economists, much of the inflationary pressures are coming from outside Canada, with energy and food prices soaring on the back of supply chain bottlenecks due in part to Russia’s invasion of Ukraine.

“Canada’s economic growth has fired on all cylinders following pandemic shutdowns,” said economists Nathan Janzen and Claire Fan in an RBC article published on Wednesday.

“But a historic labour squeeze, soaring food and energy prices and rising interest rates are now closing in. Those pressures will likely push the economy into a moderate contraction in 2023…Still, by historical standards, we expect the slowdown to be modest.”

Janzen and Fan said strong activity within the travel and hospitality sectors and higher commodity prices are helping to fuel a recovery, but a lack of workers is hampering businesses trying to expand. They note that while there were 70 per cent more job openings last month compared to the same time period prior to the pandemic, employers were competing for nearly nine per cent fewer workers in the job market.

“Soaring prices are cutting into Canadians’ purchasing power at the pump and the grocery store,” they said.

“As the economic contraction plays out next year, [the unemployment] rate will likely rise another one and a half percentage points to 6.6 per cent. These job losses will come at a time when Canadians are already grappling with higher prices and debt servicing costs, factors that have hit lower income households the hardest.”

Meanwhile, a report released on Tuesday by the Canadian Centre for Policy Alternatives (CCPA) found that over the last 60 years, the three times the Bank of Canada managed to reduce inflation by 5.7 per cent through a rapid and aggressive rise in interest rates, a recession followed. But economists at RBC and elsewhere have said there are few alternatives central banks can use to deal with inflation.

“The Bank of Canada now has little choice but to act,” Jazen and Fan wrote.

“Inflation has been too strong for too long and is starting to creep into longer-run business and consumer expectations. Higher inflation expectations can become self-fulfilling, making businesses more likely to pass on cost increases and consumers more willing to pay for them.”

Even without the interest rate moves, slowing growth and demand outside the country will weigh on Canada.

Despite these concerns, RBC believes the recession will be less severe than previous economic downturns.

“Global inflation pressures may soon peak,” the economists predict.

“Prices are still rising too fast and inflation won’t slow sustainably until demand falls. But once that happens, central banks will ease interest rates again…We don’t think it’ll take long to unwind that weakness in 2024 and beyond.”

 

© 2022  All rights reserved.

Affidavits for Shangri-La tower class-action lawsuit examine market values

Joanne Lee-Young
The Vancouver Sun

The case began in December 2015 when the lead plaintiff filed a notice of civil claim, alleging that defective glass windows were fogging, leaking and spontaneously breaking.

 The Shangri-La tower in downtown Vancouver. Photo by Francis Georgian /PNG

Lawyers involved in a class-action lawsuit over defective windows at Vancouver’s Shangri-La residential condo tower tapped real estate appraisers to assess how the market value of the building’s luxury units has been impacted by the problems.

 

There is no precise answer in the experts’ affidavits during this preliminary phase, but arriving at a conclusion about who is responsible for compensating any losses is the crux of a complicated case that dates back to 2015 and is set to be heard this fall.

The trial features one of Vancouver’s tallest towers, where the windows frame floor-to-ceiling ocean and mountain views and some of the city’s most expensive condos.

Subject to any appeals, the case is expected to take over 130 days.

Original buyers and current owners who bought a condo from an original buyer had until last week to opt out of the class-action lawsuit against the legal owner of the land, KBK No. 11 Ventures Ltd., the developer, 1100 Georgia Partnership, and its partners, including companies related to high-profile local groups such as the Peterson Group and Westbank Corp.

The case began in December 2015 when the lead plaintiff filed a notice of civil claim, alleging that defective glass windows were fogging, leaking and spontaneously breaking.

In an affidavit filed last year, businessman Amos Michelson, who has owned and lived in a penthouse unit of the building since 2009, said that several months after moving in, he noticed fogging in his windows that would last for hours and then several days, making it difficult to see outside. In total, three inner panes in his unit have spontaneously shattered. One that broke in 2017 sent pieces of glass into the pool of his unit and also onto a plaza area below, as well as into the hotel pool on the fifth floor.

As strata president, he was also aware of other instances in other units where insulating glass was fogging and shattering. He included various photos as exhibits.

In total, there are 307 residential units in the building that are part of two separate stratas. The various legal actions to recover costs under warranty from insurers and from developers, builders and contractors, have been merged into one class-action case.

Prospective buyers have questions about the situation and, in particular, the cost of dealing with it, according to real estate agents.

In one affidavit that is part of the class-action case, Neil Hahn of Garnett Wilson Realty Advisors, an accredited appraiser with the Appraisal Institute of Canada, reviewed all sales for the strata that covers the 234 units on floors 16 to 43 of the tower.

He compared prices for these sales to the Real Estate Board of Greater Vancouver’s Housing Price Index for residential apartment units in the downtown core. The index tracks changes in market values over time for a benchmark unit in a given area.

 

He found that, over time, sale prices for the Shangri-La units were below or underperformed those of the market as a whole.

“From a valuation perspective, the risk of a significant special assessment can impact demand and the willingness to pay from potential buyers,” he wrote.

He looked at 188 repeat sales, following units that were presold in 2004 or 2005 and then sold again sometime between December 2008, when the building was completed, and the end of 2021.

Figuring out how much an individual unit could have sold for, “absent the deficiencies,” at a given time would take further analysis.

In another affidavit filed last year before the class-action was certified, chartered business valuator Richard Crosson said while it is possible that an appraiser could come up with a single estimate for the decline in value for all units, it was more likely for units to be first grouped by size or other criteria and then assessed.

 

© 2022 Vancouver Sun

Province’s tech sector braces for downturn

Derrick Penner
other

American companies are getting hit hard, especially those involved in cryptocurrency
Sauder School of Business economist Werner Antweiler views the upheaval happening in technology industries as “the great filter,” a weeding out of flashy ideas such as cryptocurrency in favour of innovations built on delivering real products.
Tech companies have seen share values fall since the beginning of the year and cryptocurrencies such as Bitcoin have collapsed, wiping out billions of dollars in wealth that might otherwise have been used to fuel future growth in the tech sector, leading to fears about an overall slowdown.
“There’s a lot of hype in some of these industries, great promise of delivering value and the value never (showed) up,” said Antweiler, associate professor and chairman of strategy and business economics at the school. “So in that sense, that boom-bust cycle that we see in the world there is quite different from other technological sectors where it’s kind of like slow innovation, deploying technologies, commercializing applications.”
Antweiler believes B.C.’s tech sector might be somewhat isolated from the downturn with the number of startups here aimed at creating innovative products for the natural-resource sector and so-called green industries such as hydrogen, which are still attractive investments.
Companies, however, won’t be immune to the “shakeout” to occur, Antweiler added.
The tech news website Crunchbase has kept a rolling count of layoffs in the U.S. that added up to more than 24,000 as of June 27 among firms including Netflix, cryptocurrency platform Coinbase and electric-scooter firm Bird. Locally, Thinkific Labs Inc. cut 100 jobs, 20 per cent of its workforce in March, as a COVID-19-driven growth spurt in its business as a platform for delivering online education faltered, resulting in a $26-million loss.
There will likely be more, according to Vancouver-based tech entrepreneur Markus Frind, as some startup firms struggle to raise new rounds of financing.
“There are a lot of companies out there that could barely raise money when the going was good at the end of last year,” said Frind, who founded the dating website Plenty of Fish and turned to tech investment after selling the company.
“And a lot of these companies only have six to nine months of runway left at the end of (the first fiscal quarter).”
There is a “a massive valuation reset” happening among publicly traded companies, he said. “The private tech sector is in for a rough time as new rounds (of venture financing) get priced.”
Investors are definitely “taking a hard look at their costs” when making investments, said Jill Earthy, CEO of InBC Investment Corp., “and obviously staff and salaries are often a significant portion of overhead.”
However, Earthy said it doesn’t mean investment capital will evaporate altogether.
“We are seeing investors sort of, I would say, slow down their decision-making,” Earthy said, putting more of an emphasis on startup firms’ ability to generate revenue and potential profits.
The companies that stand to do well, Earthy said, are those that have grown steadily, haven’t been caught up in raising a lot of money for excessive growth plans and have a “more sustainable mindset.”

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