Home prices to turn negative for 2022 Royal LePage

Shantae Campbell
other

Vancouver unleashes plan to tame runaway house prices

Ari Altstedter
other

It’s one of the least affordable areas in Canada

Tucked between snow-capped mountains and the sparkling Pacific, with a mild climate and thriving cultural scene, Vancouver is a perennial contender for North America’s best place to live. It’s also the least affordable.

For 13 years straight, urban consultancy Demographia has named it the continent’s most expensive place for housing. The cost of owning a home in Vancouver, including interest payments on a mortgage, now sits at a staggering 90% of the city’s median income, according to the Royal Bank of Canada. Yet officials and experts couldn’t agree on the cause, let alone a solution.

Until now.

Suddenly, out of a municipal election, a consensus is forming: housing isn’t expensive because of foreign money sloshing into the city. The problem is simply that there aren’t enough homes. The answer: rezone and build more.

That could make the Oct. 15 vote a turning point not only in Vancouver but in cities across Canada and the US where the cost of housing has suddenly become an acute and seemingly intractable issue. In both countries, the majority of people own their homes and protecting their value has historically taken precedence over any other concern at the ballot box.

Home ownership in Vancouver stands at more than 60% and the fact that so many appear willing to risk their biggest asset is a sign of how desperate things have gotten. With similar battles playing out in so many cities, Vancouver could become a bellwether and precedent for how, and whether, a city can fix itself.

“If they actually achieve this rezoning, it will be a change that’s heard all over the US,” said Sonja Trauss, founder of a San Francisco housing advocacy group.

Vancouver Mayor Kennedy Stewart is running for re-election on a promise to pursue zoning changes and build 220,000 homes over the next 10 years. “If my vision wins, then I think you’ll see this kind of change in other municipalities,” he said.

Like virtually every other city in North America, record low interest rates and demand for larger living spaces brought by COVID-19 sparked a home buying frenzy. Prices spiked, followed by rents as a new cohort of people gave up on buying.

Though prices are now cooling, that hasn’t brought relief because mortgage rates have risen even faster. Last month, Royal Bank of Canada declared that it’s never been harder to buy a home in Canada. And greater Vancouver has had less improvement than other places, with benchmark prices down only 3.4% since February, compared to almost 9% in Toronto.

Elected four years ago on the barest of margins, Stewart doubled the rate of construction approvals and convinced a fiercely divided council to endorse a city plan that would rezone virtually every neighbourhood — many of them currently reserved for what are essentially single-family homes — to allow high rises near transit stations and small apartment buildings on residential streets.

But the city council needs future terms to implement these plans, and so Stewart is running with a slate of council candidates who support the measures.

A sign of the times is that even Stewart’s main opponent, local businessman Ken Sim, says he backs these steps, and the three sitting councillors running for re-election under his banner all voted for the plan.

In fact, there is only one major mayoral candidate running to repeal the new plan outright. The scion of a local political dynasty, Colleen Hardwick made her name as a city councillor by opposing or abstaining on most of the housing proposals that came to a vote in the last four years.

She says she’ll address the affordability crisis too, but rejects the whole notion of a supply shortage.

“They don’t know what they’re talking about,” she said of that theory’s proponents. “I’m giving you the analysis.”

In a 90-minute interview in her city hall office, Hardwick said that far from being the solution, rezoning to allow for more density is what’s raising land values and driving up home prices in the first place. She described a pyramid-scheme like situation that involves the city government coming to rely on windfalls from “upzoning” to fund its expanding budget.

Detractors of this argument say the high rents or prices those new units eventually command are a sign a lot of people want to live in them, justifying the land values. But Hardwick says prices and rents are so high because foreign investors are buying up units and leaving them empty.

This latter part of her argument dates back to an earlier era of Vancouver’s long housing debate. In the back half of the 2010s, amid a string of media reports about ghost mansions and multi-million dollar properties legally owned by income-less homemakers, the public came to lay blame for the housing crisis on foreign investors.

Politicians at both the municipal and provincial level created taxes targeting this kind of activity. But none of those policies helped lower rents or prices. Now most experts point to the relatively meager number of housing units they forced back on the market, or paltry revenues they generated, as evidence that foreign money was not a big part of the problem.

Hardwick disagrees and points to theorists like Andy Yan, the director of Simon Fraser University’s City Program. Yan doesn’t say foreign investors are causing the problem but argues Vancouver’s immigration and international connections provide ample avenues for real estate to be bought with money earned elsewhere.

Government data show a third of properties in the city are owned by investors, which he says is part of the reason home prices have detached from local incomes, and so much of what gets built is marketed to high earners.

“There is a supply issue in Vancouver, but it’s also shaped and influenced by demand,” he said, arguing policy makers should focus on raising local incomes and creating subsidized housing for the poor.

Hardwick, meanwhile, concedes the need for more density but not rezoning. She says adding duplexes that every residential lot is already zoned for will be enough and won’t require unsightly high-rise towers she believes would ruin the city’s famous charm.

But a September drive through the tony west Vancouver neighbourhoods with the most to gain from Hardwick’s proposals showed few lawn signs supporting her. More numerous were those for Sim, who, in the latest survey, has overtaken her for the number two position behind Stewart.

In a conversation with one residents association opposed to the new city plan, the members didn’t bring up Hardwick much, even though her positions most closely resembled theirs. Instead they seemed to be holding out hope Sim would be more sympathetic than Stewart. That in itself may be a sign of change.

Hardwick’s outlook is derisively called NIMBY — Not In My Backyard — a description she rejects. Those on the other side have adopted the opposing name of YIMBY — Yes In My Backyard.

Beginning in San Francisco, the YIMBYs have gained momentum but mostly through shifting power from municipal to state governments to make the hard decisions. If Vancouver’s politics embrace this change, that could show cities how to do it all by themselves.

“That would be a very strong rebuke to the idea that talking about single family zoning is a third rail in politics,” said Stuart Smith, who’s been a YIMBY activist in Vancouver since 2016.

 

Copyright © 1996-2022 KM Business Information Canada Ltd.

Vancouver fends off ‘zombie’ towers spooking U.S. cities

Frank O’Brien
Western Investor

Core office towers are going dark from Manhattan to San Francisco as employees prefer working from home – but Vancouver has so far dodged the downturn

Vancouver is performing better than most downtown office markets, though sublease space is edging up. | Chung Chow

San Francisco property owners are concerned about the possible collapse of the California city’s commercial real estate market as 24 million square feet of office space has gone vacant since the COVID-19 pandemic began, according to a recent survey by MyElisting, a Texas-based commercial leasing platform.

In the heart of Manhattan in New York City, blocks of office buildings stand virtually vacant and staring into an uncertain future: too old to attract fickle tenants, too new to be demolished and too expensive to be left empty, the report found

MyElisting said it relates to the reluctance of workers to return to the office – and adds that the situation could worsen as office leases signed prior to the pandemic come due and tenants refuse to renew.

U.S. cities with near record-high office vacancy rates include Houston at 18.8 per cent, Dallas/Fort Worth at 17.5 per cent, and Washington D.C., Chicago and San Francisco, which were all above 15 per cent in Q3 2022.

San Francisco saw  its office vacancy rate increase from 6.28 per cent in Q1 2020 to 15.45 per cent in Q3 2022. Some of the city’s office tower owners have attempted to bail out without success.  Wells Fargo purchased a 14-storey office building on California Street in downtown San Francisco 17 years ago, paying $324 per square foot.

“After putting the building on the market earlier in 2022, bids came in at 60 per cent to 70 per cent under what the building would have sold for in 2019,” said Nate Barber, a digital specialist with MyElistings. Wells Fargo has since taken it off the market.

“Some commercial buildings purchased at peak market prices are now abandoned, with few prospects for a profitable future,” he added.

“These have been nicknamed zombie buildings,”  said Barber, whose company handles leasing on more than 120,000 U.S. commercial properties.

 A 2022 study by professors at Columbia University and New York University estimated that lower tenant demand because of remote work may cut 28 per cent, or $456 billion, off the value of offices across the U.S. About 10 per cent of that would be in New York City, where the Manhattan vacancy rate is now 22.5 per cent, up 160 basis points from Q3 2022.

Vancouver

While some analysts say higher office vacancies due to remote and hybrid workers is a global phenomenon, Vancouver has apparently dodged the zombie invasion.

So far, at least.

“Our office is completely full,” said Paul Sullivan, a property tax expert and appraiser at Ryan ULC, which has a full-floor office on West Pender Street, Vancouver, with a 40-person staff.

Despite the expansion of hybrid and remote work, Thomas Davidoff, a professor at the University of B.C’s Sauder School of Business, said “Vancouver is not seeing the panic of San Francisco.”

Sullivan believes that Vancouver’s downtown offices will continue to retain and attract tenants, but there are signs that headwinds are building, according to a Q3 2022 report from NAI Commercial.

In the second quarter this year, downtown Vancouver office absorption went negative by 360,910 square feet, NAI found. As of Q3, the vacancy rate increased to 11.5 per cent, up from 9.5 per cent a year earlier and from 11.2 per cent in the second quarter 2022.

This translates into more than three million square feet of vacant office space downtown.

Newer A-Class office towers are performing the best, with the vacancy rate dropping to 10.5 per cent, down from 11.3 per cent in the second quarter.

In comparison, the B Class vacancy rate increased to 12.4 per cent and Class C space has shot up to 14.6 per cent, according to NAI.

“We can conclude that non-view space, or poorly improved space has become much harder to lease, with greater competition,” NAI cautioned.

Meanwhile, an increase in downtown subleases means that more leased space is being shoved back onto the market, now accounting for more than a quarter (26.3 per cent) of the vacant office space in the core.

“Many firms have decided it has been too long and [they have] adapted well to remote working and now it is time to try and recover on their redundant premises,” the NAI report concluded.

But Rob DesBrisay, managing partner, leasing and investment sales at NAI Commercial, said Vancouver has advantages that will keep zombie tower fears at bay,

“Vancouver is still a favourable city to live in, and our talent pool and low 70-cent dollar makes it an attractive city for larger firms to have a presence. I don’t think we will see the vacancy hit San Francisco levels. You will see tenants starting to have more options and move up in building class. The good news is Vancouver landlords tend to be nimble,” DesBrisay said.

 

© 2022 Western Investor

Edmonton Condo Values Holding Strong Despite Sales Trending Down

Daniel Crook
other

Unlike many other Canadian cities, Edmonton home prices have remained steady through September, despite a dip in sales across all housing categories, according to the Realtors Association of Edmonton. The average price of a home was $375,000, down just 0.7% year-over-year, while sales in the area saw a more significant decrease of 15.7% over last September.

Declining Number of Sales is Becoming a Trend

The dip in sales is nothing new as Edmonton has seen the number of sales decrease consecutively since April. In September there were a total of 1,581 residential sales, a month-over-month decline of 12.2% from August. Single-family homes continue to be the most popular option for buyers as 894 traded hands. Edmonton buyers, like many other buyers across Canada, are more hesitant to part with their money following five interest rate hikes so far this year. The rate hikes have heightened the cost of borrowing and are a major contributor to the slowing of real estate markets. As interest rates are expected to rise again this month, it’s possible this trend could continue throughout the fall.

• Read: Bank of Canada Announces Fifth but not Final Interest Rate Increase for 2022

A Rise In Inventory Could Bring More Buyers Into Market

Although sales have steadily declined, inventory in the city is improving. After reaching historic lows in the earlier part of the year, residential listings increased 1.7% over August 2022 and 3.7% since September of last year, for a total of 3,140 new listings in the Greater Edmonton area. “As we transition into the fall months, we’ve started to see an increase in the total number of homes available as people are looking to sell before the holidays,” says Realtors Association of Edmonton Chair Paul Gravelle. As more Albertans list their homes, we may see the prospective buyers that are sitting on the sidelines enter the market.

• Read: Variable or Fixed-Rate Mortgage? 4 Tips to Help You Decide Which to Choose While Interest Rates are Rising

 

Sellers: Condo Prices are Holding Strong

Average prices are holding strong, dipping just 0.4% month-over-month. Condos are still the standout property in the city, holding their value better than even detached homes. Month-over-month, condo prices have only dipped by 0.2% from $220,051 to $220,013. Year-over-year, the average price has decreased by 1.9% from September 2021. This is a great signal for prospective sellers that are considering listing their property. Although, be prepared for the property to spend a little longer on the market. Like with other dwellings, condos are sitting on the market a little longer, currently at an average of 56 days on market, up from 54 in August. Single-family homes have gone up by seven days over August to 44 and duplexes by eight to 45 total days on market.

• Read: Income Properties Available in Alberta Starting at $484,900

Other property types are also holding steady month-over-month; single-family home prices averaged $463,051, only a 1.1% dip from August. The largest decrease has been in the duplex market, decreasing by 4.3% to $375,923, but a strong year-over-year increase of 11.2%.

 

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Five things to watch for in Canadian business in the coming week

The Canadian Press
The Vancouver Sun

The Canadian Real Estate Association is set to release September home sales figures on Friday.

 An aerial view of housing in Calgary is shown on June 22, 2013. Photo by Jonathan Hayward /THE CANADIAN PRESS

TORONTO — Five things to watch for in the Canadian business world in the coming week:

 

New Alberta premier sworn in

Danielle Smith will be sworn in Tuesday, replacing outgoing Premier Jason Kenney after being named leader of the United Conservative Party (UCP) on Oct. 6. Two of Smith’s promises include challenging the federal carbon tax and a plan for an Alberta sovereignty act. Energy policy will need to address oil, natural gas, hydrogen, carbon capture and nuclear energy.

 

Aritzia earnings

The Canadian fashion retailer will report its second quarter earnings after the bell on Wednesday. In the company’s first quarter, profit surged 86 per cent to $33.3 million on a big jump in revenue.

 

Home sales

The Canadian Real Estate Association is set to release September home sales figures on Friday. Last month CREA cut its forecast for home sales for the year and lowered its expectations for price growth. The updated forecast came as CREA revealed seasonally-adjusted home sales in August totalled 36,914, down one per cent compared with July. The actual number of home sales amounted to 38,368, almost 25 per cent lower than August last year.

 

Manufacturing data

Statistics Canada will release its monthly survey on manufacturing for August on Friday. Manufacturing sales fell 0.9 per cent to $71.6 billion in July, the third consecutive monthly move lower. The agency said manufacturing sales were down in 12 of the 21 industries it tracks. The decline was led by the primary metal industry, which fell 9.9 per cent to $5.6 billion in July as both prices and volumes fell.

 

Wholesale trade

Statistics Canada will also release its figures for wholesale trade in August on Friday. Wholesale sales fell 0.6 per cent in July to $80.2 billion, led by a drop in the personal and household goods subsector. The agency said sales fell in five of seven subsectors, which represented 63 per cent of wholesale sales.

 

© 2022 Vancouver Sun

Housing market correcting, not crashing: RBC economist

Fergal McAlinden
other

Still, there’s some way to go before the downturn reaches its endpoint

 While home prices across Canada are projected to fall further into the early part of next year, the housing market is in the midst of a correction rather than a crash, according to a prominent economist.

Robert Hogue (pictured top) of RBC Economics told Canadian Mortgage Professional that declining home prices in many markets should be taken in the context of skyrocketing price growth in recent years, and that their future trajectory would vary significantly by market.

“Our view remains that what is taking place now is a correction that’s obviously at different speeds depending on which part of the country we’re talking about,” he said, “and it’s in large part reversing some of the excesses that occurred during the pandemic. That correction is not over, and still has more to come.”

That’s because the Bank of Canada is expected to continue hiking its trendsetting interest rate in the coming months, Hogue said, a development that would see variable mortgage rates increase in tandem. Still, although no uptick in the average national home price is imminent before the end of the year, it could arrive at some point in the next six or so months.

“Our best guess right now is that the bottom of the market will probably occur in the early part of 2023 in terms of activity,” Hogue said, “and maybe around the spring for prices – but that will likely vary market by market.”

Read next: “This too shall pass”: Executive talks challenges of current market

RBC expects that benchmark prices will have fallen 14% across the country by next spring, driven primarily by big drops in Ontario and British Columbia, while Canada’s national housing agency has also recently revised its forecasts for home price declines.

Canada Mortgage and Housing Corporation (CMHC) had initially said national housing prices could fall 5% by the middle of next year compared with early 2022 – although it now believes prices could be down as much as 15% by that time.

That’s primarily because inflation has proven stickier than initially expected, meaning Canada’s central bank has taken more aggressive action than anticipated, CMHC’s CEO Romy Bowers said.

Meanwhile, the country’s most prominent real estate body, the Canadian Real Estate Association (CREA), slashed its own home sales forecast and year-over-year price growth expectations in recent weeks.

It envisages a 20% decline in yearly sales and a 4.7% increase in the national home price over last year – a marked difference from its June projection that sales would fall by 14.7% and the national average price would grow 10.8%.

Canada’s independent budgetary watchdog also said at the end of September that home prices could potentially plummet by up to 23% from their peak this year with 11 of the country’s largest markets posting declines, although it noted these were possible scenarios rather than forecasts.

Nonetheless, Canada’s rapidly cooling housing market probably won’t give the Bank of Canada pause for thought on its rate-hiking trajectory, according to Hogue. That’s because inflation remains far too high – and the risk of inflation expectations becoming entrenched could create a “feedback loop” that proves hugely damaging for the economy, he said.

Read next: Is the Bank of Canada winning its war on inflation?

“I think the Bank of Canada is entirely focused on inflation at this point,” he told CMP. “That doesn’t mean that it’s not looking at what’s contributing to inflation and all the economic fundamentals and major sectors like housing – I’m sure it is, it looks at the housing market and other sectors very closely.

“But ultimately, right now, I think it is totally focused on… specifically inflation expectations, because the longer inflation stays higher, the higher the risk of households and businesses expecting inflation to continue to stay high.”

Some observers believe the Bank of Canada will move even higher on its benchmark rate than earlier envisaged in order to puncture inflation and bring down runaway costs of living.

The Organisation for Economic Co-operation and Development (OECD) now expects the Bank to hike its rate to 4.5% in 2023, belying the view among many economists that the rate would not surpass 4%.

That forecast arrives as the OECD also reduces its expectations for Canadian GDP growth next year by 11 basis points, with global economic indicators pointing to an “extended slowdown” according to its secretary-general Mathias Cormann.

 

Copyright © 1996-2022 KM Business Information Canada Ltd.

How can Toronto’s housing supply crisis be solved?

Fergal McAlinden
other

The city is facing a “critical shortage,” says real estate board president

 The ongoing housing market slowdown and lower demand shouldn’t distract from the “critical shortage” of homes available for purchase in the Greater Toronto Area (GTA), the president of the region’s real estate board has said.

Kevin Crigger (pictured), president of the Toronto Regional Real Estate Board (TRREB), told Canadian Mortgage Professional that the number of new listings in the GTA remained troubling, despite purchase activity having declined in recent months.

“If you look at any period where we’ve had changes in the market, whether they be regulatory or otherwise, we’ve seen periods where people sit on the sidelines and take a wait-and-see approach,” he said. “I think that certainly is the biggest thing contributing to a decrease in the number of transactions.

“But when you look at the number of new listings coming to market, we effectively are seeing a 20-year low. So despite changing market conditions, we still are in a market that is fairly tight in terms of supply.”

That will pose a challenge when the housing market eventually kicks back into gear, Crigger said, with a release of pent-up demand set to shine a light once again on the inventory shortfalls facing the Toronto region.

TRREB recently launched a campaign ahead of municipal elections on October 24 urging candidates to understand the importance of prioritizing affordable housing. The association wants candidates to address measures it says delay or prevent the construction of new homes such as lengthy approval processes and exclusionary zoning, as well as prohibitive development fees and land transfer taxes.

Read next: Toronto home sales plunge further in September

Excessive red tape is one of the most significant contributors to Toronto’s housing supply problem, according to Crigger, particularly at a municipal level.

“The municipal level is where supply is ultimately brought to market. Building permits are issued, the approval process occurs,” he said. “So there’s no level of government more impactful to the supply conversation than municipalities.

“Even speaking to mayors of major cities within Canada, I think you’ll see that there’s agreement that the lengthy periods now for approval, and the often-confusing process, is certainly not acceptable and is really exacerbating the problem.”

Streamlining development applications could help bring more inventory to the housing market – but it’s also important to focus on building the right type of homes he said, such as midsize developments, especially with most neighbourhood land throughout the city currently zoned exclusively for single-family homes.

Positive signs

Despite the grim outlook for housing supply facing Toronto, one positive is that “for the first time in memory,” it has become a key conversation at all levels of government, Crigger said.

“TRREB, for many years, has been sounding the alarm on supply-related issues while the government [was] focused on attempts at suppressing demand. And I think, finally, every level of government agrees that we have a substantial supply problem,” he said.

“It’s very encouraging to see that all levels of government understand the need for collaboration and, most importantly, that it’s a key policy objective at all levels.”

Read next: Where prices are set to rise (and fall) in Canada’s housing market

That said, the urgency of the problem is one that authorities have been slow to realize, with short-term solutions aimed at cooling demand having prevailed over decisive longer-term action in recent years, according to Crigger.

“Solutions that focused on sort of Band-Aid, short-term end results have had less than no effect on the overall market,” he said. “And unless politicians are willing to truly lead and govern and address supply head on, we’re going to have a worse and worse issue as it relates to not only ownership affordability – but also rental affordability.”

TRREB recently revealed new polling results conducted on its behalf by Ipsos that showed 71% of residents of Toronto and the “905” – the suburban area surrounding the city – want municipalities to focus on increasing housing and rental supply, instead of attempting to cool demand.

That’s an “incredibly important” number, Crigger said, especially ahead of the municipal elections at the end of October.

“I would encourage voters to look very closely at the platforms put forward, at policies put forward,” he said, “because definitely supply needs to be a key conversation to address concerns related not only to the ownership side of housing, but the rental side of housing as well – which seems to be less of a conversation.”

 

Copyright © 1996-2022 KM Business Information Canada Ltd.

East Vancouver 1.23-acre Trout Lake assembly sells for $23.8 million

Western Investor Staff
Western Investor

Surrey one-acre industrial with business sells for $10.35 million

Western Investor Staff
Western Investor

The 8,325-square-foot building holds a profitable welding and fabrication business in Port Kells, close to Trans-Canada Highway

Fraser Elliott, Vancouver, for Western Investor

 

Type of property: Industrial and with business

Location: 18697 96 Avenue and 18725 96 Avenue, Surrey, B.C.

Property size: 8,325 square feet (warehouse)

Zoning: Light industrial

Land size: 1.072 acres

List price: $11 million

Sale price: $10.35 million

Brokerage: Fraser Elliott, Vancouver

Broker: Fraser Elliott

 

© 2022 Western Investor

Langley 1.05-acre infill site sells for $2.9 million

Western Investor Staff
Western Investor

Development site in Willoughby’s Routley neighbourhood of Langley is designated residential bonus density 2, with potential for traditional and compact single-family units.

Frontline Real Estate Services, Langley, for Western Investor

 

Property type: Development land

Location: 19819 68 Avenue, Langley B.C.

Land size: 1.05 acres

Zoning: Designated residential bonus Density 2 in local Neighbourhood Plan

Potential: Compact single-family detached

Sale price: $2.95 million

Brokerage: Frontline Real Estate Services, Langley, B.C.

Brokers: Megan Johal, Adam Lawrence and Justin Mitchell.

 

© 2022 Western Investor