Rising Interest Rates Causing Shifts in Calgary Area Property Sales: CREB

Carrie Lysenko
other

 Across Canada, the real estate market has seen dramatic fluctuations from all-time price highs in early 2022 in the Greater Toronto and Vancouver areas to significant price drops due to the 300 basis point interest rate hikes by the Bank of Canada.  The Calgary area, however, has followed a bit of a different trend line.  Oil price highs this year have positively impacted sales in the region with August posting only a modest dip year-over-year (y-o-y) of -0.5% in volume but a more impressive combined y-o-y benchmark price increase of 11% across all property types.  Comparatively, sales volume in the GTA has dropped by 34% versus 2021.  Sales activity driving growth in Alberta, specifically the Calgary area, is seen especially in the apartment condominium sector which is providing more affordable housing options despite the higher interest rates.  

• Read: National Home Sales Hold Steady for First Time Since 2022 Peak: CREA

The Demand for Apartment Condos is Growing Rapidly

Apartment condo sales have increased a whopping 58% y-o-y in August 2022 and over 65% year to date in Calgary.  Month-over-month (m-o-m), sales increased by 2%.  While condo prices in August were relatively flat versus July, they have increased 10% y-o-y.  Price points for condo apartments, however, have yet to reach the peak set back in 2014.  

Detached homes in the area are falling a bit out of favour as national inflation is driving up the price of almost everything.  Sales of single-family homes continue to trend down versus July and post a y-o-y decline of 18%.  Prices have also trended downwards for detached homes since the high in May, however, the benchmark of $633,000 still records a 13% growth over 2021.  Demand for homes under the $500K mark is extremely high and there is an increasing pinch on supply at this price point.  Months of supply for all property types has dropped by almost 21% y-o-y and now sits at 2.24 months. This is 36% less than the national average of 3.5 months of property inventory.  With supply down, the average property days on market has dropped almost 17% y-o-y as demand and competition amongst buyers heats up. 

• Read: Hidden Gems for Sale in Edmonton, Alberta Under $325,000

 

 

Home Buyers are Exercising their Options, Keeping Sales Activity Strong

While inventory gains in the surrounding areas of Airdrie,  Cochrane, and Okotoks provide more promising conditions for buyers, the market conditions remain tight.   Airdrie and Okotoks have also experienced price declines in the past few months while Cochrane’s benchmark prices are holding relatively stable.  

According to the Calgary Real Estate Board’s Chief Economist, Anne-Marie Lurie, “higher lending rates have slowed activity in the detached market, [but] we are still seeing homebuyers shift to more affordable options which is keeping sales activity relatively strong…this makes Calgary different than some of the larger cities in the country which have recorded significant pullbacks in sales.”

 

© 2015 – 2022 Zoocasa Realty Inc.

The Bank of Canada is losing money for the first time ever on rising rates

Stephanie Hughes
other

Central bank anticipates losses for the next three years, depending on how its inflation fight goes

 The Bank of Canada’s historic fight against deflation during the COVID recession, and now the startling inflationary surge that has come in the recovery’s wake, will likely bring to an end the central bank’s untarnished streak of profitability.“We expect the bank’s net interest income to be negative when our third-quarter results are published on Nov. 29,” the central bank said in a statement that was initially provided to the Toronto Star. “The bank’s interest expense is growing because of increases in the interest rate that we pay on deposits.”

It’s easy to forget that central banks are set up to operate like any other financial institution. The Bank of Canada has a board of directors that oversees management (governor Tiff Macklem and senior deputy governor Carolyn Rogers) on behalf of its shareholders (taxpayers, via the federal government) and it has a balance sheet with assets and liabilities.

Typically, the Bank of Canada’s balance sheet makes money because the liabilities consist almost entirely of bank notes, which don’t pay interest, while on the other side, the central bank earns interest on its assets. The Bank of Canada Act says the central bank must send its profit to the federal treasury at the end of each fiscal year. Recently, that’s been about $1 billion a year.

But the Bank of Canada Act predates quantitative easing, or QE, an anti-deflation tactic that involves creating deposits in the form of deposits for creditors at the central bank, and then using those newly created deposits to buy bonds and other financial assets. The Bank of Canada deployed QE for the first time during the COVID crisis, flooding the financial system with the equivalent of hundreds of billions of dollars to help keep downward pressure on interest rates and to increase the capacity of banks to lend money.

An unintended consequence of that policy is that for the first time in its 87-year history, the Bank of Canada is on track to lose money for an extended period, as interest expenses on deposits climb in tandem with the benchmark interest rate, which Macklem has raised by three percentage points since March in an attempt to cool demand that has helped push annual inflation to about eight per cent, the highest level since the early 1980s.

QE worked, and maybe a little too well, as the economy appears to have entered a phase of “excess demand” at the same time acute supply-chain snarls limited supply of goods, and Russia’s invasion of Ukraine sparked a surge in commodity prices. Canada’s consumer price index is hovering around an annualized pace of eight per cent, compared with the Bank of Canada’s target of two per cent. Policymakers are now executing a hard pivot to get inflation under control by raising interest rates and reversing QE by ending purchases and letting the assets on its balance sheet roll off as they mature.

Some economists think that containing inflation will require triggering a recession. While that remains to be seen, it’s clear that one casualty will be the Bank of Canada’s net interest income, or the difference between revenues from interest-bearing assets and liability costs. The large-scale asset purchases that remain on the balance sheet happened at a time when interest rates were much lower than they are today, and the coupon rate on bonds was relatively higher than the rate paid on deposits.

Initially, QE represented a profitable strategy. The Bank of Canada reported net interest revenue jumped nearly 20 per cent in 2021 from 2020, to about $3.1 billion. The statement, provided by spokesman Paul Badertscher, noted that the the central bank sent the federal government an additional $2.6 billion over those two years. But now, the situation has reversed. The statement said the central bank anticipates losses for the next three years, depending on how its inflation fight goes.

 

The U.S. Federal Reserve building in Washington, D.C. Photo by Chris Wattie/Reuters

It’s a new challenge for the Bank of Canada, but it’s not alone, as most of the world’s major central banks resorted to QE to fight the recession, and now find themselves battling to keep inflation from hitting double digits.

In New Zealand, the government simply covers potential losses for the Reserve Bank of New Zealand. But the Bank of Canada Act doesn’t allow Macklem to retain net income from previous years to handle shortfalls in the future, nor is there a provision that requires the federal government to make the central bank whole. The issue will almost certainly get sorted; in the meantime, the Bank of Canada said in its statement that it has stopped paying interest on government reserves as a way to reduce liabilities, noting that other central banks have done the same.

Benjamin Tal, deputy chief economist of CIBC Capital Markets, said the Bank of Canada is not in the business of making money and absorbing a loss to stave off what could have been a terrible recession is an acceptable trade-off.

“That’s their way of looking at that and there is no impact on the economy,” Tal said in an email. “They do not lose sleep over it.”

The Bank of Canada reiterated that its focus would be trained on tackling high inflation and that the large-scale assets purchases the bank underwent over the past two years coincided with its mandate to preserve the country’s financial well-being.

“The bank makes policy decisions based on our mandate to keep inflation low, stable and predictable,” the statement said. “We do not make policy decisions to manage our balance sheet.”

 

© 2022 Financial Post

National Home Sales Hold Steady for First Time Since 2022 Peak: CREA

Patti Cosgarea
other

 National home sales were down only 1% month-over-month in August, marking the smallest dip we’ve seen this year since the February peak. Annually, sales are down 24.7%, less than the 30% drop we saw in July. The Canadian Real Estate Association (CREA) suggests that these may be signs that the market is settling as rising interest rates are beginning to moderate. 

• Read: What’s in Store for Fall 2022? Zoocasa’s Market Predictions

For Buyers: Inventory is Improving Following 2022 Record Low

At the beginning of the year, we saw record low inventory at 1.7 months. In August, inventory was up to 3.5 months; although this is still below the long-term average of five months, this is an improvement and another sign that supply is slowly catching up to the demand. “August saw national sales hold steady month-to-month for the first time since February which, along with a stabilization of demand/supply conditions in many markets, could be an early sign that this year’s sharp adjustment in housing markets across Canada may have mostly run its course,” said Jill Oudil, Chair of CREA.

For Sellers: Canadian Cities Experiencing a Split in Price Gains and Declines

The actual (not seasonally adjusted) national average home price in August was $637,673, down 3.9% year-over-year. Canadian markets were at an even split between markets where prices were up or down, but as we’ve seen in previous months, many Ontario markets including the Greater Toronto Area (GTA) are driving the gains. On the other hand, Greater Vancouver, Calgary, Edmonton, Winnipeg, and Halifax-Dartmouth were some of the major markets that experienced declines. 

• Read: Hidden Gems for Sale in Edmonton, Alberta Under $325,000

Many Still Waiting on the Sidelines as Fluctuations Continue 

The number of new listings dropped by 5.4% from July to 67,775 properties. Some sellers are choosing to wait out the market until more buyers are active. The increase of 300 basis points in the Bank of Canada interest rate this year has some buyers anxious about mortgage qualifications. The sales-to-new-listing ratio is currently signaling a balanced market at 54.5%, which CREA states is close to the long-term average of 55.1%.

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

Shaun Cathcart, CREA’s Senior Economist, explains that the Bank of Canada’s interest rate hikes have put downward pressure on the housing market and Canadians are struggling to catch up. “The stress test was unpopular with some when it was introduced. But as we have all now watched the Bank of Canada raise its key interest rate by 300 basis points in the space of five months, it’s clear many Canadians were protected by it,” says Cathcart. 

“But should there not be a flipside to the coin? The overnight rate is now officially above the Bank of Canada’s “neutral” range and not expected to go too much higher. This is not about “looser” or “tighter”, it is about what is appropriate given where rates are and where they are likely to go moving forward. OSFI is likely thinking hard about what makes sense given the new realities, and how to balance the community of interests they are tasked with securing.”

 

© 2015 – 2022 Zoocasa Realty Inc.

Housing supply crisis: Time for “alarm bells, s”ays RE/MAX president

Fergal McAlinden
other

A long-standing issue in Canada’s housing market only appears to be getting worse

 The time has come to “ring the alarm bell” on Canada’s lack of housing supply, with no end in sight to the inventory shortage that’s been a constant theme in the market in recent years.

That’s the view of Christopher Alexander (pictured), president of real estate giant RE/MAX Canada, who told Canadian Mortgage Professional that the company’s recently released 2022 Housing Inventory Report aimed to shine a light on the chronic supply issues facing many urban centres across the country.

That report found that inventory levels have dipped below the 10-year average in seven major Canadian markets in 2022, with double-digit declines recorded in Ottawa, Halifax-Dartmouth, Montreal, Calgary, Winnipeg, and Greater Vancouver.

While the Greater Toronto Area (GTA) saw a much less dramatic figure on housing shortage, with supply around 7% below the 10-year average, only one of the markets studied – Hamilton-Burlington – registered an increase over that average. That area’s housing inventory levels were up 3.2% compared with the 10-year average in 2022.

The “deep-rooted” issue requires urgent action from all levels of government to help bring more inventory to the market, according to Alexander, particularly with the number of new homes being constructed falling well below the levels required to welcome record numbers of new Canadians in the coming years.

Read next: What impact have speculation taxes had on Ontario home price growth?

Significant growth in the number of single-person households also highlights the need to act swiftly, Alexander said, with the Vancouver metropolitan area seeing a 30% increase in those types of household in the last 15 years.

“You’re not [just] having people buying homes when they get married – they’re doing it a lot sooner,” he said. “You’ve got more people buying homes that aren’t in a couple, so that’s exacerbating the challenge.

“Twenty-nine per cent [29%] of new Canadians are going to Toronto and about 10% are going to Vancouver, and another 10-12% are going to Montreal. So our big cities [face] an immense pressure to have inventory, and we’re short.”

Sky-high demand and lack of supply have helped to drive up the price of homes in the country’s hottest markets in recent years, with Alexander describing Toronto and Vancouver as the two areas of most concern because those two urban centres have seen the most dramatic price increases during that time.

Montreal, Calgary, and Halifax aren’t far behind; in fact, the latter had just 1,100 total listings for sale in July for a population of just under 500,000, Alexander said.

No one-size-fits-all solution can be applied to Canada’s housing inventory problem, according to Alexander, particularly with each city home to unique factors that aren’t the same across the board.

Still, the process could be streamlined and accelerated by reducing bureaucracy and other barriers to construction, he said.

“There are different factors for different cities, but I think what is critical is we’ve got to find a way to incentivize more developments,” he said. “Get rid of as much red tape as we possibly can while still being responsible and find a way to speed up the process for approvals.

Read next: Canada house prices: How will they be impacted by rising rents?

“If you think of the City of Toronto, it takes years to get a project approved and then more time on top of that to build it because there’s just so much bureaucracy and hoops you’ve got to jump through to get anything going. And then on top of that, you’ve got a labour shortage. So it’s a really deep issue.”

Canada Mortgage and Housing Corporation (CMHC) has indicated that the country needs 5.8 million new homes to be built by 2030 in order to bring house prices back to more affordable levels – a target that Alexander said the country is extremely unlikely to meet at its current pace of construction.

While interest rate increases have caused house prices to level off or decline across many markets, the fact that rates remain relatively low by historical standards will have big repercussions for the overall trajectory of home prices in the coming years, according to Alexander.

“I think it’s important to point out that ‘yes’, interest rates are rising. But we’re probably going to land at 5.25% to 5.5%,” he said. “That is an extremely low interest rate when your amortization periods are between 25 and 30 years. And when you have such an inventory shortage, prices really only have one way to go with rates being that low.”

 

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Canada housing starts drop in August

Fergal McAlinden
other

A decline in multi-unit urban starts contributed to a slower month overall, said CMHC

Canadian housing starts were down 3% in August over the previous month, a trend that was driven by a decline in multi-unit urban starts, according to Canada’s national housing agency.

Canada Mortgage and Housing Corporation (CMHC) said August saw a seasonally adjusted annualized rate of housing starts of 267,443 units compared with a revised 275,158 units in July, with that multi-unit urban start drop cancelling out a slight increase in single-detached starts.

The latter saw 59,169 unit starts, up 1% over the previous month, with multi-unit urban starts having posted a 4% decline to 187,602 units. Rural starts came in at a seasonally adjusted annual rate of 20,672 units.

In remarks accompanying the news, CMHC chief economist Bob Dugan said housing starts activity in Canada remains elevated by historical standards, trending at well above 200,000 units since 2020.

Vancouver saw a decline in single-detached units offset by higher multi-unit starts, with Toronto recording strong increases across the board and Montreal registering a 33% drop in multi-unit starts, according to CMHC.

 

Copyright © 1996-2022 Key Media, Inc.

Industrial leads drop in CRE transactions across Lower Mainland

Western Investor Staff
The Vancouver Sun

With a 34 per cent decline in property deals, total commercial real estate sales volume in the second quarter fell to $3.26 billion

 A 3.4-acre industrial site in Coquitlam, B.C, sold in the second quarter 2022 for $24 million. | PC Urban Properties

Activity in the Lower Mainland’s commercial real estate market edged down in the second quarter (Q2) of 2022 from the brisk sales pace experienced at the start of the year.

There were 485 commercial real estate sales in the Lower Mainland in Q2 2022, a 34.3 per cent decrease from the 738 sales in Q2 2021, according to data from Commercial Edge, a commercial real estate system operated by the Real Estate Board of Greater Vancouver (REBGV).

The total dollar value of commercial real estate sales in the Lower Mainland was $3.26 billion in Q2 2022, a 12.2 per cent decrease from $3.71 billion in Q2 2021.

“With inflationary pressures driving interest rates and borrowing costs higher, commercial activity across most market segments has slowed since the start of the year,” said Andrew Lis, REBGV’s director, economics and data analytics. “Land deals remain elevated relative to the last few years, which is unsurprising given the robust demand for new housing supply in the Lower Mainland.”

Q2 2022 activity by category

Office and retail: There were 143 office and retail sales in the Lower Mainland in Q2 2022, which is down 48.9 per cent from the 280 sales in Q2 2021. The dollar value of office and retail sales was $649 million in Q2 2022, a 25.4 per cent decrease from $870 million in Q2 2021.

Industrial: There were 93 industrial land sales in the Lower Mainland in Q2 2022, which is a 49.2 per cent decrease from the 183 sales in Q2 2021. The dollar value of industrial sales was $542 million in Q2 2022, a 12 per cent increase from $484 million in Q2 2021.

Multi-Family: There were 28 multi-family land sales in the Lower Mainland in Q2 2022, which is down 12.5 per cent from 32 sales in Q2 2021. The dollar value of multi-family sales was $404 million in Q2 2022, a 20.9 per cent decrease from $511 million in Q2 2021.

Land: There were 221 commercial land sales in Q2 2022, which is a 9.1 per cent decrease from the 243 land sales in Q2 2021. The dollar value of land sales was $1.67 billion in Q2 2022, a 9.9 per cent decrease from $1.85 billion in Q2 2021.

 

© 2022 Western Investor

Downtown office market stabilizing but tenants are staying nimble

Peter Mitham
Western Investor

Flexible leases in demand as economic outlook calls for caution

Downtown Vancouver office space is enjoying a stabilizing environment, says Avison Young.Chung Chow
While the second half of 2022 has been beset by uncertainties driven by high inflation and rising interest rates, Avison Young’s review of the Vancouver office market during the first half of the year points to a stabilizing environment.
Metro Vancouver saw office vacancies fall to 7.8 per cent during the period, down from 8.4 per cent a year earlier. While companies continued to adjust their space requirements as workers began returning to offices, net absorption in the period totalled 561,260 square feet.
“If you look at absorption in your AAA and A-class product, it’s still very healthy,” said Ronan Pigott, executive vice-president, office leasing with Avison Young, noting that the leasing market remains active.
During the remainder of the year, Avison Young expects to see an additional 1,377,673 square feet of absorption across Metro Vancouver.
Downtown, all classes of space are benefitting from the newfound confidence, unlike a year ago when B and C-class space were seeing elevated vacancies.
“It appears that the surge of sublease offerings attributable to COVID-19 are abating and current and emerging vacancies are a result of delivery and lease-up of new inventory,” Avison Young stated in its report. “Market statistics indicate that vacancy is spread more evenly among all building classes relative to 12 months ago when vacancy was more concentrated in class B and C buildings.”
While they’re still the most impacted by companies right-sizing, Avison Young doesn’t foresee a surge in sublease space due to economic uncertainties that was seen in the depths of the pandemic. Hybrid work arrangements are keeping in-person space requirements in check, creating the opportunities for expansion if the economy heats up and in-person work intensifies.
“While the full impact of the hybrid office space is yet to be realized, there are positive signs of recovery,” Avison Young reported. “Tenants will likely be desiring options such as flex-space and the ability to modify office space without requiring a large renovation.”
“There’s a chance that they’ll revisit and determine that they will actually need more space than they’ve actually committed to,” Pigott said.
The churn in the market is likely to continue through 2023, though at a low level rather than in the form of massive opportunities.
According to Avison Young, space available for lease but not yet vacant accounts for about 2.5% of the downtown office inventory, or 590,000 square feet. This is an improvement over the 755,000 square feet available over and above the actual vacancy rate a year ago.
Sublease offerings could increase if the economic outlook worsens, however.
While most large tech companies have their own in-house real estate teams, smaller companies are more vulnerable to shifts in the larger market. With some shaping up as acquisition targets, consolidation as driven by economic pressures could free up space and create opportunities for prospective tenants.
“M&A activity in the tech sector has brought more attention to Vancouver and shall continue to increase in 2022, which always results in new “grey market” opportunities coming available which can provide welcome relief to tenants searching for new space,” JLL reported in its own review of the Metro Vancouver office market.
JLL noted that sublet space was showing signs of increasing at the end of the second quarter, rising by 100,000 square feet. It expects more will follow.
“A rest is happening in many markets, and Metro Vancouver will likely feel the impacts with the return of some large blocks of premises,” it said. “There will be continued requirements from occupiers for flexibility in their leases, including shorter terms, surrender options, contraction options and expansion options.”

© 2022 Western Investor

Housing starts decline almost 3%, amid concerns about supply

Shantae Campbell
other

Kelowna 9,583-square-foot retail site sells $100,000 over list

Western Investor Staff
Western Investor

The free-standing downtown site on 0.22 acres with two rental units also sold for nearly $440,000 above its appraised value, at $1.4 million

Re/Max Kelowna – MCL Real Estate Group, Kelowna, B.C., for Western Investor

 

Property type: Retail

Location: 203-207 Rutland Road North, Kelowna B.C.

Property size: 3,420 square feet

Number of units: 2

Land size: 9.583 square feet

Size of land in acres: 0.22 acres

Zoning: C4 – Urban centre commercial

BC Assessment value: $961,000

List price: $1.3 million

Sale price: $1.4 million

Date of sale: August 30, 2022

Brokerage: Re/Max Kelowna – MCL Real Estate Group, Kelowna, B.C.

Broker: Kris McLaughlin.

 

© 2022 Western Investor

Saskatchewan residential sales exceed 10-year average

Jaryn Vecchio
Western Investor

Sale prices are increasing in many communities as listings remain low

Residential property sales across Saskatchewan continue to be down from last year but that doesn’t mean the sector is struggling.

According to the Saskatchewan Realtors’ Association (SRA), most communities are seeing sales numbers higher than what they’ve been averaging over the past 10 years. Regina and Saskatoon, unsurprisingly, lead the way for the province.

Included in the list are North Battleford, Meadow Lake, and Humboldt.

Three communities have sale numbers below the 10-year average: Prince Albert, Melfort and Weyburn.

Prince Albert was the closest to its average, 306, as there’s been 304 sales through the first eight months of the year.

Fifty-eight properties were sold in Melfort between January and August with the average sitting at 64.

As for Weyburn, the city saw 101 sales with its 10-year-average being 112.

The SRA believes lower sales numbers may be because there are less properties to buy.

“Supply remains a challenge in the market and while we are seeing some signs of improvement, the gains are in the upper end of the market and have not offset the declining supply of more affordable homes,” SRA CEO Chris Guérette said. “Higher lending rates are having a cooling impact on demand, but the challenge continues to be having enough supply available in the lower price ranges in our market.”

The average price for property in Melfort is only about $100 more than what each sale brought in over the past 10 years.

North Battleford is the only community where the SRA noticed a decrease in price. The average cost for properties sold in 2022 is around $3,000 less than what those over the past 10 years averaged.

Every other community is seeing a sizable increase with those buying properties in Meadow Lake having to pay, on average, around $51,000 more.

 

© 2022 Western Investor