CREA slashes 2022 home sales forecast

Fergal McAlinden
other

Prices will also fall further than previously expected, association says

The Canadian Real Estate Association (CREA) has cut its forecast for home sales in 2022 and indicated lower price growth expectations amid a protracted housing market cooldown.

The association said the number of properties sold via Canadian MLS systems this year will likely fall by about 20% compared with 2021, with just over 532,500 sales anticipated.

Those projections, revealed in its latest housing market outlook, reflect a starker forecast than its previous report in June. Then, CREA said the national average home price would increase 10.8% this year and sales would fall by 14.7%.

The association’s chair, Jill Oudil, said in a press release that national home sales in August had held steady month over month for the first time since February, a development that could provide an early sign that the “sharp adjustment” across many markets may be nearing an end.

Read next: What will more rate hikes do to Canada’s housing market?

Still, she said some would-be buyers would still opt against purchasing a home despite recent price declines as they wait for prices to potentially fall even further.

“Some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing,” she said.

Seasonally-adjusted home sales in August were 36,914, just 1% lower than July – although the actual number of home sales (38,368) was notably down compared with the same time last year, by nearly 25%.

 

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Canada’s average home price down 3.9% in August from same month in 2021

Shantae Campbell
The Vancouver Sun

Home sales, meanwhile, edged down just 1% between July and August
A realtor’s sign outside a house for sale in Toronto. Photo by Chris Helgren/Reuters files
The average price of homes sold in Canada in August fell 3.9 per cent from the same month last year to $637,673 according to statistics released Thursday by the Canadian Real Estate Association, which also scaled back its forecast for price gains and sales for the remainder of the year.
Sales volumes fell by 24.7 per cent on a year-over-year basis, but edged down just one per cent from July to August, making it the smallest of six consecutive month-over-month declines in sales volumes, the group’s data showed.
It was close to an even split between the number of markets in which month-over-month sales were up and those in which sales were down. Gains were led by the Greater Toronto Area (GTA) and a large regional mix of other Ontario markets. These were offset by declines in Greater Vancouver, Calgary, Edmonton, Winnipeg and Halifax-Dartmouth.

Despite the decline from last August, the actual national average price, which is heavily influenced by sales in Greater Vancouver and the GTA, inched up $7,702 over July.

While a nearly two per cent gain might be seen as encouraging by some, TD economist Rishi Sondhi wrote in a note to clients that it was mostly fuelled by a strong month in Toronto, where “it would be tough to argue that conditions have reached a turning point.”
“For instance, sales are still 30 per cent below pre-pandemic levels in Toronto, supply/demand balances continue to favour buyers, and benchmark prices declined at a hefty two per cent monthly rate,” Sondhi wrote.
Bank of Montreal economist Robert Kavcic said there appeared to be a window where some buyers could take advantage.
“Sales stabilized especially in the GTA and Ontario. They’re still at very low levels, ones that you would typically see during a recession or at least a downturn. So, I don’t think buyers are coming back in mass,” Kavcic said in an interview.

“I think, because some buyers have seen house prices come down 10 or 20 per cent where they’re looking and some buyers are still holding mortgage rate pre-approvals from a couple of months ago, before the Bank of Canada really cranked up interest rates. So they have a pretty good window right now to actually buy something.”
Jill Oudil, chair of CREA, said that she believes that overall, buyers are still reluctant, despite some of the recent drops.
“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,” Oudil said in the report. “Some buyers may choose to remain on the sidelines until they see clearer signs of borrowing costs and prices also stabilizing.”

Meanwhile, the Aggregate Composite MLS Home Price Index (HPI) edged down 1.6 per cent on a month-over-month basis in August, not a small decline historically, but smaller than those in June and July. The HPI was still up by 7.1 per cent on a year-over-year basis in August. This was the first single-digit increase in almost two years, as year-over-year comparisons have been winding down at a brisk pace from the near-30-per-cent year-over-year gains logged just six months ago.
“The bigger picture is that there is still an enormous interest rate shock to absorb,” Kavcic said. He thinks that the price correction is going to be a slow, drawn-out process because there isn’t any forced selling in the market.
“At the same time, if sellers do want to move a unit, buyers just simply can’t qualify for and pay as much as they did six months ago. So if units are going to trade, they’re going to have to be done at lower prices.” Kavcic said.

CREA also released a report Thursday updating their previous projections of the resale housing market. The updated report forecasts that the national average home price will rise by 4.7 per cent to $720,255 by the end of 2022, down $42,131 from the $762,386 target it set in June .
Some 532,545 properties are forecasted to trade hands via Canadian MLS Systems in 2022 — a decline of 20 per cent from the 2021 annual record and fewer than the 568,288 projected in June. The downward revision was mainly the result of reduced activity in Ontario, along with smaller revisions in B.C., Alberta, and Quebec.
The group also scaled back its forecast for sales into 2023, when it now predicts 520,156 units will change hands, down from 552,403 projected in June.

© 2022 Vancouver Sun

Rate hikes hurt consumers the most, analysts say

Ephraim Vecina
other

Homeowners are at risk of further rate increases down the line

The latest Bank of Canada rate hike represents a huge strain on consumers, financial industry players have warned.

“Another 75 bps sucks significant discretionary income from the pockets of floating-rate borrowers,” analyst Robert McLister told the Financial Post. “It also boosts the minimum mortgage stress test rate, which will dim housing sentiment further.”

James Laird, co-CEO of Ratehub.ca and president of CanWise, said that homeowners should brace for further increases down the line.

“Fixed-rate mortgage holders should budget for today’s higher rates when their next renewal comes up,” Laird said.

Read more: Bank of Canada “not done” on rate hikes: CIBC’s Tal

Christopher Alexander, president of RE/MAX Canada, said that much of the consumer’s burden is during the qualification process.

“Asking people to qualify at 7% now is going to negatively affect more people than even the government, I would think, wants to,” Alexander said. “I’m all for responsible lending practices – that’s what got us through the financial crisis in 2008 – but the stress test is just putting too many people at a disadvantage considering how high interest rates are today.”

 

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New database shows rental housing completions in B.C. varies by municipality

Joanne Lee Young
The Vancouver Sun

Website lets voters compare need against completed units in their municipality

 Over the past seven years, Pitt Meadows and West Vancouver built the fewest rental units per capita of all municipalities in Metro Vancouver, while the City of North Vancouver added the most.

This is the kind of information that can be pulled from a new website that lets voters  compare what housing is needed with what has been approved and constructed in 160 municipalities across B.C.

“The most striking thing is that not a single municipality has been able to experience completions that come close to the need and the demand that’s out there. For me, that’s the real story of the data,” said Thom Armstrong, CEO of the Co-op Housing Federation of B.C., which joined the B.C. Non-Profit Housing Association and the Aboriginal Housing Management Association to create the website.

The groups hope information from the database will spur candidates for the municipal elections in October to sign a five-point pledge to streamline the process to build non-profit, Indigenous and co-op housing by cutting red tape and prioritizing land-use decisions as well as protect the existing supply.

The site allows users to search data from Statistics Canada and the Canada Mortgage and Housing Corporation, as well as each municipality’s own housing needs assessment. Users can compare information such as the percentage of homeowners versus renters and the number of units delivered, from market to affordable.

For instance, from 2015 to 2021, Pitt Meadows added 13 market-rental units, West Vancouver 68, and Richmond 1,008, putting them at the bottom of the list for total number of such units completed compared to the population.

The City of North Vancouver added 1,768 market-rental units, New Westminster 1,854 and Vancouver 12,750, placing them among the top three for total number of such units completed compared to the population.

But these numbers still fall short of what’s needed, observers say.

“A really significant focus of council’s time (in West Vancouver) has been looking at housing supply for workers, particularly renters, and what they’ve built in the last seven years is certainly not sufficient to tackle their workforce housing crisis,” said Jill Atkey, CEO of the B.C. Non-Profit Housing Association.

On Vancouver Island, the need for affordable housing has also been a focus of council’s attention in Duncan, where there is a homelessness crisis. Currently, 45 per cent of the population rents, while 55 per cent owns. However, over the past seven years, only one unit of market rental housing has been built.

“It’s hard from the data to understand exactly what the challenges are, but when so much of the public conversation is around housing affordability, it’s going to be surprising for residents in that community to learn how little rental development is being built,” said Atkey.

Since 2019, municipalities by law have had to complete housing needs assessments and update them every five years.

Atkey said the province is trying to determine if sufficient data is being gathered. Communities look at population growth to make projections for new homes, but this approach doesn’t allow for seeing “baked-in chronic undersupply,” she said.

She also asked if updates every five years make sense in such a dynamic housing market.

Gary Wilson, president and chair for the Aboriginal Housing Management Association, added that what the current data may not easily show is the correlation between the Indigenous populations and homelessness in those communities.

There are many communities with Indigenous overrepresentation in the population of those experiencing homelessness, but two-thirds of all municipalities don’t include data in their assessments needed for tackling the needs of urban Indigenous population, he said.

For example, in Parksville, 29 per cent of the respondents in a 2020 homeless count identified as Indigenous while Indigenous people made up just three per cent of the community’s population in the 2016 census. In Duncan, 34 per cent of the respondents in a 2020 homeless count identified as Indigenous, while Indigenous people made up 13 per cent of the community population.

Most communities only included partial data, without the kind of information that would allow for setting targets such as how many units need to be built or by when. Only Surrey, Kamloops, Powell River and Fort St. John tried to quantify the number of homes that would be needed for their urban, Indigenous populations.

“It’s a missed opportunity,” said Armstrong. “Neither the province or the vast majority of municipalities thought it was worth applying an Indigenous housing lens to housing need surveys. A land acknowledgement at the beginning of council meetings is not a housing strategy.”

 

© 2022 Vancouver Sun

Should the mortgage stress test be changed?

Fergal McAlinden
other

Regulation continues to serve important purpose despite calls for reform, says CEO

Interest rates have continued to tick resolutely upwards in 2022, a trend that’s seen the re-emergence of a debate in the mortgage space on whether changes to the stress test rate are required.
Last week saw the Bank of Canada announce its latest rate increase of the year, hiking its overnight rate to 3.25% in a development that means the qualifying rate for variable mortgages is now even higher.
Homebuyers borrowing from a federally regulated lender are required to prove they can meet the higher of 5.25%, or the qualifying rate plus 2%, with the prime rate now matching the former and five-year fixed mortgage rates hovering slightly higher.
That means most new buyers are now having to qualify at much higher interest rates than earlier in the year, sparking some calls for regulators to revisit their criteria for testing borrowers in a much-changed 2022 market.
Toronto Regional Real Estate Board (TRREB) president Kevin Crigger said the federal government could remove the stress test for switching existing mortgages to a new lender and allow for longer amortization periods on mortgage renewals as home sales continued to dip through August.
Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI) has poured cold water on speculation that it could loosen mortgage qualifying rules, with its head Peter Routledge acknowledging that clamour while also confirming that no change to its underwriting standards was imminent.
“The uncertainty and anxiety caused by a rising interest rate environment have, understandably, caused some Canadians to advocate for a loosening of the underwriting standards in Guideline B-20,” he told a Toronto audience. “Let me reassure those of you who oppose a loosening of underwriting standards that OSFI will not do that.”
Read next: Bank of Canada “not done” on rate hikes: CIBC’s Tal
That’s the right approach, according to a prominent Toronto-based mortgage broker who said the stress test had proven “very beneficial” to the mortgage and housing markets as a whole since its introduction.
Drew Donaldson (pictured top), founder and CEO of Donaldson Capital, told Canadian Mortgage Professional that the measure had helped the market, and homeowners, cope with rapid rises to interest rates this year – and that it remained a necessary measure for the future.
“Going forward, some would say that it’s not needed. I still think it’s fine – keep it in place for now,” he said. “We’ve seen how fast rates have moved in the last six months. Could rates go from 5% to 7%? They could, so why not keep the stress test in place, and just make sure that borrowers can withstand that?”
The only area where an adjustment might be merited, Donaldson said, is in nonconforming loans, which usually feature significantly higher rates than standard or conventional arrangements.
The current stress test rate came into effect last year after OSFI and the federal finance ministry announced that qualifying criteria would be raised in response to a red-hot housing market and rock-bottom borrowing rates.
Read next: Where are interest rates headed for the rest of 2022?
While many of Donaldson Capital’s clients are high-net-worth individuals who typically aren’t impacted by changes to the stress test, Donaldson noted the importance of explaining the reasons for the maximum pre-approved amount to new buyers, even if a detailed rundown of the stress test wasn’t always required.
As for the prospect of reform to the stress test in the coming months, OSFI’s steadfastness on the matter appears to have firmly shut the door on that possibility for the foreseeable future.
Routledge indicated in his speech that the regulator is “constantly evaluating” the stress test, but added that it “must accept the risks of acting early to minimize the costs of acting too late.”
Donaldson said a one- to two-year lull in the real estate market was required to get things back to more normal levels. “This whole 10%, 20%, 30% growth year over year was just unprecedented, and it wasn’t healthy for the market,” he said. “So I would say leave [the stress test] in place.
“The Bank of Canada is deliberately trying to cool demand on real estate [and] a lot of other areas of the GDP market. So why would the regulator then try to spur and get growth back going again? Let’s just let things sit for a year or a year and a half, and then at that point in time, maybe revisit the stress test.”

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Bank of Canada not done on rate hikes: CIBC’s Tal

Fergal McAlinden
other

Bank of Canada “not done” on rate hikes: CIBC’s Tal

Fergal McAlinden
other

The central bank showed little sign that it’s ready to hit pause on rate jumps, says economist

 The Bank of Canada’s announcement last week on its benchmark policy rate was a clear indication that it intends to continue its rate-hiking path in the coming months, according to a prominent economist.

Benjamin Tal (pictured), deputy chief economist of CIBC World Markets, told Canadian Mortgage Professional that the central bank had used “very hawkish” language in its statement on Wednesday, which saw a 75-basis-point hike bring its trendsetting interest rate to 3.25%.

In that announcement, the Bank said the outlook for inflation meant its governing council believed the policy rate would need to rise further.

“Basically, the Bank of Canada is telling you, ‘We are not done,’” Tal said. “This is the Bank with a very clear mission, to make sure that inflation expectations are under control.

“The fear is that they’re losing the battle here if they’re not seen as very aggressive, so it was a bit more hawkish than the market expected, quite frankly.”

The statement showed that the Bank was “not taking any chances with inflation,” Tal said, despite the annual rate having slowed slightly in July to 7.6%, from 8.1% the previous month.

Read more: Bank of Canada announces another big rate increase

Its Press release accompanying the decision on September 7 indicated that measures of core inflation were ticking upwards across many countries, with inflation, excluding gasoline, having risen in Canada and short-term inflation expectations remaining high.

The risks of elevated inflation becoming entrenched would increase, the Bank added, the longer those conditions continued.

CIBC had said before the Bank’s announcement that a three-quarter-point hike in September could be the central bank’s final rate increase of the year – and Tal said it should weigh its next decision carefully before making further rate moves.

“I think that we are very close to overshooting territory,” he said. “What I mean by that is maybe the Bank of Canada should stop here and assess the impact on the housing market and the rest of the economy before continuing.”

That would be a “tricky” decision, he said, especially with inflation remaining resolutely high despite previous rate hikes. “Show me the central bank that will be willing to stop raising interest rates while inflation is still up there – and there’s so much pressure to move,” he said.

It was possible, he added, that the Bank would hike its benchmark rate by another 50 basis points before starting to cut rates to bring it back to around 3%. Still, the neutral rate – in other words, where the Bank rate will ultimately settle – would still be notably higher than its previous peak, 1.75%, in an economic environment that has shifted dramatically this year.

Read next: Canada housing market – what direction is it headed in?

The central bank is effectively hoping that it can bring inflation back to its target rate of 2% by 2024, Tal said, with little prospect of that occurring next year. Because it has no control over up to 65% of inflation, which is influenced by supply chain trends from outside, the Bank needs to be more aggressive with its rate increases, he added, to control the other 35% to 40%.

The Bank had surprised market watchers in its previous policy rate announcement with a 1% rate increase, a larger hike than many had expected. Still, there was little surprising about its September move, according to Tal – and five-year bond yields, and by extension fixed interest rates, were unlikely to see much movement as a result.

“The market is already pricing in this aggressive move. This is already priced in, so any movement in the five-year rate at this point will be limited,” he said. “So, it’s really more variable rates, as opposed to five-year rates [that will be impacted].”

Wednesday’s decision was the central bank’s fifth rate hike in 2022, with that cycle having brought an end to the rock-bottom policy rate that prevailed throughout the first two years of the COVID-19 pandemic.

The announcement means the rate is now a full three percentage points above that level, which came into play as the Bank slashed rates amid widespread economic uncertainty and public health restrictions in March 2020.

The Bank is scheduled to make its next policy rate announcement on October 26, with its Monetary Policy Report – detailing its full economic and inflation outlook – set to arrive on the same date.

 

Copyright © 1996-2022 Key Media, Inc.

Real estate wealth in massive Canada crash

Ephraim Vecina
other

Prices are plunging for homes and stocks

A sharp decline in Canadians’ net worth was registered during the second quarter amid sustained volatility in financial markets and the housing sector, according to Statistics Canada.

Household net worth saw a 6.1% quarterly decrease to settle at $15.2 trillion in Q2, representing a precipitous drop of $990 billion.

While household wealth remained nearly $3 trillion higher than pre-pandemic levels, the Q2 figure was also the largest decrease in at least 22 years, significantly outstripping a 5% decline seen during the global financial crisis in 2008, StatCan said.

Read more: Equifax Canada reports latest consumer debt levels

Concurrently, Canadian households took on an additional $56.3 billion in debt, bringing the nation’s total household debt load to roughly $2.8 trillion. The household debt-to-income ratio correspondingly increased from 179.3% in Q1 to 181.7% in Q2.

Economists cautioned that this might be just the beginning when it comes to added debt, as more Canadians will be forced to borrow more expensive loans due to multiple inflationary pressures.

“Looking ahead, financial headwinds are only going to intensify, as job gains slow while interest rates continue to march higher,” said Ksenia Bushmeneva, economist at Toronto-Dominion Bank. “This is going to push debt servicing costs higher over the rest of this year and into the next one.”

 

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BC property transfer revenues exceed expectations despite drop

Peter Mitham
Western Investor

Housing downturn likely to be short-lived despite headwinds

Finance Minister Selina Robinson. Photo via B.C. GOVERNMENT

The province expects to post a surplus of $706 million in the current fiscal year, according to its first-quarter fiscal update released September 12.

Higher taxes as well as revenues from the reviving oil and gas sector supported the rosy outlook.

“While we can’t ignore today’s global inflation and the economic turbulence ahead, the Province performed better than expected because British Columbians have worked hard to keep our economy going,” said provincial finance minister Selina Robinson in delivering the report.

But one area where British Columbians are working less appears to be in real estate, with the province reporting lower revenues from the property transfer tax.

The province collected $863 million in property transfer taxes in the three months ended June 30, well above the budget forecast of $795 million. A cooling real estate market meant that collections were down 8.8 per cent from a year ago, however.

During the period, data from the B.C. Real Estate Association indicates that the province saw $24.5 billion worth of residential sales. This was down 29.2 per cent from the value that changed hands last year.

By the end of the fiscal year, the province expects to receive $2.5 billion from the property transfer tax. This is down from 25 per cent from last year.

The latest housing market outlook from the BCREA, released Sept. 8, forecasts unit sales to decline 34.4 per cent through the end of the year. It will be mitigated by a 4.5 per cent increase in the average sale price to $969,400.

BCREA chief economist Brendon Ogmundson says the downturn is likely to be short-lived, however.

“While the housing market is currently feeling the weight of higher interest rates, the downturn is unlikely to be long-lived as BC’s strong population growth combined with extremely favourable demographics means there will be no shortage of demand for housing in the province,” he said.

 

© 2022 Western Investor

BC economy still strong, despite inflationary headwinds

Nelson Bennett
Western Investor

Province’s forecasted deficit now expected to be a surplus

 “The province performed better than expected” in the first quarter, says B.C. Finance Minister Selina Robinson.Province of BC

As B.C.’s economy navigates uncertain waters between a pandemic and a possible global economic recession in 2023 — precipitated by an energy crisis, war, inflation and rising interest rates — it appears B.C.’s ship of state is still steady and not taking on any water.

Employment remains strong, revenues from commodities like natural gas are up, and a $5.5 billion deficit that had been forecast for 2022-23 is now expected to be an operating surplus of $706 million, according to an economic uopdate based on the first quarter of the fiscal year that was released today by B.C. Finance Minister Selina Robinson.

“While we can’t ignore today’s global inflation and the economic turbulence ahead, the province performed better than expected because British Columbians have worked hard to keep our economy going,” Robinson said.

While there are fears that inflation is curbing economic growth, and could lead to a recession in the U.S., Europe and China in 2023, B.C.’s economy is proving resilient so far. B.C.’s unemployment rate remains low, at just 4.8%, and employment is up 3.6% this year as of August.

B.C.’s nominal gross domestic product (GDP) is forecast to grow by 11.6% in 2022 and 3.5% in 2023. When inflation is accounted for, real GDP growth is forecast to be 3.2% in 2022 and 1.5% in 2023.

However, B.C. economy does appear to be seeing some some cooling, as a result of inflation.

While retail sales are up 1.5% in the first six months of the year, higher costs for consumer goods has resulted in “moderating” retail spending.

And while housing construction is still “elevated” for a 10-year average, home sales have fallen below average historical levels in recent months, the Ministry of Finance notes.

On the other hand, high commodity prices have been good for B.C.’s resource economy. Natural gas royalties are up $1.7 billion this year.

“Strong commodity prices, such as natural gas and coal have benefitted the value of B.C. goods exports,” the ministry notes. ”Year-to-date to June 2022, B.C. goods exports were up 32.1% and service exports are continuing to recover as tourism resumes.”

Inflation remains high, however, which introduces uncertainty into economic forecasts, since the cure for inflation – rising interest rates – are designed to cool spending and can curb economic growth.

“A lot can change between now and the end of the year, and we need to keep making thoughtful decisions – especially with everything that’s going on around the world,” Robinson said.

“But this indicates that we’re in a strong position to continue investing in the things people need to reduce costs, strengthen services and build a stronger B.C. for everyone.”

 

© 2022 Western Investor