Market growth and activity in the Canadian housing sector will trend downward this year

Ephraim Vecina
Mortgage Broker News

Market growth and activity in the Canadian housing sector will trend downward this year amid the sustained economic impact of the coronavirus outbreak, according to a recent study by Moody’s Analytics.

In its “Canada Housing Market Outlook: Tough Times Ahead” report released last month, Moody’s said that any pre-pandemic forecasts will have to be essentially scrapped.

“Shelter-in-place orders and social distancing have brought house hunting to a virtual halt while layoffs, the collapse in oil prices, and the plunge in equity prices have kept prospective buyers at bay,” Moody’s said. “The COVID-19 pandemic comes at a terrible time for Canada’s economy. Trade and investment were already struggling to make gains as the U.S.-China trade war and Brexit weighed on global demand. The pandemic soured this already-weak outlook almost overnight.”

With a clear majority of Canadians preparing themselves for the economy to worsen over the next few months, weaker consumer confidence and purchasing power will affect some regions more than others.

“The worst effects will be felt in regions that rely disproportionately on the leisure/hospitality, trade and energy industries,” Moody’s said, pointing at British Columbia and the Prairie provinces, in particular.

The report also said that these events will most likely aggravate other worrying trends.

On the national level, “the mortgage debt service ratio tracked by Statistics Canada increased from 6.4% of disposable income in mid-2016 to 6.8% in late 2019,” Moody’s said. “Consumer debt performance has also shown some signs of strain. In particular, bankruptcy filings and insolvency proposals have risen.”

Copyright © 2020 Key Media

Point2 Homes survey shows realtors very worried

Clayton Jarvis
Mortgage Broker News

In news that will do little to calm the nerves of antsy mortgage professionals, data released by Point2 Homes on Monday finds sentiment among real estate agents around COVID-19’s impact on their businesses to be one of pessimism and extreme concern.

The survey, which follows the far more optimistic polling of homebuyer sentiment Point2 Homes released on April 9, collected responses from 369 agents between April 7 and 14. There’s little potential for shock in some of the data, such as 86% of respondents noticing at least “quite a significant drop” in homebuyer interest. But the feelings realtors expressed around what business will look like once COVID-19 passes may take some by surprise.

When asked about their level of concern over the impact of the outbreak on their business, 97% of realtors said they are at least “somewhat worried”, but the vast majority are either “very worried and concerned” (41%) or “extremely anxious” (34%). Only 1% of realtors said they are not concerned by COVID-19’s impact “at all”.

Nick MacDonald of RE/MAX Charlottetown Realty says the negative sentiments aren’t uncommon among agents in Prince Edward Island.

“The feeling among my colleagues is generally the same,” he says. “It’s been a hilly and rocky ride for just over two months now on PEI. We’re all taking it day by day, and doing our best to support our clients, colleagues and communities.”

Vanessa Roman of Pemberton Homes in Victoria is focusing more on the cyclical aspects of selling real estate.

“As agents, we constantly face the peaks and valleys of the market conditions. We are accustomed to adapting our businesses accordingly,” she says.

The responses were grim when agents were asked to estimate the extent of the financial damage COVID-19 will ultimately do to their incomes. Over 90% of respondents are expecting losses of at least 25%, with 29% of that group projecting losses of more than 75%.

MacDonald falls into the more optimistic category, taking the increase the Island is seeing in the number of Canadians coming from out of province as a sign of positive things to come.

“That demand should help the market recover somewhat,” he says.

The remaining questions provide a somewhat muddled view of the future. Over 60% of agents say they are expecting a significant negative impact on the real estate market in general (34% expect slightly negative effects), but 80% think the post-lockdown recovery will take 12 months or less. 39% of realtors surveyed feel the recovery will be complete in three to six months. But a not insignificant 17% say the recovery could take up to two years.

Roman, for her part, is looking forward to a relatively smooth return to business as usual.

“While we certainly have had a dramatic decline in sales since the pandemic began, Victoria remains a desirable place to call home, with strong industries for job creation,” she says. “Our market will recover once the pandemic ends.”

Copyright © 2020 Key Media

Last month’s home sales were 62.7 per cent below the 10-year April sales average

Scott Brown
The Province

COVID-19 social-distancing measures led to April home sales dropping to a 38-year low in Metro Vancouver, according to the Real Estate Board of Greater Vancouver.

April home sales totalled 1,109, which is a 39.5 per cent decrease from the 1,829 sales recorded in the same month last year and a 56.1 per cent decrease from the 2,524 homes sold in March.

It was the lowest total for the month since 1982 and 62.7 per cent below the 10-year April sales average.

“Predictably, the number of home sales and listings declined in April given the physical-distancing measures in place,” Colette Gerber, the real estate board’s president-elect, said.

“People are, however, adapting. They’re working with their realtors to get information, advice and to explore their options so that they’re best-positioned in the market during and after this pandemic.”

Despite the slow market, home prices held steady in April, with the composite benchmark price for all residential properties up 2.5 per cent from a year earlier, and up 0.2 per cent from March, at $1.04 million.

The April benchmark price for a detached home in Metro is $1.46 million, up 2.3 per cent over last year, while apartments are at $685,500, a 2.7 per cent increase over April 2019, and attached homes sit at $795,800, up 2.8 per cent.

© 2020 Postmedia Network Inc.

Information on REBGV activities and accomplishments

REBGV

Our annual report is dedicated to informing you on the activities and accomplishments of your professional association over the last year.

Last year was the REBGV’s 100th year in business. While 2019 was an occasion to celebrate our centennial and honour our history, our primary focus was on planning our future.

We identified and delivered robust new data tools to help you better serve your clients. We partnered with boards across the country to assess what the future of MLS® should look like.

We engaged the next generation of leaders in our membership on how to advance professionalism in real estate.

We began a rigorous succession planning process to help us identify and select REBGV’s next generation of leaders. And we reimagined a public relations strategy that we believe will elevate the profile of REALTORS® and our Board.

Now four months into a new year, our personal and professional lives have been upended by a public health crisis. During this crisis, your Board is working to responsibly manage our association and support you through this challenging period.

Explore this annual report to learn more about the actions your Board has taken over the last year to provide you with the best possible products and services.

Toronto homes sales declined 67%

other

With provincial and public health safety measures in full effect, COVID-19 expectedly slowed down housing market activity across the Toronto Region this April. Home sales across the region declined 67 per cent, with 2,975 residential transactions taking place throughout the month, according to the latest report from the Toronto Regional Real Estate Board (TRREB). TRREB president Michael Collins noted however, that weekday sales continued at a steady pace, with an average of 130 transactions taking place daily. 

The number of new listings declined 64 per cent annually – a similar rate of decline as home sales – marking a significant departure from spring market conditions typically expected at this time of year. 

Toronto Region Housing Settled into Balanced Market Territory in April

With home sales and new listings dropping at a similar rate, the housing market remained squarely in balanced market territory, ending the month with a sales-to-new-listings (SNLR) ratio of 48 per cent. SNLR is a measure of market competition that is determined by dividing the number of sales by the number of new listings. A figure between 40 per cent – 60 per cent indicates a balanced market, while above and below that threshold reflect sellers’ and buyers’ markets, respectively. 

Taking a closer look at specific regions reveals that these market dynamics remain in play – the SNLR for the City of Toronto (47 per cent) York Region (44 per cent), Durham Region (58 per cent), Peel Region (44 per cent), and Halton Region (54 per cent) all reflect balanced market conditions in April. 

Average Home Prices Rise in Most Toronto Regions; Decline in the City of Toronto

Average home prices across the Toronto Region as a whole remained flat compared to April 2019, ending the month at $821,293. Detached houses and condo apartment average prices experienced annual declines of 3.5 and 3.6 per cent each, while average prices for semi-detached houses and condo townhouses grew more than the overall annual rate of average price growth across TRREB, at 7 per cent and 3.8 per cent respectively. While COVID-19 has slowed the market down considerably, TRREB’s chief market analyst Jason Mercer noted that although prices are now lower than the market peak in March,“there has continued to be enough active buyers relative to available listings to keep prices in line with last year’s levels.” 

Average home prices for all home types grew 6.6 per cent y-o-y in Peel Region ($802,155), 6.1 per cent y-o-y in York Region ($968,499), and 1.8 per cent annually in Halton Region ($870,966). Average home prices remained unchanged in Durham Region at $612,563. 

In the City of Toronto however, average home prices across all property types dipped by 2.5 per cent to $881,424. The most pronounced impact was felt in the detached home segment, where prices declined 7.8 per cent y-o-y to $1,249,730. Condo apartments experienced a 4 per cent drop in average prices annually, ending the month at $612,300. However, average prices for semi-detached houses and condo townhouses increased by 4.2 per cent to $1,096,437, and 6.2 per cent to $697,611, respectively.

Check out the infographics below to see how sales and prices have increased across all home types for TRREB and the City of Toronto in April:

© 2015 – 2020 Zoocasa Realty Inc., Brokerage

COVID-19 crashed home sales by up to 50 per cent in April

Frank O’Brien
Western Investor

Housing sales across the Lower Mainland fell sharply in April, the first full month since the COVID-19 crisis hit, but benchmark prices increased in both Greater Vancouver and the Fraser Valley from a year earlier.

Metro Vancouver home sales in April were the lowest total for the month since 1982, according to new data from the Real Estate Board of Greater Vancouver (REBGV). 

Yet the April benchmark price for all Greater Vancouver homes was $1,036,000, 2.5 per cent higher than it was one year earlier and up 0.2 per cent from March. 

“Predictably, the number of home sales and listings declined in April given the physical distancing measures in place,” Colette Gerber, REBGV’s president-elect said. “People are, however, adapting.”

Sales in the Fraser Valley were down 50 per cent from a year earlier to a level last seen 38 years ago.

According to Gerber, adaptation is coming in the form of “using different technology to showcase homes virtually, assess neighbourhood amenities with their clients and handle paperwork electronically.”

Across the REBGV region, 1,109 homes changed hands last month. This is a 39.4 per cent drop year-over-year and a 56.1 per cent decline compared with March 2020.

The Fraser Valley Real Estate Board processed 688 sales in April, a decrease of 52 per cent compared to March and down 50 per cent compared to April of last year, to a level last seen in April of 1983. They were also 63 per cent lower than the 10-year sales average for the month – a direct result, said the board, of social distancing due to the COVID-19 pandemic.

“Home prices have held relatively steady in our region since the COVID-19 situation worsened in March,” Gerber said.

A total of 388 detached homes sold in April in Greater Vancouver, 33.8 per cent lower than the 586 houses sold in April 2019. The benchmark price for detached houses is $1,462,100 – up 2.3 per cent year-over-year.

In April 2020, 503 apartments were sold, which is 43.2 per cent lower than the 885 sold in the same month last year. The benchmark price for apartments is $685,500, up 2.7 per cent from April 2019. 

For attached homes, sales reached 218 – a 39.1 per cent decline year-over-year. The benchmark price was $796,800 – up 2.8 per cent compared with the same month last year.

In the Fraser Valley, the benchmark detached house price in April was  $993,400, up 0.5 per cent compared to March and 3 per cent higher than in April 2019, while townhouse prices advanced 1.9 per cent, year-over-year, and condominium prices were up a slim 0.8 per cent from April of last year.

Copyright © Western Investor

REBGV maintains real estate market will rebound

Douglas Todd
The Vancouver Sun

The official, optimistic message from the Real Estate Board of Greater Vancouver at first sounds plausible.

The REBGV maintains with confidence that “pent-up demand” for housing, combined with low interest rates, will re-energize Metro Vancouver’s dormant real estate market once the COVID-19 lockdown ends and real life again kicks in.

But the counter-arguments are almost too numerous to mention. Coronavirus shutdowns are hammering the factors that most fuel housing prices in Canada: Wages, household debt and migration-based population growth.

The real-estate industry, including construction, normally makes up Canada’s largest sector, accounting for 15 per cent of economic output. And it’s almost inconceivable real estate values will not be slammed by the multitudinous ways the lockdown has weakened the finances of both Canadians and the trans-national migrants who invest in housing in Vancouver, Toronto and Victoria. Australia is already providing early warning signs.

Job apocalypse

There is a job apocalypse occurring in Canada. More than seven million laid-off Canadian workers have applied for Ottawa’s emergency COVID-19 benefit, receiving up to $2,000 a month. And this week the Liberal government launched an additional $73-billion wage subsidy program. The grim effects are sure to drag on.

Talk about a knock to confidence.

How could this shock of financial anxiety for millions of Canadians, especially those on low to medium incomes, not significantly affect housing choices in the future? Economic uncertainty does not exactly make people feel excited about buying a home. And, after all, interest rates have been low for years.

The downturn in house prices might come gradually. A house is not always as liquid as other commodities, since in many cases it is also a home. And as Westview realtor Barry Magee says, some rattled owner-investors can wait out a shock if it’s temporary, “primarily out of fear they would be selling at a low point.”

But it’s hard not to be persuaded by the suggestion of Magee and other industry players that, if the lockdown extends for any considerable time, it will turn prices lower.

Household debt trap

The second potential blow to Metro Vancouver’s super-high housing values is the debt trap — the record high levels of borrowing people in Canada and offshore have been doing to get into some of the country’s urban housing markets.

People have gone crazy with borrowing in Canada, fuelled by a fear of missing out and visions of the past two decades of ever-rising property valuations. But since COVID-19 came out of China, roughly half of Vancouver homeowners say they can’t fully pay their mortgages, according to a mayor’s office-commissioned Research Co. survey.

The frenzy has led to the average Canadian household paying out $1.76 in debt, typically on mortgages, for every dollar they earn in net disposable income. In Vancouver, that ratio jumps to a trauma-inducing $2.40, the highest in the country, the kind of ratio that precedes financial crises.

UBC geographer David Ley points out Metro Vancouver’s suburbs hold the highest debt ratios in the land, up to $3 for every $1 in income. That’s especially the case in neighbourhoods where Ley believes young families have been buying starter homes. “If there is ever a meltdown, these areas would be particularly at risk.”

Vancouver, Toronto and Victoria households have the highest debt ratios in Canada, a country noted for its generally high mortgage levels. (Source: Steve Saretsky)

One of the most important insights into debt and the future of urban Canadian housing comes from Anthony Scilipoti, president of Toronto-based Veritas Investment Research Corp.

Scilipoti’s researchers have discovered that half the country’s property investors (such as the tens of thousands who have bought condo units in towers to rent out) aren’t getting enough cash from tenants to cover their mortgage costs. “There’s only so long they can hold on,” he says, before being forced to sell.

All it would take to create a sudden oversupply of housing would be for two of 100 more owners in a particular market to list their dwellings for sale, Scilipoti says. “This will take time to play out,” he says, but the downward process is in motion.

Migration impact

The third major factor for Canadian real estate is the migration of people and capital.

Start with the drastic drop in tourist numbers. With borders virtually closed to international travellers, investors who relied on short-term rentals like Airbnb to hold onto their properties have been left in the lurch. Many Airbnb hosts will likely be forced to sell.

Then there are larger immigration trends, which are arguably the biggest thing affecting housing prices in Metro Vancouver (and Toronto), as suggested recently in The Vancouver Sun by both former NDP premier Mike Harcourt and Anne McMullin, the head of B.C.’s Urban Development Institute, which represents builders.

Even though the federal Liberals have hiked immigration targets (from 250,000 per year in 2015 to 350,000), citizenship ceremonies have been cancelled during COVID-19 confinement and the processing of would-be permanent residents is being held back.

This pandemic is sure to affect the choices of would-be immigrants, who have accounted for 85 per cent of population growth in Metro Vancouver. And it will also affect people who might buy urban Canadian properties with money earned offshore, which is the gasoline that has been accelerating Vancouver’s already-unaffordable housing costs.

The B.C. NDP government has tried to respond to the strong flow of offshore capital by strengthening the surcharge on foreign property buyers and by introducing the speculation and vacancy tax, which has an impact on “satellite families” in which the breadwinners earn their incomes outside the country and therefore aren’t subject to Canadian income taxes.

Those housing taxes will continue to be influential. “If the COVID-19 pandemic lasts longer than three months … price drops will be inevitable” in B.C., says Magee, noting there will be particular pressure on owners facing the speculation and vacancy tax, which has quadrupled to two per cent this year from 0.5 per cent.

A related migration factor for Canadian housing, rarely discussed, is the almost one million people who until recently were in Canada on temporary study and work visas.

Australia offers an early warning sign about this cohort: International students and temporary foreign workers are leaving that country in droves. Australia’s acting immigration minister says 300,000 people on temporary visas have already left since January.

A former senior immigration official in Australia, Abul Rizvi, predicts up to one-quarter of foreign students and workers will depart by the end of the year. That is destined to soften Australia’s housing and especially rental prices, which many will find a blessing. (Canadian immigration officials did not respond to requests for data on study and work-visa holders in this country.)

The Vancouver, Toronto and Victoria housing markets have been somewhat difficult to forecast for decades, since prices in these cities are not as closely tied to local wages as they are in many places. Offshore factors are highly significant for these globally desirable cities.

Yet, even though it’s hard to predict the future with certainty, it is safe to suggest some form of house-price correction will come in Canada’s urban markets, especially early next year.

© 2020 Vancouver Sun

Property tax delinquency a possibility

Ephraim Vecina
Mortgage Broker News

Vancouver might run into a significant budget deficit soon, as only 55% of homeowners said that they would be able to pay their mortgages in full this month, according to Mayor Kennedy Stewart.

Citing a recent online survey by the municipal government, Stewart said that only 68% were able to fully pay their April mortgages.

Among renters, 70% made full payments last month, while 63% would be able to complete their May rent payments.

Stewart expressed grave concern about the possible growth in property tax delinquency rates indicated by these numbers – a trend aggravated by the significant weakening of the Vancouver labour market once the COVID-19 outbreak took hold.

“The only way we can stay afloat is with the help of the federal and provincial governments,” Stewart told CTV News. “Otherwise, local governments will be forced to take drastic measures that will hurt residents and businesses and significantly slow any post-pandemic economic recovery.”

A report to Vancouver City Council estimated that the city’s funds could lose anywhere from $61 million, should the economy restart by May 31, to $189 million, if social distancing policies last until the end of the year.

Stewart’s own predictions point to a grimmer outcome, however.

“If 25% of home owners do end up defaulting on their property taxes, we could shed up to an additional $325 million in revenues,” Stewart said. “Losing more than half-a-billion dollars in operating funds in 2020 would devastate the City’s financial position, forcing us to liquefy assets and exhaust every reserve fund we have – just to avoid insolvency.”

Copyright © 2020 Key Media

It is either a seller’s market or a buyer’s market

Paul Maranger
REM

You can’t dance at two weddings at the same time.

In terms of real estate, I would say this saying could refer to a balanced market. Is there even such a thing as a long-term balanced market? I would suggest that the short answer is no. It is either a seller’s market or a buyer’s market.

We are well accustomed to these terms, which relate to months of inventory on MLS, sales-to-new-listing ratios or absorption rates. These are key figures to look at, as they are indicative of whether we are in an over-supply or under-supply situation. Supply is everything. Ignore days on market or sales-to-list price ratios, as these figures can be easily manipulated.

According to CREA, in March 2020, we had 4.3 months of inventory nationwide, with higher inventory in the Prairies and Newfoundland/Labrador. The sales-to-new listings ratio was 64 per cent. Both figures would indicate very light seller’s market conditions.

You may think that 4.3 months of inventory is substantial (the long-term national average is 5.2 months, according to CREA). However, keep in mind that this inventory includes overpriced listings, unsaleable listings (usually because they are overpriced) and houses that are located on super-busy streets, in substandard areas and/or in poor physical condition (again, usually this is not reflected in the price). Irrespective of market conditions, I would suggest to you that, at a minimum, at least one-third of inventory falls into these categories. Yes… at least one-third of sellers are unmotivated (and this figure is probably higher). But this situation has existed for an eternity and won’t go away.

A balanced market lies somewhere in-between. The glass is half full or half empty. Or is it? It is sort of like purgatory. Neither heaven nor hell.

I think that a balanced market is temporary. The sand keeps shifting, so sellers and buyers do not know how to react. During this temporary period, sellers usually lean towards the “glass is half full” mindset, sure that market conditions are bound to improve. Buyers tend to lean towards the “glass is half empty”, thinking that the sky is falling. This is why, during balanced market conditions, it is so difficult to bring deals together. There is a chasm between the mindsets of both parties. We can only start doing more business when inventory either decreases or increases, and the gap between seller and buyer mindsets closes.

We are set to enter buyer’s market conditions across our fair nation. This means that we will see inventory exceed five months on average and the sales-to-new-listings ratio fall to below 40 per cent. Assuming inventories don’t swell, it certainly will be easier to bring buyers and sellers together than during temporary balanced times. Mark my words, inventory will grow as we enter into an economic recession.

Purchasers will be worth gold in a buyer’s market. So will motivated sellers. There is an old adage in real estate that I learned from the wonderful, late real estate mentor Howard Brinton: “In life you want to be the first-born child, the second spouse and the third Realtor.” Maybe it’s time to say good-bye to unmotivated clients and refocus on good business. Gone are the days where the seller says, “We are in no rush to sell” or “We are not going to give it away.” If we each had a loonie for every time that we heard that in our careers, we would be sitting together on a beach in the Caymans.

When we represent buyers in the new market reality, we need to keep a list of “the top 10 buys in today’s market.” Who doesn’t want a great buy? When we represent sellers, we need to show them where their home falls in relation to the competition, and price ahead of the market. More than ever, our listings need to be best in class, beautifully presented and the best priced in their segments.

And, we’ll have to be more creative in putting deals together. Buyers will be fussier than ever on inspections. Old roof shingles may be a problem. Sellers may have to re-roof or replace their furnace as a contingency in an offer. Vendor-take-back-mortgages may come back in vogue for hard-to-finance buyers.

In my last article in REM, I wrote about getting back to basics in our business. Part of this new reality is to take a hard look at our buyer and seller clients and choose to work with those who are most motivated. The glass is half full.

© 1989-2020 REM Real Estate Magazine

Less than 20 per cent of tenants seek rent relief

Frank O’Brien
Western Investor

Office and industrial sectors saw the fewest tenants seeking rent relief in April, while requests for rental help is exploding among retail tenants due to COVID-19 closures, according to a national survey released May 1.

Colliers Real Estate Management Services (REMS) undertook the national assessment of all the tenants in its managed portfolio of over 67 million square feet across Canada. The makeup included office, industrial and retail projects.

The survey found that 15.7 per cent of office tenants requested relief from rent in April, followed by 19.7 per cent of industrial tenants and 39.7 per cent of those in the retail sector. 

The sector with the lowest amount of tenants seeking a rent deferral or reduction was in the mixed-use category, at 14.2 per cent. 

Overall, office assets are benefitting from the number of tenants whose employees can work remotely Colliers notes, adding that 67 per cent of office buildings remain open in some form during the pandemic.

Class C offices have seen the most business closures and the least number of tenants operating remotely. Subsequently, Class C tenants, at 17.6 per cent, were more likely than Class A or B tenants to ask for rent deferrals. 

In the industrial sector, flex industrial assets – which often have tenants in the light industrial category, which may include design firms or light fabricators – are the hardest hit of the industrial asset class with 22.7 per cent of tenants requesting rent relief. This is mostly associated with a higher portion of small businesses, as 34 per cent of flex tenants are in that category. In comparison, only 14 per cent of tenants in warehouse/distribution assets asked for rental assistance.

Retail has seen the highest demand for rent relief, but the level of need differs among asset classes. Regional malls, many of which were closed in April under pandemic restrictions, saw requests for rent relief from nearly 50 per cent of tenants. Podium-level retail in mixed-use projects had the lowest requests for rent relief, but even it was at 28 per cent, the survey found.

Retail rental defaults could soar, Colliers warns, if stores must remain closed.

“For each additional day of closures, we are seeing a 1 per cent to 2 per cent increase in rent relief requests, on average. Assuming this trend were to continue for the next 30 days, we would anticipate May rent relief requests to nearly double for the highest risk category: retail small businesses that are closed, “Colliers cautioned.  A recent survey of small businesses in Toronto found that 72 per cent will not be able to fully pay May’s rent, the report noted. 

Copyright © Western Investor