Calgary Real Estate News & Market Trends

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Dec. 7, 2019

4 Simple Ways to Invest in Real Estate

Buying and owning Real Estate is an exciting investment strategy, that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost up front, then paying off the balance, plus interest, over time. While a traditional mortgage generally requires a 20% to 25% down payment, in some cases, a 5% down payment is all it takes to purchase an entire property. This ability to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can in turn take out second mortgages on their homes in order to make down payments on additional properties.


Here are four ways in which investors can put properties to good use:


1. So You Want to Be a Landlord


Ideal for: People with DIY and renovation skills, who have the patience to manage tenants.

What It Takes to Get Started: Substantial capital needed to finance up-front maintenance costs and cover vacant months.

Pros: Rental properties can provide regular income, while maximizing available capital through leverage. Moreover, many associated expenses are tax deductible, and any losses can offset gains in other investments.

Cons: Unless you hire a property management company, rental properties tend to be riddled with constant headaches. In worst case scenarios, rowdy tenants can damage property. Furthermore, in certain rental market climates, a landlord must either endure vacancies or charge less rent in order to cover expenses until things turn around. On the flip-side, once the mortgage has been paid off completely, the majority of the rent becomes all profit.

Of course, rental income isn't a landlord's sole focus. In an ideal situation, a property appreciates over the course of the mortgage, leaving the landlord with a more valuable asset than he started with.

2. Real Estate Investment Groups


Ideal for: People who want to own rental real estate without the hassles of running it.

What It Takes to Get Started: A capital cushion and access to financing.

Pros: This is a much more hands-off approach to real estate that still provides income and appreciation. 

Cons: There is a vacancy risk with real estate investment groups, whether it's spread across the group, or whether it's owner specific. Furthermore, management overhead can eat into returns.

Real estate investment groups are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allow investors to purchase them through the company, thereby joining the group. A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.

A standard real estate investment group lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies. To this end, you'll receive some income even if your unit is empty. As long as the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover costs.

While these groups are theoretically safe ways to invest into real estate, they are vulnerable to the same fees that haunt the mutual fund industry. Furthermore, these groups are sometimes private investments where unscrupulous management teams bilk investors out of their money. Fastidious due diligence is therefore critical to sourcing the best opportunities.

3. Real Estate Trading (a.k.a Flipping)


Ideal for: People with significant experience in real estate valuation and marketing.

What It Takes to Get Started: Capital and the ability to do or oversee repairs as needed.

Pros: Real estate trading has a shorter time period during which capital and effort are tied up in a property. But depending on market conditions, there can be significant returns, even in shorter time frames.

Cons: Real estate trading requires a deeper market knowledge paired with luck. Hot markets can cool unexpectedly, leaving short-term traders with losses or long-term headaches.

Real estate trading is the wild side of real estate investment. Just as day traders are a different animal from buy-and-hold investors, real estate traders are distinct from buy-and-rent landlords. Case in point: real estate traders often look to profitably sell the undervalued properties they buy, in just three to four months.

Pure property flippers often don't invest in improving properties. Therefore investment must already have the intrinsic value needed to turn a profit without any alterations, or they'll eliminate the property from contention.

Flippers who are unable to swiftly unload a property may find themselves in trouble, because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property, over the long term. This can lead to continued snowballing losses.

There is a whole other kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, where investors can only afford to take on one or two properties at a time.

4. Real Estate Investment Trusts (REITs)


Ideal for: Investors who want portfolio exposure to real estate without a traditional real estate transaction.

What It Takes to Get Started: Investment capital.

Pros: REITs are essentially dividend-paying stocks whose core holdings comprise commercial real estate properties with long-term, cash producing leases.

Cons: REITs are essentially stocks, so the leverage associated with traditional rental real estate does not apply.

A REIT is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, like any other stock. A corporation must pay out 90% of its taxable profits in the form of dividends in order to maintain its REIT status. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.

Like regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire regular income. In comparison to the aforementioned types of real estate investment, REITs afford investors entrée into non residential investment, such as malls and office buildings, that are generally not feasible for individual investors to purchase directly. More importantly, REITs are highly liquid because they are exchange traded. In other words, you won’t need a realtor and a title transfer to help you cash out your investment. In practice, REITs are a more formalized version of a real estate investment group.

Finally, when looking at REITs, investors should distinguish between equity REITs that own buildings, and mortgage REITs that provide financing for real estate and dabble in mortgage-backed securities (MBS). Both offer exposure to real estate, but the nature of the exposure is different. An equity REIT is more traditional, in that it represents ownership in real estate, whereas the mortgage REITs focus on the income from mortgage financing of real estate.

The Bottom Lin


Whether real estate investors use their properties to generate rental income, or to bide their time until the perfect selling opportunity arises, it's feasible to build out out a robust investment program by paying a relatively small part of a property's total value up front. But as with any investment, there is profit and potential within real estate, whether the overall market is up or down.

Posted in Buying Topics
Dec. 4, 2019

Top 10 Tips for Selling Your Home During the Holidays

Attract home buyers even during the holidays with these useful tips.

The holiday season from November through January is often considered the worst time to put a home on the market. While the thought of selling your home during the winter months may dampen your holiday spirit, the season does have its advantages: holiday buyers tend to be more serious and competition is less fierce with fewer homes being actively marketed. First, decide if you really need to sell. Really. Once you've committed to the challenge, don your gay apparel and follow these tips from FrontDoor.

  1. Deck the halls, but don’t go overboard.
    Homes often look their best during the holidays, but sellers should be careful not to overdo it on the decor. Adornments that are too large or too many can crowd your home and distract buyers. Also, avoid offending buyers by opting for general fall and winter decorations rather than items with religious themes.

  2. Hire a reliable real estate agent.
    That means someone who will work hard for you and won't disappear during Thanksgiving, Christmas or New Year's. Ask your friends and family if they can recommend a listing agent who will go above and beyond to get your home sold. This will ease your stress and give you more time to enjoy the season.

  3. Seek out motivated buyers.
    Anyone house hunting during the holidays must have a good reason for doing so. Work with your agent to target buyers on a deadline, including people relocating for jobs in your area, investors on tax deadlines, college students and staff, and military personnel, if you live near a military base.

  4. Price it to sell.
    No matter what time of year, a home that’s priced low for the market will make buyers feel merry. Rather than gradually making small price reductions, many real estate agents advise sellers to slash their prices before putting a home on the market.

  5. Make curb appeal a top priority.
    When autumn rolls around and the trees start to lose their leaves, maintaining the exterior of your home becomes even more important. Bare trees equal a more exposed home, so touch up the paint, clean the gutters and spruce up the yard. Keep buyers’ safety in mind as well by making sure stairs and walkways are free of snow, ice and leaves.

  6. Take top-notch real estate photos.
    When the weather outside is frightful, homebuyers are likely to start their house hunt from the comfort of their homes by browsing listings on the Internet. Make a good first impression by offering lots of flattering, high-quality photos of your home. If possible, have a summer or spring photo of your home available so buyers can see how it looks year-round.

  7. Create a video tour for the Web.
    You'll get less foot traffic during the holidays thanks to inclement weather and vacation plans. But shooting a video tour and posting it on the Web may attract house hunters who don't have time to physically see your home or would rather not drive in a snowstorm. 

  8. Give house hunters a place to escape from the cold.
    Make your home feel cozy and inviting during showings by cranking up the heat, playing soft classical music and offering homemade holiday treats. When you encourage buyers to spend more time in your home, you also give them more time to admire its best features.

  9. Offer holiday cheer in the form of financing.
    Bah, humbug! Lenders are scrooges these days, but if you've got the means, then why not offer a home loan to a serious buyer? You could get a good rate of return on your money.

  10. Relax — the new year is just around the corner.
    The holidays are stressful enough with gifts to buy, dinners to prepare and relatives to entertain. Take a moment to remind yourself that if you don't sell now, there's always next year, which, luckily, is only a few days away.

Source: HGTV

Posted in Trending
Dec. 4, 2019

Average price of a home in Calgary drops by over 4%

CALGARY -- The Calgary Real Estate Board says there were fewer sales in the City of Calgary last month, continuing a trend that has persisted for some time.

In its housing market report released this week. CREB says 1,160 units were sold in the City of Calgary last month, with the drop being driven in the apartment sector.

There were 21 per cent fewer apartments sold in the city last month over November 2018.

CREB says it's likely due to the continued uncertainty and poor economic conditions weighing down on the market.

"Achieving more stable conditions will take time," said Anne-Marie Lurie, CREB chief economist in a release. "While the amount of supply in the market continues to ease, the persistent oversupply continues to weigh on prices."

According to the report, the average price of a home in Calgary is now $458,523, 4.37 per cent less than in November 2018 when it cost about $479,593 to buy a home.

CREB also says the number of new listings in November has dropped year-over-year to 29,874, nearly 11 per cent less than last year.

Elsewhere in the southern Alberta region CREB says sales have improved in Airdrie, where a decrease in new listings helped to ease the oversupply in the market. Cochrane's market also remains oversupplied and the benchmark price of a home there was $394,200, over four per cent lower than November 2018.

Calgary Real Estate Board Housing Stats: Home Stats Doc

Source: CTV News Calgary

Posted in Market Updates
Dec. 4, 2019

New arena could be ready for Flames' 2024-2025 season

The timeline for building a new $550-million event centre could see the Calgary Flames kicking off the 2024-2025 season in their new Victoria Park digs.

Following a year of finalizing design details and acquiring the requisite permits, construction will commence in 2021 and be completed in 30 months, or 2-1/2 years, said Clare LePan, spokeswoman for Calgary Municipal Land Corp. (CMLC), which will quarterback the project.

Less than a day after city council ratified a cost-sharing deal to build the facility, LePan couldn’t say exactly when in 2021 construction would begin. But that timeline could put its completion in sync for the October 2024 Flames’ season opener.

“We don’t have definitive dates. . . We’d like the facility to be completed in advance of the NHL season starting,” said LePan.

After years of wrangling and verbal sparring over the need for a replacement for the 36-year-old Scotiabank Saddledome, a new chapter now lies ahead, she said.

“A huge amount has been done to get here but it’s now turned into a living, breathing project that has to be realized,” said LePan.

It’s possible the Flames could take their first face-off in the new building in the fall of 2024, said Coun. Jeff Davison, who spearheaded efforts in pursuing the deal for the city.

By then, the Scotiabank Saddledome will be 41 years old.

But for now, the next step is determining how the new building will look and function, a process expected to kick off after Sept. 5 when a CMLC report — on how public engagement will proceed — goes to the city’s Event Centre Assessment Committee, said Davison.

That’s largely to ensure, he said, that a multitude of expectations can be met by that feedback, which will be added to those of conceptual designers.

“Calgarians have said loud and clear this is not just going to be a hockey facility, it’s something that can used for more than one purpose,” said Davison.

A virtual pre-requisite is that the 19,000-seat facility be capable of hosting major concerts, something the Saddledome’s unique but finicky roof was often unable to accommodate, he said.

“Calgarians are tired of going to Edmonton for those,” he said.

And the beauty of the recently-opened central public library, just a few blocks away, will be expected to set a standard for the Flames’ new home, added Davison.

“We’d expect nothing less,” he said.

That consultation will also include how the surrounding Rivers District is developed for public use, said an CMLC official.

The new facility will occupy a three-hectare site at 12 Avenue and 4 Street S.E. on Calgary Stampede-owned land now occupied by parking lots.

Its construction will occur almost in tandem with the expansion of the BMO Centre, which is also expected to be finished in 2024 and whose proximity will benefit the event centre and overall cohesiveness of the Rivers District, said the CMLC’s LePan.

“It’ll be just across the street. . . It’s quite rare for a city to be able to co-ordinate that,” she said.

The demolition of the Saddledome won’t happen until after its replacement is completed, added LePan.

One of four city councillors to vote against the new arena deal said he remains concerned about how any cost overruns will be shared in the pact, that sees the city and Flames’ parent company Calgary Sports and Entertainment Corp. putting up $275 million each  for construction costs.

Jeromy Farkas also said he’s also concerned about a possible repeat of the kind of flood damage that ravaged the Saddledome in 2013.

“It’s building on a flood plain and we’re going to be on the hook for flood insurance but we don’t know what the cost of that premium will be,” said Farkas. “And if the budget does go over for the ($15 million) demolition of the Saddledome, council hasn’t set aside anything.”

He said residents of Victoria Park who live mostly in newer condo developments west and northwest of the proposed site haven’t been consulted about how the project will proceed.

“As this proceeds, it’s only going to heat up,” he said.

Farkas also opposed the agreement because it comes at a time when the city is slashing emergency service funding.

But he said as area councillor, he’ll now “roll up his sleeves to make sure it’s a success.”

Source: Calgary Herald

Posted in Trending
June 18, 2019

Calgary home sales see uptick for second consecutive month


There is some good news for Calgary’s long-depressed real estate market.

According to new data from the Calgary Real Estate Board (CREB), home sales in May 2019 across the city were 11% higher compared to the same period in 2018, representing 1,921 units sold for the month. But this is still 10% below long-term averages.

Growth in sales last month was primarily propelled by homes priced under $500,000.

Furthermore, the month finished with a decline in new listings, and it pushed down inventory levels, with 7,467 units listed — a 12% drop compared to last year.

The disparity between sales relative to inventory levels has improved, but the market is still oversupplied.

“While sales activity remains low based on historical activity for May, the easing prices have brought some people back to market, while also preventing some others from listing their homes,” said CREB chief economist Ann-Marie Lurie, in a statement.

For detached homes, sales for this housing type reached 1,182 units in May, which is a 12% increase over the same month last year, but still 13% below long-term averages. Inventories for detached homes fell from 4,504 units last May to 3,921 units this month, and it is the first time since May 2017 that year-over-year inventories declined.

Attached homes also saw improved sales activity; year-to-date sales for attached went up by 2%, making this the only home type to see a year-to-date improvement.

Apartment sales, however, continued to struggle, with the year-to-date sales sitting at 1,030 units, representing a 7% decrease over the same month in 2018 and 28% below long-term averages. Continued oversupply could cause prices to further drop.

As of May, the benchmark price for apartments was $246,900 — 0.6% lower than the previous month and nearly 3% lower than last year’s levels. Since 2014, prices for this home type have dropped by 17%.

Overall, the benchmark price for the month across all three home types was $423,100, which is a slight month-over-month improvement but 4% lower than 2018 levels.


Source: Kenneth Chan with Daily Hive

June 18, 2019

Office buildings turn to apartments, bring downtown Calgary back to life

If there are no companies willing to move into Calgary's empty office towers, real estate developers Strategic Group are betting people will.

That's the thinking behind the developer's decision to reconfigure some of its office buildings in Calgary and Edmonton as rental apartments, rather than fighting the headwinds of persistently high office vacancy rates.

One of those is the Barron Building, a historic building on Stephen Avenue that was Calgary's first skyscraper and the home of some of its first oil and gas giants when it was completed in 1951.

"I love the building," said Strategic Group president Randy Ferguson, in a Monday interview with Calgary Eyeopener host David Gray.

The building is 11 stories tall with a single residential unit: a penthouse apartment that once belonged to J.B. Barron.

The plan was to keep it that way when Strategic Group bought it, but then the oil crash happened, said Ferguson.

"We put a redevelopment plan together that we worked on since 2012 to convert the building — double the floor plate — into an office building while still respecting the architectural characteristics of the building," Ferguson said.

"Unfortunately," he added, "our plan was completed and permitted in 2015 where things came to a little bit of a stop in the office industry."

Now the interior is being reconfigured into residential units, with an expected opening in 2020.

Departing tenants

That same phenomenon came into play a few years ago, when Alberta Health Services announced it wasn't renewing its lease at another Strategic Group building, known as the Cube, on 11th Avenue S.W., across from the Midtown Co-Op.

Rather than trying to find a new tenant to replace their departing one, the company decided to repurpose the building as apartments.

Ferguson said the combination of design and location made it an appealing candidate.

"We looked at the building over what might happen in the next 10 to 15 years as an office building," Ferguson said, "and we looked at our costs and our returns on converting it to residential — and due to the location and the physical structure of the building, it was ideal for repurposing."

The building contains 67 suites. Ferguson described it as "more of a jewel box type building" than a lot of the high rise style apartments downtown, which distinguishes it from them, and as the thinking goes, appeals to a different sort of demographic.

"There is a big propensity and a big demand for purpose-built rentals in the city of Calgary today," Ferguson said.

"That could mean singles, it could mean empty nesters. It could mean new citizens moving into the city and even into the country."

The Cube is still under construction on its exterior, but has people living in it already.

"We're particularly proud of the Cube," Ferguson said, "because it's the first repurposing project that we're delivering into the two big markets in Alberta."

Artist's rendering of The Cube, a former office building that has been transformed into rental apartments in downtown Calgary. (Courtesy Strategic Group)

Demographically desirable

Strategic is also converting several office buildings in Edmonton into residential towers, for the same reason they're doing it in Calgary: older stock offices can't compete with new office buildings in a shrinking office demand economy.

But, Gray asked, what about the condo gluts that exist in both cities?

Ferguson suggested that there's room for rental units, particularly when compared with aging rental stock in both cities.

"The two youngest cities by a demographic in the country are Calgary and Edmonton and a young population," Ferguson said. "Remember, our average age is 35, and a young population has a greater propensity to rent than to buy.

"The second leading economic indicator is the fact that our rental inventories in the two big cities in Alberta, greater than 50 percent of that inventory was built prior to 1976 — so there's tranches of inventory every year that are becoming functionally obsolete."

Interior of an apartment in the Cube, on 11th Ave S.W. in downtown Calgary (Strategic Group)

Change downtown

It's not cheap to convert office buildings into residential units. The Barron Building conversion will cost $44M, while the Cube's is around $24.5M — but Ferguson said it beats the alternative.

Will it change downtown Calgary?

Could a ghost town transform into something resembling a community?

"It can absolutely change," Ferguson said.


Source Link: CBC

June 11, 2019

Debt blamed in credit crisis could help Canada with housing risk

The type of securities blamed for triggering a credit crisis in the U.S. a decade ago could now be part of the solution in Canada, where a cooling housing market is a key risk to its US$1.7 trillion economy.

The Bank of Canada is discussing ways to encourage a more robust market for residential mortgage-backed securities with potential investors. Only about $1.5 billion of Canadian uninsured mortgages have been pooled in RMBS deals, or about 0.1 per cent of the country’s mortgage debt, according to rating company DBRS Ltd. No lender has widely marketed such a deal since September, when private lender MCAP sold $254 million of the notes.

While previous efforts to kick-start an RMBS market have borne little fruit, this time may be different as Canadian home prices are rising at the slowest pace this decade amid higher interest rates, regulatory changes and tax increases designed to reign in surging prices, particularly in Toronto and Vancouver.

“While lenders are very well equipped to manage normal market risks, I suspect they are rather unwilling to take on the additional risk of future government intervention in the housing markets,” said Andrey Pavlov, a professor of finance at Beedie School of Business of Simon Fraser University in Greater Vancouver. “Therefore, lenders are likely more interested today than they have ever been in hedging their residential real estate exposure, and mortgage backed securities would be a good way to do so.”

Lenders create mortgage-backed notes by packaging property loans into securities of varying risk and returns -- too much risk it turned out during the U.S. financial crisis when shady loans made it into MBS tranches. There’s been little evidence risky mortgages have become a feature in Canada. In addition, mortgages are “full recourse” in most of the country, meaning lenders can pursue borrowers even after they’ve walked away from the property.

On top of raising funds, the sellers of the underlying assets can reduce the regulatory capital they have to set aside to cover eventual losses should they meet certain conditions, including selling significant portions of the lower rated, higher risk bond tranches.

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Longer Term

The notes are repaid as borrowers pay down debt. The legal duration of the bonds could be significantly longer than the expected repayment rate suggests. This could be a useful tool for lenders to offer longer-term mortgages in a country where most of the home loans have a 5-year term. The repayment of the bonds can be adapted to the repayment of the underlying collateral.

Up until 2016, Canadian lenders relied heavily on Canada Mortgage & Housing Corp., the country’s national housing agency to insure mortgages with down payments of less than 20 per cent and then packaged those loans into mortgage-backed securities to fund obligations. But as part of its efforts to curb taxpayer exposure to the housing market, the government made it more difficult to get insurance. The market for uninsured mortgages took off -- MBS based on the debt less so.

“There’s an ongoing education job around investors just to highlight the difference between that product and the CMHC product, and we are investing in that so that the market grows over time,” Bank of Montreal Chief Financial Officer Tom Flynn said in an interview last week. The RMBS “market is not nearly as developed as the CMHC mortgage bond market is. I would say our hope is over time that market will grow, and the banks generally I believe are interested in issuing that product.”

The Canadian Fixed-Income Forum, a Bank of Canada-led group made up of participants in the bond market, has been working since at least last year to analyze the conditions and incentives that would be required to expand interest in the asset class, according to the minutes of their meetings. It conducted a focus group last month with mostly buy side institutions about the disclosure on the underlying collateral and other features they may require. The group, known as CFIF, was scheduled to discuss the issue again at a June 4 meeting.

Data Portal

One way to bolster investors’ confidence in deals would be by setting up a public database of mortgages used in securitization deals including anonymized details of the borrower, property and loan performance, Bank of Canada governor Stephen Poloz said last month. A similar project was supported by the European Central Bank in a bid to re-start sales of asset-backed securities after investors shunned hard-to-value assets following the seizure of the U.S. mortgage securitization market in 2007.

“A loan level data portal is a great idea,” said Imran Chaudhry, a senior portfolio manager at Forresters Asset Management Inc., which manages about $8.5 billion of assets and has invested in Canadian securitizations. “Issuing public RMBS deals would provide a larger investor base to the issuers and help establish a diversified funding source for them over a longer term.”

The starting point of RMBS as a funding tool isn’t the most attractive for banks as investors may demand an extra yield of 20 to 30 basis points over their senior bail-in debt in a stable market situation, said Chaudhry, who is part of the CFIF. Yet, once a market develops the spreads will tighten and it will make economic sense for the lenders to issue, he said.

Uninsured Surge

All these efforts are occurring at a time when the household debt-to-disposable income ratio in Canada at the end of 2018 hit a record high of 175 per cent, up from 136 per cent in 2006. By contrast, U.S. household debt to disposable income ended last year at 98 per cent, the lowest since 2001, according to data compiled by Bloomberg.

“A key domestic risk is a sharp correction in the housing market,” officials at International Monetary Fund said in May 21 statement about the state of the Canadian economy. To be sure strong immigration, underlying strength in the economy and an unemployment rate near historic lows argues against such a scenario.

Lenders’ exposure to an eventual downturn may be increasing. According to the Office of the Superintendent of Financial Institutions, the Canadian bank regulator, the ratio of uninsured over insured mortgages has jumped to the highest since 1997.

At the end of March, the volume of uninsured mortgages surged 14 per cent from a year ago, accounting for about 59 per cent of the $1.17 trillion of home loans at Canada’s federally regulated banks, while insured home loans fell 7.8 per cent from a year ago, according to data from OSFI. On Tuesday, the regulator announced it was increasing a domestic stability buffer for systemically important banks to two per cent of their risk weighted assets from 1.75 per cent, effective Oct. 31, citing vulnerabilities that include household indebtedness.

“To be clear, the system is not broken—it has served Canadians and financial institutions well,” said Poloz in a May 6 speech in Winnipeg. “We should not stop looking for improvement.”



May 14, 2019

Economics estimates that the Bank of Canada will cut rates twice this year, dropping the benchmark rate to 1.25 per cent, from 1.75 per cent.

The Bank of Canada may be underestimating the extent of the cooling in the country’s housing market as well as its knock-on effects for the consumer-driven economy, according to research firm Capital Economics.

Sales of pre-construction units in Toronto and Vancouver slowed in 2018, making it harder for developers to secure financing for their projects, said Stephen Brown, the firm’s senior economist for Canada. That in turn is likely to impact employment and consumption, which accounts for about 60 per cent of the country’s output.

“The Bank of Canada is underestimating what’s to come in regards to residential investment,” Brown said in an interview Monday in Toronto.

Capital Economics estimates that the Bank of Canada will cut rates twice this year, dropping the benchmark rate to 1.25 per cent, from 1.75 per cent. That’s far from consensus, with implied policy rates in the swaps market signaling just one rate cut over the next two years, Bloomberg data show.

The research firm expects that families will have to use a bigger portion of their income to bolster savings because home equity will be constrained by muted price gains.

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New home sales in Toronto declined at the start of the last year and remained flat since then, averaging 25,530 units per month, compared with a monthly average of 46,841 units in 2017, according to data from real estate consultant Altus Group. The housing starts adjustment is just beginning, with monthly averages since January 2018 at 39,301 units, compared with 39,703 units on average in 2017, according to data compiled by Capital Economics based on Statistics Canada data.

“Condo developers have to sell about 70 per cent of the units in their condo before they start construction, in order to secure financing,” Brown said. “So the current housing starts represent homes that were actually sold, as pre-construction units, around 18 months ago.”

He added that a similar trend is playing out in Vancouver.

“It’s a niche data that not many are looking at it,” he said.



May 7, 2019

Making Housing more Affordable: First-Time Home Buyer Incentive

The recent federal Budget proposed a series of incentives that demonstrates the government’s commitment to housing affordability, and CMHC is proud to take a leading role in many of them. We know that you’re particularly anxious for details regarding the new First-Time Home Buyers Incentive (FTHBI).

Affordable home ownership is a pressing concern for many young Canadians. This program was designed to help you without undoing the progress we’ve already made through measures that prevent excessive borrowing and limit house price inflation.

Like other Budget incentives, the proposal requires some government approvals. We also plan to consult with lenders and other industry participants to make sure the program works as intended.  As a result, we still have work to do. While we can’t yet share all program specifics, we can nonetheless elaborate on the program’s intent and some of the rationale behind its design.

A partner for your home purchase

The FTHBI is a program that will assist qualified first-time home buyers without adding financial burden. As there are no monthly payments, it will free up income to pay for other everyday expenses.  Unlike some of the other assistance programs tried in the past, the FTHBI will also require borrowers to meet minimum insured mortgage down payment requirements, ensuring they are invested in their purchase.

Supply measures moderate price growth. By doubling the incentive for purchasers of new homes, it encourages new supply to meet housing demand.

Indeed, by helping first-time home buyers purchase homes, we will free up rental supply, easing pressure on rents. This, along with the expanded Rental Construction Financing program, will add to the supply of affordable rental housing. Core housing need is four times higher among renters among homeowners. (26.4% versus 6.5%)

Targeted to avoid increasing house prices

We have carefully targeted the FTHBI to help younger Canadians having trouble affording home ownership. The program is capped at $1.25 billion over three years. The incentive will be limited to households with a maximum combined income of $120,000 and total borrowing is limited to four times income.

We do not expect the FTHBI’s inflation effect to be beyond a maximum of 0.2-0.4 per cent.

Limiting house price inflation will keep housing more affordable, more so than some of the other suggested policy and regulatory changes. For example, a reduction of one per cent in the mortgage insurance stress test or an extended amortization limit of 30  years would have added to indebtedness and resulted in house price inflation of five to six times more than this maximum.

Available throughout Canada

Despite the income and borrowing limits, we are confident this program can work in all markets, including Vancouver and Toronto. The average insured home in Canada is worth $284,000, less than the national average house price of $470,000 and this program applies up to a house price of $505,000, assuming a 5% down payment. However, we shouldn’t confuse market average prices ($1 million in Vancouver and $770,000 in Toronto) with starter home prices.

It may not be a condo in Yaletown or a house in Riverdale, but there are options in both metropolitan areas to accommodate this program. In fact, around 23% of transactions in Toronto are for homes under $500,000 and 10% in Vancouver. It is very difficult to estimate the demand for the Incentive; however, based on last year’s activity — more than 2,000 home buyers in Toronto would have been eligible for the FTHBI and over 1,000 in Greater Vancouver.

Stay tuned

#askthecret for more details. 


April 30, 2019

Scrapping Mortgage Rules Would Boost Canadian Home Prices

The Canadian government should consider being flexible on its new mortgage lending rules because the impact has been longer-lasting and more significant than originally intended, Toronto-Dominion Bank says.

Home sales were about 40,000 lower between the final quarter of 2017 and the same period a year later than they otherwise would have been without the rules, according to a note to clients Tuesday by TD economists Rishi Sondhi, Ksenia Bushmeneva and Derek Burleton. That translates into about a 7 per cent decline in sales, they said.

There is also evidence of a shift in business to private lenders who are not subject to the rules, known as B-20 and implemented by Canada’s banking regulator. The economists estimate the share of borrowers in Toronto accessing funds from alternative lenders increased to 8.7 per cent in the second quarter 2018, from 5.9 per cent in the same quarter a year earlier.

The changes mean federally regulated lenders must now run a 200 basis-point stress test on new mortgages, to ensure the quality of lending remains high amid escalating home prices. The measures are disproportionately affecting first-time homebuyers, who normally account for between 40 per cent and 50 per cent of the market, as well as cities that have more youthful demographics like Toronto and Vancouver, TD said.


“Right now it’s a one-size-fits all type of policy, and borrowers differ in their ability to service their mortgage, and they’re different in terms of their risks,” Bushmeneva said in a phone interview. She said policy makers could consider being flexible around the 200 basis point stress test limit, given it’s “somewhat arbitrary,” and doesn’t take into account the credit-worthiness of borrowers or their life stage.


Immediately removing the rules would increase Canadian home prices an additional 6 per cent, on top of Toronto-Dominion’s current forecast for a 4 per cent increase, by the end of 2020, the economists wrote, adding that would boost home prices by about $32,000 on average.

The rules have pushed potential buyers into the rental market, leading vacancy rates for purpose-built rental units to fall by as much as 30 basis points in Toronto and Vancouver. That poses a “significant challenge” as those markets are already “severely under-supplied,” with current vacancy rates at just 1 per cent, the economists wrote.

Toronto-Dominion joins fellow-lender Canadian Imperial Bank of Commerce, along with realtors and builder groups in calls for the government to revisit its B-20 rules.

According to the note, Toronto-Dominion also forecasts:

  • Housing starts to trend lower through 2020, as B-20 crimps market for new housing
  • New housing construction will be a drag on growth next year, though healthy job gains and robust population growth will provide a floor. Currently, the bank sees Canadian home prices stabilizing by mid-year and rising 4 per cent by end of 2020
  • However, if B-20 was immediately removed, nationwide sales and prices could be about 8 per cent and 6 per cent higher by end of 2020, equating to about $32,000 difference in avg Canadian home price, with disproportionate impacts in Toronto, Vancouver.
  • Removal of B-20 would represent a “significant near-term boost to housing activity, though at a longer-term cost of worsened affordability”


Source: BNN Bloomberg