Despite concerns there could be 2 rate rises in 2019

The Bank of Canada’s decision to hold interest rates at 1.75% was not unexpected; neither is its tone on the road ahead.

Governor Stephen Poloz reiterated the central bank’s position that rates will need to rise to a more neutral range to keep inflation in check, but with some economic concerns remaining it seems likely that this will be a gradual process.

Growth for the Canadian economy was downgraded in the BoC’s report Wednesday, from the 2.1% forecast for 2019 it released in October, to 1.7%.

The three things that are key for future rate decisions are consumer spending, the oil market, and… the housing market.

“Consumption spending and housing investment have been weaker than expected as housing markets adjust to municipal and provincial measures, changes to mortgage guidelines, and higher interest rates. Household spending will be dampened further by slow growth in oil-producing provinces. The Bank will continue to monitor these adjustments,” the BoC said in a statement.

Next rate rises
There were some bright spots in the policy statement though, with non-energy investment and exports looking solid; and most of the economy operating close to capacity.

The Conference Board of Canada says that if economic growth hits expectations, there could be two interest rate hikes this year.

“Expecting the slowdown to be temporary, the Bank noted that many parts of the economy are doing well and that interest rates will need to increase to a neutral range. This supports our view that further interest rate increases are in store this year,” said Alicia Macdonald, Principal Economist, The Conference Board of Canada.

However Helmut Pastrick, chief economist at Central 1 Credit Union says that rate rises will be seen “within the next two years” but is less optimistic than the BoC on future growth.

Looking to 2020, the BoC is calling for growth to rise to 2.1% but Patrick believes it will be 1.7%, the current BoC expectation for 2019.

“The bottom line is that rate will remain low and below the neutral range into the foreseeable future,” he says.

Source: https://www.canadianrealestatemagazine.ca/market-update/despite-concerns-there-could-be-2-rate-rises-in-2019-252699.aspx

1 in 4 Canadians wants to cut their debts in 2019

With interest rates rising, many Canadians are prioritizing paying down their debts in 2019 according to a CIBC poll.

The survey found that 29% of respondents increased their debt load in 2018. This increase was due to day-to-day items (for 34%), purchasing a new vehicle (24%) and paying for a home repair or renovation (20%).

 More than 1 in 4 (26%) said that that paying down debt is their number one financial priority, followed by keeping up with bills and getting by (14%), growing wealth (12%), saving for a vacation (7%), and saving for retirement (6%).

"Debt weighs heavily on Canadians, so it's no surprise that Canadians continue to put debt concerns at the top of their list of priorities each year," says Jamie Golombek, Managing Director, CIBC Financial Planning and Advice.

Top sources of Canadians’ debt are: credit card (45%), mortgage (31%), car loan (23%), line of credit (22%), and personal loan (11%). 28% say they have no debt.

Better to pay down debt than save
sTwo-in-five Canadians worry that they're forsaking their savings by focusing too much on their debt, but the vast majority (84%) still believe that it's better to pay down debt than build savings.

"There's rarely enough money to do everything, so it's critical to make the most of the money you earn by prioritizing both sides of your balance sheet – not debt or savings, but both," adds Golombek. "It boils down to tradeoffs and balancing your priorities both now and down the road. The idea of being debt-free may help you sleep better at night now, but it may cost you more in the long run when you consider the missed savings and tax-sheltered growth." 

Source: https://www.canadianrealestatemagazine.ca/market-update/1-in-4-canadians-wants-to-cut-their-debts-in-2019-252389.aspx

Lack of homes for the 'missing middle' to impact GTA

Building the right homes to meet the demands of the population is essential to avoid a sizeable deficit in housing supply in the Greater Toronto and Hamilton region.

A new report from the Residential and Civil Construction Alliance of Ontario warns that the region is at risk of missing provincial population targets, which could potentially result in 7,200 fewer new homes being built each year until 2041.

The report says that homes to encourage seniors to downsize and to provide the right space for families are essential to avoid skewing the region’s population older with a resulting impact on the economy.

The report - GTHA's Unbalanced Housing Stock: Benchmarking Ontario's New LPAT System - says that up to 165,600 homes are at risk of not being built over the next 23 years, equal to an annual loss of $1.95 billion in GDP from residential construction activity if various constraints continue to inhibit the goals set by the provincial growth plan, Places to Grow.

Medium density homes – the so called ‘missing middle’ are key to addressing this issue says Paul Smetanin – president of socio-economic research and data firm the Canadian Centre for Economic Analysis (CANCEA)who conducted the research.

"Hamilton has made the most progress on the 'Missing Middle,'" Smetanin says. "Toronto, Mississauga, Markham, Newmarket less so, while Brampton is biased towards lower density starts."

The big issues
The report highlights the key issues for the region’s most populous municipalities including:

• Only 15% of GTHA households live in medium-density housing, which leads to an inadequate supply of appropriate housing types for a range of household sizes and budgets.
• Toronto's number of annual starts is 5-15% higher than required to hit P2G targets. However, the mix of housing is constrained by land, meaning the city's supply will be highly skewed towards taller towers.
• York Region is the only one in the GTHA with current annual starts on pace to meet its future target population.
• Among municipalities with populations over 80,000 people, Oshawa, Brampton and Newmarket have the lowest share of higher-density starts.
• Municipalities can better optimize infrastructure investments by ensuring that community growth planning is based on a long-term and strategic analysis of our future housing requirements.

Source: https://www.canadianrealestatemagazine.ca/market-update/lack-of-homes-for-the-missing-middle-to-impact-gta-251794.aspx

Builders are planning to increase housing supply

The value of residential building permits issued by Canadian municipalities in October was up 4.2% to $5.2 billion.

The increase, reported by Statistics Canada, shows that the number of units for which permits were issued was up by a similar share (4.1%) to 20,017.

Both single-family and multifamily units posted increases month-over-month although overall it was apartment condos that drove the increase.

For single-family dwellings, there was the first increase in five months in value terms; up 4.6% to $2.3 billion. In unit volume terms, the increase was 2.2% to 5,052.

For the multifamily sector, there was a rise of 3.8% to $2.9 billion; and a rise of 4.7% to 14,965 new units. Ontario ($222m) and BC ($115m) posted the largest gains while Quebec saw a sizeable decline (-$238m).

The value of non-residential building permits fell 7.0% in October to $2.9 billion. Eight provinces posted declines, most notably British Columbia.

The overall value of permits issued for residential and non-residential properties was $8.1 billion in October, down 0.2% from September. The decrease was mainly attributable to lower construction intentions for industrial and institutional buildings.

Source: https://www.canadianrealestatemagazine.ca/market-update/builders-are-planning-to-increase-housing-supply-251718.aspx

Why VR and AR may become standard terms for real estate agents

The importance of effective listings is highlighted by a new report which shows that 1 in 5 homebuyers bought their home without physically walking through the property before deciding it was ‘the one’.

While that may be a risky strategy and most buyers still want to go inside their potential purchase, online listings do play an increasingly prominent role with almost three quarters saying that they toured or viewed images online before deciding which homes to physically visit.

The survey also reveals that 60% of respondents said they prefer to see homes furnished and professionally staged, or both furnished and empty, before making a purchase or signing a lease.

When moving into a new space, 65.4% of respondents said their top pain points included the stress of buying new furniture at once, shopping for furniture or designing their homes and finding furnishings to match their existing pieces.

The study was carried out by roOomy, a virtual staging and 3D modeling company which has just launched custom augmented reality (AR) and virtual reality (VR) tools for the real estate industry. The technologies allow for enhanced live views or an immersive digital experience.

“We’re enabling our Real Estate partners to transform the home buying and renting processes with the development of custom apps that allows users, both agents, and home seekers, to take control of how they visualize a new space. In this digital era, consumers expect to use advanced technology regularly, including when considering one of the biggest purchases of their lives – a home,” said Pieter Aarts, CEO of roOomy.

Sothebys International adopts AR
Sotheby’s International Realty has launched an AR app called Curate, which it says has empowered agents and consumers to virtually stage properties and view them with AR technology.

Nick Church, Pacific Sotheby’s International Realty sales associate says it adds an extra tool to win business.

“The seller felt confident in my ability to use the latest technology to sell the home,” he said.

Source: https://www.canadianrealestatemagazine.ca/market-update/why-vr-and-ar-may-become-standard-terms-for-real-estate-agents-251539.aspx

Investors have little to fear of a housing meltdown

Would-be investors who remain wary of the Canadian real estate market’s price growth should take a measure of comfort in the results of a new study conducted by Chartered Professional Accountants of Canada (CPA Canada).

The research found that the market’s fundamentals have robustness as their main feature, precluding any U.S.-style meltdown in the near future.

“Beyond prices and debt levels, Canada shares far fewer similarities with the U.S. than you might think. This becomes very apparent when you look at just one measure: credit quality,” CPA Canada chief economist Francis Fong stated.

Fong emphasized that seeing the U.S. crisis as a reference point for the possibility of a Canadian collapse would be futile due to the pre-eminence of different factors in the two markets.

The sheer volume of subprime mortgages issued to borrowers with low credit quality, who cannot afford to repay debt, is frequently cited as one of the leading causes of the U.S. breakdown.

In comparison, Canada’s share of high-credit-quality clients increased from 66% in 2002 to 88% in 2017, according to CMHC. During the same time frame, the proportion of low-credit-quality borrowers fell from 17% to just 3%.

“The situation in Canada is likely not a bubble in imminent danger of deflation; in fact, housing prices may reflect the true value of living space in Canada and in some markets increased household debt may be the new price for real estate,” Fong explained.

“Our cities frequently are listed among the best places to live and work in the world and, compared to their peer cities abroad, they are not among the most expensive. We may simply be dealing with the law of supply and demand so affordability could continue to be a challenge for the foreseeable future,” he added.

Source: https://www.canadianrealestatemagazine.ca/news/investors-have-little-to-fear-of-a-housing-meltdown-251448.aspx

Cut the mortgage red tape Mattamy Homes urges

Rising interest rates mean that the tighter mortgage lending rules introduced earlier this year are no longer needed.

That’s according to Toronto-based Mattamy Homes which says the measures brought in to cool overheated housing markets have done their job but are now having a negative impact.

Mattamy, along with the Canadian Home Builders Association, is urging the government to relax lending rules to enable younger buyers to move forward with their homebuying ambitions.

“We’re going to continue to lobby for a pullback now on B-20,” Brad Carr, chief executive officer of Mattamy Homes Canada told Bloomberg. “That had a very targeted outcome. It’s been achieved so it’s kind of overkill now.”

David Foster of the CHBA added that markets that were already soft, such as Calgary, are getting “hammered” by the B-20 mortgage regulations that introduced stress tests for CMHC-backed loans.

Despite the pleas from builders, an OFSI spokesperson told Bloomberg that sound mortgage underwriting including consumer stress tests are important given “current risks and vulnerabilities”.

Source: https://www.canadianrealestatemagazine.ca/market-update/cut-the-mortgage-red-tape-mattamy-homes-urges-251356.aspx