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Stress test adjustment will have a minor impact at best – CIBC?s Tal


Mortgage qualification rules increased by 3%

Ephraim Vecina
Mortgage Broker News

The latest changes to mortgage qualification rules increased Canadians’ home purchasing power by a mere 3%, according to CIBC’s deputy chief economist.

In a client note late last week, Benjamin Tal wrote that the recent adjustment to the stress test means that average-income Canadians will be able to buy an extra $13,500 in real estate.

This is a miniscule addition considering the sky-high price points in the country’s most desirable housing markets – underscoring the dire need for policy adjustments that actually address the lack of units in the first place.

“It’s becoming more and more apparent that, short of drastic measures, it’s impossible to fight supply issues with demand tools,” Tal stated in his note, as quoted by the Financial Post. “Increased supply (rental or otherwise) is the only reasonable solution to the housing affordability crisis that many Canadians are facing.”

Scotiabank president and CEO Brian Porter mirrored these sentiments.

“I don’t think a lot of tinkering is necessary on the stress test,” Porter said in a separate Financial Post interview. “But we have to make sure that these housing markets are in balance.”

“You can’t have single-family homes in densely populated cities running right up to [Southern Ontario’s] Greenbelt,” he added. “You have to have multi-use facilities, you have to have rental units, you have to have condominiums of some sort. Each of these cities has to rethink their zoning, or application for zoning, policies.”

An essential starting point would be to cut down as much red tape as possible, Centurion Asset Management CEO Greg Romundt told BNN Bloomberg earlier this month.

“In the 1960s and ‘70s, Canada was building 60,000 to 70,000 apartments a year. When [the government] brought in rent control in the ‘70s, it absolutely cratered new apartment construction; it kind of just petered out to around 1,000 to 2,000 a year,” Romundt explained.

“About 40,000 new apartments were built across Canada over the last decade – absolutely nothing compared to population growth and new demand of around 500,000 units per year.”

Copyright © 2020 Key Media



Properly: Valuable tool or formidable opponent?


A tech company/real estate brokerage simplifies the buying process

Clayton Jarvis
REP

Launched in 2018 and steadily gaining traction in Ottawa and Calgary, Properly is a tech company/real estate brokerage that promises to simplify the homebuying process. It’s a nifty enough business model: If a user agrees with the company’s valuation of their home, Properly will buy it and then sell it for them; if the final sale price is higher than what the company paid, the net profit is split 50-50. The process greatly decreases complexity, uncertainty and, potentially, costs, making it highly attractive to Canadian consumers.

Properly’s relationship to realtors is a little more complicated.

By providing valuations the company says are 99 percent accurate and eliminating the need for staging, renos and waiting for offers to come in, the company has already targeted the most obvious pain points experienced by homebuyers who sell their homes in the traditional manner. The implication – trust the tech, ditch the human – seems obvious.

But company CEO and co-founder Anshul Ruparell insists the company is no enemy to flesh-and-bone agents.

“The role of the realtor might be changing, but it will never go away,” Ruparell says. “We actually have a number of realtors on our team.”

In Ruparell’s eyes, Properly is a solution to a growing demand among consumers for increased convenience and certainty. “It’s our role, as members of this industry, to adapt to these changing needs and to provide the type of services our customers expect,” he says.

Rather than comment on the potentially negative impact Properly will have on agents’ livelihoods, Ruparell prefers to talk about how the company actually supports its competitors.

“Ultimately, realtors are entrepreneurs just like us, so we like to find ways to work together,” he says. Properly does indeed refer customers to realtors in cases where the company can’t make an offer. It also accepts client referrals from (and pays industry standard referral fees to) agents whose clients don’t have the luxury of waiting for an offer. Properly also enlists other company’s realtors to act as listing agents for many of the homes they’re selling.

“There are a number of ways in which we’ve built up the capability to work together,” says Ruparell. We view ourselves as being highly complementary to the existing capabilities and toolkits of traditional agents.”

Unintended consequences The problem with tech is that the possible collateral damage left in its wake is rarely explored until it’s too late. Funny how that happens when millions of dollars are at stake.

As an early investor in Airbnb, Ruparell has already had a hand in unleashing one piece of real estate tech that is doing untold harm to many cities’ real estate markets by turning housing into little more than another bloodless commodity. When asked if the team behind Properly had thought critically about any long-term or hidden risks the platform might pose to the Canadian real estate industry, his answers were, to be kind, Zuckerberg-ian in their robotic optimism and inability to deviate from script.

Q: You were an early investor in Airbnb, which is taking a lot of heat, especially in Toronto, because of the part it seems to be playing in the housing crisis. Do you think Properly poses any unintended risks to the industry?

A: Properly is creating a process for Canadian homeowners that’s empowering and certain and convenient. By eliminating a lot of the friction associated with the move, we hope to actually increase mobility and to enable our customers to more easily take advantage of any opportunity that comes into their life.

  1. Okay. So that’s a no?
  2. We see it, quite candidly, as only positive for Canadian homeowners.
  3. And for realtors?
  4. I think we’re offering new and innovative ways for homeowners to go through the process of buying and selling their home. And, as mentioned before, we found a number of ways to work very closely with realtors to provide our services to their customers.  

Make of that what you will.

Copyright © 2020 Key Media Pty Ltd



Metro Vancouver developers slash condo presale launches as demand drops


The number of condo presale units released for sale in 2019 fell sharply, as developers responded to plummeting demand

Joanne Lee-Young
The Vancouver Sun

The number of condo presale units released for sale in 2019 fell sharply in Metro Vancouver, as developers responded to demand that fell off a cliff.

Developers put 7,588 units up for presale, less than half the 18,998 released in 2018.

The drop was more pronounced for more expensive, concrete condos in high-rise towers than for wood-frame units in smaller, low-rise developments, according to Michael Ferreira of Urban Analytics, which tracks data for the real estate industry.

Developers held back on larger, concrete projects because they weren’t sure they could sell enough presale contracts to qualify for bank financing in the allowed time period of nine months, said Ferreira.

He said it is much harder to presale towers that are 40 to 50 storeys and have some 400 to 500 units than it is for a less-expensive, low-rise or townhome development of only 80 units. Lenders typically expect developers to lock up presales for 60 to 70 per cent of units before providing money for construction.

In the spring of 2019, as buyer interest waned, some developers tried to draw attention to presales by offering gimmicky treats such as free avocado toast or glasses of wine a day for a year.

By June, even some larger, experienced developers with deep pockets and more favourable financing thresholds to meet said their sales volumes had dropped as much as 70 per cent and they were putting on hold several high-rise, transit-oriented towers that had zoning and building permits secured and promotional brochures printed.

MLA Advisory, which tracks monthly presale launches, found different ways of saying things weren’t on track in 2019, with projects “shifting their releases,” or “testing with minimal inventory,” or postponing “for more favourable market conditions.”

The retreat of the investor-buyer, who no longer had confidence that buying a contract would end in allowing them to sell the completed unit at a profit, hit presales hard. In a hot market, investor-buyers had been generating an immediate urgency to buy. Without them, it is taking much longer for developers to sell presales contracts, said Ferreira.

The Real Estate Development Marketing Act allows for a period of nine months, but developers have been asking the superintendent of real estate to consider lengthening this time.

If this period was several years long, it might mean that projects might get cancelled after tying up buyers’ deposits for too long, said Ferreira. However, with presales taking longer to sell, lengthening the marketing period to, perhaps, 18 months might be a middle ground that allows developers to get to the construction phase, he said.

He said developers were also grappling with having paid peak prices for land, adjusting to rising construction costs and navigating increasing bureaucratic hurdles and taxes.

Developers are warning there could be a shortage of new housing and a jump in prices in a few years as population grows and demand returns.

Gauging the effect of the fall in presale launches in 2019 on housing supply and prices will take until 2021 to 2022, said Ferreira. Currently, buyers of presales are only just now getting possession of units they would have bought at the height of the market boom at the end of 2016 to 2017.

© 2020 Postmedia Network Inc.



This real estate market shows how fast things can change


Asian housing markets vulnerable due to covid-19

Steve Randall
Canadian Real Estate Wealth

Real estate frequently follows trends but occasionally there will be a bolt from the blue that changes things fast.

The US saw it a decade ago when subprime mortgage lending buckled and the housing markets collapsed. Now, it is Asian housing markets that are especially vulnerable to circumstances due to the novel coronavirus or Covid-19.

Bangkok has long been a favourite market of international real estate buyers; the Chinese in particular but not exclusively.

But fears about the spread of the virus are likely to see these buyers pull back. Chinese real estate buyers have already been cutting back on international real estate purchases – including in Vancouver – due to tighter restrictions by the Beijing government.

Consultancy firm Agency for Real Estate Affairs is forecasting international buyers to account for just 10% of sales in 2020, down from 20% two years ago.

“The demand from foreigners may disappear in the first half following the outbreak,” Sopon Pornchokchai, the consultancy’s president told Bloomberg. “We’ll need to rely on local buyers, but that won’t be easy.”

Bangkok has 100,000 empty condos and local banks have cut mortgage rates to try to spark domestic demand.

Copyright © 2020 Key Media Pty Ltd



Bob Rennie cues builders on B.C.’s ‘demographic crunch’


Climate change, aging population biggest challenges facing the economy

Malcolm Parry
The Vancouver Sun

CRYSTAL BALLING: Realtor Bob Rennie and his Rennie Group’s intelligence VP, Andrew Ramlo, helped Independent Contractors and Business Association conventioneers digest their bacon and eggs recently. The association president, Chris Gardner, had already told breakfasting colleagues that trade workers’ wages will increase by 5.2 per cent this year, that 54 per cent of contractors can’t obtain enough workers, and that only the Slovak Republic is slower than B.C. among 35 jurisdictions issuing building permits. Rennie and Ramlo’s “demographic crunch” projections included Canadian immigration admissions surging to 350,000 by 2021 (B.C.’s share to be 15 per cent). An aging population and climate change will be the economy’s greatest challenges, they said. Meanwhile, housing the Lower Mainland’s one million more residents by 2040 will require “another Vancouver, Burnaby, New West and Coquitlam.” And though, in constant dollars, millennials’ median household after-tax income exceeds Generation X’s and Baby Boomers’ by 32 per cent, their debt-to-after-tax-income is almost twice as high at 216 per cent. Rennie’s problem: “Twenty years from now, who’s going to be my lawyer, bring my bedpan and pay my taxes?”

GIRLY RISER: After 14 years as a global art adviser, Krista Howard has launched a physical gallery and office, Howard495, in the Railtown district. Her debut show, titled Girlie Pics, Someone Else’s History, featured work — some of it a little spicy girlie — by mostly female artists familiar to her existing clients. Catriona Jeffries’ influential gallery recently located nearby on East Cordova’s 900 block. The Monica Reyes Gallery has long operated at Hastings-at-Princess. We’ll likely see more.

HIGHER LEAH: Raised in a socialist household, Leah Costello sang in a Salmon Arm-based Hawaiian band, sought North Vancouver’s federal Tory nomination, managed Fraser Institute events, produced policy-issue videos, and founded Curious Minds Productions and the Bon Mot Book Club. The latter’s readings featured such diverse authors as former Pakistani president Pervez Musharraf, U.S. vice-presidential nominee Sarah Palin, Canadian media meteorite Conrad Black and John Cleese of the Monty Python’s Flying Circus TV series. After shelving that project, Costello married the Highland West Capital managing director and former Douglas & McIntyre book-publishing firm partner, David Rowntree. Now, as Leah Rowntree, she’s planning a podcast titled Hungry Mind, Open Heart to talk about current issues. There’s a Hawaiian song for that: I Hei Anau — How Far I’ll Go.

FREE-LUNCH DIVIDEND: Science World’s Lego-skyscrapers exhibition reminds architect Michael Green of his first job. Before designing and advocating mass-wood highrises, Green assisted César Pelli on Kuala Lumpur’s reinforced-concrete Petronas Towers. At 452 metres, the 1996 structures were the world’s tallest until 2004. Green recalls clients nixing Pelli’s original design because his tower cross-sections resembled the six-pointed Star of David. When redrawn with two more to suggest the Muslim Rub El Hizb symbol, and with further facets added, Pelli got the go-ahead. Green has given himself the same for a vegetarian-vegan book based on his lunchtime feeding of Michael Green Architecture’s 65 staff. Its second section will address how “serving food builds culture, connections and collaboration,” and a third “the financial benefits of all businesses giving lunch.” Have your cake and eat it, that is.

ART START: North Vancouver’s Polygon Gallery was packed recently when Laura Gildner received the fifth-annual Philip B. Lind Emerging Artist Prize of $5,000. “Being an artist is very hard; I admire you immensely,” Rogers Communications vice chair Lind said to prize contenders. Many feel that way about Lind, who survived a 1998 stroke to continue his 40-year guidance of communications entrepreneur Ted Rogers. Gildner’s work, Informer, contains eight life-size video images addressing viewers. Visit the Polygon gallery exhibition before March 16 to see how artists emerge.

GOOD ONE GOES: Hospital staff and patients will miss Dr. Dianne Miller who has completed 30 years as a gynecological oncologist and researcher. She received a Vancouver Coastal Health lifetime-achievement award in 2019 that recognized her “revolutionizing the care and prevention of ovarian cancer for women in B.C. and all over the world.” Miller will now spend up to three months a year teaching gynecological-cancer surgery techniques to Ugandan practitioners.

BOT BALL: Beaumont Studios founder-owner Jude Kusnierz’s recent Robot Dance Party drew participants attired in costumes that could hamper the actual dancing. Artist Noa Ben-Mazia — she goes by Noya — avoided that by creating a life-sized but inanimate robot named BroBot3E5 that, with further tweaking, may master a few dance steps for next year’s wingding.

NO DEER: Much-honoured animator Marv Newland won’t follow the Disney studio’s proposed remake of Bambi by updating his own Bambi Meets Godzilla. The Mayne Island resident and International Rocketship Ltd. founder-principal usually pooh-poohs talk of the 1969 cult-classic he made while studying at Pasadena’s ArtCenter College of Design. Newland does have a new movie, though. Containing contributions by 15 global colleagues, his Katalog of Flaws will premiere at the 20th annual Monstra Animation Festival in Lisbon, Portugal, on March 19.

© 2020 Postmedia Network Inc.



Easier Mortgage Stress Test Rate to Come in April


It?s going to become a bit easier to qualify for a mortgage

Penelope Graham
other

Good news is on the way for those getting into the housing market this spring – it’s going to become a bit easier to qualify for a mortgage, as changes are in store for the much-contested federal mortgage stress test.

The Department of Finance announced on February 18 that it will be tweaking the qualification criteria used in the stress test, to go into effect on April 6 – just in time for the busiest housing market season of the year. Under the new changes, the benchmark rate – also referred to as the “floor” – used to set the stress test threshold for borrowers will be changed from the five-year rate set by the Bank of Canada (which in turn is set by an average of the posted five-year rates offered by the Big Six banks) to the weekly five-year median insured mortgage rate used in mortgage insurance applications, plus 2%.

Currently, the change is only for insured mortgage borrowers – those who pay less than 20% down on their home purchase and require mortgage default insurance from the Canada Mortgage and Housing Corporation. However, the same change is likely to come for uninsured mortgages too, according to national banking regulator the Office of the Superintendent of Financial Institutions, which will be consulting on the matter until mid-March. The stress test has been in place for insured borrowers since October 2016, while the version for uninsured mortgages rolled out in January 2018.

What Does This Mean for Home Affordability?

This change is notable as it will materially reduce the threshold these borrowers need to qualify at in order to obtain home financing, as the rates offered by lenders for insured mortgages are typically much lower than the posted rates at the big banks; for example, the current BoC rate sits at 5.19%, while many lenders offer insured mortgage rates today below 3%. In fact, if the new median rate was made available now, it would sit at 4.89%. 

According to calculations from Ratehub.ca, a borrower getting a mortgage rate of 2.89% and tested at the new rate would qualify for a home valued at $526,632, $15,000 more than the $511,424 they’d receive under the current rate.

Why is the Stress Test Changing?

Mortgage industry experts have criticized the gap between the stress test and actual mortgage rates as being out of touch with real-time markets, with the difference growing ever larger in today’s low-interest rate environment. As a result, Finance Minister Bill Morneau was instructed by the government to review the stress test late last year to ensure it was better aligned with real market conditions.

However, tweaking its criteria required a sensitive approach, as it was put in place to protect borrowers’ ability to pay their mortgage should rates rise, and prevent them from taking on too large of a loan in the first place. 

In its announcement, the Department of Finance said that while the measures have largely achieved these goals, “This adjustment to the stress test will allow it to be more representative of the mortgage rates offered by lenders and more responsive to market conditions.”

Stated Morneau, “For many middle class Canadians, their home is the most important investment they will make in their lifetime. Our government has a responsibility to ensure that investment is protected and to support a stable housing market. The government will continue to monitor the housing market and make changes as appropriate.”

Real Estate Industry Voices Support for Change

The reaction from realtors at the national level has been positive, as the stress test has been blamed for reducing affordability for many buyers and cooling the market. According to the Canadian Real Estate Association, per capita sales activity in 2018 reached its lowest point since 2001 following the uninsured stress test, while 2019 final sales tied for second-worst.  While calmer buying activity may have been welcome in Canada’s most expensive housing centres, such as in the Vancouver and Toronto real estate markets, there was criticism that the measures disproportionately affected smaller cities where conditions were balanced, or already in buyers’ market territory, like the Prairies. As well, there was growing concern that borrowers shut out by the test moved instead to B and alternative lenders to get their home financing, which actually added more risk to the borrowing landscape due to their higher interest rates and overall less favourable terms. Stated CREA President Jason Stephen, “Realtors have advocated for changes to the stress test on behalf of potential homeowners who have been sidelined, borrowers who have moved away from the regulated market to less-regulated options, and real estate markets across the country in need of relief.”

Will This Add More Fuel to Already Heating Markets?

Not everyone is hailing the change to the stress test to be a positive development, expressing concern it will only contribute to rapidly heating prices and buyer competition in the nation’s largest cities, which have gotten an early start this year; the Toronto Regional Real Estate Board is reporting that average GTA prices approached the $900,000-mark in January, having increased 12.3% year over year. From a national perspective, CREA said the sales-to-to-new-listings ratio for Canada as a whole was 65.1% in December – well over the threshold to be considered a sellers’ market.

According to Capital Economics’ Senior Canada Economist Stephen Brown to the Financial Post, “The timing could hardly be worse.”

“Reducing the severity of the stress test is likely to put further upward pressure on housing prices, at a time when the sales-to-new-listings ratio already points to a surge in house price inflation ahead,” he stated. “The dilemma the Bank currently faces, between the need to support activity on the one hand and the need to limit the build-up of financial risks on the other, will only get worse.”

It remains to be seen how this latest change will filter through the housing market, especially with competitive urban centres already experiencing hot conditions in the typically slower late-winter season. All eyes will be on whether the mortgage industry experiences a significant uptick in applications once the easier rate is in force. 

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