WEEKLY RESIDENTIAL  MARKET UPDATE 

Industry & Market Highlights 

Behind Us – Ahead of Us  

Thank you for a wonderful and crazy year.  It is a privilege to be part of your beautiful lives.  Wishing you and your loved ones a wonderful Christmas holiday season and a prosperous new year!

End of the year is a great time to reflect on the year behind us, to consider our victories and our losses, and to plan for what lies ahead of us.  If have not yet set you business plan for 2019, now is the time.   If you fail to plan, you plan to fail.  Plan your success, and work your plan!

 

2018 Year in Review – The Year Everything Changed

Every year, somewhat controversial economist David Collum writes a detailed “Year in Review” synopsis full of keen perspective and plenty of wit. This year’s is no exception.  It’s a long post and a very interesting read with loads of good information.  Read the full article here.  A downloadable pdf of the full article is available here.  He got one thing wrong with this statement: “We’re all doomed to burn in eternal hell, but I can only say that so many years in a row before it starts getting old.”  Here’s something way more important that he missed. The eternal lake of fire is reserved for those who oppose and reject their free gift or redemption and salvation of their eternal souls.  Then He will say to those on his left, ‘Depart from me, you who are cursed, into the eternal fire prepared for the devil and his angels.  It was also about these that Enoch, the seventh from Adam, prophesied, saying, “Behold, the Lord comes with ten thousands of his holy ones, to execute judgment on all and to convict all the ungodly of all their deeds of ungodliness that they have committed in such an ungodly way, and of all the harsh things that ungodly sinners have spoken against him.”  But to all who did receive him, who believed in his name, he gave the right to become children of God.  For God so loved the world that he gave his one and only Son, that whoever believes in him shall not perish but have eternal life.  The Roman Empire got the birth of Christ Jesus wrong when they incorporated Christ mass into traditional pagan festivals celebrated on December 25th.  His Actual birth is estimated to be in early April 4-6 BC based on historical accounts.  Reach out to me if you have questions about this.

 

A softened stance on future rates hikes

Back in October it was “clear sailing, all ahead full”.  Now the forecast is calling for headwinds and choppy seas and poor visibility.

When the Bank of Canada bumped its trend setting rate to 1.75% the economic statement spoke of full capacity, full employment, growing wages and rising inflation.  The Bank and market watchers were confident interest rates would continue their measured, upward march.

But that straight path has taken a turn, and in December the BoC did not move up, it stepped aside.

In the main, the central bank is being dictated by international developments.  Expanding trade disputes, obstructive tariffs and falling oil prices are weighing on the Canadian economy.  The uncertainty has led to a pull-back in business investment and projections for GDP growth have been reduced.

The Bank has shifted away from saying the economy is operating “at” capacity and is now being vaguer, saying the indicators show the economy is operating at “close” to capacity.  In the language of central bankers that is a very wide gap.

The Bank of Canada has also softened its stance on future rate hikes.  It had been saying rates would have to climb to their neutral level – neither stimulating nor retarding the economy.  Now it says rates will have to rise into the neutral range.  The Bank is not saying what that range is, only that we will know it when we see it.  Given the inflation forecast we may be much closer to that range than previously thought.  By First National Financial. 

 

No mandatory home energy audits  

Final nail in the coffin of mandatory home energy audits.   Mandatory home energy audits were a costly program proposed by the previous government that would have cost home sellers thousands of dollars in equity and punished REALTORS® – forcing you to post results of your clients’ energy audit on MLS® before you could list a property.

Premier Doug Ford announced at the Ontario REALTOR® Party Conference that the Ontario government has officially put an end to the program. He also called OREA a trusted advisor, complimented real estate professionals in general and sent a clear message that his Government values affordable home ownership for families across Ontario.

This is another big government relations win for REALTORS® that protects the dream of home ownership in Ontario!  By OREA Ontario Real Estate Association. 

 

Economic Highlights

 

CMHC  

Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales dipped for the third consecutive month, down 2.3% from October to November and down a whopping 12.6% year-over-year. Transactions declined in just over half of all local markets, with lower activity in the Greater Toronto Area (GTA), the Greater Vancouver Area (GVA) and Hamilton-Burlington offsetting increased sales in Edmonton. Sales were down from year-ago levels in three-quarters of all local markets, including the Lower Mainland of British Columbia, Calgary, the GTA and Hamilton-Burlington.

These data suggest a double-digit national sales decline in 2018, falling to its lowest level in five years even though the economy is reaching full employment. Next year’s growth in sales and prices will likely be moderated by recent policy changes from different levels of government, in addition to upward pressure on interest rates.

Many had expected a rebound in sales in British Columbia, but so far it has not materialized. The rebound in sales in Ontario last summer has now run its course and activity in Alberta has edged lower. Housing transactions in Quebec, in contrast, were strong.

New Listings

The number of newly listed homes fell by 3.3% between October and November, with new supply declining in roughly 70% of all local markets.

With new listings having declined by more than sales in November, the national sales-to-new listings ratio tightened slightly to 54.8% compared to 54.2% in October. This measure of market balance has remained close to its long-term average of 53.4% since the beginning of 2018.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about 60% of all local markets were in balanced market territory in November 2018. There were 5.4 months of inventory on a national basis at the end of November 2018. While this remains in line with its long-term average of 5.3 months, the number of months of inventory is well above its long-term average in the Prairie provinces as well as in Newfoundland & Labrador. By contrast, the measure is well below its long-term average in Ontario, New Brunswick and Prince Edward Island. In other provinces, sales and inventory are more balanced.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 2.3% y/y in October 2018, down once again on a month-over-month basis.

Following a well-established pattern, condo apartment units posted the largest year-over-year price gains in November (+6%), followed by townhouse/row units (+4%). By comparison, one-storey single-family homes posted a modest increase (+0.4%) while two-storey single-family home prices held steady (+0.1%).

Trends continue to vary widely among the 17 housing markets tracked by the MLS® HPI. In British Columbia, home price gains have been steadily diminishing on a y/y basis in the Fraser Valley (+4.7%) and Victoria (+7.2%). By contrast, price gains picked up elsewhere on Vancouver Island (+12.6%) and, for the first time in five years, were down (-1.4%) from year-ago levels in the GVA. On a month-over-month basis, prices fell 1.9% in Greater Vancouver in November, the most since 2008, adding to the recent series of price declines in Canada’s most expensive housing market.

Among housing markets tracked by the index in the Greater Golden Horseshoe region, MLS® HPI benchmark home prices were up from year-ago levels in Guelph (+9.3%), the Niagara Region (+7.2%), Hamilton-Burlington (+6.3%), Oakville-Milton (+3.4%) and the GTA (+2.7%). Meanwhile, home prices in Barrie and District remain below year-ago levels (-2.1%).

Across the Prairies, benchmark home prices remained below year-ago levels in Calgary (-2.9%), Edmonton (-1.9%), Regina (-4%) and Saskatoon (-0.3%). Excess supply of listings relative to demand will continue to put downward pressure on prices until economic activity in the region strengthens.

In contrast, home prices rose 6.6% y/y in Ottawa (led by a 7.3% increase in two-storey single-family home prices), 6.2% in Greater Montreal (driven by a 9.4% increase in townhouse/row unit prices) and 4.2% in Greater Moncton (led by an 11.2% increase in townhouse/row unit prices). (Table 1)

The actual (not seasonally adjusted) national average price for homes sold in November 2018 was just over $488,000, down 2.9% from the same month last year.

Sales in Greater Vancouver and the GTA, two of Canada’s most active and expensive markets, bias upward heavily skew the national average price. Excluding these two markets from calculations cuts almost $110,000 from the national average price, trimming it to just over $378,000.

Bottom Line

We are likely in store for a prolonged period of modest housing gains in the Greater Golden Horseshoe, stability or softening in British Columbia and further weakening in the Prairies, Alberta, and Newfoundland & Labrador.

The Canadian housing market has slowed considerably since mid-2017 and is ending the year on a quiet note. Two offsetting forces are impacting housing—strong population growth and rising rates. Sluggish sales and modestly rising prices nationally are likely in store for 2019. While there will still be some significant regional divergences, there is no need for further policy actions to affect demand.  By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres. 

 

Mortgage Interest Rates

Prime lending rate is 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are on hold.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

• National Housing Market Dips Further in November (Canadian Mortgage Trends)
• 2019 expected to be worst year for Canadian home sales in nearly a decade (Livabl)
• The downturn in Toronto’s new-home market may be coming to an end: report (Livabl)
• Higher interest rates pushing more Canadians to seek debt relief as business booms for insolvency trustees (Vancouver Sun)
• Home Capital shares sell off after Berkshire Hathaways discloses it’s sold most of its stake (CBC)
• Lower interest rates by the end of 2019? This economist thinks Canadians should expect rates to take a dive (Livabl)
• BC’s housing market is in a full-out recession, but it’s not all bad news (Livabl)
• Commercial Real Estate: 20-per-cent drop in commercial property sales (Vancouver Sun)
• Canada’s central bank says the housing market is stabilizing. These economists aren’t so sure. (Livabl)
• Toronto condo boom likely to settle in 2019: Developers (BNN Bloomberg)
• ‘Subdued’ housing market predicted in B.C. through 2021: Central 1 Credit Union (Vancouver Sun)
• First-time homebuyers need help from policy makers Guest Column by Paul Taylor (Toronto Sun)
• Canadian house price slump makes buyers wary for 2019: Don Pittis (CBC)
• Canadian Economy More Dependent On Housing Than ‘At Any Other Time On Record’ (Huffington Post)
• 3 ways stricter mortgage rules will still affect the Canadian housing market in 2019 (Livabl)
• These are the top performing Canadian housing markets of 2018 (Livabl)
• Toronto, Vancouver most ‘vulnerable’ to interest rate hikes: CMHC (CBC)
• Here’s where interest rates are going to hit the Canadian housing market hardest in 2019 (Livabl)
• Prices are plunging in Toronto’s new low-rise home market, and it’s not going to stop anytime soon (Livabl)
• House Prices Fall In Most Major Canadian Cities Amid ‘Cooling Demand’ (Huffington Post)
• 71% of Canadians think the federal government needs to do more to improve housing affordability (Livabl)
• Cooling demand is bringing down Canadian housing prices: National Bank (Livabl)
• Total number of new mortgages slumped in second quarter, says CMHC (CBC)

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.

Adriaan Driessen

Mortgage Broker 

Dominion Lending Forest City Funding 10671

Cell:     519.777.9374

Fax:      519.518.1081

riebro@me.com

www.iMortgageBroker.ca

415 Wharncliffe Road South

London, ON, N6J 2M3

Adriaan Driessen

Sales Representative & Senior Partner

PC275 Realty Brokerage

Cell:     519.777.9374

Fax:      519.518.1081

adriaan@pc275.com

www.PC275.com

415 Wharncliffe Road South

London, ON, N6J 2M3

WEEKLY RESIDENTIAL  MARKET UPDATE 

Industry & Market Highlights 

CMHC forecasts higher rates, slower housing

The conditions are right for further interest rate increases and that will blunt home sales and slow price acceleration.

The Canada Mortgage and Housing Corporation predicts the economy will continue to grow at a moderate pace well into next year.  The housing agency expects that will keep pressure on the Bank of Canada to raise rates which will, in turn, increase the debt service costs for mortgages and other borrowing.

CMHC says households will likely be forced to put a larger portion of their income into debt service payments.  The agency expects wage gains – which have not been keeping pace with economic growth – will also not keep pace with increasing debt costs and consumer spending will contract.

Combined with tougher borrowing rules, tighter money for consumers will be reflected in a drop in demand for housing, with a consequent softening of real estate prices.

The CMHC report covers the period from July through September of this year.  It predates the signing of the new NAFTA deal, the collapse of Canadian oil prices and the announcement that General Motors is closing its largest Canadian manufacturing operation.

The Bank of Canada is not expected to raise its benchmark interest rate at its setting later this week.  By First National Financial.

Mortgage Professionals Canada – Housing Market Digest – Rental Market in Canada – Fall 2018

Published annually, CMHC provides a comprehensive review of rental markets across Canada, through their Rental Market Report. Over the past year, a number of factors have caused demand for rental housing to rise and outpace supply.

Mortgage Professionals Canada Chief Economist, Will Dunning has summarized the data in a special Housing Market Digest which provides a condensed, yet detailed overview. Read the Report Here.

BoC takes a holiday from rate increases

The Bank of Canada gets one more chance to raise interest rates before the end of the year but market watchers are betting against a Christmas increase.

The October inflation numbers, which came in above expectations, would normally be seen as green light for the Bank to go ahead with another quarter-point increase.  Headline inflation for October came in at 2.4%, with analysts having called for a flat reading of 2.2%.

However, core inflation – which is what the central bank really cares about – came in pretty much on target, at 2%, across all three of the measurements used by the Bank.  The core inflation calculations strip out volatile items like food and fuel to give a truer picture of the underlying economy.

In an example of how interrelated the components of our economy are, market watchers – and the BoC – are also keeping a very close eye of the price of oil.  Canada’s benchmark crude price has been taking a serious hit lately, selling at less than US$20 a barrel (U.S. benchmark crude is selling for more than US$40 a barrel.)

The plunge in oil prices is expected to take a significant bite out of November’s inflation numbers and the Bank of Canada is expected to wait for better stability in the market before imposing any more rate increases.

Look to January for the next move.  By First National Financial.

Lower prices, fewer sales, more building  

Canada’s housing market seemed to be heading in two different directions at once in October.  While prices and sales declined, starts increased.

The latest numbers from the Canadian Real Estate Association show a 3.7% drop in sales compared to a year ago, with a 1.6% decline from September to October.  The association says the Greater Vancouver Area and Fraser Valley led the slide which offset sales increases in the Greater Toronto Area and Montreal.

CREA also reports a 1.1% drop in the number of new listings between September and October.  The sales-to-new-listings ratio sits at 54.2% for October which is in line with the long term average and is deemed to be in “balanced” territory.  At the same time there has been an unexpected surge in the number of housing starts.

The October report from Canada Mortgage and Housing Corporation shows a seasonally adjusted annual increase of 8.5% over September, topping analysts’ estimates.  The increase was led by urban starts in multi-unit construction.  Single-detached urban starts fell nearly 11%.

CREA’s MLS Home Price Index shows a 2.3% increase from a year ago while the national average price of a home in Canada actually fell 1.5% over the same period to just under $497,000.  That number is heavily skewed by pricing in Vancouver and Toronto.  With those markets taken out of the calculation the price comes in at just under $383,000 – up from about $335,000 in September.

The Teranet Home Price Index shows an October decline of 0.4% compared to September.  It is the first index decline in eight months, and just the fourth time in 20-years there has been a drop in October.  Year-over-year the index rose 2.8%.  That number is more pronounced than usual because of an abrupt drop in the index a year ago.  By First National Financial. 

Economic Highlights

Q3 Canadian GDP Growth Slowed On The Back of Weak Housing and Business Investment

Stats Canada released the third quarter GDP figures indicating an expected slowdown to 2.0% growth (all figures quoted in annual rates), compared to a 2.9% pace in Q2. Over the first three quarters of this year, quarterly growth has averaged 2.2% which is down from the 3.0% annual growth recorded in 2017. The Canadian economy is at or near full capacity, so slower growth is not a bad thing.

However, while the headline growth of 2.0% was on trend, the details of the report are troubling. The bulk of the growth last quarter came from a contraction in imports–hardly a sign of a robust economy–leaving final domestic demand–which excludes trade–negative for the first time since early 2016. The softness in imports reflected a contraction in refined energy products as well as aircraft and other transportation equipment.

The NAFTA trade battle over the summer took its toll on the economy as households and businesses sharply curtailed their spending. Consumer spending grew at its slowest pace in more than two years, while businesses posted an unexpected drop in investment and trimmed inventories. Consumer spending moderated, as overall household consumption rose just 1.2%, held back by durable goods spending (-2.7%) as Canadians bought fewer vehicles for a third straight quarter.

The biggest surprise in the report was the sharp decline in non-residential business investment (-7.1%). Spending on non-residential structures fell 5.2%, while machinery and equipment spending, which includes computer software and hardware, plunged at a 9.8% annual rate. Business spending was weighed down by softer oil and gas investment.

Though residential investment was expected to decline, the reported 5.9% drop in Q3 was more significant than expected. Despite an uptick in home sales activity, residential investment weakened as both new construction of housing and renovation activity pulled back (see Note below). Investment in new residential construction posted its largest decline since the second quarter of 2009 when the financial crisis was hammering the global economy. The uptick in home sales was reflected in a sharp uptick in ownership transfer costs, which includes real estate commissions, land transfer taxes, legal fees and file review costs (inspection and surveying).

On the income side, compensation of employees rose 2.7% (4.0% on a year-on-year basis), leaving overall wage gains over the quarter at a modest 2.2% year-on-year. The household savings rate rose to 4.0% from an upwardly revised 3.4% in Q1.

Looking at the monthly data for September, there was not much momentum going into the final quarter of this year. Monthly GDP in September declined -0.1% as just half of major industries expanded. It was mainly down in goods production (-0.7%) as oil and gas extraction pulled back, hit in part by maintenance work. Substantial gains in services (+0.2%) were not enough to keep the headline in positive territory.

The projected further weakening in Q4 will be abetted by the transitory downward impact from the recent postal strike. The risks are on the downside for the Bank of Canada’s forecast of 2.3% growth in the final quarter of this year. Currently, it appears that growth in Q4 will be closer to 1% than 2%.

Implications for the Bank of Canada

The headline 2% growth rate was spot on the Bank of Canada’s expectation, but certainly, the Bank will note the weakness in the underlying data. Potentially more important is the deep reduction in the price of oil for Canadian producers already struggling with transportation bottlenecks that have been pummelling the energy sector and depressing growth in Alberta. Cuts in oil production are likely to hit economic activity in the current quarter, with a full recovery not expected until at least mid-2019.

As well, the GM shutdown in Oshawa, Ontario raises concerns about the viability of the Canadian auto industry and adds to the weakness in the economic outlook. The two largest export sectors in Canada are energy and autos, so weakness in these sectors will keep the Bank of Canada on the sidelines in December, notably as consumers may well be tapped out. Markets had been expecting a rate hike in January, but the latest data suggest that the prospects of such a move have dropped significantly.

Notes:

*Housing investment in the GDP accounts is technically called “Gross fixed capital formation in residential structures”. It includes three major elements:

• new residential construction;
• renovations; and
• ownership transfer costs.

New residential construction is the most significant component. Renovations to existing residential structures are the second largest element of housing investment. Ownership transfer costs include all costs associated with the transfer of a residential asset from one owner to another. These costs are as follows:

• real estate commissions;
• land transfer taxes;
• legal costs (fees paid to notaries, surveyors, experts, etc.); and
• file review costs (inspection and surveying).

By Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres

Mortgage Interest Rates

Prime lending rate increased to 3.95%.  Bank of Canada Benchmark Qualifying rate for mortgage approval remains at 5.34%.  Fixed rates are slowly increasing.  Deep discounts are offered by some lenders for variable rates making adjustable variable rate mortgages very attractive.

Other Industry News & Insights

$1 billion money laundered by crime networks in BC real estate? 

Criminal networks could have used British Columbia’s real estate market for more than $1 billion of money laundering.

A secret police report, obtained by Global News, reveals that crime networks are linked to 10% of the 1,200 luxury real estate purchases in the Lower Mainland included in a police study in 2016.

These include a $17 million Shaughnessy mansion owned by a suspected importer of the potent drug Fentanyl.

Of around 120 properties linked to crime, 95% are believed to have Chinese crime network origins.

Global News own analysis says that the crime networks may have laundered more than $5 billion in Vancouver-area homes since 2012.

The extent of the money laundering issue and the findings of the police study are discussed on the Simi Sara Show from 980 CKNW.  By Steve Randall.

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

• How to know which Toronto neighbourhoods will see home price declines, according to one expert (Livabl)
• Time to relax mortgage regulations, Canada home builders urge (BNN Bloomberg)
• The Good News About Canada’s Suddenly Shrinking Economy (Huffington Post)
• 5 charts that explain why condos reign supreme in the GTA (Livabl)
• 3 hurdles the GTA housing market will have to overcome in 2019, according to experts (Livabl)
• Canada Has Achieved a Housing Soft Landing, Biggest Builder Says (Bloomberg)
• Rental vacancy rate dips to 2.4% across Canada, CMHC says (CBC)
• Metro Vancouver tenants paying more for rent while homebuyers see prices drop (Livabl)
• No relief in sight as Toronto’s rental vacancy rates remain historically low and rents climb (Livabl)
• Canada’s housing market may be unaffordable, but it’s stable (for now) (Livabl)
• Why this economist says Vancouver’s housing recovery will probably be rougher than Toronto’s (Livabl)
• A “flat performance” from the Canadian housing market isn’t doing GDP growth any favours (Livabl)
• Housing watchdog at risk as Liberals worry about too much bureaucracy (CTV)
• Rental lottery with 50:1 odds reveals dark side of Toronto’s housing boom (BNN Bloomberg)
• 3 hurdles the Ontario housing market will have to contend with in 2019 (Livabl)
• The formerly hot Hamilton housing market will see sales drop nearly 16% in 2018 (Livabl)
• Affordable housing goals hang in delicate balance, Bank of Canada deputy says (Hamilton Spectator)
• Bank of Canada: housing market vulnerabilities are still high (Reuters Canada)
• Canada’s financial watchdog to review banks’ complaints-handling processes (CTV News)
• Canadian banks look to in-house hackers to improve cybersecurity (BNN Bloomberg)
• 7 charts that explain the Canadian housing market’s autumn sales dip (Livabl)

There is never a better time than now for a free mortgage check-up.  It makes sense to revisit your mortgage and ensure it still meets your needs and performs optimally.  Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or simply want to know you have the best deal?  Whatever your needs, we can evaluate your situation and help you determine what’s the right and best mortgage for you.