by Ephraim Vecina

After 10 straight quarters of relative high vulnerability, the Canadian residential real estate segment has moved to more robust conditions amid slower price growth, according to the latest Housing Market Assessment by the Canada Mortgage and Housing Corporation.

Covering 15 major census metropolitan areas (CMAs) nationwide, the report found that compared to the end of February, “the state of the national housing market has improved to moderate vulnerability” as of this month.

In addition, “even though moderate evidence of overvaluation continues for Canada as a whole, there has been improved alignment overall between house prices and housing market fundamentals in 2018 in comparison to the previous year,” CMHC chief economist Bob Dugan stated.

Steady moderate levels of vulnerability in Calgary, Edmonton, Regina, Saskatoon, and Winnipeg helped buoy the national market’s prospects, although there is still evidence of overbuilding in these markets.

“In Edmonton, where the rental market is tightening, the imbalance between supply and demand in the ownership market is widening. As of February 2019, 61% of the total single- and semi-detached inventory in Alberta’s seven largest markets combined were in Edmonton,” the assessment explained.

Meanwhile, high vulnerability remains in Vancouver, Victoria, Toronto, and Hamilton, although these markets are moving “closer to levels supported by housing market fundamentals such as population, personal disposable income and interest rates.”

In particular, the triggers for overheating in Vancouver have weakened. “Home price growth over the past few years significantly outpaced income growth; these imbalances are now unwinding based on continued growth in economic fundamentals and lower resale home prices.”

Similarly, conditions of overvaluation in Toronto are easing. “Market activity continued to cool during the first quarter of 2019, with the sales-to-new listings ratio remaining firmly in balanced market territory and the MLS® average price continuing to decrease.”

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by Ephraim Vecina

A significant proportion of Canadian consumers is still unable to grasp the full implications of B-20 despite the rules having been in effect for more than a year now, according to a new TD survey.

The poll, which interviewed 1,901 owners and would-be buyers nationwide, found that more than two out of five (43%) of Canadians are not confident in their knowledge of the mandated mortgage stress tests.

In addition, 59% said that they don’t understand the impact of the stress testing on their first or future home purchases, the Vancouver Courier reported.

Crucially, 81% admitted that they don’t understand how a potential mortgage rate hike will impact their finances, and 42% said that they are not confident in their knowledge of rules such as mortgage vacations or payment pauses.

A CIBC report released in mid-April stated that the stricter mortgage stress tests led to anywhere between $13 billion to $15 billion in national residential mortgage volume lost in 2018.

Total Canadian mortgage lending activity fell by 8% annually last year, translating to a loss of as much as $25 billion.

CIBC World Markets Inc. deputy chief economist Benjamin Tal cautioned that the well-meaning regulations have become “a bit too severe at this point in the game.”

“I’m not saying to kill B-20 by any stretch of the imagination,” he told The Globe and Mail. “I’m just saying it should be a bit more flexible, and more dynamic, to reflect market conditions.”

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by Ephraim Vecina

Despite robust funding and development activity, Ontario’s housing supply is hamstrung by the current regulatory regime governing the approval of new construction projects, according to the Ontario Building Officials Association.

In its recent study, the OBOA argued that streamlining development approval timelines would be crucial in ensuring the sustained supply of affordable housing across Ontario.

For perspective, the OBOA estimated that it takes as much as 10 years to complete the required planning to get new building permits in the province.

“We have the best building codes in the world, which is why Ontarians feel safe in the places they live, work and play,” OBOA president Matt Farrell said. “We need to be cutting the red tape throughout the approvals processes to bring this housing to the market as quickly as possible.”

This is especially important, as a markedly more efficient, simpler process would help bolster federal and provincial government commitments.

“Premier Ford announced $1-billion in funding for affordable housing last month, and the prime minister committed another $1.3-billion before that, but cumbersome processes are going to delay making that housing available to the people who so desperately need it,” Farrell explained.

Richard Lyall of the Residential Construction Council of Ontario warned that the Toronto City Council’s decision to cancel a long-running noise bylaw exemption last week might hit consumers the worst.

“The cost [of red tape] gets passed onto the consumer,” the Council president and CEO stated. “As soon as you delay one project, you delay the start of other projects—and remember there’s only so much equipment we can access. That creates another element of risk for new projects. A lot of new projects in the pipeline are all contingent on certain estimated timelines and then you throw a big risk element in there.”

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by Ephraim Vecina

Global economic uncertainty means that the Canadian economy will still benefit from the boost that low borrowing costs can provide, according to the Bank of Canada’s Governor.

In a recent speech in Nunavut’s capital Iqaluit, Stephen Poloz argued that the global slowdown is adding to the burden imposed by a national housing market constrained by stricter mortgage underwriting regulations.

“That is why we said at our last interest rate announcement in March that the economic outlook continues to warrant a policy interest rate that is below the neutral range to help the economy work through this downshift in growth and keep inflation close to target,” Poloz stated, as quoted by BNN Bloomberg.

Poloz added that Canada is in a good place to overcome these rough times, noting that recent GDP numbers point at the temporary nature of the slowdown. He emphasized that the fundamentals, bolstered by a flexible exchange rate, give considerable robustness to the national economy.

The latest GDP readings showed that Canada’s economy exceeded expectations with its 0.3% growth rate in January.

“There are challenges in the Canadian and global economies that we need to manage, but there are clear signs that Canada is adjusting to the challenges,” Poloz said.

“Recent economic data have been generally consistent with our expectation that the period of below-potential growth will prove to be temporary.”

Poloz also cited the expected return of exports and investment to “positive growth” later this year as another good reason for optimism.

The BoC Governor further stated that investors should not use the bank’s neutral rate estimates as indicators of its planned policies. Its latest forecasts place the neutral rate at between 2.5% and 3.5%, against the 1.75% policy rate.

“How we get there and when we ever get there depends on too many things for us to predict,” Poloz said. “I wish markets would not interpret it as such a fine line.”

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by Steve Randall

A third of Canadian Millennials would rather live in the city than the ‘burbs but for two thirds of those, they are willing to sacrifice that wish to buy the home they want.

A new TD survey finds that 81% of Millennials say they want to own their own home but with affordability (78%) and home size (60%) beating neighbourhood (58%) as the top factors informing homebuying decisions, a move to the suburbs is the right choice for many.

“We’re now seeing Millennials looking beyond the city for their housing needs, particularly as they start thinking about their needs for the future, like having more space to raise a family,” said Pat Giles, Vice President, Real Estate Secured Lending at TD. “As a result, many are choosing the suburbs to either make the move to a new home or upsize from their current one, a shift from just a few years ago when city living was this generation’s preference.”

Affordability and space, both inside and outside, are the main reasons for relocation from the city to the suburbs but this may clash with the desire of 45% to live close to work.

Cutting spending to buy a home
Millennials are willing to curb their day-to-day spending to further their homeownership dreams.

Most said they would limit eating out, shopping, and entertainment, to be able to afford a home.

“Although homes in today’s housing market cost much more than they used to, the desire to own the right home hasn’t wavered, especially for Millennials,” said Giles