What this summer’s Canadian home sales stats are masking

If someone hasn’t been following Canada’s real estate market over the past year, the latest data from the Canadian Real Estate Association (CREA) may give the impression that not much has happened.

After all, the average price of a home in Canada this July was $481,500, up just 1 per cent from 12 months ago, according to the monthly CREA numbers released today.

National sales activity was also almost unchanged from last year, with July transactions down 1.3 per cent year-over-year. Same goes for the number of new listings, which inched 2.6 per cent lower.

But BMO Chief Economist Douglas Porter suggests these seemingly innocuous numbers don’t paint a complete picture.

“That’s an extraordinary mix of calm figures, considering the wild swings the market has witnessed in recent years. It also masks some serious regional shifts grinding away beneath the placid surface,” writes Porter in response to the data.

Specifically, Greater Toronto is stabilizing after last spring’s volatility. Sales increased a seasonally adjusted 7.7 per cent from June and an unadjusted 17.6 per cent annually. Meantime, the average selling price increased 4.8 per cent year-over-year to $782,129.

“Market balance is now very close to normal, albeit with the ongoing split between condos (solid) and single-family homes (soft),” Porter continues.

CREA President Barb Sakkau suggests the more stringent mortgage underwriting guidelines introduced at the beginning of the year are not taking as much of a toll on the Toronto market as they were previously.

“This year’s new stress-test on mortgage applicants continues to weigh on home sales but its effect may be starting to fade slightly in Toronto and nearby markets,” Sakkau says in a statement.

BMO’s chief economist notes another story lost behind the Canadawide stats: the pullback in the Prairies.

In July, the average price of an Edmonton home was $376,429, a year-over-year decline of 3.5 per cent. Calgary’s average of $462,769 was roughly flat from July 2017, but prices declined 1.5 per cent from June.

Sales activity was down from July 2017 by 5.8 per cent in Calgary and 1 per cent in Edmonton, although there is reason to expect Alberta, Porter suggests.

“Firm oil prices should support confidence in the Alberta markets, but the fact is that both sales and prices are consistently down this year for both of the big cities there,” he notes.

Yet another regional divergence is playing out on the west coast. “Vancouver and other BC cities continue to post some of the biggest sales declines in the country, with the province hit by a number of measures to cool the local market,” Porter explains.

On average, homes sold for $1,024,282 in Greater Vancouver, about the same as last year, while sales have plummeted 30 per cent since last July. However, CREA’s MLS Home Price Index shows prices on Vancouver Island were up 13.7 per cent year-over-year.

Ottawa and Montreal remain “beacons of strength,” says Porter, and local observers are predicting more growthin these markets.

For Ottawa, the average home price of $405,279 represents an increase of 3.6 per cent over last year. Montreal’s average price wasn’t far behind climbing 5.4 per cent year-over-year to $392,660 last month.

Ottawa activity in July was 6.1 per cent above last year’s level, as Montreal sales rose 6.7 per cent.

“From an overall macro standpoint, the main takeaway is that the housing market has ceased to be a major source of concern for policymakers (neither too hot, nor too cold) — at least for now,” Porter says.

Vancouver tops global increase in industrial lease rates

Vancouver’s industrial lease rates surged by 29.1 per cent over the last year. Beijing ranked second overall with a year-over-year increase of 19.8 per cent.

The price to lease industrial and logistics space in Metro Vancouver increased more than in any other market in the world during the past year, a new report says.

Vancouver’s industrial lease rates surged by 29.1 per cent over the last year (ending in the first quarter of 2018), according to CBRE’s annual Global Industrial and Logistics Prime Rents report. Beijing ranked second overall with a year-over-year increase of 19.8 per cent.

Vancouver’s prime logistics rents reached $9.93 per square foot, per year. Prime logistics rents are the highest achievable rates for top-quality warehouse and distribution space.

However, the single-year spike in lease rates was not enough to push Vancouver onto the list of most expensive industrial markets in the world.

Hong Kong topped the list of highest prime rents at $40.73 Cdn. London ranked second at $29.38, and Tokyo had the third-highest rents at $26.23. Vancouver was 25th on the list.

The report shows that strong economic fundamentals are driving demand for industrial space in the region, while a shortage of developable space has kept availability constrained, said Jason Kiselbach, a vice-president and sales manager with CBRE Vancouver.

He said Metro Vancouver has the second-lowest industrial vacancy in North America. “We’re at an all-time low supply right now (and) our vacancy is at 1.5 per cent,” he said.

“Demand for industrial space has more than doubled in the last three years, if you compare (demand) to the previous 10 years,” he told Postmedia. “That’s really a result of the growth in GDP, population and consumer spending.”

He said the biggest demand driver is port-related business.

“The Port of Vancouver … is the sixth largest port in North America and the closest in North America to the Asian markets,” Kiselbach said. “We’re really that gateway city for distribution, and demand is also coming from changes in retail and consumer habits.”

He said more consumers are buying products online, which are then shipped directly to their homes from warehouses in the region.

“Vancouver retail spending is at historic growth levels right now,” he said.

The other part of the equation is a persistent and well-documented shortage of industrial supply here, Kiselbach said.

The reported rise in Vancouver lease rates comes as no surprise to Oxford Properties, said Jeff Miller, the Canadian head of industrial properties at the real estate investor, manager and developer.

He said Oxford has about one million square feet of industrial space at two business parks in Burnaby and New Westminster. They also have another 40 acres of developable industrial property and one more building under construction.

Their own rental rates are increasing, he said.

“We are experiencing increases in every subsequent lease that we’re doing,” he said, noting that these increases are taking place in their new inventory as it comes available.

He said a shortage of industrial land, strong local economic growth and rising land and construction prices are contributing to the higher rates in Vancouver amid strong demand.

“We’ve seen interest from service companies, food (companies), and industrial supplies, but it’s clearly being led by e-commerce and logistics, who want to stay close to the population and labour,” Miller said.

“You’re only going to see new development if it’s supported by increased rents to keep up with the rising land costs and the rising construction costs,” he said.

“The market is super tight and it’s giving tenants very few options, particularly if they want to stay close, or if they want a large chunk of space,” Miller said.

Rental prices will likely continue to climb, but probably won’t match last year’s increase, Kiselbach said.

“We haven’t seen growth like that before, and I don’t think it’s going to be sustained,” he said.

The world’s most expensive markets all have very dense populations in small areas, he said.

“Because distributors can get access to a much larger population in a much smaller geographic location, they’re able to pay significantly higher rates,” he said. “I also think those markets reached a supply and demand imbalance much earlier than we did, so that’s why we lag them.”

Occupiers must start preparing for higher costs, he said.

“Their operating costs as a business are increasing significantly and there are other costs that are also increasing (such as) property taxes, wages, fuel costs,” he said. “The message for occupiers is really pay attention to these trends and plan accordingly.”

Canadian home sales tick higher in July led by GTA market

Increases in Toronto pushed Canadian housing sales higher for a third month, further evidence the country’s real estate market is regaining strength after it stumbled at the start of this year.

Transactions nationwide rose 1.9 per cent from June to 38,612, bringing them back toward the 10-year average, the Canadian Real Estate Association said Wednesday from Ottawa. Sales in Toronto advanced 7.7 per cent, while they climbed 5.6 per cent in the Fraser Valley area near Vancouver.

Benchmark home prices in the country were mixed, showing a 0.4 per cent decline on the month and a 2.1 per cent increase over the last 12 months.

Prices in Toronto fell by 0.5 per cent in July from the prior month. In Vancouver they fell 0.6 percent. It was the first time since 2013 that benchmark prices in Toronto and Vancouver fell concurrently for two straight months.

Home buyers this year faced tougher qualification rules designed to curb excessive speculation in Toronto and Vancouver, while the Bank of Canada has raised its trend-setting interest rate four times over the last year. That combination led to some steep declines in housing sales at the start of the year.

“This year’s new stress-test on mortgage applicants continues to weigh on home sales but its effect may be starting to fade slightly in Toronto and nearby markets,” CREA President Barb Sukkau said in a statement.

Average Canadian house sold for $481,500 last month, up 1% in past year

Stress test rules implemented earlier this year have cooled the market, numbers suggest

The average price of a Canadian home was $481,500 last month, a rise of one per cent in the past year.

July marked the first time this year that average house prices eked out an annual increase, the Canadian Real Estate Association said Wednesday, as the impact of tougher mortgage rules implemented earlier this year is starting to wane.

“This year’s new stress test on mortgage applicants continues to weigh on home sales, but its effect may be starting to fade slightly in Toronto and nearby markets,” said Barb Sukkau, the realtor group’s president. “The degree to which the stress test continues to sideline home buyers varies depending on location, housing type and price range.”

After years of annual increases that frequently touched the double digits, Canadian house prices have cooled considerably in recent months, especially after the implementation of the new mortgage stress test rules that hold borrowers to higher income standards, which has resulted in less borrowing or taking some people out of the market entirely.

Prices inched higher but July saw the total number of homes sold during the month decline compared to last year, by 1.3 per cent. But after a big plunge at the start of the year, the monthly sales figure has now ticked up for three months in a row.

For economist Doug Porter with the Bank of Montreal, the housing market numbers released Wednesday paint a picture of what economists call a “Goldilocks” market.

“The main takeaway is that the housing market has ceased to be a major source of concern for policymakers — neither too hot, nor too cold, at least for now,” Porter said.

Average prices inched up on an annual basis for the first time since the start of the year.

But CREA says the average isn’t the most accurate way of assessing house prices because it’s skewed by activity in big cities like Toronto and Vancouver, and by certain types of housing. So it calculates another number — called the Multiple Listings Service Housing Price Index (MLS HPI) — that is says is a better gauge of the overall market because it strips out all the volatility.

By that metric, house prices in Canada have increased slightly in the past year, by 2.1 per cent up to July.

Markets in B.C. continue to post strong gains: 6.7 per cent in Greater Vancouver, 13.8 per cent in the Fraser Valley and 8.2 per cent in Victoria.

Moving east from B.C., the numbers soften, with annual decreases of 1.7 per cent in Calgary, 1.3 per cent in Edmonton, 4.8 per cent in Regina and 2.1 per cent in Saskatoon.

Prices in the Greater Toronto Area have declined by 0.6 per cent in the past year, but have risen by 7.2 per cent in Ottawa and 5.7 per cent in Montreal.

“July was a good month for housing markets, as sales increased for the third straight month alongside another rise in prices,” Toronto-Dominion Bank economist Rishi Sondhi said after the numbers were released. “This lends further credence to our view that markets have shaken off the bout of policy-induced weakness in the earlier part of the year.”

Mortgage brokers vs. banks: the pros and cons

If you’re looking for a mortgage on a home purchase — or to renew one on a home you already own — is a mortgage broker or a bank your best option?

The main difference is a bank mortgage officer represents only the products their institution offers, while a mortgage broker is an intermediary who works with multiple lenders and is paid a referral fee by the lenders. Mortgage brokers are regulated in Ontario by the Financial Services Commission and require a licence.

While traditional banks still are used for mortgages by the majority of homeowners, “use of brokers is trending upward,” notes Monica Guido, manager of client relations with Canada Mortgage and Housing Corp. “It’s higher among first-time buyers. Finding a deal, or the desire to get the best rate, is the key reason people use a broker.”

Because mortgage brokers work with many lenders, including major banks, small lenders, insurance and trust companies, and private funds, they often have access to a better rate.

In 2017, 39 per cent of homeowners used a broker to arrange their mortgage, up from 33 per cent in 2016, according to CMHC. On average, consumers consult with 4.5 mortgage professionals when seeking a home loan, including 2.4 lenders and 2.1 mortgage brokers.

“There have been an awful lot of changes in the last 24 months with mortgage regulations and the interest rate environment, and it’s getting more complicated,” says Paul Taylor, the CEO and president of Mortgage Professionals Canada, a national mortgage industry association. “There’s greater need for expert or independent advice, and that’s why more people are coming to mortgage brokers.”

He also finds most broker clients are first-time buyers; he says it may be because they have less reverence for large institutions than their parents do. It may also have to do with how mortgage services are being marketed: Guido says that 59 per cent of mortgage brokers are leveraging technology and social media to reach clients, which appeals to younger consumers, while only 17 per cent of conventional lenders are.

Some of the advantages for both banks and brokers:

Banks

  • Customer may already have a relationship with a bank and its staff.
  • Can supply a wider financial view and give information about a range of financial products — but a bank loans officer might not have specialized mortgage knowledge.
  • May offer some efficiencies of the approval process since the bank may already know a client’s account balances, credit card history, investments, etc.Can provide peace of mind that the institution is large and stable enough to weather periods of financial instability. Banks are required to meet federal underwriting guidelines.

Mortgage brokers

  • Offers a one-stop shop; clients fill out one application and don’t seek out multiple lenders’ quotes themselves.
  • Often are able to get better rates than offered by major banks.
  • Are mortgage specialists and are knowledgeable about what different lenders have to offer.
  • May be able to arrange a mortgage for those having trouble getting approved by a bank, such as self-employed people and those with poor credit histories.

Whether you deal with a bank or with a mortgage broker, the down payment rules are the same: a 5 per cent down payment for a house priced less than $500,000. If the purchase price is $500,000 to $999,999, you’ll need 5 per cent for the first $500,000 and 10 per cent for any amount over $500,000. If buying a property of $1 million or more, you’ll need 20 per cent down. For all down payments of less than 20 per cent, you’ll need mortgage loan insurance, offered by providers such as CMHC.

Taylor says a mortgage broker should discuss with you your personal financial and lifestyle situation, whether you plan to stay in a house for a long time or may have to move in a few years (in that case, you may want a mortgage that is portable). The broker should provide details on various lenders, discuss pros and cons of fixed versus variable rates and point out any cancellation or pre-payment policies.

“Make sure the individual is licensed in the respective province you are in,” advises Taylor. “Each province has its own registry and standard of education.”

While credit unions and small lenders are not federally regulated and not required to adhere to some of the underwriting guidelines, Taylor says most of the time they are forced to comply anyway. Many smaller lenders or “monolines” that only do mortgages often sell their portfolios to larger institutions that exercise significant oversight.

CMHC’s Guido notes that the current, cooler housing market in Ontario and the GTA is giving homebuyers more breathing room.

“There is less urgency for prospective buyers to act hastily,” Guido says. “There’s an opportunity to ask around and do research. Ask your real estate agent or lawyer for their references and recommendations.

“Consumers are looking for options and like to receive offers from brokers and financial institutions,” she adds.