The fall real estate market is always a busy one – in the listings and in the headlines. September has been no exception; from a new foreign investment tax, to bubble fears, to accusations of money laundering, here are the hottest housing news headlines this month.
A Whole Lot of Nothing
The Bank of Canada kicks things off anticlimactically with its September 7 interest rate announcement, opting to leave its trend-setting rate untouched at 0.5%, where it has remained since July 2015. It’s a non-move that signals the central bank may be hunkering down on monetary policy for the long term – meaning mortgage rates will remain at historic lows for the time being.
The BoC says slower GDP due to Alberta’s massive wildfires, weaker global conditions and a downside tilt to inflation are the main motivations for keeping rates low. However, it is optimistic the economy will see an uptick in the third quarter, as oil production is expected to recover.
The New Reigning Champ
Toronto has officially usurped the title of hottest market in Canada from Vancouver, as the west-coast city experiences a drop in demand due to its new 15% foreign investment tax. This is according to TD economist Diana Petramala, who points to the 18% increase in housing prices in Toronto since 2015, and the city’s record August sales numbers. Do they give out trophies for unaffordability?
Calling for Backup
Canadian Finance Minister Bill Morneau states the usual methods used to correct housing prices may be too little too late for the Toronto and Vancouver markets. Officials are currently considering all actions to cope with these “highly charged” markets, he stated, but added it’s important to target them without negatively impacted Canada’s other housing centres. According to Morneau, it’s also too soon to tell if BC’s foreign investment tax will truly solve the market’s problems, saying it will take time for the benefits to be fully recognized.
A National Revision
The Canadian Real Estate Association revised its forecast for home sale activity via MLS, saying that while most markets are performing in line the association’s expectations, Toronto and Vancouver are skewing the national numbers. CREA has since slashed Vancouver’s forecast, accounting for the sharp downturn in sales, and has revised Ontario’s higher, given there’s no slowdown in sight for housing demand. It also tweaked Alberta’s; the embattled oil province experienced better-than-expected activity in Q2.
On a national level, CREA calls for a 6% sales activity increase, to 535,900 units in 2016 – up from its previous forecast of 6.1%. It also forecasts the national sales price to price 10.1%, to $487,800.
A Money Laundering Scandal
Canadian real estate is effectively acting as a front for massive money laundering practices, according to a report from the Paris-based Financial Action TaskForce. The study finds that Canadian real estate is at high risk of illicit activity, and a weak spot in the government’s efforts to combat money laundering. The charitable and life insurance sectors were also named as high-risk industries.
According to the TaskForce, money is easily moved around in schemes where foreign or domestic criminals funnel cash to local buyers who then sink it into the market, or by combining loans and mortgages via lawyer’s trusts. The report alleges such activity is easily overlooked by financial agencies, which only do a cursory review into a buyer’s potential connection to a criminal or terror group. The issue extends beyond Canada’s biggest markets; Quebec was also identified as a hotspot.
Practically a Steal?
Despite numerous reports on how overpriced Canadian real estate has become, one new report says it’s a relative bargain: A Bank of America Merrill Lynch Global Research study finds Canadian real estate is quite affordable for Americans – and Asians – due to the lower Canadian dollar.
“Homes are cheaper on both a U.S. dollar-adjusted and Chinese renminbi basis than in 2010 – 2014,” the report states. “Despite high rates of home price appreciation, the continued appeal of Canadian real estate is reflected when adjusting home prices for the substantially weaker Canadian dollar.”
Count on Lower for Longer
In comments made by Bank of Canada Governor Stephen Poloz to an audience of economists in Quebec, interest rates will stay low for the long term – and everyone needs to get on board.
The governor points to factors such as low inflation, which are forcing interest rates lower in economies around the world, while acknowledging lower rates, while positive for home buyers, are making it tough for Canadian seniors to prepare for retirement. People are “rightly worried about their ability to live off their savings,” he stated. “I can certainly sympathize and understand these concerns.”
Poloz also indicates the corporate world must also adjust their interest rate expectations, as investment returns will likely never return to pre-crisis levels.
The Biggest-Ever Bubble
Everyone knows Vancouver’s housing market is too-hot-to-touch – but it’s also the riskiest in the world, according to a study by Swiss bank UBS. The Global Real Estate Bubble Index finds Vancouver is most vulnerable to a sudden downward correction in housing prices. The report assessed and ranked 18 global markets on how they’d be affected by a rapid and steep increase in average housing prices, including economic factors such as wages, rents, lending patterns and construction activity.
Vancouver was singled out after seeing real estate prices surge 25%. “Over the last two years, the housing market has gone into overdrive due to strong demand for local properties among foreign investors and a loose monetary policy,” states the report. “Currently, house prices in Vancouver seem clearly out of step with economic fundamentals and are in bubble risk territory.”
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