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Still waiting for the Bank of Canada's promised real estate rebound: Don Pittis

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History tells us that with very rare exceptions, no matter how far property values fall, eventually they will come back even stronger.

The latest housing market data shows sales are down and prices have dropped an average of 11 per cent across Canada over the past year, so the difficult task facing people thinking of buying or selling is trying to figure out exactly where we are in the property value cycle, and whether they have the ability to hold out through the dip, however long it lasts.

Only last month, Bank of Canada governor Stephen Poloz and his senior deputy, Carolyn Wilkins, said the decline in sales activity in the first three months of the year (referred to as the first quarter, or Q1) would be temporary.

'We expect it to bounce back'

They said the imposition in January of stress tests — forcing new buyers and those wanting to change to a different lender to prove they could handle a hike in interest rates — meant many buyers rushed their purchases to beat the change. 

That effectively boosted sales in late 2017 at the expense of business in the new year.

"We do expect [the new mortgage rules] to have a dampening effect on housing throughout the year but not to see the continued decline like we saw in Q1," said Wilkins. "We expect it to bounce back."

Even after the most devastating declines, house prices do bounce back.

Montreal real estate has been one of the hot spots in Canada, but overall sales and prices in the country are falling. (Graham Hughes/Canadian Press)

There have been exceptions, such as Canadian towns supported by a dying resource, or the departure of an entire industry as happened in Detroit, where residential neighbourhoods were turned back into fields. But those exceptions are rare.

I had a reminder last week during a visit to Ireland, which had a disastrous housing crash following the 2007 credit crunch. Construction projects underway were left unfinished and homeowners found themselves deep underwater as valuations fell below what they had paid.

Irish boom revisited

But ten years later that has all blown away. Last week, Ireland's Poloz equivalent, Philip Lane, issued a strong warning about Irish property prices being too high, a warning reiterated this week by the International Monetary Fund.

The net wealth of the average Irish person — in other words their assets minus what they owe — is now higher than it was before the crash, largely due to the rebound in house prices.

There are some lessons for Canadians from the Irish experience as they contemplate the future of house prices here.

People pass a sign reading 'Sold Out' in front of a condo building under construction in Toronto. (Chris Helgren/Reuters)

One is that the Irish price rebound didn't help everyone. Many people who overextended themselves in Ireland's Celtic Tiger boom and were forced to sell during the ensuing property collapse are likely still suffering from the personal finance debacle.

The other lesson is that sitting tight during a property crash can pay off — that is, if you can afford to wait long enough.

Small consolation

Of course, if the price declines that we've seen in the past two sets of Canadian Real Estate Association data continue, even the very likely prospect of an eventual rebound in house prices will be small consolation to those anxious to sell now or soon.

Most people planning to stay in a new or current property for the medium or long term should be fine. 

But a job loss, a forced move or the arrival of a brace of children could change that calculus. The group that might not be able to wait could also include older people hoping to cash out and new buyers in over their heads as interest rates rise.

Even if prices continue to slide, odds are they will bounce back to new highs, but no one knows when that will happen. (Mark Blinch/Reuters)

That rise in mortgage costs seems even more likely to continue after yesterday's spike in Canadian bond rates to a seven-year high.

While some people in the real estate industry complain government interference is hurting their business, the entire purpose of stress tests is to prevent that last group — the over-borrowed — from being forced to sell during a dip in prices, something that could accentuate a serious property crash, should one occur.

Canadians care about the value of their houses and there is some evidence that falling house prices can rein in consumer spending because homeowners feel poorer, the so-called inverse wealth effect.

What comes next?

But for those hoping to move into or out of the property market, knowing what prices will do in the medium term — how far they will fall and how soon they might recover — is of crucial importance to their planning.

Unfortunately, while each of us can try to predict the future based on various considerations, all those things are uncertain.

Yesterday's CREA numbers for April seem to show that the optimism of Poloz and Wilkins following the first quarter dip has not yet played out. 

TD Bank says the Canadian housing market will recover at the end of this year and strengthen in 2019 on the back of rising employment and a growing population. Of course, they are in the business of selling mortgages, and predictions of housing market doom by Canadian bank economists are notable due to their rarity.

Others have been more gloomy. Over the years, international banks and organizations such as the IMF have predicted Canadian house price declines of anywhere from 30 per cent to more than 60 per cent.

But barring a catastrophe that would hurt a lot more than house prices, odds are that whatever the decline, real estate prices will recover. The only question is how long you will have to wait and whether you can afford to.

Follow Don on Twitter @don_pittis    

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Foreign buyers all but disappeared from Metro Vancouver real estate market: data

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The latest property transfer data from the B.C. Ministry of Finance, released at the end of July, indicates that foreign buyers have all but disappeared from the Lower Mainland.

The numbers show that just one per cent of all real estate transactions in Metro Vancouver and the Fraser Valley Regional District during the first six months of this year involved foreign nationals, down from three per cent in the same period a year ago.

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Burnaby, Coquitlam and Richmond were the top destinations for foreigners buying property in the first half of 2018, with three per cent of transactions in Burnaby and two per cent in each of the other two municipalities involving foreign nationals. The sole municipality to see an increase in the proportion of foreign nationals making purchases was the City of North Vancouver, where foreign buyers were involved in one per cent of deals in the first six months of 2018.

Those concerned about foreign nationals purchasing agricultural properties will be reassured to know that foreign buyers of Lower Mainland rural properties have fallen from 14 per cent of the total in the first six months of 2017 to zilch in the first half of this year.

Nevertheless, a recent Insights West poll found foreign homebuyers are the most commonly identified contributor to the region’s housing crisis, with 84 per cent of Metro Vancouver residents naming them – more than the proportion that identified population growth or that other bête noire, shadow flipping.

Bold moves

While foreign buyers are the favourite scapegoat for the housing crisis, lower foreign participation in local real estate markets this year has barely budged housing prices in the Real Estate Board of Greater Vancouver’s jurisdiction.

Sales statistics from the board through the end of June pegged the benchmark price for a residential property in Greater Vancouver at $1,093,600, or 10 per cent higher than a year earlier. The board’s latest statistics through the end of July indicate a flattening in prices with the benchmark price now $6,100 lower than a month ago.

So, what’s a first-time buyer trying to scrape together a down payment to do?

It’s hard not to recall condo marketer Bob Rennie’s advice to Woodward’s buyers a dozen years ago: “Be bold or move to suburbia.”

With sky-high housing prices this side of the Port Mann, many have chosen the latter option. According to B.C. Ministry of Finance data, Surrey registered 498 first-time home purchases in the first six months of 2018. Abbotsford was the second most popular choice, attracting 148 first-time homebuyers. Perhaps even more remarkable, sales in the far eastern reaches of the Fraser Valley accelerated, with Chilliwack attracting 121 first-time buyers. This positions it to overtake Richmond as the third most popular destination for first-time homebuyers. Richmond had 123 first-time buyers in the first half of 2018, but Chilliwack has outsold it in each of the past four months.

Looking ahead

Regardless of where prices land, there’s a clear yet consistent pullback in sales activity. Total residential sales in Metro Vancouver fell by 25 per cent in the first six months of this year compared with sales during the same period a year earlier. Real Estate Board of Greater Vancouver commentary attempted to put July’s decline into perspective by saying housing sales “reached their lowest levels for that month since the year 2000.” While this point of fact was sobering, RBC Economics offered a more balanced perspective a couple of weeks earlier by saying that there was a greater balance between supply and demand in B.C. as policies within the province and at the Bank of Canada – read interest rates – were working to cool “persistently strong markets.”

Having forecast in March that house prices in the province would rise by six per cent this year, the B.C. Real Estate Association took a more cautious stance in its latest prognostication, simply anticipating “less upward pressure on home prices.”

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Real-Estate Magnate's NYC Townhouse Sale Is Among 2018's Priciest

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The 36-foot-wide townhouse measures about 15,000 square feet. The traditional design features marble, onyx and brass finishes.


Photo:

Brian Wittmuss

Real-estate investor

Joseph Chetrit

has sold a townhouse on New York’s Upper East Side for a price in the low-$40 million range, making it one of the priciest New York City townhouse deals to close so far this year, according to sources with knowledge of the deal.

Mr. Chetrit, a onetime owner of the

Sony

Building and Hotel Chelsea, listed the townhouse for $51 million in November 2017. It was part of a collection of three adjacent mansions Mr. Chetrit bought from Lenox Hill Hospital in 2007.

Mr. Chetrit paid a combined $26 million for six adjacent brownstones, then combined them into three. The properties are represented by Noble Black,

Richard Steinberg,

and

Roger Erickson

of Douglas Elliman. The agents declined to comment on the identity of the buyer, who purchased through a limited-liability company. The deal closed earlier this week.

The 36-foot-wide townhouse is the largest of the three. It measures about 15,000 square feet with eight bedrooms. The traditional design features marble, onyx and brass finishes. There’s a wall of glass on the ground floor overlooking the limestone-clad courtyard. A second townhouse is currently on the market for $39 million, while the third is not yet on the market.

One of the home’s eight bedrooms

One of the home’s eight bedrooms


Photo:

Brian Wittmuss

Mr. Chetrit could not be reached for comment.

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One person familiar with the deal said the buyer fell in love with the home, located at 110 East 76th St., while visiting it as part of the 2018 Kips Bay Decorator Show House. The buyer reached a deal with some of the event’s interior designers to retain some of their design elements, that person said.

The largest townhouse deal so far of 2018 closed in February, when Chinese conglomerate HNA Group sold a property formerly owned by art heir

David Wildenstein

for $90 million, property records show.

Write to Katherine Clarke at katherine.clarke@wsj.com

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Heatwave slows real estate deals

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Image: Kalle Niskala / Yle

While the summer heat has slowed down real estate deals, according to experts in the field, business is still faring better than the average over the last five years.

According to the Central Federation of Finnish Real Estate Agencies (KVKL), the slight drop in real estate transactions can be attributed to the unusually hot summer.

Sales of older apartments dropped during the first two quarters by two percent over the previous year, according to KVKL. For newer flats, sales dropped by 9 percent.

According to real estate agents surveyed by Yle, sales of older apartments was nevertheless 3 percent higher than the average for the previous year. New apartment sales were 22 percent above of the average for the last five years.

Only a slight slowdown

”Talk of the market slightly slowing down can be put down to the extreme heatwave this summer,” says Jockum Andersin, regional director at Aktia Kiinteistönvälitys realtors. "But sales are still very much in tune with the times," he adds.

During the first half of this year 33, 700 apartments were sold, which is 5.4 percent above the average of the previous five years.

”The volume of sales has varied this summer. It’s true that the trade could be more lively during the market upturn and during a time of low interest rates, but the overall figures don’t indicate any significant changes over the previous year," says Maria-Elena Cowell, chief executive officer at the Central Federation of Finnish Real Estate Agencies.

The prices of older flats continued to rise in the Helsinki metropolitan area. Meanwhile, in other parts of the country, price increases were less pronounced.

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