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A bumpy real estate market will rattle renters too – The Globe and Mail

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A duplex for sale in Vancouver on July 6.JENNIFER GAUTHIER/The Globe and Mail

Vancouver property sales have slowed, as sellers are less likely to list their homes. But prices are holding fairly steady in the country’s priciest market. That means for renters, the pressure on the rental market is higher than ever, exacerbated by interest rate hikes and increased demand. And that pressure could intensify now that landlords have an opportunity to increase rents.

Vancouver Tenants Union advocate Aïssa Aggoune said there’s a general anxiety among renters who are wondering if they will be able to afford their rents in the following months.

“The anxiety is caused by numerous factors which are compounding the already existing housing crisis and turning it into a real nightmare for the local families who live and work in Vancouver,” Mr. Aggoune said.

New legislation introduced a year ago allows an additional rent increase to recoup costs of capital expenditures on apartments, such as updates to electrical and mechanical systems, improving security and energy use. Mr. Aggoune said the new increases have largely gone under the radar. He’d like to see the increases suspended until inflation comes down.

“The process of fighting these rent increases is very long and exhausting for most tenants who do not even fully understand the legislation,” Mr. Aggoune said.

Rents on newly listed apartments have soared in the last year. According to Toronto-based HouseSigma real estate platform, the median rent for all Metro Vancouver rental listings on the Multiple Listing Service (MLS) went up from $2,500 in June, 2021 to $3,400 in June, 2022.

Realtor and HouseSigma spokesperson Hao Li said there is a key relationship between sales and rentals because when the sales market slows, people stay in rental apartments, increasing demand. As well, those who are experiencing interest rate hikes as their mortgages renew will pass the cost along to renters if they can.

According to HouseSigma A.I. generated data (which uses MLS and real estate board statistics), the median price of homes in Delta dropped by 28.3 per cent between February and June, followed by Surrey at a 23.4 per cent decrease and Maple Ridge about the same. Vancouver home prices dropped 11.7 per cent and West Vancouver by 11.4 per cent. North Vancouver only saw a 5.6 per cent drop. Overall, Metro Vancouver saw a 13.5 per cent decrease in median home price.

A broader perspective, such as that provided by the Canadian Real Estate Association, which looks at the benchmark price over a year, shows a far slower adjustment.

In April, 2022, the benchmark price for all homes in Greater Vancouver reached $1,264,700, according to the Canadian Real Estate Association. In April, 2021, that price was $1,099,300, a 15-per-cent increase.

Today it’s at $1,235,900, a slight decrease of 2.28 per cent – but still much higher than the benchmark price of June, 2021. Benchmark price is the estimated value of a home with typical characteristics.

“Home prices have eased in parts of British Columbia, although the B.C. provincial totals have been propped up by mostly static prices in Greater Vancouver,” said the CREA release.

Mr. Li, who is based in Vancouver, said prices in Vancouver have not been immediately impacted by the higher interest rate, which recently went up a full percentage point to 2.5 per cent. Some suburbs are likely hit harder because of the pandemic phenomenon that saw first-time buyers moving away from the city. That trend has eased up. Vancouver prices are staying strong because instead of reducing their prices, would-be sellers are not selling.

“We’re not yet seeing a significant price drop for the Vancouver area, no,” Mr. Li said. “Sellers know that if they put up their house up for sale now they can’t use the usual tactic, which is to list low and hoping everybody will bid high. Now, everybody’s mindset has shifted into, ‘whatever price you put out, people are more likely to offer something less, rather than bidding more.’ So they are less likely to want to sell their properties, so less inventory.”

Cancellations of listings in Greater Vancouver have gone up by 139.2 per cent since February, according to HouseSigma data.

Real estate agent Patricia Houlihan said some of her clients know it’s better to buy when the market slows, as opposed to the fear-of-missing-out phase during the beginning of the pandemic. Ms. Houlihan purchased her own home in 2008 just at the start of the economic downturn. There were fewer buyers and offers were subject to sale. The price of her home went down, but then it went back up.

“People who were fighting to buy houses and putting in stupid prices, now they are saying, ‘the market is going down, I’m going to wait.’ Really? Because you can now buy with subjects, and we don’ t get the unicorns right now,” she says, referring to that one buyer who will throw “crazy” money at a property.

”Right now is a great opportunity for buyers, because they can get something and get an inspection and think for a few days, and breathe. But it’s also good for sellers, because prices have gone down less than 2 per cent.”

She’s still seeing multiple offers. There are buyers who aren’t affected by the rate increase, and there are buyers who are in a panic to use their lender rate hold before it ends.

“The rates are still very, very low, as long as people can afford it. I just think the market has not changed enough for all the reaction that is happening.”

Grant Bazian’s job is to be on the lookout for signs of financial distress. Mr. Bazian is president of MNP’s insolvency practice, the largest in Canada, which handles corporate and consumer insolvency such as bankruptcies and liquidations.

An MNP consumer debt index released in April, prepared by Ipsos, showed that British Columbians had the largest drop in disposable income out of all Canadians, spending $269 less than they had a few months previously.

Not helping matters is that Vancouver has some of the highest dollar mortgages in Canada, says Mr. Bazian, making mortgage-holders particularly sensitive to any fluctuation. This week MNP released more bleak news: 27 per cent of Canadians are cutting back on essentials, such as food, utilities and housing costs.

Mr. Bazian was surprised when the Bank of Canada increased its benchmark rate the most it has since 1998, bringing the overnight rate to 2.5 per cent. But such a big jump tells him that there must be serious concerns. The younger generation who’ve only ever known a low interest rate will be particularly alarmed, he said.

“A 100 basis point jump, that’s something else. I wasn’t expecting that. … I think they are doing their best to control [inflation]. I don’t know how effective it’s going to be, because there are other elements to inflation, other than supply and demand.”

The biggest concern for policy makers is affordability for the average Canadian.

“I think it’s the inability for the average Canadian to afford the necessary household goods, that’s what it comes down to – to afford their mortgage payments, the basic necessities.

“It shows me consumer confidence and their financial well being are very low. And I think there is a lot of anxiety and stress with families, and a lot of them are uncertain as to what to do and how rising interest rates affects their financial well being.”

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Former B.C. Realtor has licence cancelled, $130K in penalties for role in mortgage fraud

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The provincial regulator responsible for policing B.C.’s real estate industry has ordered a former Realtor to pay $130,000 and cancelled her licence after determining that she committed a variety of professional misconduct.

Rashin Rohani surrendered her licence in December 2023, but the BC Financial Services Authority’s chief hearing officer Andrew Pendray determined that it should nevertheless be cancelled as a signal to other licensees that “repetitive participation in deceptive schemes” will result in “significant” punishment.

He also ordered her to pay a $40,000 administrative penalty and $90,000 in enforcement expenses. Pendray explained his rationale for the penalties in a sanctions decision issued on May 17. The decision was published on the BCFSA website Wednesday.

Rohani’s misconduct occurred over a period of several years, and came in two distinct flavours, according to the decision.

Pendray found she had submitted mortgage applications for five different properties that she either owned or was purchasing, providing falsified income information on each one.

Each of these applications was submitted using a person referred to in the decision as “Individual 1” as a mortgage broker. Individual 1 was not a registered mortgage broker and – by the later applications – Rohani either knew or ought to have known this was the case, according to the decision.

All of that constituted “conduct unbecoming” under B.C.’s Real Estate Services Act, Pendray concluded.

Separately, Rohani also referred six clients to Individual 1 when she knew or ought to have known he wasn’t a registered mortgage broker, and she received or anticipated receiving a referral fee from Individual 1 for doing so, according to the decision. Rohani did not disclose this financial interest in the referrals to her clients.

Pendray found all of that to constitute professional misconduct under the act.

‘Deceptive’ scheme

The penalties the chief hearing officer chose to impose for this behaviour were less severe than those sought by the BCFSA in the case, but more significant than those Rohani argued she should face.

Rohani submitted that the appropriate penalty for her conduct would be a six-month licence suspension or a $15,000 discipline penalty, plus $20,000 in enforcement expenses.

For its part, the BCFSA asked Pendray to cancel Rohani’s licence and impose a $100,000 discipline penalty plus more than $116,000 in enforcement expenses.

Pendray’s ultimate decision to cancel the licence and impose penalties and expenses totalling $130,000 reflected his assessment of the severity of Rohani’s misconduct.

Unlike other cases referenced by the parties in their submissions, Rohani’s misconduct was not limited to a single transaction involving falsified documents or a series of such transactions during a brief period of time, according to the decision.

“Rather, in this case Ms. Rohani repetitively, over the course of a number of years, elected to personally participate in a deceptive mortgage application scheme for her own benefit, and subsequently, arranged for her clients to participate in the same deceptive mortgage application scheme,” the decision reads.

Pendray further noted that, although Rohani had been licensed for “a significant period of time,” she had only completed a small handful of transactions, according to records from her brokerage.

There were just six transactions on which her brokerage recorded earnings for her between December 2015 and February 2020, according to the decision. Of those six, four were transactions that were found to have involved misconduct or conduct unbecoming.

“In sum, Ms. Rohani’s minimal participation in the real estate industry as a licensee has, for the majority of that minimal participation, involved her engaging in conduct unbecoming involving deceptive practices and professional misconduct,” the decision reads.

According to the decision, Rohani must pay the $40,000 discipline penalty within 90 days of the date it was issued.

 

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Should you wait to buy or sell your home?

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The Bank of Canada is expected to announce its key interest rate decision in less than two weeks. Last month, the bank lowered its key interest rate to 4.7 per cent, marking its first rate cut since March 2020.

CTV Morning Live asked Jason Pilon, broker of Record Pilon Group, whether now is the right time to buy or sell your home.

When it comes to the next interest rate announcement, Pilon says the bank might either lower it further, or just keep it as is.

“The best case scenario we’re seeing is obviously a quarter point. I think more just because of the job numbers that just came out, I think more people are just leading on the fact that they probably just gonna do it in September,” he said. “Either way, what we saw in June, didn’t make a big difference.”

Here are the pros of buying/ selling now:

Pilon suggests locking in the rate right now, if you don’t want to take a risk with interest rates going up in the future.

He says the environment is more predictable right now, noting that the home values are transparent, which is one of the benefits for home sellers.

“Do you want to risk looking at what that looks like down the road? Or do you want to have the comfort in knowing what your house is worth right now?” Pilon said.

And when it comes to buyers, he notes, the competition is not so fierce right now, noting that there are options to choose from.

“You’re in the driver seat right now,” he said while noting the benefits for buyers.

Here are the cons of buying/ selling now:

He says one of the cons would be locking in the rate right now, then seeing a rate cut in the future.

The competition could potentially become fierce, if the bank decides to cut the rate further more, he explained.

He notes that if that happens, the housing crisis will become even worse, as Canada is still dealing with low housing inventory.

An increase in competition would increase the prices of houses, he adds.

Selling or buying too quickly isn’t the best practice, he notes, suggesting that you should take your time and put some thought into it.

Despite all the pros and cons, Pilon says, real estate remains a good investment.

According to the latest Royal LePage House Price Survey for the second quarter of this year, the average home price in Canada is $824,300. That’s up 1.9 per cent from the same time last year, and up 1.5 per cent from the first quarter of 2024.

In the Ottawa Housing Market Report for June 2024, the average price of a home was up 2.4 per cent from this time last year to $686,535, but down 0.6 per cent from May 2024.

Experts believe many potential buyers are still hesitant of jumping into the housing market and waiting for another interest rate cut of 50 to 100 basis points.

“I don’t think it’s going to be the rush that we see in the past, because people are used to more of a conservative approach right now,” said Curtis Fillier, president of the Ottawa Real Estate Board. “I think there’s still a bit of a hold back, but I definitely do think with another rate cut, we’ll probably see a very positive fall market.”

With files from CTV News Ottawa’s Kimberly Fowler

 

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Real estate stocks soar to best day of year on rate cut bets

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(Bloomberg) — The stock market’s worst group notched its best day of the year as a cooler-than-expected inflation report stoked bets that the Federal Reserve will start cutting interest rates in September.

Shares of real estate companies jumped 2.7% Thursday for their biggest gain of 2024, climbing to their highest level since March as investors snapped up homebuilder, digital and commercial real estate stocks alike. Real estate also was the best-performing group in the S&P 500 Index Thursday, with volume that was around 30% higher than the 30-day average, according to data compiled by Bloomberg.

Arguably the most significant news to come from the latest consumer price index reading was a pullback in housing-related inflation. Shelter costs rose just 0.2% for the slowest monthly increase in three years. Homebuilders, which have risen 7.1% this year, were up 7.3% for the session, the most since 2022. Shares of D.R. Horton Inc., which is scheduled to report earnings next Thursday, gained 7.3%.

“Housing has really been the last shoe to drop in terms of winning the battle against high inflation,” Preston Caldwell, chief U.S. economist at Morningstar wrote in a note to clients Thursday. “Leading-edge data has strongly indicated for some time now that a fall in housing inflation was in the works.”

A rally in real estate stocks is bad news for short sellers who have been piling into the group, which is the worst performer in the S&P 500 this year. To start the week, short interest as a percentage of float hovered near 49% in the SPDR Homebuilders ETF, the highest level since February for the exchange-traded fund, according to data from S3 Partners.

Property owners are rallying as well. Real estate investment trusts, which were brutally penalized during the two-year run up in borrowing costs, advanced by as much as 3%. And the outlook for the group appears to have turned a corner, according Rich Hill, senior vice president and head of real estate strategy and research at Cohen & Steers Capital Management.

“We think this is a compelling backdrop for listed REITs especially as fundamental growth remains on solid footing,” he said, referencing the latest inflation data and rate outlook. “The rally that started in October of 2023 pushing returns more than 20% above their trough looks set to continue if inflation cools and interest rates continue to decline.”

Shares of industrial REIT Prologis Inc., which reports second-quarter results on Wednesday, rose 3.3% to hit their highest level since April. U.S. Treasury yields tumbled, with the 10-year bond falling to 4.2% and the policy-sensitive two-year note slipping to 4.5%.

(Updates indexes and stock prices for market close.)

 

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