THE RISK OF RECESSION has increased as the outlook has darkened for commercial real estate. In this unusually busy news week, there was little focus yesterday on the Federal Reserve’s biannual Financial Stability Report, which warned of a potential crisis in this interest rate-sensitive sector.THE MAIN RISK is that commercial borrowers will not be able to refinance their loans when the loans reach the end of their term, the report said. This could increase “the magnitude of a correction in property values,” which could be sizable and therefore could lead to credit losses by holders of commercial real estate debt,” the report said.
STILL STUNG BY ITS SLOW REACTION to bank failures this spring, the report pledged that “the Federal Reserve has increased monitoring of the performance of C.R.E. loans” and has “expanded examination procedures for banks with significant C.R.E. concentration risk.” the report said.
AS WE REPORTED LAST MONTH, commercial real estate — especially here in Washington, D.C. — appears to be moribund, as employees continue to work at home. Many downtowns in the U.S. look nearly deserted.
THE REPORT WARNED of deteriorating conditions in the bank sector in general. It’s getting more difficult to borrow, the report said, and this could “lead banks and other financial institutions to further contract the supply of credit to the economy.” It added that “a sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity.”
THIS, IN OUR OPINION, is perhaps the strongest argument for the Fed to pause its rate increases; tomorrow’s Consumer Price Index will be crucial. Interest rate reductions later this year still seem unlikely — but a clearly deteriorating commercial real estate sector is an ominous wild card, as yesterday’s Fed report indicated.
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AS THE SUSPENSE BUILDS over this afternoon’s White House summit on the budget, it strikes us that a Constitutional challenge to the debt ceiling is gaining supporters. But any attempt to use the 14th amendment to wiggle out of a debt deal would generate a fierce blowback from Republicans, with a quick legal path to a Supreme Court ruling.
THE WHITE HOUSE is determined to use every tactic available to avoid a default, and novel legal and regulatory approaches are now on the table. Our best bet is that both sides will pledge this afternoon to re-double their efforts, but if there’s no deal by early June, an extension until fall would be the most likely outcome. A deal is still weeks or months away.
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OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
