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Bank of Canada rate cut will put already hot real estate market ‘on steroids’

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A home that is sold is photographed along Runnymede Rd. in Toronto on Wednesday, March 4, 2020.

Tijana Martin/The Globe and Mail

The Bank of Canada’s interest-rate cut threatens to overheat the country’s booming housing markets, making it easier for home buyers to borrow and further driving up real estate prices.

A number of cities, including Toronto and others in Southern Ontario, Ottawa, Montreal and Victoria, were already under pressure with strong demand for homes and dwindling supply inflating property values.

But with the coronavirus spreading around the world and business activity slowing, the central bank slashed its key interest rate Wednesday to 1.25 per cent from 1.75 per cent in an attempt to keep the economy humming. That followed deep anxiety in public markets where investors sought protection in bonds, sending yields down.

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“The dramatic rate cuts and the related bond rally to record low yields will put housing on steroids,” said Douglas Porter, chief economist with Bank of Montreal. “This will probably override consumer caution related to the coronavirus, although there may be a temporary chill in activity due to those concerns.”

Realtors in the Toronto region say the market was active in January and February because of the shortage of home listings and growing demand. They say the climate is reminiscent of 2017, when prices were increasing rapidly and frantic buyers were making offers well over asking. The average selling price of a home reached $910,290 last month, a 17-per-cent increase over the previous year.

In the Niagara area, the benchmark selling price has nearly doubled over five years as investors have flocked to the U.S. border region because of the relatively low house prices. “Rate cuts typically increase interest and give buyers more buying power,” said Brad Johnstone, a realtor with Royal LePage who has worked in the Niagara region for more than two decades. “Low inventory and high demand are still fuelling a strong real estate market. … Prices keep going up,” he said.

In Montreal, the number of sales hit a record high last year and the area’s real estate board has said the city has entered a “phase of exuberance.” In Victoria, the benchmark selling price is up 4 per cent over the past year and the national housing agency, Canada Mortgage and Housing Corp., has said the region has a “high degree of vulnerability” because of accelerating prices and overvaluation.

In the greater Vancouver area, sales are rebounding dramatically and the average selling price is starting to rise again after housing policies slowed activity in 2018. “Demand has been picking up steadily and supply is low. Anytime that happens there is upward pressure on prices,” said the area’s real estate board president Ashley Smith, calling the rate cut helpful for buyers.

The federal Finance Department announced changes to its stress test last month for insured mortgages by making it more responsive to market mortgage rates, which have been falling. Some economists had warned that move alone could overstimulate hot markets.

Wednesday’s rate cut, the first since the oil crash in 2015 when the central bank reduced the key interest rate twice to ward off a recession, and the change in the mortgage stress test are expected to further stimulate the real estate market.

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“It will accelerate an already active market. … Multiple offers and competition are rampant across Southern Ontario and Ottawa,” said Christopher Alexander, Re/Max’s regional director for Ontario and Eastern Canada. “Even before this rate cut, mortgage rates were historically low.”

Corinne Lyall, a broker owner of Royal LePage Benchmark in Calgary, said prospective home buyers are asking “Should I take advantage of this and how long do you think it will last?” Ms. Lyall expects the rate cut to give buyers an opportunity to lock in preapproved mortgage rates and get into the Calgary market, which has suffered from the oil slump and economic downturn.

The lower interest rate will make it easier for consumers to get a bigger mortgage, refinance their home loans and take out lines of credit. That is expected to drive up household debt, which is at a record high of $2.3-trillion and had been one of the Bank of Canada’s top concerns. In its statement announcing the rate decision, the central bank did not mention household debt or the real estate markets.

Consumers had been reducing their lines of credit since the Bank of Canada raised interest rates three times in 2018. The higher borrowing costs made it harder for consumers to service their debt, leading to an uptick in delinquency rates. Equifax said the Bank of Canada has given those consumers a temporary reprieve, but warned against loading up on debt on the expectation that rates would remain at this level.

“That stress should go down,” said Bill Johnston, vice-president at Equifax Canada. “Our concern is that they start to grow that line of credit again.”

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Gold price firmer as bulls work to stabilize market – Kitco NEWS

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  1. Gold price firmer as bulls work to stabilize market  Kitco NEWS
  2. Gold rebounds but holds below $1,900 on Fed fears, firm dollar  Financial Post
  3. Gold Price Forecast – Gold Markets Attempt to Stabilize  FX Empire
  4. Gold SWOT: The Dollar and Treasury Yields extended declines last week, pushing gold higher  Kitco NEWS
  5. Gold Price Forecast: XAU/USD Awaits Fedspeak after Absolute Blowout Jobs Report  DailyFX
  6. View Full Coverage on Google News

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Turning empty offices into housing is a popular idea. Experts say it's easier said than done – CBC.ca

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Turning empty offices into housing is a popular idea. Experts say it’s easier said than done  CBC.caView Full Coverage on Google News

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Tiny wines find home in B.C.’s market, as Canadians consider reducing consumption

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VANCOUVER — Wine lovers have growing options on the shelf to enjoy their favourite beverage as producers in B.C. offer smaller container sizes.

Multiple British Columbia wineries over the last several years have begun offering their product in smaller, single-serve cans and bottles.

Along with making wine more attractive to those looking to toss some in a backpack or sip on the golf course, the petite containers leave wineries with options for a potential shift in mindset as Canadians discuss the health benefits of reducing alcohol consumption.

Vancouver-based wine consultant Kurtis Kolt said he’s watched the segment of the wine industry offering smaller bottles and cans “explode” over the last several years, particularly during the COVID-19 pandemic when people were meeting outdoors in parks and beaches and looking for something more portable to take with them.

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“You’re not taking a hit on quality, you know? In fact, if someone is only going to be having a glass or two, you’re cracking a can and it’s completely fresh, guaranteed,” he said.

It’s also an advantage for people who want to drink less, he said.

“It’s much less of a commitment to crack open a can or a small bottle or a smaller vessel than it is to open a bottle,” he said.

“Then you have to decide how quickly you’re going to go through it or end up dumping some out if you don’t finish it.”

Last month, the Canadian Centre on Substance Use and Addiction released a report funded by Health Canada saying no amount of alcohol is safe and those who consume up to two standard drinks per week face a low health risk.

That’s a significant change from the centre’s 2011 advice that said having 15 drinks per week for men and 10 drinks per week for women was low risk.

Health Canada has said it is reviewing the report.

Charlie Baessler, the managing partner at Corcelettes Estate Winery in the southern Interior, said his winery’s Santé en Cannette sparkling wine in a can was released in 2020 as a reduced alcohol, reduced sugar, low-calorie option.

“We’ve kind of gone above and beyond to attract a bit of a younger, millennial-type market segment with a fun design concept of the can and sparkling, low alcohol — all these things that have been recently a big item on the news,” he said.

Santé en Cannette is a nine per cent wine and reducing the alcohol was a way to reduce its calories, he said. The can also makes it attractive for events like a picnic or golf, is recyclable, and makes it easier for restaurants that might want to offer sparkling wine by the glass without opening an entire bottle.

At the same time, the lower alcohol content makes it an option for people who might want a glass of wine without feeling the same effect that comes from a higher alcohol content, he said.

“So the health is clearly one incentive, but I think more importantly, so was being able to enjoy a locally made product of B.C. from a boutique winery, dare I say, with a mimosa at 11 o’clock and not ruin your day,” he said.

Baessler said the winery has doubled production since the product was first released to about 30,000 cans a year, which they expect to match this year.

He said there’s naturally a market for the product but he doesn’t expect it to compete with the higher-alcohol wine.

“So this isn’t our Holy Grail. This is something that we do for fun and we’ll never compete, or never distract, from what is our core line of riper, higher-alcohol wine,” he said.

Jeff Guignard, executive director of B.C.’s Alliance of Beverage Licensees, which represents bars, pubs and private liquor stores, said the industry has seen a shift in consumers wanting options that are more convenient.

“It’s not a massive change in consumer behaviour but it is a definitely a noticeable one, which is why you see big companies responding to it,” he said.

Guignard said the latest CCSA report is creating an increased awareness and desire to become educated about responsible consumption choices, which is a good thing, but he adds it’s important for people to look at the relative risk of what they’re doing.

“If you’re eating fast food three meals a day, I don’t think having a beer or not is going to be the single most important determinant of your health,” he said.

“But from a consumer perspective, as consumer preferences change, of course beverage manufacturers respond with different packaging or different products, the same way you’ve seen in the last five years, a large number of low-alcohol or no-alcohol beverages being introduced to the market.”

While he won’t predict how much the market share could grow, Guignard said non-alcoholic beverages and low-alcoholic beverages will continue to be a significant piece of the market.

“I don’t know if it’s reached its peak or if it will grow. I just expect it to be part of the market for now on.”

This report by The Canadian Press was first published Feb. 5, 2023.

 

Ashley Joannou, The Canadian Press

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