Connect with us

Real eState

Canadians: Don’t Rush To Buy a House



Since its peak in May 2022, the Teranet-National Bank House Price Index dropped a total of 10% up to mid-January 2023, the “largest contraction in the index ever recorded” since it began in 1999.

“In mid-2022, we saw a dramatic pull back in transactions, close to 23%, and in many markets, it was 40%,” recalls John Lusink, President of Right at Home Realty. In some higher-demand neighbourhoods, price drops have been more subdued and activity is still brisk. “On buyers’ side in Toronto, he continues, we still get two or three simultaneous offers, but it’s not 20 or 30 as we saw a year ago. People will no longer pay excessive amounts over the asking price.”

As we argued in a previous article, the present slump is not a catastrophe, but a welcome adjustment of prices.

Bank of Canada’s Rate Hikes Play a Role

The Bank of Canada’s rate hikes that started in March 2022 are the main impetus for the turn in the housing market, but the hikes didn’t really bite until the BoC pushed them by one full percentage point in July, then again by 75 basis points in September. All through 2022 and in January 2023, the BoC pumped up its overnight rate by a total of 4.25 percentage points from .25% up to 4.5%.


Of course, it’s not the Bank’s rates per se that did the damage but how mortgage rates responded. Five-year fixed rates went up to 6.05% in 2022, going back up to the level they reached in 2005, according to Super Brokers. For the time being, house listings are somewhat normal, “just a bit higher than a year ago in our network, and still higher than what we would normally see,” notes Lusink.

Also, credit quality has not yet deteriorated significantly, observes Carl De Souza, Senior Vice-President, Canadian Banking, North American Financial Institutions at DBRS Morningstar. “In time, borrowers and mortgage owners will continue to face increased pressure, he says. The impact from higher interest rates and inflation on consumer disposable income should negatively affect credit quality. But credit quality is still quite strong, residential mortgage credit quality remains extremely strong. Also, jobs are still very healthy.”

Stay Patient for Better Deals

Prices in the greater Toronto area fell by 19% between February and July 2022, recalls John Pasalis, President of Realosophy Realty, much more than the Teranet-National-Bank index average. But since July, prices have remained flat. Pasalis believes that many buyers moved to the sidelines, expecting prices to fall further, but now, “some buyers are starting to think: I won’t wait anymore. The market is busier than what most people expected, and it doesn’t seem to panic as they expected.”

The Canadian housing market is still quite resilient, which means that buyers hoping to purchase a house at bargain prices still need to be patient. “I would wait, especially if I were a first-time buyer, to see what effects the rate increases will have, advises Ian Provost, Senior Consultant in Wealth Management and Portfolio Manager at National Bank Financial – Wealth Management. It’s still too early. Usually, these effects need 12 to 18 months to pan out. Since the hikes have been steep only in the second half of 2022, it means holding out to 2024.”

Four other specialists interviewed for this story agree. “The right moment should present itself only in 2024,” confirms Fabien Major, Financial Planner and Wealth Management Advisor at Assante Capital Management, Major Team.

Pasalis also agrees. “There are still risks pressing on prices, he warns. We haven’t yet felt the full weight of rate hikes on the market and on the economy in general.” However, he notes that many buyers don’t really care to wait any longer because they are buying for the long term, and any bargains in prices won’t really make that much of a difference in the long run.

However, buyers who wait shouldn’t expect a rout. “Prices could still fall by another 15%,” ventures to predict Lusink. Yes, on the one hand, conditions are pressing down on prices: interest and mortgage rates, deteriorating household credit conditions, inflation, all factors that could be exacerbated by an eventual recession and its negative impact on the job market, De Souza points out. But, on the other hand, he recalls, “strong immigration and strong demand for housing and low inventories” contribute to hold the market up “and make predictions more difficult”.

For Pasalis, immigration is definitely a major driver of the rise in house prices. “Over the previous decade, he points out, Canada admitted roughly 275,000 new immigrants each year. In 2022, Canada saw a record 431,645 new permanent residents and this number is expected to reach 500,000 annually by 2025.” Trying to increase the number of housing starts is a route fraught with countless obstacles: municipal, regulatory, worker shortages, etc., “but changing our population numbers is the easiest path to follow,” he argues. However, until Canada’s immigration policies are changed, the rise in immigration will definitely supply a support platform for higher house prices.

Should one wait for the BoC’s pivot, when it starts to lower rates if it perceives it has tamed inflation? Beware such a moment, warns De Souza. “It could be a signal, provided that inflation comes down toward the 2% target. But the timing will depend on the economy, if there’s a recession, if unemployment grows. Lowering rates could mean a downturn in the economy.” He proposes rather to wait for the moment rates are peaking, which “could get buyers to come back into the market if prices are good and credit conditions are lightening up.”

A House is More an Expense Than an Investment

House owners often consider their purchase as an investment. Such a proposition needs many qualifiers. If you intend to “flip” your purchase and make a quick profit from a fast resale, it could work. But some buyers who expected to execute such a plan over the last year came in for an unhappy surprise. Some people Major knows were quite disappointed with their plan: “They can’t even meet their payments, even with revenues from rents,” he says.

“A main residence can be an investment if held over the long term, asserts Provost. But then, one needs to calculate how much this ‘investment’ has cost.” Indeed, many would find that when they add up all the mortgage costs, repairs, renovations and taxes, their house has cost them more than what they got out of it.

“A house is first and foremost a consumer item, agrees Major, it can become an investment only after many years.” Major warns that, once the share of residential real estate starts to exceed 50% of one’s assets, it ceases to be an asset and tends rather to become a liability because the expense of keeping up the real estate part of the portfolio becomes a drag on revenues from the other part.

A house becomes an investment essentially when you change its mission to produce rents, Major claims. And then, you find yourself with real estate which, for most investors, should represent between 5% and 15% of one’s portfolio.

Is a REIT a Better Real Estate Option?

Investors may consider a real estate investment trust, or a REIT, as a way to invest in real estate without the costs of owning a physical space. Is that a better idea? Jeremy Pagan is a NEXT research analyst at Morningstar, and he leveraged different personas to guide investors toward the right choice.

A Successful and Busy Professional: Property ownership could be costly or infeasible if you don’t have time to deal with tenants or maintenance, so passively investing is likely the right choice, as REITs minimize time and effort while improving risk-adjusted returns in a mixed-asset portfolio.

  • Sophisticated or wealthy investors could consider becoming a silent partner to an active investor, which could generate higher returns but comes with substantial risk.

A Flexible Professional: Early careerists or those with flexible jobs may consider making real estate into a part-time job or hobby. Risk appetite, liquidity needs, and your willingness to earn sweat equity will inform the appropriate choice.

  • Purchasing a rental property could make sense if you’ve already built a traditional investment nest egg and have excess savings. Your spare time and capital can be invested into a specific asset in the right market, and you can leverage real estate’s tax treatment to boost your after tax returns. Choosing tenants and working with maintenance providers is the time cost of actively investing in real estate.
  • Active investors have a wide range of opportunities to pursue. For example, if an investor has an appetite for remodeling, a fixer-upper could be an option. Between the tax benefits and leveraged nature of housing, this approach can compound returns quickly.
  • However, purchasing an illiquid asset could be a costly mistake if you don’t have an adequate financial cushion or suddenly need cash. On the other hand, buying shares of a diversified REIT at the right price could provide the diversification benefits you’re looking for without limiting portfolio liquidity.

Retired or Self-Employed: Professionals planning for retirement or without guaranteed income may lean toward real estate for steady income. Depending on the investor’s willingness to get hands-on, either a traditional investment or a REIT may be appropriate.

  • Empty nesters who plan to downsize or those who want to relocate may benefit from turning their current home into a rental property, especially if property prices are soft. If you purchase a home with a low interest rate and transition it into a rental, your investment property retains this perk and increases your positive cash flow. In addition, since a rental property is not treated as earned income, it is exempt from self-employment tax, or FICA tax. If time is a factor, then hiring a property manager for day-to-day decision-making could be right for you but will offset returns and may still take some of your time.
  • Shifting your investment strategy to REITs might be appropriate if free time is important to you but you desire a steady income. Perhaps you already have a passive income stream or a sizable investment portfolio. Taking advantage of diversified REITs is a strong choice for keeping your real estate assets liquid and easily investing in properties in various markets.

Source link

Continue Reading

Real eState

New York Fed board member warns of commercial real-estate risks – Reuters



NEW YORK, March 24 (Reuters) – An executive who also serves on the board overseeing the New York Federal Reserve warned on Twitter of potentially systemic problems in the real estate finance market and called on the industry to work with authorities to avoid things getting out of hand.

Noting there is $1.5 trillion in commercial real estate debt set to mature in the next three years, Scott Rechler, who is CEO of RXR, a large property manager and developer, tweeted: “The bulk of this debt was financed when base interest rates were near zero. This debt needs to be refinanced in an environment where rates are higher, values are lower, & in a market with less liquidity.”

Rechler said he’s joined with the Real Estate Roundtable “in calling for a program that provides lenders the leeway and the flexibility from regulators to work with borrowers to develop responsible, constructive refinancing plans.”

“If we fail to act, we risk a systemic crisis with our banking system & particularly the regional banks” which make up over three quarters of real estate lending, which will in turn put pressure on local governments that depend on property taxes to fund their operations, Rechler wrote.

The executive weighed in amid broad concern in markets that aggressive Fed rate hikes aimed at lowering high inflation will also break something in the financial sector, as collateral damage to the core monetary policy mission.

The Fed nearly held off on raising its short-term rate target on Wednesday after the collapse of Silicon Valley Bank and Signature Bank rattled markets. The failure of Silicon Valley Bank was linked to the firm’s trouble in managing its holdings as markets repriced to deal with higher Fed short-term interest rates.

The real-estate sector has also been hard hit by Fed rate rises and commercial real estate has also been hobbled by the shift away from in-office work during the pandemic.

Also weighing in via Twitter, the former leader of the Boston Fed, Eric Rosengren, offered a warning on real estate risks, echoing a long-held concern of his dating back a number of years.

Pointing to big declines in real estate investment indexes, he said “many bank lenders will be pulling back just as leases roll, with high office vacancies and high interest rates. Regional bank shock and troubled offices will be negatively reinforcing.”

Real estate woes are on the Fed’s radar, but leaders believe banks can navigate the challenges.

Speaking at a press conference Wednesday following the Fed’s quarter percentage point rate rise, central bank leader Jerome Powell said “we’re well-aware of the concentrations people have in commercial real estate,” while adding “the banking system is strong, it is sound, it is resilient, it’s well-capitalized,” which he said should limit other financial firms from hitting the trouble that felled SVB.

Rechler serves as what’s called a Class B director on the 12-person panel of private citizens who oversee the New York Fed. That class of director is elected by the private banks of the respective regional Feds to represent the interest of the public. Each of the quasi-private regional Fed banks are also operated under the oversight of the Fed’s Board of Governors in Washington, which is explicitly part of the government.

The boards overseeing each of the regional Fed banks are made up of a mix of bankers, business and non-profit leaders. These boards provide advice in running large organizations and local economic intelligence. Their most visible role is helping regional Fed banks find new presidents, although bankers who serve as directors are by law not part of this process.

Central bank rules say that directors are not involved in bank oversight and regulation activities, which are controlled by the Fed in Washington.

Reporting by Michael S. Derby; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

Adblock test (Why?)


Source link

Continue Reading

Real eState

China's Mysteriously Resilient Real Estate Prices: New Economy Saturday – Bloomberg – Bloomberg



[unable to retrieve full-text content]

China’s Mysteriously Resilient Real Estate Prices: New Economy Saturday – Bloomberg  Bloomberg


Source link

Continue Reading

Real eState

Widow's battle to resell burial space underscores Metro Vancouver's real estate crunch –



A little more than 25 years ago, John Douglas Carnahan bought the rights to two burial plots in the northeast corner of a hilly cemetery in a dense area of Burnaby, B.C. 

Back then, they cost $750 each. 

As years passed and space grew scarce, the cost of a single plot in the same cemetery surged to more than $10,000. 


After Carnahan’s death at 91, his widow decided not to use the plots. Her battle for the right to sell the plots privately to any buyer at market value has now spilled over into B.C. Supreme Court in a case experts say again proves the region’s real estate crunch is also squeezing its graveyards.

“We are running out of space, particularly in the Lower Mainland,” said architect Bill Pechet, who’s worked in cemetery design for roughly 30 years.

“Just like we have a housing crisis for the living, we’re also encountering a housing crisis for those who want to be buried.”

Cemetery blocking resale, widow says

Carnahan bought both plots at Pacific Heritage Cemetery in March 1998. At the time, there was a clause in the purchase agreement saying cemetery directors “may” buy back owner’s plots at the original purchase price.

Carnahan’s widow, Sheila Carnahan, contacted the cemetery after her husband’s death in 2021 to ask how she could go about privately selling the plots she no longer needed to a third-party buyer.

Her claim said staff told her in an email last October that, according to its bylaws, she could only sell her plots back to the cemetery for the original purchase price of $750 each.

Stone gravemarkers are pictured in a grassy cemetery on an overcast day. Residential homes are visible beyond a hedge in the background.
Burial plots in section G of the Pacific Heritage Cemetery in Burnaby, B.C., pictured on March 20. (Ben Nelms/CBC)

Sheila Carnahan has argued the cemetery “misinterpreted” its own bylaws because the clause said cemetery directors “may purchase” plots back — not “must purchase.”

“The claimants say that the position taken by the [cemetery], while invalid in law, effectively prevents a sale to third parties because the [cemetery] controls the ownership record and the operation of the cemetery, including the preparation of the grave for use,” the lawsuit said.

“The [cemetery] could effectively prevent the new owner from using the plot.”

The cemetery has not responded to her claim in court.

In B.C., rights to interment sold in perpetuity

In B.C., buying a plot is just buying the right to interment, meaning a buyer is paying for the right to be buried in the space but not purchasing the land itself. Those rights are sold in perpetuity, so buyers can hold plots for however long they choose — unless a plot has been empty for more than 50 years and the rightsholder is more than 90 years old, in which case a cemetery can launch the complex process of applying to get the space back.

Each cemetery sets its own rules around resales. Some bylaws allow private sales, others don’t. 

Most cemeteries in Metro Vancouver are full or nearly full. As the value of real estate has skyrocketed over the last decade, so has the value of that scarce burial space — especially in urban areas. Private plots in Metro Vancouver have been listed on Craigslist or Kijiji for anywhere from $5,000 to $50,000.

Resales are common enough to warrant caution from Consumer Protection B.C., urging buyers to check online ads carefully to ensure whether cemeteries honour private sales. 

Limited space, poor planning part of the problem

There’s a shortage of traditional cemetery space in B.C. for the same reason there’s a shortage of space for new homes — builders have nowhere else to go.

“The housing crisis that we’re encountering is a result of our inability to expand horizontally because we encounter the mountains on one side and the ocean on the other,” said Pechet.

“We have a land shortage for housing, and cemetery spaces are a form of housing.”

City planning was also an issue.

“For some reason, the Metro Vancouver area seems to have significantly less cemetery space through some planning than most other municipalities,” said Glen Hodges, who manages Mountain View Cemetery, the only graveyard in Vancouver.

“It’s some magical mystery as to why.”

Some European countries, like Switzerland, Sweden, Italy, France and Germany, limit cemetery leases to anywhere between three and 30 years to free up more plots.

In Spain and the United Kingdom, bones can be moved after a certain period so the plot can be recycled to be sold again. The City of London Cemetery, for example, reuses graves left untouched after 75 years.

In 2019, the City of Vancouver passed a series of bylaws to save space at its only cemetery. Gravesites at Mountain View Cemetery are now allowed to be shared by multiple families, and the cemetery can decide when additional remains can be added to an existing space.

Pechet said B.C. might have to consider vertical cemeteries, like those in Japan, or find a way to tactfully incorporate gravesites into existing public parks. Recycling could also be an option. 

“I think it will inevitably have to lead to a lot of invention,” he said.

Adblock test (Why?)


Source link

Continue Reading