Fed says China's real estate troubles could spill over to the U.S. - CNBC | Canada News Media
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Fed says China's real estate troubles could spill over to the U.S. – CNBC

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Ornamental statues at China Evergrande Group’s Life in Venice real estate and tourism development in Qidong, Jiangsu province, China, on Tuesday, Sept. 21, 2021.
Qilai Shen | Bloomberg | Getty Images

BEIJING — The U.S. Federal Reserve warned Monday of potential spillover from China’s real estate troubles to the U.S. financial system.

Since this summer, highly indebted developer China Evergrande has rattled global investors as the company has attempted to avoid official default. Other Chinese developers have also struggled to repay debt, adding to concerns of wider fallout in the world’s second-largest economy — roughly a quarter of which is driven by real estate.

“Stresses in China’s real estate sector could strain the Chinese financial system, with possible spillovers to the United States,” the Federal Reserve said in its latest financial stability report, released twice a year.

The report pointed to the size of China’s economy and financial system, and global trade links.

The bulk of the document discussed domestic U.S. financial conditions, from historically high stock market prices to risks from rapid growth in stablecoins — digital currency tied to a fixed value such as the U.S. dollar. Analysts downplayed the significance of the Fed’s comments on Chinese real estate.

“The nexus of the Fed’s concern is that China’s real estate activity is slowing, but the developers have large debts [and] some of them (like Evergrande) are diversified into other areas of the economy,” Paul Christopher, U.S.-based head of global market strategy at Wells Fargo Investment Institute, said in an email.

These wide-reaching links mean a slowdown in China’s housing market could ultimately lead to unemployment, a drop in Chinese stocks and deflation — which could spread through global trade channels as China cuts its purchases of goods from other countries, Christopher said.

However, he said such fallout is unlikely. “China’s government has been wrestling with high corporate debt for years, is alert and has resources to deal with the real estate sector,” Christopher said, noting authorities can still spend more to address a deflationary shock, as they have in the past.

The Fed’s latest report also analyzed the role of retail investors and social media in stock market volatility earlier this year, as well as the role of foreign investors in a sell-off of Treasurys in March 2020.

Previous financial stability reports from the Fed have mentioned China, its high debt levels and “stretched real estate prices” as risks that could spill over to the U.S.

Ilya Feygin, senior strategist at New York-based brokerage WallachBeth Capital, said the latest Fed report likely included China’s real estate difficulties “for completeness.”

“The Fed has been criticised for not seeing the vulnerability of US housing and US banks prior to 2008,” he said in an email, referring to the financial crisis at that time. “Therefore anything related to real estate and banking system risk anywhere will be scrutinised excessively.”

He did not expect the Fed’s comments to have much significance for investing in emerging markets.

Growing worries about China

However, one difference in the Fed’s latest financial stability report from prior ones was its finding that China figured prominently among concerns about risks to U.S. financial stability, according to a Fed survey of “26 market contacts” from August to October.

While persistent inflation, monetary policy tightening and vaccine-resistant coronavirus variants were of top concern for survey respondents, they were followed by worries about Chinese regulatory and property risks.

Concerns about U.S.-China tensions came next, according to the survey. A slowdown in the Chinese economy ranked last, in 13th place.

Those results differed from the Fed’s previous survey, conducted from February to April, in which the only China-related concern was tensions with the U.S. The top worry then was vaccine-resistant variants of the coronavirus.

The survey covered representatives of broker-dealers, investment funds, political advisory firms and universities, the Fed report said.

Arthur Kroeber, who helped found China-focused research firm Gavekal Dragonomics in 2002, said in an email that the Fed’s comments on China were “pretty vague and generic,” and focused on the potential impact to the U.S. primarily based on China’s large size.

“I think the risks to the US are small since the closed nature of China’s financial system means contagion is not likely to be a big problem,” Kroeber said, noting he would be more concerned about additional inflationary pressure from supply chain problems and rising export prices out of China.

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Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

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TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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Homelessness: Tiny home village to open next week in Halifax suburb

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HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

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Here are some facts about British Columbia’s housing market

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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

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