Grousing (or gloating) about high real estate prices is no longer confined to Vancouver and Toronto.
Real estate prices are shooting up across the country.
As COVID hit, predictions were that real estate would fall by 18%. Instead, house prices across the country rose by 25%, starting a boom that has not subsided for the last year.
The national average home price reached a record $678,091 in February; prices are expected to rise more than 16% again this year.
The ability to work from home has changed people’s ideas about the three main rules of real estate — location, location, location — and now property prices in suburban areas, small towns, and cottage country are rising fast.
A new Angus Reid poll on home ownership and attitudes toward the housing market shows a widening chasm between the haves and the have-nots.
(And more reason to hate baby boomers.)
The housing market is prompting Canadians to take sides, with about 40% of those polled hoping real estate prices will continue to rise and around the same — 39% — hoping prices will fall.
One in five people polled (22%) are hoping for an actual crash, with prices falling 30% or more; that this would blow up the entire economy is either lost on these people or they don’t care.
However, as the poll noted, this is an undeniable indicator “of the amount of housing pain people are experiencing coast to coast, in large communities and small.”
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Given those findings, the Angus Reid cross-Canada poll created a Housing Pain Index to illustrate what Canadians are going through, dividing people into four groups: The Happy, The Comfortable, The Uncomfortable and The Miserable.
All four groups are well represented across Canada. Income counts, but age is a more predictive indicator of a person’s placement in the Housing Pain Index than any other demographic.
The small group — 13% of the populace — known as The Happy are older, higher income, likely to own a home, and likely to have owned that home for more than 15 years.
Three quarters (73%) of that crowd no longer pays a mortgage.
The Comfortable, about 26% of the population, are also older and higher income;70% are homeowners, of which 62% have paid off their mortgage. Renters in this group say their rent is reasonable.
The Uncomfortable, interestingly enough, span every income and age group and are found in every province at around the 35% mark.
More than half own homes (60%) and more than 82% of those homeowners have a mortgage. Only half say mortgage payments are handled fairly easily.
The Miserable, who are 24% of the population, are younger, have lower incomes, and are 42% renters. Eight in 10 who don’t own a house say they’d like one but can’t afford it.
The homeowners among them have mortgages (97%); only 10% can afford their payments easily.
Timing counts. The Happy and the Comfortable are more likely (90%) to have entered the market more than 15 years ago.
Half in the Uncomfortable or Miserable category bought in the last two to five years; that rises to 72% when one includes buyers who purchased in the last 12 months.
Sadly, at least 55% of residents canvassed in every province are either Uncomfortable or Miserable.
On average, 50% of Canadians, regardless of where they live, think housing in their area is too expensive.
Income matters, obviously, but every income level appears in each of the four Housing Pain Index categories.
About 14% of the Happy earn less than $25,000 a year, for example, while 19% of those in the Miserable bracket earn $100,000 or more and 9% earn $150,000 or more.
Canadians are united in their disdain for how officials have handled runaway real estate prices. An overwhelming majority in every province criticized their provincial government’s handling of housing affordability.
Angus Reid polled 5,004 Canadians who answered a series of questions on their current personal finances and housing situation.
The availability of apartments and units that can be rented is staggeringly low. Because vacancy is so tight, competition in the open market has intensified, lifting rental prices along the way. In Canada, rent for a two-bedroom unit rose 5.6% in 2022. Some of the highest rental prices were recorded in Ottawa-Gatineau at 9.1%, Toronto at 6.5%, and Calgary at 6%.
Less housing stocks, higher prices. The marketplace and our elected officials all knew this would happen. Real Estate Agencies and land developers all but jumped for joy at the prospect of selling homes that sold for $350,000 a few years ago, and are now selling for 3X the amount. Bidding wars drive prices higher and higher. Developers who make a home at @$195,000 cost sell these homes as affordable within the 650-1M range.
So much for independent home units. What about apartment buildings? Are they being built? In Quebec they are but not in the # needed. Europeans are comfortable with renting an apartment for decades, but not so in the rest of Canada. Status, and keeping up with the “joneses” have been all the rage. First-time home buyers will spend decades gathering enough funds to make an initial deposit if the bank so allows it. Why do developers not build rental units/apartments? Well, developers would need to look upon such builds as long-term investments, waiting some time to get back their costs and make some profit. Building other types of homes guarantee them immediate compensation, gratifying their profiteering.
Why do regional, City, and Provincial Governments prefer housing builds of larger houses? The revenue they make of course. Even Premier Ford’s push to have 50,000 houses built in a few years centers upon individual homes being sold, not rented(aftermarket). Has our economic system forgotten the small fry, the average Canadian who does not make a salary over $100,000 annually? Yes, it has, and the reason for this forgetfulness is that the wealthy and mid-level middle class hold greater influence on these elected officials. They are the same people, while the dirty unwashed working stiff has very little in common with real estate agents, developers, and elected officials too. A true class system with regard to housing exists in Ontario and Canada. Are the New Democrats crying out loud for reforming this system? No, they are not. They want to represent the higher-ups. those with excess revenue and economic purchasing power.
Rental Units are Needed Stupids. A housing revolution is needed not just in Ontario but across this land. Why won’t the government put its hands into the direct building of these units? They have the funds, and the regulations to make sure these units are made appropriately and in a timely manner. The very power of the elite, real estate, and developers lobby will always sway our elected officials away from competing with these financial aggressors. In 2016 548 formers members of a government in Canada registered as lobbyists, often representing the wishes of those who once were their suppliers(developers). What am I saying? Perhaps many of our elected representatives have been padding their pocketbooks and ensuring their future careers in well-paid jobs. Corruption? Find out how much an MPP or MP was worth when they started their position, and after 4-5 years what are they worth???
Only the average Canadian, worker, student, or elderly who cares about their children’s future, can force this issue before the politicians in Ottawa, Toronto, and through out Canada. Protests like those that happened in Ottawa last spring could really change the way our representatives represent us. A wee Revolution we need indeed.
Housing and shelter are human rights. Right? So get off your couch and gather with like-minded neighbors to demand real affordable housing, and build nonprofit apartments too.
Mortgage rates are still falling as the Fed announced another quarter-point rate hike on Wednesday — and indicated increases may be nearing their long-awaited end.
In the meanwhile, the homebuyer front is seeing “improved purchase demand and stabilizing home prices,” says Freddie Mac chief economist Sam Khater.
“If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season.”
Khater and other experts are anticipating more buyers will return to the market as rates become more affordable. However, that doesn’t mean housing prices are going to subside anytime soon.
30-year fixed-rate mortgages
The average 30-year fixed rate slid further to 6.42% this week, compared to last week’s average of 6.60%.
A year ago at this time, a 30-year home loan averaged 4.42%.
“With rates below 6.5%, more Americans can purchase the median-price home by putting 18% down without being cost-burdened,” says Nadia Evangelou, senior economist for the National Association of Realtors (NAR).
Evangelou anticipates the housing market to rebound even faster than expected if mortgage rates continue their decline this spring.
15-year fixed-rate mortgage rate trend
The average rate on a 15-year home loan tumbled from 5.90% to 5.68% this week. This time a year ago, the 15-year fixed-rate averaged 3.63%.
Hannah Jones, economic research analyst at Realtor.com, notes that despite the Fed’s softened stance on additional rate hikes, the federal funds rate will still remain fairly high — “meaning that a higher interest rate environment is here to stay for the time being, including for home loans.”
Jones says that while buyer demand is increasing due to slightly lower financing costs, many Americans are still grappling with affordability challenges.
“At the current price and mortgage rate level, the typical housing payment on a median-priced home is still 36.4% higher than one year ago.”
U.S. home sales pick up in February
There was an unexpected uptick in new home sales in February, inching 1.1% from January to an annual pace of 640,000 new home sales, reports Realtor.com. This is still 19% lower compared to the housing market a year ago, but sales may continue to rise as mortgage rates fall.
“Higher mortgage rates are the new normal, which leaves home shoppers measuring their willingness to participate in the market with each change in rates,” writes Jones.
She adds that sales activity is becoming increasingly concentrated toward new homes that haven’t been started yet — making up about 23% of new home sales in February, compared to 17% in January — suggesting that “buyers are looking to lock in a good deal now, before construction has started.”
Although lower mortgage rates signal increased affordability, the median new home sale price climbed to $438,200 last month — 2.5% higher than the same period last year.
“As long as the housing market remains undersupplied, buyer competition will put upward pressure on prices,” explains Jones.
Mortgage applications continue to rise
Demand for mortgages rose 3% from last week, according to the Mortgage Bankers Association (MBA).
Homeowners have also been more encouraged to refinance — thanks to lower rates — with the refinance index climbing 5% since the week prior.
“Both purchase and refinance applications increased for the third week in a row as borrowers took the opportunity to act, even though overall application volume remains at relatively low levels,” says Joel Kan, vice president and deputy chief economist at the MBA.
Kan notes that mortgage rates haven’t plunged as drastically as Treasury rates due to increased volatility in the mortgage-backed securities market.
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If there is anything commercial real estate owners don’t need right now, it’s a banking crisis.
Big owners of property around the country were already under pressure from the Federal Reserve’s aggressive campaign to raise interest rates, which raised borrowing costs and lowered building values. They also had lots of space still sitting empty in city centers as a result of more hybrid and remote work arrangements resulting from the pandemic.
Now they face the prospect that beleaguered banks, especially smaller ones, could get more aggressive with lending arrangements, giving landlords even less room to breathe as they try to refinance a mountain of loans coming due. This year, roughly $270 billion in commercial mortgages held by banks are set to expire, according to Trepp, and $1.4 trillion over the next five years.
“There were already liquidity issues. There were fewer deals getting done,” Xander Snyder, First American senior commercial real estate economist, told Yahoo Finance in an interview. “Access to capital was getting scarcer, and this banking crisis is almost certainly gonna compound that.”
Smaller banks began ramping up their exposure to commercial real estate in the aftermath of the 2008 financial crisis, which was triggered by a housing bust, and stuck with it even after the pandemic emptied out many city-center properties and other forms of borrowing provided by commercial mortgage backed securities and life insurers dried up.
Signature was among the banks that made some of these bets, becoming an aggressive lender in New York City to office towers and multifamily properties. By the end of 2022 it had amassed nearly $36 billion in commercial real estate loans, half of which were to apartments. That portfolio comprised nearly one-third of its $110 billion in assets.
“There’s a lot of commercial real estate that’s been financed over the last few years,” BlackRock Global Fixed Income CIO Rick Rieder told Yahoo Finance on Wednesday. “When you raise rates this quickly, the interest-sensitive parts of the economy, and particularly where there’s financing or leverage attached to it, then that’s where you create stress. That’s not going away tomorrow.” Commercial real estate, he added, doesn’t represent the same type of systematic risk to the economy as housing did during the 2008 financial crisis but there are “isolated pockets that can lead to contagion risk.”
Forced sales of more trophy buildings at large discounts are expected in the coming years as owners struggle to refinance at affordable rates. “Sellers will want the price that everyone was getting [back] in December 2021, and buyers are kind of even afraid to buy something right now cause they don’t even know what the price of these buildings are,” Snyder said.
“Bank lending standards had already tightened significantly over the last few quarters to levels previously unseen outside of recessions, presumably because many bank risk divisions shared the recession fears that have been widespread in financial markets,” according to a note last week from Goldman Sachs. More tightening of lending standards expected as a result of new bank stresses could slow economic growth this year, Goldman said.
But he said regional banks with high amounts of commercial estate loans were not likely to become the next Silicon Valley Bank.
“We’re well aware of the concentrations people have in commercial real estate,” he said. “I really don’t think it’s comparable to this. The banking system is strong. It is sound. It is resilient. It’s well-capitalized.”
The larger commercial real estate world is still absorbing the shock of the Fed’s aggressive campaign, according to Marcus & Millichap CEO Hessam Nadji. The effects may not pose a systemic risk, he added, but they will add to the industry’s many challenges.
“Commercial real estate has been through a pandemic, very rapid recovery, then massive tightening of financial conditions unlike anything we’ve seen in modern history,” he told Yahoo Finance Thursday. “The last three years have moved the industry through a significant rollercoaster.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv