The Governor of the Bank of Canada does not see a Real Estate Bubble in the Market that he saw in 2013 | Canada News Media
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The Governor of the Bank of Canada does not see a Real Estate Bubble in the Market that he saw in 2013

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The Bank of Canada (BoC) head recently dismissed the need to cool real estate prices. Governor Tiff Macklem seems like he doesn’t want to say anything controversial… or he’s one of those people that thinks real estate prices only go up. That wasn’t the case back in 2013 when he served in the central bank’s number two role.

During his tenure as deputy governor, he warned about Canada’s addiction to real estate. In a 2013 speech, Macklem ripped on everything from overvaluation to GDP concentration. So what changed? Did things improve, or has ignored the problem for almost a decade produced a situation too fragile to touch? Has everyone in charge just decided they don’t want to be the pin that pops the bubble? Let’s dive into his concerns back then, and how those indicators look today.

Canadian Real Estate has Shown Signs of Overvaluation

 

In his former role, Governor Macklem felt home prices were overvalued. “Over the past decade, the price of the average home has risen from 3.5 times disposable income to more than 5 times.” Adding, “Housing activity in Canada is at a near-record share of GDP, and there are indications of overbuilding and overvaluation in some segments of the housing market.”

 

Let’s quickly unpack how those indicators look today. The average home price was a concern to him at 5x disposable income in 2013. Today that number is over 15x, and that’s just at the national level. In Toronto and Vancouver, it’s much higher. Somehow, tripling a level of “overvaluation” is just a slight sign of overheating.

 

In 2013, it was concerning to approach a record high. Today it’s “good for the economy” that it smashed the record? Canada’s residential investment as a share of GDP is now so high, it can’t see the US housing bubble without a telescope.

 

Investors Driving The Real Estate Market Made It Vulnerably

 

In the same speech, Macklem also said prices were being driven by investors creating speculative demand. “The total number of housing units under construction is now well above its average relative to population… there is also abundant anecdotal evidence that building has been spurred by investor demand, and is, therefore, more susceptible to changes in buyer sentiment.”

 

Canadian real estate was barely on the map of speculators at that time. It’s currently one of the most sought-after markets for investment. In 2018, almost half of Toronto real estate investors bought negative cap condos.

 

Conclusion:

Regards of the fact that whether there is a bubble or not one thing is for certain. Things have never seen this volatile in the history of the real estate market of Canada. Knowing this full well investors have not shied away from gaining a good position and using this fact to their advantage in every way possible.

 

Investors are what drive the market, they are the key to everything. Their behavior would be reflected in how the market behaves and how it responds. Not intervening in the market is a good act by the government. This shows that promoting trade and letting the market determine the rates would show a boom and things at the end would be falling in place.

 

Let’s see what the future holds for the real estate market.

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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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