This week’s top stories include how Vancouver’s commercial market is booming, how average home price reports are misleading to Canadians, how RBC feels that there is no bubble in Toronto’s condo market, how there is a housing boom in northern Ontario with prices climbing beyond expectations, how Capital Economics feel that there will be a 25% market correction in the near future, how new home sales south of the border have declined and how BMO feels that now is the time to invest in commercial property.
Vancouver’s commercial market did quite well in comparison to other Canadian cities in the second quarter (Q2) of this year. Although there is a trend towards commercial real estate cooling across Canada in the up and coming months, financial, insurance and real estate sectors have put new lease agreements on hold as they wait to see the outcome.
Ross Moore, director of research for CBRE Canada (commercial real estate services) commented, “Canada is great in the sense that we are doing better than pretty much every country in world, but we are still below normal trend growth. The Bank of Canada has lowered 2012-2013 growth estimates, and we are pretty much stuck at two per cent. We’re in the middle of a pretty sluggish period of growth, but it’s still growth. We’re busy, we’re renewing leases, we’re just not seeing big deals.”
The strength of Vancouver‘s commercial market is mainly focused in the downtown core with an office vacancy rate of only 3.6%. The national average for office vacancy is currently at 6.1%. Suburban markets are showing a vacancy rate of 12.7%. Anthio Yuen, CBRE Vancouver senior research analyst commented, “A couple of years ago everyone thought we would see a move to the suburbs and more alternative work arrangements, but that just hasn’t happened. People like being downtown, and in a recession everybody takes a flight to quality.” What do you think? Please comment below.
All the big real estate boards issue monthly price reports for area’s that list the average selling price of homes from the previous month as well as show how it compares to the month prior to that. The problem is that this is not an accurate reflection of price.
In most cases, separate area’s fluctuate at separate times or separate streets may increase but the homes on adjacent streets may not. If high priced homes in an area drop more than regular homes in the area, this would reflect poorly on the average selling price for the area as a whole. This happened recently as the Canadian Real Estate Association (CREA) released June’s sales figures that showed prices declining 0.8% from the previous year.
This left many to believe that home prices had dropped substantially from the previous year. The reason for the decline was due to a correction in Vancouver’s pricey real estate market of 28% less sales. If Vancouver had been left out of the figures, you would see that home prices actually increased by 3.2% year over year. This is the main reason that true analysts stay away from averages and work with tangible exact numbers only. What do you think of the way the numbers are presented? Please comment below.
The Royal Bank of Canada stated this week that fears of a condo bubble in Toronto, Canada’s largest housing market, are overblown. RBC’s senior economist Robert Hogue stated that demand is currently in line with supply. He went further and stated that the extreme amount of condo building in Toronto over the past few years has a correlation to the hefty decline in new single family homes being built.
Since Toronto is out of land to build on, we are finding that builders are being forced to build laterally. Mr. Hogue was quoted, “To accommodate the 38,000 or so net new households it sees every year, the GTA must increasingly expand its housing stock ‘vertically.” He added that he does not expect the pace of supply to outstrip demand over the next few years but does expect some projects to be delayed or cancelled altogether.
Mr. Hogue was noted as saying, “Possible reasons for such delays or cancellations include production capacity constraints on the part of builders, the inability of projects to reach sales thresholds necessary to move forward with construction, and tighter lending standards for builders.” He does however, expect home prices in Toronto to come down by 2% – 7% by the middle of next year as the new mortgage rules begin to show results. What do you think? Please comment below.
Ontario has witnessed a major housing boom over the last four years with home prices increasing by 17%. The most significant growth in Ontario was witnessed in the north portion of the province according to a report that was released on Tuesday of this week.
The Municipal Property Assessment Corporation (MPAC), which is responsible for tracking home sale prices and valuating properties commented, “Increasing property values reflect positive economic circumstances.” But rising home prices are continuing to make it difficult for first time home buyers to get into the housing market in area’s like Toronto and Vancouver. We are finding that this is where many are opting for condo’s rather than housing but also are at higher risk due to an anticipated downturn in the condo market.
Ottawa was listed as one of the cities with the largest growth and saw home prices increase by as much as 24% in past few years. Timmins also witnessed hefty home price increases, rising by 29% and Sault St. Marie homes were up 19%. Toronto witnessed an increase of 23% over a four year period. The markets are now showing signs of cooling as the boom in housing was initiated by ultra low mortgage interest rates and changes to the regulations begin to taper off demand. Both national home sales and average home prices were down last month, when looking year over year, and is an indication of the slowdown in the national market. What do you think? Please comment below.
RBC started this week out with some positive news that there was no housing market bubble in Toronto but Capital Economics has released their own report, as of yesterday, stating that the Canadian housing market is, in fact, in a bubble and Toronto is set for the largest correction.
David Madani, economist with Capital Economics, stated this week that Canada’s housing market is currently going through what appears to be a soft landing but is, in fact, a bubble that is in the process of bursting with the slightest of moves. He commented, “There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price. Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing.”
Mr. Madani feels that home prices in Canada will fall as much as 25% over the next few years. This is something that was stated by Mr. Madani in June of last year but was reaffirmed by him on Wednesday of this week. This has caused many to speculate about what lies ahead for Canada’s housing sector with new mortgage rules implemented recently but no data to show what the outcome of the changes are. They could be enough to cause the crash, or maybe, an interest rate increase by the Bank of Canada will cause the crash. Regardless, housing seems to be over valued in the eyes of many analysts. What do you think of this? Please comment below.
New home sales in the U.S. took their biggest dive in over a year with home prices in the month of June continuing to trend downwards. This is a huge setback for the U.S. housing market as a recovery seemed in the works prior to the release of this data.
Single family home sales were down 8.4% to a seasonally adjusted 350,000 unit annual rate. This is the lowest rate in five months according to the Commerce Department. It was also the largest decline on record since February of last year with majority of the drop in sales coming from a 60% tumble in the Northeast. Yelena Shulyatyeva economist with BMP Paribas New York commented, “Housing will continue to recover gradually throughout the year, but fundamentals are not supportive of a fully fledged housing market recovery.”
Joel Naroff chief economist at Naroff Economic Advisors Pennsylvania commented, “It is hard to believe that the market is turning downward when the home builders’ confidence index jumped in July to its highest level in over five years. Either developers are clueless or the data have yet to catch up with reality. I am on the side of the latter.” What do you think of the decline? Please comment below.
According to the Bank of Montreal, now is the ideal time to look at purchasing a building for your business. With the current low mortgage interest rate environment, limited supply and low vacancy rates, there is no better time than now to invest in commercial property.
Steve Murphy senior vice president of commercial and treasury management at BMO commented, “Now may be a particularly good time for businesses to invest in commercial property for their own use. There is strong demand for these properties by users, who are often able to lease out part of the property for additional rental income.” BMO stated that the commercial real estate market continues to show signs of strength and that it will likely continue as long as low mortgage interest rates remain over the medium term.
The commercial market continues to be a sweet spot for investors as supply is tight, vacancy rates are lower than the historical norm with risk averse operations continuing to improve balance sheet performance of construction firms, developers as well as realtors. Many American businesses are now starting to look north for expansion and warehousing options. What do you think of the current commercial real estate environment in Canada? Please comment below.
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