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Canadian housing starts fall to lowest in almost two years

Canadian housing starts fell to the lowest in almost two years in September, led by a drop in British Columbia.

Builders began work on an annualized pace of 188,683 units last month, down 5.1 percent from August, Canada Mortgage and Housing Corp. reported Tuesday. That trailed all 11 forecasts in a Bloomberg survey.

Canada’s housing market has slowed this year, hindered by rising mortgage rates and tougher qualification rules. Tuesday’s report adds to evidence real estate is starting to act as a drag on growth.

“As these forces continue to weigh on the housing market, we see residential investment turning from a boost to a drag on gross domestic product in 2019,” Royce Mendes, an economist at CIBC World Markets, said in a research note.

It was the third straight monthly decline, and starts fell to the lowest level since November 2016, driven by an 8.9 percent drop in urban multiple-unit projects. Construction on new single-unit homes rose 2 percent.

Starts are forecast to slow this year to 214,000 units, and again to 197,000 units in 2019, from a peak of 226,000 in 2017, according to a separate Bloomberg survey of economists.

British Columbia saw the most significant deterioration, with starts falling 43 percent in September to an annualized 25,611 units, the housing agency’s report showed. They dropped 42 percent in Vancouver and 56 percent in Victoria.

Part of the nationwide decline reflects a slowdown from an unsustainable peak of about 247,000 units in June, Royal Bank of Canada senior economist Nathan Janzen said by phone from Toronto. That could allow the central bank to continue lifting interest rates, after it hiked four times since mid-2017.

“The slowing to a more manageable pace of activity should be welcomed by the Bank of Canada and isn’t expected to prevent further gradual interest rate hikes,” Janzen said.

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The power of fear

 

While fear keeps us from danger, it also can keep us from many other amazing experiences.

Your palms are sweaty. Your stomach has that light, unsettled feeling. Your mind races eagerly from thought to thought.

Fear is an innate part of the human experience and has been essential to our survival as a species for thousands of years. While fear keeps us from danger, it also can keep us from many other amazing experiences.

Recently, I was asked to speak at a community networking event. I was honored to be asked and excited about the opportunity, but fear reared its ugly head. Like it is for many others, public speaking is outside my comfort zone. The thought of addressing a crowd full of people was overwhelming. Would I speak well? Would they learn from me? Could I inspire them?

Doubt sunk in. A flurry of negative thoughts raged through my mind, from stumbling over my words to physically stumbling over the podium. I had a choice: Give into fear and maintain the status quo, or challenge myself and give it my best.

I accepted the offer and decided not to let fear get in my way. To do the best job possible, I knew extensive preparation was essential. I took plenty of time to prepare my points, hone my message and practice out loud. I was nervous, but ready.

Ultimately, the presentation went well, and I got tons of great feedback. I’m glad I accepted the offer and tried something new.

Like many people faced with a career challenge, it’s easy to take the comfortable path. However, when you do this – whether for public speaking, a big promotion or a move across the country – you’ll always wonder about the road less traveled.

The next time fear creeps up, rather than considering it a warning of impending failure, view it as a sign you’re on the right path. Some of the world’s most successful entrepreneurs and inventors attest that fear isn’t always a warning of the negative; it’s often a signal that you’re on your way to success.

When facing doubt, it’s important to realize fear is not unique to you. Everyone experiences fear, even those you might feel are immune to it. Will Ferrell’s 2017 commencement speech for the University of Southern California made this point perfectly.

“You’re never not afraid. I’m still afraid,” Ferrell said. “I was afraid to write this speech. And now, I’m just realizing how many people are watching me right now, and it’s scary. Can you please look away while I deliver the rest of the speech? But my fear of failure never approached in magnitude my fear of what if. What if I never tried at all?”

For the graduates about to embark on a brand-new adventure, he offered some advice that I think is fitting for just about anyone:

  • Enjoy the process of your search without succumbing to the pressure of the result.
  • Trust your gut.
  • Keep throwing darts at the dartboard.
  • Don’t listen to the critics – you will figure it out.

So next time you feel fear holding you back from trying something new – whether in your personal or professional life – I encourage you to push those feelings down and stomp them with your foot. Then be bold and see what happens. Chances are, you’ll succeed. At the very least, you’ll be glad you tried.

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CMHC releases Sept. housing starts data

The annual pace of Canadian housing starts fell to their lowest level in nearly two years in September.

Canada Mortgage and Housing Corp. says the seasonally adjusted annual rate came in at 188,683 units last month, down from 198,843 in August.

Thomson Reuters Eikon says economists had expected an annual rate of 210,000 for September.

September marks the third straight monthly decline.

The slowdown in the pace of housing starts comes amid rising interest rates from the Bank of Canada, and more restrictive mortgage rules.

“The September housing starts report fits with the relative calm and return to normality in sales, market balance and price growth that we are seeing across most of the country this year, in particular Toronto, following speculative excesses in Southern Ontario earlier last year and a moderate correction in response to policy measures earlier this year,” wrote Sal Guatieri, a senior economist with BMO Capital Markets, in a note.

“Demand continues to be supported by the fastest population growth in 27 years and new millennial-led households. A calmer housing market is just what the doctor ordered, and won’t discourage the Bank of Canada from raising rates on Oct. 24.”

CMHC says the pace of urban starts fell by 5.9 per cent to 175,653 units. The slowdown was dragged down by an 8.9 per cent drop to 122,656 units in urban multiple-unit projects such as condos, apartments and townhouses. Single-detached urban starts increased by two per cent to 52,997.

Rural starts were estimated at a seasonally adjusted annual rate of 13,030 units, while the six-month moving average of the monthly seasonally adjusted annual rates was 207,768 for September, down from 213,966 in August.

British Columbia led the declines with a drop of 43.3 per cent due to stiffer mortgage rules and growing lack of affordability, particularly in the Greater Vancouver area. Alberta also saw a drop of 34.8 per cent, amid a weakening in the oil-producing economies.

Meanwhile, Ontario housing starts increased 21.3 per cent, led by Toronto condos and Quebec was up 15.4 per cent.

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Toronto is not the least affordable market in Ontario

Toronto is often considered to be the least affordable housing market in Ontario but that’s not the case says Zoocasa.

The real estate website’s analysis shows that a median income earner ($65,859) in Toronto would be $41,282 short of what’s needed to buy the average-priced home ($785,223).

But despite a higher median income ($88,535), buying in Richmond Hill would require an extra $47,962 due to the average house price of $999,311.

That’s because 52% of Richmond Hill’s home sales are single-family detached properties compared to the varied mix of properties selling in Toronto.

The figures assume a 20% down payment and a 30-year mortgage rate of 3.14%.

The top 5 least affordable markets in Ontario are completed by Vaughan, Markham, and Oakville.

Ontario’s most affordable
For the most affordable options in the province, Thunder Bay leads with an average home price of $227,750. That would mean a median income earner ($66,163) would have more than twice the required income needed.

Sudbury, Ottawa, Whitby, and Waterloo complete the top 5.

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GTA new homebuyers on the sidelines in August

August saw new home sales on pause in the Greater Toronto Area but there are signs that better things are ahead.

The Building Industry and Land Development Association (BILD) says that there were 974 new home sales according to data from Altus Group, including 171 single-family homes, a 50% increase year-over-year but 80% below the 10-year average.

Condo apartments saw a 1% decline in sales year-over-year. The 803 sales were 23% below the 10-year average.

Patricia Arsenault, Altus Group’s Executive Vice-President, Data Solutions, says that pent-up demand is building and should result in stronger activity for the fall market.

And BILD president and CEO David Wilkes is optimistic that things will improve once homebuyers, currently on the sidelines, become more confident in the economy and the impact of the mortgage stress test and other interventions ease.

“Once the market adjusts and more people start looking for homes, our region’s short supply of housing will mean that affordability will continue to be a challenge for many new home buyers,” he said.

In August, the benchmark price of new condominium apartments rose to $784,512, up 21.8% over the last 12 months. The benchmark price of new single-family homes was $1,129,129, down 12.4% over the last year.

Action required on supply
Mr Wilkes says that action is required by policymakers to address the low supply of homes in the GTA.

Inventory in August decreased to 13,619 units with 8,842 condo apartment units and 4,777 single-family units.

“Ahead of the municipal elections in the GTA, BILD has been talking to municipal leaders and residents about straightforward steps that municipalities can take to increase housing supply, including making sure that government charges on new homes are fair, funding and building critical infrastructure, cutting red tape and speeding up building permits and inspections,” said Wilkes.

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GTA market correction has ended says RE/MAX

The impact of the mortgage stress test is easing and the Greater Toronto Area’s housing market is showing growth – signalling the end of the market correction.

That’s the assessment from RE/MAX INTEGRA, Ontario-Atlantic Canada Region which says that demand for single-family homes is on the upswing and average prices are starting to rebound.

“The worst is now behind us. Pent-up demand will be a factor in the coming months, as homebuyers – many of whom delayed their purchasing plans – are entering the market,” says Christopher Alexander, the firm’s EVP and Regional Director.

He adds that momentum is expected to build towards the traditional fall market and remain buoyant for the rest of the year.

First-time buyers are leading the charge
Notable in the market is the participation of first-time homebuyers in the single-family detached $600K-900K sector.

There has been a 22% rise in buyers of these homes since June (4,086) but inventory is low in the 416 and may see more buyers searching in the 905 area where inventory is greater.

Luxury homes are also seeing growth with a 16% year-over-year rise in sales of single-family homes over $2 million.

Rollercoaster for market
“It’s been a real roller coaster for single-detached properties in the GTA over the past 32-month period,” explains Alexander. After reaching peak levels in early 2017, market-cooling tactics such as Ontario’s Fair Housing Plan in April, the federal government’s mortgage stress test expansion in October of 2017, and the Bank of Canada’s interest rate hike in January of 2018 created a great deal of uncertainty in the market.”

Although the stress test for high-ratio mortgages, introduced in 2016, had little impact on the market, Alexander says the subsequent interventions certainly did.

But he adds that the policy changes were needed to cool the increasingly hot market.

“The pace was simply unsustainable,” says Alexander. “While government intervention appeared heavy- handed at the time, in retrospect, the measures put in place served to cool down a wildly overheated market.”

Floodgates are open
Alexander says the future is bright for the GTA’s economy with population and employment gains helping to boost the housing market.

“After an extended period of housing market inertia, the floodgates are breaking open,” he says. “Upward movement in detached housing values and the threat of additional interest rate hikes in the future are prompting homebuyers to get off the fence and into the market. Rising consumer confidence, job security and an economy firing on all cylinders should continue to support healthy home-buying activity in the GTA for the remainder of the year and into 2019.”

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BIG’s King Street West Condo Community Approved for Development in Toronto

Biarke Ingels Group has received approval for their King Street West condo community in Toronto. Originally proposed in 2016, the development was made as sets of pixels extruded upwards to create space for housing, retail and boutique offices. The concept was formed to avoid the footprints of heritage buildings that already exist on site. Alex Bozikovic, architecture critic of The Globe and Mail, reports that the development is about to start sales as King Street West pushes past its latest development hurdle.

 

King Street West is set in a transitional area of Toronto. Located at the meeting point of three 20th century neighborhood parks, BIG Westbank and Allied Properties REIT proposed a mixed use development with a public plaza that will create a new center for the community while connecting the various pedestrian pathways that crisscross the area. The building is organized as a traditional perimeter block with a public plaza in the center. Surrounding the plaza, King Street West rises as sets of pixels, each pixel set at the size of a room; rotated 45 degrees from the street grid to increase exposure to light and air.

The project features a distinct undulating facade to create additional green space. “With King Street West, we wanted to find an alternative to the tower and podium you see a lot of in Toronto and revisit some of Safdie’s revolutionary ideas, but rather than a utopian experiment on an island, have it nested into the heart of the city. It would be strange if one of the most diverse cities in the world had the most homogenous architecture.” Bjarke Ingels, Founding Partner, BIG.

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BIG King West Newest Rendering

The newest renderings of BIG King West have seen the concrete give way for stunning glass blocks.

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Canada among world’s four riskiest housing markets

Housing market dangers are “especially acute” in Australia, Hong Kong, Canada and Sweden, Oxford Economics said, noting this has historically posed a threat to economic activity.

“In all four, valuations are very elevated, there has been a lengthy housing boom, debt levels are high and there is a significant share of floating rate debt,” Adam Slater, lead economist at Oxford, said in a research note.

On the positive side, it notes risks are relatively limited in key markets like the U.S., Germany, France, China and Japan. In addition, across most economies there has been no significant recent rise in mortgage rates, which have even fallen in some cases.

“So, the classic ‘trigger’ for house price declines is largely absent,” Slater said. “However, rising rates are not strictly necessary for prices to start falling.”

House prices are falling in Australia, down almost 3 percent in the year through August in major cities, and 5.6 percent in the Sydney market. Meanwhile, three of the nation’s four major banks raised mortgage rates in recent weeks, blaming higher funding costs. The increases came even as the central bank leaves official rates at a record low.

Oxford said it compared markets across OECD countries from 1970 to 2013 and found a clear negative relationship. Where valuations had risen 35 percent or more above the long-term average over that period, real house prices fell 75 percent of the time over the following five years, it said.

“This points to many OECD countries seeing stagnant or negative real house price growth in the next few years: the scope for a further house price ‘melt-up’ in highly valued markets looks extremely limited,” Slater said.

Stretched valuations also matter because house price changes can have a significant impact on economic activity, Oxford said, citing a sample of 83 house price booms. It also found house prices tended to fall after booms, and often substantially.

“For the G7 countries, we find a positive relationship between consumer spending and real house prices from 1997, albeit possibly weakening in recent years,” Slater said.

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RBC reports Q3 profits

TORONTO _ Royal Bank of Canada set the tone for the latest round of big bank earnings with a dividend hike and profits and revenues in the latest quarter, helped by higher interest rates and mortgage growth.

Canada’s biggest bank by market capitalization delivered a record $3.1 billion in net income for its fiscal third quarter, up 11 per cent from a year ago.

The bank’s results, which beat analyst expectations, were driven by earnings growth in its wealth management, capital markets and personal and commercial banking divisions.

RBC delivered record earnings against a “strong economic backdrop,” said Royal Bank chief executive Dave McKay.

“We’ve been investing to grow organically on our key markets and our investments are paying off,” he said on a conference call with analysts on Wednesday. “All of our large businesses saw strong earnings growth in the third quarter and we had market share gains in our core franchises.”

As well, the bank said it will now pay a quarterly dividend of 98 cents per share, up from 94 cents per share.

The Toronto-based lender’s diluted earnings per share for the three-month period ended July 31 was $2.10, up 14 per cent from $1.85 per diluted share a year ago.

On an adjusted basis, RBC’s diluted cash earnings per share for its third quarter was $2.14, compared with the $2.11 earnings per share on average expected by analysts, according to Thomson Reuters Eikon.

Royal Bank was the first of Canada’s six biggest banks to report its third-quarter financial results this year. The Canadian Imperial Bank of Commerce reports its results for the period on Thursday, followed by the other banks next week.

“Royal kicked off earnings season with higher than forecast earnings and a dividend increase that was twice as much as expected,” said John Aiken, an analyst with Barclays in Toronto.

The bank demonstrated strong cost containment, and “impressive” results in both domestic retail and U.S. wealth management, including a strong contribution from Los Angeles-based City National, Aiken said in a note to clients. RBC acquired City National in 2015.

RBC’s personal and commercial banking arm earned $1.51 billion in the quarter, up $111 million or eight per cent from the previous year, “mainly reflecting improved deposit spreads resulting from higher Canadian interest rates.”

The division also saw average volume growth of five per cent, “primarily driven by solid growth in our leading Canadian residential mortgages, commercial lending and deposit products,” the bank said.

The bank’s residential lending portfolio was $279 billion at the end of the quarter, up from $268.7 billion a year ago, despite lingering concerns over the impact of tighter lending rules for uninsured mortgages introduced on Jan. 1.

Under the revised rules, homebuyers with a more than 20 per cent down payment must prove they can service their mortgage if interest rates rise, an additional hurdle which the country’s real estate association says has been weighing on the housing market.

Still, RBC saw mortgage growth of nearly six per cent and increased renewals of nearly 92 per cent in the latest quarter, said Rod Bolger, the bank’s chief financial officer.

“We’ve seen a healthy normalization in Canadian housing and our mortgage portfolio continues to grow,” he said on the conference call.

Under the revised mortgage underwriting rules introduced this year, homeowners looking to renew their uninsured mortgage are not subject to the new stress test if they stick with their existing provider, hobbling their ability to seek out a more competitive rate.

As well, the bank’s net interest margins _ or the profit made on loans _ at its domestic arm rose by 13 basis points on the back of four increases to the Bank of Canada’s trend-setting interest rate this year.

Net interest margins are the difference between the money banks earn on the loans they make and the interest they pay out to savers.

And while higher interest rates potentially put pressure on Canadian households’ ability to manage debt loads, consumers are “adjusting proactively,” said Neil McLaughlin, RBC’s group head of personal and commercial banking.

“We were expecting to see customers be a little bit caught off guard and our frontline sales advisers really aren’t sharing that,” he said on the conference call. “The customers are thinking about either extending … if they need to manage the payments on mortgages, they’re thinking about frankly just buying less expensive homes and actually moving down.”

Meanwhile, the bank’s wealth management division saw a 19 per cent bump in net income to $578 million, while its capital markets division saw a 14 per cent lift to net income of $698 million.

The bank’s insurance and investor and treasury services divisions, however, saw net income decrease by two per cent and 13 per cent, respectively, to $158 million and $155 million. The bank cited factors including increased costs to support growth for the drop in net income.

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Supreme Court hands down ruling in TREB v Competition Bureau

The Supreme Court of Canada has refused to hear an appeal from the Toronto Real Estate Board that would have prevented the numbers from being posted on password-protected webpages.

Greater Toronto Area realtors can now publish home sales data on their websites after the top court ruled against the real estate board, a case that could have sweeping implications for consumer access to real estate data across the country.

TREB’s appeal stems from a seven-year court battle that began in 2011 when the Competition Bureau challenged its policy preventing the publication of such information, arguing it impedes competition and digital innovation.

Canada’s largest real estate board, which represents more than 50,000 Ontario agents, argued at the Competition Tribunal and later the Federal Court of Appeal that posting the data would violate consumer privacy and copyright.

Both judicial bodies sided with the bureau, prompting TREB to take the fight to the Supreme Court of Canada.

Since the court won’t hear the case, lawyers say there is likely nothing TREB can to do to keep its legal battle going and the data from being posted.

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Innovative mortgage product promises to stabilize cash flow

Investing in real estate can be tricky in a rising rate environment, but interest-only mortgages with term are helping stabilize cash flow.

“It’s the most innovative product that has come through the mortgage market for the last seven years,” said Jacques du Preez, principal broker and owner of Mortgage Allies. “Because of the new rental laws, you can’t just increase the rent on tenants, but at the same time you want to make sure your costs are stable. What turns a lot of people off is having a line of credit on a rental property because as time goes on, payments go up, so cash flow gets pressurized.”

du Preez likened the fixed-term rates on interest-only mortgages to variable rates, but without the risk of rising primes. He secured a 4.3% interest-only mortgage for a real estate investor client who locked it in for five years.

“They have a low payment, and that is fixed for five years,” he said. “If at any time they want to lock that in, they can lock it into a P&I [Principal and interest]. Variables are not good for rentals because it can impact the cash flow over time as the prime increases, but here the cash flow is sure for the next five years.”

Borrowers can also break the mortgage whenever they like with very little penalties.

“The client is king here,” said du Preez. “After two years, if the client decides to do something else, they can cancel the mortgage with very little penalties. They really are king.”

The interest-only flex mortgage has been on offer at Merix Financial for the past couple of months, and its reception has been resoundingly positive, according to the lender.

“The interest-only flex is all about providing clients lower monthly payments that allow them to free up cash flow for other purposes,” said Jill Paish, Merix’s executive vice president of broker experience. “We felt there was a real need for that type of mortgage for a variety of reasons. With the tightening rules and the way real estate prices are going, a lot of times clients can’t afford the monthly carrying costs, and the monthly costs are higher than they’d like to live in a desired marketplace.”

Merix has noticed many borrowers who have opted to take the interest-only mortgage are investing in real estate.

“We’re finding it’s being used by people who want to invest,” said Paish. “They’re taking a lower interest rate on their mortgage and using cash flow from that investment for a savings nest. We’re also finding that it’s popular with people who have various lifestyles, like cyclical income or a lot of overtime, and just want to make lower payments. When they have more money, they’ll pay a lump sum towards their mortgage.”

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Good news for Toronto landlords, bad news for renters

A new report from reveals that, in the one-bedroom category, Toronto rents have surpassed Vancouver’s, but the latter’s two-bedroom units are still Canada’s most expensive.

“Toronto has been a hot market,” said Matt Danison,  “The prices keep going up and up and up. Toronto and Vancouver are always battling for the top rents in the country; it’s always neck and neck. Toronto overtook Vancouver for the month July.”

The average one-bedroom in Toronto costs $1,862 to rent, while in Vancouver it’s a hair lower at $1,833. A two-bedroom unit in Vancouver rents for an average of $2,583 a month, and for $2,193 Toronto.

That Toronto and Vancouver jokey for the unceremonious title of most expensive rental city in Canada is a consequence of supply shortages in both cities. Danison has a solution that could offer some relief, albeit in a limited capacity.

“New rental buildings have to have a different approach in that, like Manhattan, the square footage has to be a lot smaller than it is. That way, you can include more rental units in a building by cutting the square footage. Instead of living in a 900 square foot apartment with super high rent, you can cut the rent by reducing the square footage to 650.”

Danison concedes tight quarters aren’t ideal, but then again, neither are escalating rents. Plus, buildings with smaller units tend to offer better amenities.

Moreover, because his idea is not unprecedented, he believes that Toronto and Vancouver should take a page out of Montreal’s playbook.

Tobias Smulders, a sales representative REMAX Escarpment Realty Inc., not only believes smaller units are ideal for single people, they will help cities like Toronto fulfill their intensification mandates.

“You could do more by increasing overall intensification,” he said. “All these buildings they’re constructing should not be limited in height as much as they are. An issue we have here in Hamilton is they don’t want to allow developers to build what they propose. If they apply for 40 storeys, they’ll get approved for something like 20 storeys.”

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These are Toronto’s most appreciated and depreciated neighbourhoods

The Fair Housing Plan and B-20 have conspired to put downward pressure on valuations throughout Toronto, however, some neighbourhoods have been impervious.

The six steepest year-over-year drops between July 2017 and this year are Don Mills, Parkwoods-Donalda and Victoria Village, where prices depreciated 19%. Bridle Path-Sunnybrook-York Mills and St. Andrew-Windfields saw an 18% decline, as did L’Amoreaux, Steeeles, and Tam O’Shanter-Sullivan.

Newtonbrook East and Willdowdale East saw 17% drops, and Bayview Village, Bayview Woods-Steeles, Don Valley Village, Henry Farm, Hillcrest Village and Pleasant View depreciated 13%, as have Bathurst Manor and Clanton Park.

“January is when it started dropping and now it’s coming to the point where it’s stabilizing,” said Freda Lau, Fivewalls Realty’s director of operations. “We don’t see any reason for prices to go up really fast simply because with the users who come through, their budgets are getting tighter. It’s taking a while for the impact of some of these rules to come in place.”

Fivewalls compiled the data and also notes there were areas that appreciated despite the government’s intervention. High Park-Swansea, Roncesvalles and South Parkdale in Toronto’s West End saw 15% appreciations, while Cabbagetown-South, St. James Town, Church-Yonge Corridor, Moss Park, North St. James Town, Regent Park, and the Waterfrotn Communities had 12% hikes. Alderwood, Long Branch, Mimico and New Toronto bore witness to 10% appreciations.

The reason for appreciation in those neighbourhoods, says Lau, is they have a high number of condo sales. She also cautions that those price increases will eventually stabilize.

“We’re noticing that it’s especially the first-timers, whether in their early 30s and looking for first home or moving in with their significant other, they’re looking for condos and townhomes because detached homes are unaffordable for them, and an interesting stat we’ve seen is the number of inquiries for detached homes have decreased 10-15% this year compared to last year.”

Prices in the luxury market likely won’t rebound because demand has significantly tapered.

“I don’t see appreciation going back up in the luxury market because with the mortgage rules and Fair Housing Plan, the psychology of prices going up has pretty much stopped, and it’s very hard for luxury market to rebound in the $2mln-plus homes,” said Lau. “We’re seeing that it’s almost like getting a discount when you see a price depreciation of 18% in those neighbourhoods, whereas with condos and townhomes for first-timers, where those are the product that’s most available to them, those will keep going up a bit, but with the increase in interest rates that looks like it’s stabilizing because there’s only so much people can afford.”

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Canadian housing market is bouncing back says TD Economics

Things are starting to improve in Canada’s housing markets according to a report from TD Economics.

Deputy chief economist Derek Burleton and economist Rishi Sondhi say that recent data has confirmed TD’s view that there would be some traction gained after initial sharp impact to tighter lending restrictions at the start of the year.

“Past experience has shown that markets begin to stabilize after about 4-6 months following the implementation of major changes to housing policy. True to form, sales activity and average prices have come off a floor in most major markets since May,” the economists’ report says.

The report notes recent stabilization in the GTA with increasing resales for both single-family (20% estimated) and condos (10% estimated) and prices climbing.

However, the TD Economics team say that Vancouver is not yet seeing the same rebound as the market’s low affordability. The economists say that the market has yet to find a bottom as provincial cooling measures are also in play alongside the tighter mortgage lending rules.

While the signs of stabilization and even a comeback are evident, the report warns of uneven conditions across Canada’s markets and the spectre of economic conditions, interest rate rises, and trade tensions impacting job markets.

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Existing home sales slip south of the border

A combination of factors continue to impact affordability of homes in the US and sales are suffering.

With prices rising due to low inventory, cost of materials for new homes and renovations, and increasing mortgage rates, affordability is a key barrier to first-time buyers and those wishing to trade up.

Existing home sales in July slipped 0.7% to a seasonally adjusted annual rate of 5.34 million, from 5.38m in June. It was the fourth consecutive month of decline.

National Association of Realtors chief economist Lawrence Yun says price rises have weakened demand.

“Led by a notable decrease in closings in the Northeast, existing home sales trailed off again last month, sliding to their slowest pace since February 2016 at 5.21 million,” he said. “Too many would-be buyers are either being priced out, or are deciding to postpone their search until more homes in their price range come onto the market.”

The median existing-home price for all housing types in July was $269,600, up 4.5% from July 2017 ($258,100). July’s price increase marks the 77th straight month of year-over-year gains.

Inventory declined by 0.5% to 1.92 million existing homes, 4.3 months of supply.

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Interest rates, mortgage rules leading to Ontario slowdown

Ontario’s medium-sized cities are heading for a slowdown according to the latest assessment from the Conference Board of Canada, with home financing among the key reasons.

It says that apart from Greater Sudbury and St. Catharines-Niagara there will be moderation in the economic growth of the province’s medium-sized cities.

The 16-city report shows that Oshawa (2.6%) and Guelph (2.3%) will be the fastest-growing cities covered by the forecast.

“In most Ontario metropolitan areas, economic growth is slowing in line with the national economy. Rising interest rates, newly implemented tariffs on Canadian exports, and stricter mortgage rules are limiting growth across a number of sectors,” said Alan Arcand, Associate Director, Centre for Municipal Studies, The Conference Board of Canada. “In fact, most Ontario cities covered in this report can expect to see their economies expand by less than 2% this year.”

Notably, Windsor will see growth in GDP slashed to 1.9% in 2018 having been 3.0% in 2017.

However, there is better news for London, with real GDP set to grow 1.9% this year; and Kitchener-Cambridge-Waterloo’s economy is poised to expand by 1.6% in 2018.

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RBC posts record net income, setting tone for Big Six

The big banks are reporting their quarterly earnings and the season has started well with record net income for Royal Bank of Canada.

RBC reported record net income of $3,109 million for the third quarter ended July 31, 2018, up $313 million or 11% from the prior year with double-digit diluted EPS(1) growth of 14%. Quarter-over-quarter growth was 2%.

Personal and business banking, wealth management, and capital markets all did well while insurance and investor & treasury services saw lower results.

Among the personal banking business, RBC highlights solid growth in Canadian residential mortgages.

“We delivered record earnings of $3.1 billion this quarter with strong results in our largest businesses. In addition, I am pleased to announce a 4% increase to our quarterly dividend,” said Dave McKay, RBC President and Chief Executive Officer. “Our results demonstrate our continued focus on deepening existing client relationships by providing more value, and our commitment to delivering on the objectives we introduced at our Investor Day. We maintained our focus on risk management and expense control; at the same time, we continue to invest in long-term sustainable growth, including in the United States.”

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Slower sales, steady prices for GTA new builds

Sales of newly built homes continued to fall in July as condo sales slumped and single-family sales remained subdued despite a jump.

A report from the Building Industry and Land Development Association (BILD) shows that combined sales were down 44% year-over-year and were 55% below the 10-year average.

Data from the Altus Group reveals sales of new condominium apartments in low, medium and high-rise buildings, stacked townhouses and loft units were down 52% from July 2017 to 855 units, 40% below the 10-year average.

Meanwhile, sales of new single-family homes, including detached, linked and semi-detached houses and townhouses (excluding stacked townhouses) were up 85% year-over-year. However, the 2017 figure was the lowest for decades (117) and July 2018’s total was still 77% below the 10-year average.

“New home sales in the GTA typically take a breather in the summer months compared to the spring,” explained Patricia Arsenault, Altus Group’s Executive Vice-President, Data Solutions. “This July was no exception, although minimal new project launches in July, along with declining affordability of new condominium apartments due to recent price escalation, amplified the June-to-July decline in sales somewhat this year.”

Prices remain steady amid tight supply
Despite weaker sales, prices of new homes in the GTA were steady in July as inventory remained tight.

The benchmark price of new condominium apartments was $774,759, up 16.5% from last July, but virtually unchanged from June. The benchmark price of new single-family homes was $1,142,574, down 13.2% year-over-year and just 0.85 per cent above June 2018.

Total remaining new home inventory decreased to 14,784 units, comprised of 9,931 condo apartment units and 4,853 single-family units.

“We are still seeing a shortfall in condo apartment inventory,” said David Wilkes, BILD President & CEO. “Given the current pace of sales, we should have nine to twelve months’ worth of inventory, but we only have five. We expect that more condo apartment product will become available in the fall.”

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Seven Signs Your Local Real Estate Marketing Is Starting To Heat Up

Understanding what a real-estate market is trending toward is vital, as it can help sellers establish what price they want to aim for, while buyers can better determine exactly how much they should spend on a property, especially if the market is looking to be getting hot.

So what kinds of signs should you look for, especially when it comes to a local market? Is it better to focus on how many offers are being made on a property, or should you look at the scale of construction — as well as what types of buildings are being made.

To help, seven members of Forbes Real Estate Council, below, share the key signs they look for to tell whether or not a real estate market is heating up. Here’s what they recommend you watch for:

1. Days On Market

If the pace of days on market increases in certain zip codes or submarkets, it typically is a leading indicator that prices will follow, as investors and buyers feel they have to make quicker decisions for fear of someone else acquiring the property. – B.J. Turner, Dunleer

2. Overpriced Properties

When properties sell at such a premium without logically comparing to prior sales transactions and average household income affordability in that market, that is sign of market heating. The new pricing suggests demographic shifts (i.e. higher incomes) and economic drivers (i.e. urban revitalization or job growth) are at work to push property prices. – Babak Ziai, BrandView Capital Partners

3. Supply And Selling Speed

We watch for two key indicators when evaluating the health of a local housing market. The first indicator is the supply of inventory in the marketplace. When a market starts to heat up, the supply of well-located and appropriately priced homes vanishes. This leads directly into the second key indicator, which is when a listing goes under contract within days of hitting the MLS. Both indicators are valued tools in allowing us to evaluate how fast we must make thoughtful and strategic purchasing decisions. – Matt Pettinelli, CapGrow Partners LLC

4. Number Of Offers

A clear sign is the number of offers in for comparable projects in the respective submarket you are tracking. This simple barometer illustrates the depth of the buyer pool and demand within that neighborhood. High demand usually leads to increased seller pricing power. – Owen Fileti, L.A. Realty Partners

5. Inventory Size

Inventory is the strongest local indicator, in my opinion. That, crunched against the number of properties going pending each week, will give you a clear idea if the supply side of the equation is headed down or up. And that is massively correlative to the market direction. Secondarily, I also look at local job creation numbers. That is the demand side of the equation, and can also impact the market. – Keith Robinson, NextHome

6. Property Development Pace

This is mostly applicable for commercial real estate markets, but when development of skyscrapers is booming, that’s usually the beginning of the end. Most development funding is approved when times are good. By the time all the projects are completed, the market typically softens. This new glut of vacant space causes landlords to slash rents. So begins the inevitable commercial real estate downcycle. Then, when all the cranes have gone back into hibernation, is precisely the time to go shopping for office, warehouse and retail properties.  – Brad Johnson, Evergreen

7. Sold Units Versus New Listings

I always look at the sold units versus new listings ratio. As soon as the trend goes toward an increase in units being sold and/or decrease in new units coming on the market, I know the market is heating up. This is one of the best early indicators and crucial signs of a local market taking off. It’s the good old proven law of supply and demand. – John Reza Parsiani,

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