Nothing Keeps Going Up Forever
The Globe and Mail reports from Canada. “Canada’s home building industry suffered a setback as the year kicked off, with home construction on the decline and pointing to a lower level of activity. ‘It wasn’t a good start to the year for residential construction with this below-consensus report for January. The decline in [multiple-unit building] shouldn’t be surprising considering the accumulating inventories of unsold condos in some parts of the country. Considering the plunge in residential building permit applications towards the end of last year, it’s unlikely that we’ll get a quick rebound in starts in the current quarter,’ said Krishen Rangasamy, National Bank Financial.”
From CBC News. “It looks like Prince Edwards Island’s housing construction boom is grinding to a halt. Analysts say when it comes to housing starts- P.E.I. will see the lowest this year in the past five years. The downward trend is happening after some record high years. From 2008 to 2012 there was a construction boom that was helped by a provincial nominee program which brought 10,000 new residents to P.E.I. ‘As we are seeing, those in-migration levels decline, the requirement for new housing is going down,’ said Jason Beaton with CMHC.”
“Richard MacCallum, with MacCallum Electric, knows construction is slowing down. After several great years, he now often works just a few days a week with his electrical business. ‘The two young fellas I have working for me here, it’s going to make a big deal to them because I don’t have the work right now,’ he said. ‘Probably go west, that’s probably the trend, you know, if you can’t put food on your table then it’s time to head west,’ said MacCallum’s son Alex.”
The Edmonton Journal. “When work stalls on construction projects, there is little the City of Edmonton can do except ensure the site is not dangerous or too unsightly. That may be cold comfort for residents who live near the Glenora Skyline condominium development. The project has halted construction while its backers restructure financing, leaving two storeys of bare concrete floors and columns and a crane that rises high above the plywood boarding surrounding the site. While the developer insists the project will go ahead, neighbours complain the idle site is an eyesore.”
“‘Certainly, it is stalled, but I’m hoping and expecting it will resume before too long,’ said Scott Mackie, manager of the city’s current planning branch. ‘We’re going to continue to monitor it and keep an eye on the site and try to work with the owners to get things going again.’”
The Ottawa Sun. “New numbers from the Ottawa Real Estate Board show that the average price of a one-story resale condo was down 6.9% in January compared to a year earlier. Meanwhile, the Canada Mortgage and Housing Corp. has predicted that new condo starts in the city will drop by more than a third to 1,750 units this year. Some projects have already been put on hold because hundreds of finished units sat on the market, according to CMHC.’
“‘From a builder’s perspective, any cooling is a bad cooling,’ said John Herbert of the Greater Ottawa Home Builders’ Association. But it’s no surprise. ‘We’ve been expecting this to happen for a while,’ Herbert said. ‘The condo market not only Ottawa but in Toronto and other areas of the country has been hot. A correction was expected.’”
The Calgary Herald. “Investment in Calgary’s office market cooled in 2013 after a period of multi-year growth, says a new report by Avison Young. The commercial real estate firm’s report said the overall transaction volume for the six asset classes (office, retail, industrial, multi-family, industrial land, and residential land) in 2013 reached $2.3 billion, comprising 359 sales. Volume was down significantly from 2012 when $4.4 billion over 493 transactions took place.”
“Susan Thompson, business development manager of real estate for Calgary Economic Development, said the pace of the city’s economy slowed down a little bit in 2013. ‘We had a pretty good level in 2012. Nothing keeps going up forever and if you look at the long-term trend, 2013 is pretty much bang on the 10-year trend. So there’s nothing wrong with what happened in 2013,’ said Thompson. ‘It was just coming off that really hectic, fast-paced volume that we set in 2012.’”
The South China Morning Post. “Immigration Department data obtained by the Post suggests there was a backlog of more than 45,000 rich Chinese waiting for approval of their applications to move to British Columbia as of January last year. The queue of millionaires at Vancouver’s doorstep has major implications in a city where housing is rated the second-least affordable in the world, behind Hong Kong. Census data shows 96 per cent of all recent Chinese immigrants to British Columbia live in greater Vancouver and the proportion among the wealthy is even higher.”
“Kerry Starchuk is a lifelong resident of the Vancouver satellite city of Richmond, the most Chinese city in the western hemisphere and a favoured destination of wealthy mainland Chinese. She fears the potential impact of the visa queue. ‘Money is taking precedence over everything,’ said Starchuk, who has campaigned for increased English signage in Richmond. ‘It’s taking over the social fabric, Canadian culture … You can see [the wealth disparity] in the houses that are being built - it’s no longer a single-family home, it’s a mansion with gates and security.’”
From CanIndia. “A staggering 25 percent of buyers of homes and apartments costing $2 million across the GTA are foreign investors. In Montreal foreign investors account for 50 per cent of home buyers while in Vancouver they make up 40 percent. Just last week TD Bank CEO Ed Clark worried about the increasingly large debt load Canadians are taking on to buy expensive homes. He also said Canadians would face a lower standard of living as an increasing portion of their income will be spent on housing.”
“Because foreign investors are snapping up high-end homes, it is forcing Canadian buyers to seek out relatively less expensive good homes in desirable neighborhoods which can now cost $799,000 and up. The absurdly low rate of interest has given buyers the confidence and buy homes at prices they would baulk at if interest rates were 7 per cent. Buyers are getting into bigger homes based on the assumption that interest rates will stay low for a long time and, more crucially, the value of their real estate investment will continue to rise exponentially.”
“The fact that credit is so easy to obtain and so cheap should make Canadian buyers pause, but it is making them careless. Homes are being used as ATM’s. It is a bit of a Catch-22 situation. Because real estate is the only lucrative avenue for investments, too many are willing to pay too much, when interest rates rise it will instantly lead to a real estate crash. That’s when foreign investors will put up their homes for sale and flee leaving behind a trail of disaster. Many Canadians will then be stuck in homes they cannot afford and may be forced into distressed sales.”
From CTV News. “With the average seasonally adjusted price of a home in Vancouver sitting at $825,000, many Vancouverites are turning away from the dream of home ownership and choosing to rent instead. The Black family used to own an 860-square-foot condo in North Vancouver, but moved after they had their second child and the space became too small. ‘Once the two kids come along and you know, people living above and below you, no outdoor space, we even have two cats, and it was evident they were finding the place too small,’ said Kristy Black.”
“A bigger family home cost too much money, so the Blacks decided to rent their dream home with a yard for the kids instead. ‘Once we looked into renting then we saw that it was just about the same as what we’re paying in mortgage. Sure, we’re paying someone else’s mortgage, but at the same time it allows us to have what we need right now for our family,’ she said.”
“Tom Davidoff, an economist at the University of B.C., did the same thing. He sold his Vancouver home and rented a property, and invested the equity in the stock market. Davidoff says the money tied up in a home is not earning the interest it could be and renting means you don’t have to pay property taxes, maintenance fees or costly home repairs. ‘I think the safer play is perhaps not necessarily own the home. It’s a single asset and the one thing your mother also told you is don’t put all your eggs in one basket,’ said Davidoff.”
