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Outlook 2020 – 5 things you need to know about real estate this year

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Outlook 2020 – 5 things you need to know about real estate this year

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Outlook 2020 – it’s a new year and a new decade, and with that come new challenges and opportunities. When it pertains to the housing industry and homebuying, we’ve boiled it down to a handful of items to keep your eye on. Here are five things you really need to understand about real estate – specifically the GTA market.

1 REAL ESTATE IS LOCAL

This is a good place to start, because it’s a simple but important fact that escapes many consumers: Real estate is local. There is no such thing as a Canadian housing market, just as there’s no Canadian traffic or Canadian weather.

Sure, organizations such as the Canadian Real Estate Association (CREA) and Canada Mortgage and Housing Corp. (CMHC) are mandated to analyze what goes on across the country. But what’s most important to you is what’s happening in your market. When you buy a home, you don’t buy a national market. You buy one property, on one street, in one neighbourhood, in one city and region.

If you live in Ontario, why do you care that Alberta’s ongoing oil industry struggles are affecting sales and prices in markets in that province? Or that Vancouver’s affordability challenges are even more serious than those in Toronto?

Forget the national headlines. Examine what’s happening in your market. The same applies to the economy.

Why does this matter? Read on.

2 THE ECONOMY

Globally, geopolitical uncertainty and softening economic growth will mean Canada faces some challenges with export and investment, leaving the heavy lifting to the consumer, according to Craig Wright, senior vice-president and chief economist at RBC.

RBC forecasts the economy to grow about 1.6 per cent in 2020. The unemployment rate remains at fourdecade lows, though may rise to 5.9 per cent in 2020 from 5.7 per cent in 2019. Companies are having difficulty finding skilled workers, leading to stronger wage growth.

Ontario’s real GDP growth is forecast to slow to 1.6 per cent for 2019 and 1.5 per cent in 2020, according to the Conference Board of Canada. Job creation remains strong, with the province adding more than 200,000 new jobs over the first 10 months of 2019, much of them in full-time work.

Ontarians are among the most positive about the economic outlook, according to a recent public opinion survey from the nonprofit Angus Reid Institute, with 22 per cent of respondents indicating they believe the economy will improve. Only residents in Quebec, at 30 per cent, and BC at 23 per cent, are more optimistic. In Alberta, by contrast, 79 per cent of residents expect their economy to deteriorate over the next year.

Keeping in mind what we wrote about real estate – and even the economy – being local, Ontario is looking strong on both counts for 2020.

Craig Wright, RBC
Craig Wright, RBC

“We continue to see strong employment gains, Ontario is leading Canada in terms of employment growth on a year-over-year basis, and strong population growth,” Wright told Homes Publishing. “So, strong fundamentals supporting it, in a low rate environment.”

The GTA’s robust population growth will continue to drive demand for both ownership and rental housing, Wright says.

Housing markets in Southern Ontario, in fact, led in home price growth last year, and are expected to continue to do so in 2020, according to a new report from ReMax.

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“Southern Ontario is witnessing some incredibly strong price appreciation, with many regions still seeing double-digit gains,” says Christopher Alexander, executive vice-president and regional director, ReMax of Ontario-Atlantic Canada. “Thanks to the region’s resilient economy, staggering population growth and relentless development, the 2020 market looks very optimistic.”

Toronto is set to experience a strong housing market this year, thanks to lower unemployment rates, economic growth and improved overall affordability in the GTA. ReMax is forecasting average sale price growth of six per cent, two points higher than the increase from 2018 ($835,422) and 2019 ($880,841).

The Niagara region is also showing strong growth, with average residential sale price increasing almost 13 per cent, from $378,517 in 2018 to $427,487 in 2019. Value-conscious consumers from the GTA are buying in droves, with many choosing to live in the region and commute to Toronto.

3 INTEREST RATES

In its most recent interest rate announcement, the Bank of Canada maintained its target for the influential overnight rate at 1.75 per cent, where it has been since October 2018. Though there is some global uncertainty, the Bank says, the Canadian economy is resilient, citing moderately expanding consumer spending, stronger wage growth and housing investment, increasing population and continuing low mortgage rates.

Many experts foresee mortgage rates holding where they are throughout 2020 – if not declining.

Indeed, James Laird, co-founder of Ratehub Inc. and president of CanWise Financial mortgage brokerage, predicts BoC will cut the overnight rate by a quarter point in the second half of 2020.

In 2019, central banks around the world cut their rates, but Canada was not among them. Facing somewhat slowing economic growth driven by decreased exports and a slightly higher unemployment rate, Canada will follow this trend and cut the overnight rate by 0.25 per cent in the latter half of 2020, Laird says.

“These savings will be passed along to variable rate mortgage holders in the form of a lower prime rate,” Laird says. “Therefore, Canadians who are in a variable rate will see their interest rate drop in the second half of the year.”

The Bank’s rate policy will cause fixed mortgage rates to remain low throughout the year, he adds. This should provide peace of mind to Canadians who have a mortgage up for renewal or those who have plans to purchase a new home in 2020.

4 GOVERNMENT INVOLVEMENT

The Canadian Home Builders’ Association, Ontario Home Builders’ Association, Building Industry and Land Development Association, Toronto Real Estate Board – and other relevant industry bodies – are all lobbying hard for the various levels of government to address the issues facing housing. Ranging from the First-Time Home Buyers’ Incentive Program, the mortgage stress test or land-use policies that affect the level of homebuilding – and therefore buying – one thing is clear: Federal, provincial and municipal levels of government are listening.

(Many of the executives in our Outlook 2020 Q&As in the following pages touch on these issues, and we’ll have another related special feature in our February issue.)

At least one major source says governments have little choice but to take action. The Real Estate Investment Network (REIN), a real estate investment education, analysis and research firm, cites increasing immigration as the catalyst for change.

“An increase in the influx of migrants amounting to over one million people in three years is tantamount to increasing rental demand,” says Jennifer Hunt, vice-president of research at REIN. “This is good news for rental housing providers, as migrants have higher tendencies to rent property rather than to purchase their own homes, especially within the first four years of settling in Canada.”

Once settled and secure in employment, however, many of these new Canadians want to become homeowners, which leads to higher demand for housing, including new homes and condos.

5 FTHBI & THE STRESS TEST

The First-Time Home Buyer Incentive is a shared equity mortgage through CMHC. The program is intended to reduce monthly mortgage payments for first-time homebuyers, without increasing the amount they need to save for a down payment.

Though some recent adjustments to the program, including raised purchase limits for high-priced markets such as Toronto and Vancouver, have helped, some are calling for further improvements to the plan.

REIN, for one, suggests watching for a potential increase of the FTHBI’s purchase price limit to nearly $800,000 in high-priced markets.

Ratehub is not convinced, expecting that the FTHBI will not be enhanced, and the existing program will see minimal traction.

“Less than five per cent of Canadians who are eligible for the FTBHI program will elect to use it,” says Laird. “Most Canadians do not want the government to own part of their home.”

REIN and Laird agree the mortgage stress test, which many in the industry have been calling to be changed, will likely remain unchanged.

Special Report: Outlook 2020:

Jordan DeBrincat, Director of Operations, Altree Developments

Fan Yang, Deputy General Manager (Eastern Canada), Aoyuan Property Holdings (Canada) Ltd.

Nick Carnicelli, President, Carriage Gate Homes

Jared Menkes, Executive Vice-President, Menkes High Rise

Anson Kwok, Vice-President Sales & Marketing, Pinnacle International

Angela Marotta, Director of Sales & Marketing, Solmar Development Corp

Samson Fung, Vice-President Marketing, Tridel

Jim Andrews, Director of Sales & Marketing Fieldgate Homes

Shakir Rehmatullah, President Flato Development Inc.

Mike Parker, Vice-President Sales & Marketing Georgian International Build Corp.

Brad Carr, CEO Mattamy Homes Canada

Deena Pantalone, Managing Partner and Director of Marketing & Innovation National Homes

Art Rubino, Contracts Manager & Marketing Manager Regal Crest Homes

 

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BILD Outlook 2020

Outlook 2020 – what’s in store for GTA housing next year?

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Outlook 2020 – what’s in store for GTA housing next year?

Global and even some Canadian economic and political uncertainty shouldn’t derail growth in the GTA housing market next year, according to experts at the Building Industry and Land Development Association’s (BILD) recent Outlook 2020 event.

Craig Wright, senior vice-president and chief economist at RBC, and Peter Donolo, political and communications strategist with Hill + Knowlton Canada, said that overall, the fundamentals for the economy and housing market in Ontario and the GTA bode well for 2020. There are some challenges, however – namely the ongoing new home supply issue.

With Justin Trudeau’s Liberals re-elected as a minority government, Canada will see a relatively stable left-leaning federal government that will focus on environmental issues, affordability and redistribution rather than on economic growth, Donolo says.

BILD Outlook 2020
Left to right, Dave Wilkes, Peter Donolo and Craig Wright

Globally, geopolitical uncertainty and softening economic growth mean that Canada faces challenges with export and investment, leaving the heavy lifting to the consumer, according to Wright. Economic growth is expected to be modest and in line with employment and income, at about 1.7 per cent, and interest rates will likely continue to be low.

Strong employment growth

For Ontario, GDP growth will likely be a notch below, about 1.5 per cent, with housing starts for 2019 and 2020 at about 72,000 units, compared to about 79,000 in 2018, Wright says.

“That reflects a number of factors,” Wright told HOMES Publishing. “We continue to see strong employment gains, Ontario is leading Canada in terms of employment growth on a year-over-year basis, and strong population growth. So, strong fundamentals supporting it, in a low rate environment.”

BILD Outlook 2020 Craig Wright
Craig Wright, senior vice-president and chief economist, RBC

The GTA’s robust population growth will continue to drive demand for both ownership and rental housing, Wright says. Municipal and provincial governments are shifting to supply-side solutions for balancing the housing market.

“As you look at the structural reality of the GTA market, where we have immigration coming in… we have 140,000 to 150,000 people coming to this region each and every year,” adds BILD President Dave Wilkes. “That really does bode well for our industry.”

The mortgage stress test needs to be revisited in light of the continued low interest rates, Wright says.

Millennial attitudes

Another issue that might affect the Canada and the building industry is Millennials and their views on the environment and the economy – attitudes Donolo describes as “absolute.”

BILD Outlook 2020 Peter Donolo
Peter Donolo, political and communications strategist, Hill + Knowlton Canada

“When I say absolute, you talk about the oil sands and it’s like you’re talking about the Medellin drug cartel,” he says. “They’re not conscious or interested in the fact that the oil sands and Canada’s oil and gas sector is a kind of the backbone of the Canadian economy, that millions of jobs depend on it… They’re not interested in a kind of slow transition or weaning away from it. They think it’s immoral… and this is a very widespread view.”

Millennial views on homeownership are also different, Donolo says.

“Do Millennials look differently at what homeownership is about? Are they less interested in owning a traditional detached house with a backyard and property? If you look at rates of drivers licenses among Millennials, there is perhaps an indication.”

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Securing a mortgage

Looking to secure a mortgage? Now is the best time to negotiate

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Looking to secure a mortgage? Now is the best time to negotiate

 

Securing a mortgage

The Bank of Canada again held its influential overnight lending rate today at 1.75 per cent, signalling the continuation of a stable interest rate environment – and underlining that now may be the best time to negotiate a mortgage.

Why? We’ll get to that in a second.

First, the BoC held the rate for the fifth straight announcement – it’s been at 1.75 since October 2018 – citing growing evidence that the Canadian economic slowdown in late 2018 and early 2019 is now being followed by a pickup in the second quarter this year. Housing market indicators point to a more stable national market, albeit with continued weakness in some regions.

In addition, the Bank says, continued strong job growth suggests that businesses see the weakness in the past two quarters as temporary, with recent data supporting an increase in both consumer spending and exports in the second quarter, and it appears that overall growth in business investment has firmed.

“The Bank’s language indicates that things will need to change to the positive or negative in order to move from their current rate strategy,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial. “Therefore, Canadians can expect a stable rate environment for the foreseeable future.

“This announcement should bring peace of mind to consumers currently in a variable rate mortgage because it is unlikely that the prime rate will increase anytime soon,” he adds. “Going forward, a decrease seems as likely as an increase, which is also good news if you’re in a variable rate.”

Mortgage seasonality

Canadians may also be able to take advantage of seasonality in the mortgage industry to score the best deal on their lending rate. Just like spring is known as traditionally the busy season in real estate, it’s also a very good time of year to secure a mortgage.

Securing a mortgage to buy a condo in Toronto

Ratehub.ca, for example, analyzed historical rate data from 2016 to 2019 to identify the best times of year for Canadians to lock in to a rate, or refinance an existing mortgage.

According to Ratehub.ca’s historical data on the best five-year fixed and variable rates, Canadians have access to the lowest rates during the spring homebuying season – between April and July – every year. The second most competitive time period for mortgage rates occurs between October and December.

A similar story played out in 2017 when the average best five-year fixed rate fell to 2.4 per cent from 3.32 per cent, and the average variable rate dropped from 2.09 per cent to 2.04 per cent.

ALSO READ: Ontario releases plan to address housing affordability and supply issues

ALSO READ: Variable vs fixed mortgages? It’s complicated

A year later, 2018 proved that while a rising rate environment can override the benefits any spring mortgage deals, mortgage holders still benefited from certain promos. The average best five-year fixed rate increased from 2.94 per cent from January to March to 3.07 per cent, but the average best variable rate fell from 2.17 per cent to 1.96 per cent. Lenders actually slashed fixed rates over that period.

Spring promotions

“Lenders and mortgage providers come out with their strongest promotions during the busy spring and summer homebuying season,” Laird says. “Regardless of the interest rate environment, springtime is when lenders are willing to make the smallest margins in order to win business.”

During this period, many lenders will choose at least one rate and term to price very aggressively in order to attract attention to all of their mortgage products. Lenders also come out with special promotion offers to incentivize borrowers to lock in a rate. Consumers can expect to see cash-back deals to help with closing costs and refinance fees. Some lenders offer extra-long rate holds during this period. For example, BMO is currently offering a 130-day rate hold. The “30-day quick close rate” is another promotion many lenders opt for – this is a discounted rate that applies if your mortgage is closing in the next 30 to 45 days.

It’s crucial that lenders remain competitive through the spring market, Ratehub says, to hit their annual mortgage volume targets. In most cases, lenders will hit their targets during the second quarter (April to June) and, as a result, tend to be less competitive with promotions during the latter half of the year.

Consumers will typically see rates fall again in October, in the lead up to Oct. 31, when all of Canada’s major banks end their fiscal year. Lenders that want to get an early start on their targets for the following year often come out with promotions during this time period.

Bank results

Further benefiting the mortgage landscape for Canadians is that Canada’s big banks this week are reporting lower second quarter profits than expected.

“The poor results reported by Canada’s big banks in Q2 2019 could be good news for mortgage consumers,” Laird told Homes Publishing. “In light of these results, it would be unsurprising if the banks aggressively try to win mortgage business by offering lower rates to consumers or promotions to attract more business in the latter half of 2019.”

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Bank of Canada

Bank of Canada holds interest rate for now, but hikes still to come

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Bank of Canada holds interest rate for now, but hikes still to come

 

Bank of Canada

The Bank of Canada held its target for the overnight rate at 1.75 per cent on Jan. 9, where it has been since October 2018, and is lowering its growth forecast this year for Canada and around the world.

After raising the rate three times last year, some experts expected the Bank would do so again, either in late 2018 or early this year.

So, what does this latest non-action mean, and what can Canadian consumers expect in the coming months?

“The Bank gave several reasons for its decision to keep rates steady,” says Rubina Ahmed-Haq, personal finance guru and Homes Publishing columnist. “This includes lower oil prices, a weaker outlook for the global economy and Canada’s economy slowing more than expected.

Weaker investment

“It was a surprise that market pessimism did not come up,” she adds. “Despite stock market volatility making headlines for the last two months, there was no mention of the wild swings investors have been experiencing. The Bank did talk about weaker consumer spending and housing investment. This could be because of Canadian investors watching their portfolios and not feeling as confident in their spending.”

Sill, Ahmed-Haq says, the Bank remains very rosy on Canada’s economy, noting it has performing well overall. In its statement, the Bank says, “Growth has been running close to potential, employment growth has been strong and unemployment is at a 40-year low.” But still not enough to raise rates at this time.

Energy sector a concern

“The energy sector has been a concern for the Bank for some time now, but there seems to be a new focus on the housing sector, especially on the impact of mortgage guidelines changes and the five rate increases that have happened in the past 18 months,” James Laird, co-founder of Ratehub Inc. and President of CanWise Financial mortgage brokerage, told Homes Publishing.

Ahmed-Haq and Laird agree we should still expect higher rates in the coming months.

“The policy interest rate will need to rise over time into a neutral range to achieve the inflation target,” says Ahmed-Haq.

Rate hikes to come

Forecasters are now predicting two rate hikes this year, down from earlier predictions of as many as three rates hikes in 2019.

“The Bank’s moderated outlook in the last two announcements has caused bond yields in Canada to drop lower than any point in 2018,” says Laird. “However, we are yet to see a corresponding decrease in mortgage rates. We would advise consumers to keep a close eye on mortgage rates in coming weeks.”

 

Highlights from the Bank’s announcement

  • Bank of Canada maintains target for overnight rate at 1.75 per cent
  • Canadian economy performing well overall
  • Employment growth strong
  • Unemployment rate at 40-year low
  • Canadian consumption spending and housing investment weaker than expected
  • Housing markets adjusting to municipal and provincial measures, new mortgage guidelines and higher interest rates
  • Household spending to be dampened by slow growth in oil-producing provinces
  • Real GDP growth forecast at 1.7 per cent for 2019
  • Growth of 2.1 per cent forecast for 2020

 

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