Category Archives: Budget

Canadian Banks could absorb losses in US-style housing crash

Good news for your monday morning!

If Canada saw a ‘US-style housing crisis‘ the big 6 banks could generate enough capital in a few quarters to cover losses.

If Canada were to experience a U.S.-style housing crisis, with house prices falling by up to 35 per cent, mortgage lenders including the country’s big six banks could lose nearly $12 billion, according to a new report from Moody’s Investors Service.

CMHC would also take a hit of about $6 billion if they challenge and reject claims, but if they decided not to they would take about half the loss as it would be more evenly split between the banks and CMHC.

You probably don’t have to worry about a US-style nationwide housing crash, because we have a different mortgage market that is explicitly backed by the government. The main concern would be rate increases and job losses as Canadian debt loads continue to increase:

There was almost $1.6 trillion in mortgage debt outstanding at the end of March, including home equity lines of credit, more than double the amount outstanding 10 years ago.

Read the full article over at the Financial Post.

B.C. Budget aims to fix real estate woes

There’s a new budget in BC and it includes some changes aimed at the real estate market.

For the first time the government has decided to start collecting data on foreign buyers and are offering a break on property transfer taxes for new construction under $750k.

The changes will see buyers save up to $13,000 from B.C.’s property transfer tax if they purchase a newly built home, condo or townhouse valued under $750,000, as long as they are Canadian residents who live in the home for at least a year. The tax break starts today.

It’s designed to boost the supply of new home construction and give people a helping hand to enter the market, said Finance Minister Mike de Jong. But it won’t cool the market enough for those who say they can’t afford to live in the Lower Mainland.

“If by cool you mean actually reduce the value of people’s major asset, their home, clearly we were not interested in taking that step,” said de Jong.

The tax break will be offset by a one-per-cent increase to the property transfer tax, to three per cent, on luxury homes that sell for more than $2 million.

Critics say the budget amounts to half-measures from a government that’s stuck between not wanting to intervene directly in the housing market and needing to look responsive to public frustration.

Read the full article over at the Vancouver Sun.

Rising home prices keep Canadians from starting families.

Bull! Bull! Bull! pointed out this article in the Vancouver Sun.

The ratesupermarket.ca survey of 1,700 Canadians found 52.8 per cent of Canadians overall cannot afford to start or expand their families, with 46.4 per cent of millennials sayings their existing debt was making it impossible, even before considering a mortgage.

Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce, thinks there’s no question household formation is being impacted by prices. “Common sense tells you it makes sense. We have an affordability crisis in large parts of the country. In these types of cases, people either stay in the basement (of their parents) but they definitely don’t buy a house. We know in the United States for sure this happened.”

Infrastructure in cities has not kept pace with density, as evidenced by some Toronto condominium developments posting signs warnings parents that their children might not be able to get into local schools because of overcrowding.

As Bull! Bull! Bull! points out, that’s not really a big deal because Vancouver isn’t a family town anyways:

that’s ok. young ppl can live in condos, ride bikes, instagram their breakfast, experiment with facial hair, smoke lots of pot and generally act like they never moved out of residence. (showers are optional). they’ll be happier anyways.

Read the full article here.

It’s a bad time to have Canadian dollars

The Bank of Canada took another strike at driving down the Canadian dollar and cut the key interest rate by .25% to a slender .50%.

Canada’s central banker isn’t using the R-word – recession — but Stephen Poloz is cutting the Bank of Canada’s key interest rate by 25 basis points to 0.5 percent as he forecasts two back-to-back quarters of economic decline amid the crash in crude prices.

With Canadians carrying record-high debt loads and cheap money fuelling hot housing markets in Toronto and Vancouver, the 25 basis point rate cut will be seen as a risky play in some quarters, adding more fuel to the debt fire.

Read the full article over at BNN.

What roll for developers in affordability debate?

Often when it comes to real estate stories in the local media the people interviewed are developers, marketers or realtors. These are all professionals who deal with the market every day, so it makes sense for the media to seek their opinion on housing stories.

But should they be driving the ‘affordability’ debate?

Architect and professor Avi Friedman thinks not.

“Builders will not initiate innovative ideas because they are profit motivators, so the city needs to act as a catalyst,” he told CBC Radio One’s Rick Cluff on The Early Edition.

Friedman also criticized the idea offered by many in the real estate industry, like marketer Bob Rennie, that Vancouver isn’t going to be affordable for everyone and that young people should consider moving to the suburbs.

“People who grew up and live in a city should be able to buy a home in their city. The fear is that, some of these young people may leave Vancouver,” Friedman said.

“Once you see the departure of young people from the city, they take along their potential … to start new businesses, to create a vibrancy that young people bring to a place.”

Friedman says it is incumbent upon the city and its leadership to foster and implement new ideas that will allow young people to stay and thrive in Vancouver.

Read the full article over at the CBC.