Maintaining a high quality of life has become a challenge for Canadians facing higher prices for basic necessities, with shelter costs representing a significant and rising expense for many households. The latest inflation report showed mortgage interest costs increased 25.4 per cent year-over-year in March, while rent prices jumped 8.5 per cent year-over-year. The state of the housing market has a multiplier effect, affecting economic growth, consumer spending, businesses – even internal migration to cities that offer affordable housing.
To unpack the latest housing trends, The Globe and Mail recently spoke with Robert Hogue, assistant chief economist at Royal Bank of Canada RY-T. He shared his perspectives on the housing market and ways to address housing affordability.
What’s your outlook for home prices?
We expect them to rise but very modestly at first. We’re not in the camp of expecting a big pop in either home resale activity or prices because affordability is still such a big issue that is going to keep so many potential buyers on the sidelines for some time.
We do expect the recovery to continue to unfold. It looks like the market turned a corner somewhere around the turn of the year. Around December, January, we saw activity pick up across Canada – not everywhere, but generally speaking. Also, prices on a month-over-month basis are starting to rise – that’s certainly the case in the GTA and in Vancouver as well.
The recovery is likely to be fairly subdued at first. Our view is that we’ll need to see significant interest-rate cuts to open that door for buyers and to have more heated demand in the market. Once the Bank of Canada cuts the interest rate fairly materially, this is when we would expect more buyers will get in the market and push prices higher at a more accelerated pace. This might start in the latter half of 2024, but our base case is not forecasting a sudden spike, it’s going to be more of a gradual ramp-up.
You mentioned that you expect home prices will increase modestly, meaning single-digit year-over-year changes?
Probably low single digits at first and then still in the single digits going forward.
Now, the Bank of Canada is paying attention to what’s happening in the housing market, and if it sees a market that starts to rebound very vigorously and price activity that starts to point toward an overheating in the market, it may be a factor that might push the bank to hold off on the pace of rate cuts that we’re expecting. I’m not saying that the bank will start to hike interest rates, but it might influence the pace of rate cuts.
When do you expect the Bank of Canada will begin to cut rates and where do you see rates headed?
Our call is in June. We expect a full percentage point of cuts this year and an additional percentage cut in 2025. The first rate cut is probably not going to make a huge difference for many potential homebuyers. But by the time we get a full percentage point later this year and probably more into 2025 with further rate cuts, I think this is going to start to make a difference to buyers that have been pushed to the sidelines over the last couple of years.
Now, I don’t want to come across as saying once the Bank of Canada is done cutting interest rates that suddenly the market will be affordable to everyone, everywhere in Canada. I think the deterioration in affordability that we’ve seen is unlikely to be entirely reversed any time soon.
What cities would you characterize as being buyer’s and seller’s markets?
In terms of a buyer’s market, the markets that come to mind are in parts of Southern Ontario. I’m thinking markets like Guelph or Kitchener-Waterloo that during the pandemic overheated but then the correction was quite significant, quite severe, when the Bank of Canada went into its rate hiking campaign. Those markets have cooled down significantly and they’re a little bit behind other markets like the GTA, for example, where things have rebalanced and prices have started to rise on a month-over-month basis.
At the hotter end, Calgary comes to mind. This is a market that is seeing tremendous population growth coming from waves of immigrants and interprovincial migrants, and that is boosting demand significantly. The Albertan economy has softened relative to where it was about a year ago, but it’s still fairly robust compared to other parts of the country, so that contributes to income gains, for example, and confidence that is quite critical for the housing market.
Earlier this month you published a report titled The Great Rebuild: Seven ways to fix Canada’s housing shortage. Of those seven ideas, which ones do you think may have the greatest impact on supply?
Removing obstacles to home building, so things like zoning and the length of project approval processes need to be addressed and very quickly.
Second, the construction industry has a capacity issue. We need to grow that capacity by increasing the construction labour pool from immigration or various programs to attract young Canadians to get into construction trades.
Also, to encourage the industry to build differently, and there I’m thinking, more specifically in prefabricated housing, modular housing, building either whole homes or parts of homes. Factories hold quite a bit of promise to be much more efficient, to get more units out on a per-worker basis.
Lastly, I think it’s really important to put a lot of emphasis in changing the housing mix that we build and have more rentals, because when we do projections for the coming years, our view is that demand for rental apartments is going to skyrocket. So we need to build a lot more purpose-built apartments as well as social housing, because a lot of Canadians will not even be able to afford market rent given the affordability crisis that we have. If affordability does not change enough, it’s going to affect the type of demands that we’ll have in the future. So any kind of incentives that can be put forward to stimulate construction of apartments would be significantly welcome.
What about the other side of the equation? In order of importance, what would you identify as suggestions to tackle the demand side of the equation?
What’s been talked about a lot has been immigration, especially non-permanent residents coming into Canada. We’re seeing booming numbers, and this is putting tremendous pressure on Canada’s infrastructure, including housing.
There’s been some measures announced by the federal government to put a cap on non-permanent residents, something that Canada has never done before. This should, in our view, provide a bit of breathing room for supply to catch up with the very strong demand that we’re having and we’re likely to have in the future. Capping immigration means that it’s going to slow down population growth. It also means that it’s going to slow down the growth in demand for housing. What it does not mean is that it’s cutting demand for housing, it’s just not allowing demand to grow as fast as it is now or that it’s been over the last couple of years especially. It will give the supply side a chance to catch up a bit more. And if those supply-side measures are successful, then hopefully we’ll get to balance more quickly. Demand-side measures, especially immigration, in and of themselves will not necessarily rebalance the market.
The government is targeting 485,000 new permanent residents in 2024 and 500,000 in 2025. What level of immigration can the housing market support?
It’s very hard to tell. The pressure on our housing stock comes from household formation. When you have a new household being formed, they need a housing unit. When you have pressures coming from affordability and this big boom in immigration, for example, it basically made people bundle up. They get together and several of them live in one housing unit. So they’re not revealing how many units would be ideal. For us, it’s difficult to really see through what those coping mechanisms are and discern what is the ideal outcome and the number of units that would be required. That’s a very hard question to answer.
Do you think we have to reduce immigration significantly temporarily until housing supply improves?
When you consider that Canada, over the next decade or so, we’ll see half a million baby boomers reaching retirement age every year, that is going to be drilling a fairly significant hole in the labour pool. And it’s not just from a labour pool perspective, it’s also in terms of a tax base for the government. The way we finance our social programs, for example, it’s largely from income tax. So you need to make sure that you’ve got the number of taxpayers, working people, still up there.
We understand the stress arising from this ballooning immigration that we’ve seen over the last couple of years especially. Most of that surge has been on the non-permanent resident side. We argued, before the government put in place some caps, we argued that part of it would be self-correcting because some of the increase in non-permanent residents was to address labour shortages. The job vacancy rate has dropped quite a bit over the past year, year and a half, and it’s probably going to continue in the very sluggish economy that we’re in. Also, part of this large influx of non-permanent residents has been Ukrainians fleeing the war in Ukraine, and that program has ended.
Some development projects were put on hold because of higher financing costs, higher cost of materials and labour. How is that situation now?
When you look at homes under construction, we are at record levels in Canada across many markets, so it’s not that homebuilding is weak. And even when you look at housing starts, it is not soft, it’s just not enough to meet the kind of demand that we’re having.
What we’ve seen in terms of preconstruction sales is that market completely came to a halt when interest rates went to a very high level over the past year-and-a-half – and this is not rebounding yet. What that implies is that the pipeline in new projects that will get started at some point is getting thin. But in terms of what is being started, what is being worked on, those numbers I would argue are historically robust – not enough relative to what we need, but they’re still pretty robust. The concern is that given that thin pipeline, which is not filling up sufficiently, a year from now or two years from now, those construction levels will fall. That’s a concern.
What were your thoughts on the federal government’s budget as it relates to housing?
It’s a very substantial plan with, by my account, something like 53 measures. Not all were new – a number of them were either an existing federal measure or extensions of existing measures. Nonetheless, it covers a lot of ground, but the portion that focuses on home building, in our view, is heading in the right direction.
Were there measures, or a particular measure, that you think will have the most immediate impact of meeting their stated objective of adding new supply quickly? And when may we see a meaningful increase in supply that helps balance the market?
It’s hard to answer in the sense that they’re firing from so many directions. It’s difficult for me to get a sense of which one will hit the target first.
I would note this accelerated capital cost will probably move the needle as far as the rental apartment constructions. The government had previously announced a full rebate on the GST for new purpose-built apartment projects. Now, this accelerated capital cost allowance will be another measure that would be welcome in the industry and should give the green light to more rental projects going forward. Being able to deduct certain capital expenses more quickly, it means that you can make the project profitable more quickly. It used to be 4 per cent a year. Now, the government is boosting it up to 10 per cent a year. This helps the economics. It helps with the profitability of the project. This is probably not going to have an impact next month or six months from now but certainly will address this huge shortage in the rental stock. Over the medium term – three to five years – I think this is going to be a positive measure.
What do you think about the budget changes announced by the federal government such as the increase in withdrawals from RRSPs to $60,000 from $35,000 for first-time homebuyers making down payments and allowing first-time homebuyers of newly built homes to have a 30-year amortization term instead of 25 years? To me, these changes might stimulate demand, but since you still don’t have supply, it may increase prices and reduce affordability.
You think like an economist.
I totally get that the government and politicians want to help first-time homebuyers. The issue is that when supply is not sufficient, any measures that ultimately end up stimulating demand with a fixed supply, economics 101 will tell you that the adjustment mechanism is prices, and prices are going to go up. You’ve got to make sure that supply is ready to meet demand, otherwise it’s going to be counterproductive.
Now, the interesting part is that the longer amortization is for mortgages specifically for first-time homebuyers of new homes – it is very targeted. I would say that if you’re going to do something like that, that’s the way to do it. However, by putting all those conditions in there, the pool of people you’re going to end up helping is probably going to be much more limited.
On raising the ceiling on how much money you can withdraw from your RRSP, I’ll be just interested to find out how many young Canadians, or those who are contemplating buying a home, how many have $60,000 in there that they can draw upon. I’m not quite sure that the pool of potential people who will benefit from it is that large.
If you were to make Canadian housing market predictions over the next couple of years, what would they be?
I would say the rental market tightness that we have right now will get better. I’m not sure if it will satisfy everybody, but we should get some relief. I think in large cities affordability issues will probably still be around. Probably not as acute as they are today, but will still be something that we will talk about.
This interview has been edited and condensed.
Let’s say you’re the typical household in Canada and want to buy a home.
You earn the median household income of roughly $85,000 a year before tax and you’re looking to purchase an $800,000 home – a standard national price of late. After years of hard work and financial prudence, you manage to save enough cash for a 20 per cent down payment.
Mission accomplished, right? Not even close.
The ownership costs – monthly mortgage payments, property taxes and utilities – would eat up 63 per cent of your gross pay, according to calculations from Royal Bank of Canada.
Not only are these costs the highest that RBC has ever observed, but they are far in excess of what policy-makers deem affordable.
The math becomes even more stretched if you want a detached home or to buy in certain markets.
Ownership costs amount to 84 per cent of median household income in the Toronto area and 103 per cent in the Vancouver region. In other words, the typical household in Vancouver doesn’t earn enough to make payments on a representative home, even before taxes are deducted and other necessities – say, food – are paid for.
These are illustrative ways to describe the affordability crisis that Canada finds itself in. Practically speaking, the country’s chartered banks would never lend to someone so swamped by mortgage payments.
Still, the RBC numbers underscore a troubling trend: A typical household has little chance of getting into the housing market today. No wonder so many young buyers are tapping their parents for financial help.
In previous decades, the suburbs and smaller cities offered an affordable option for priced-out urban dwellers. But increasingly, those markets are getting swept up in the housing crisis.
Since the start of 2020, the benchmark home price has risen 89 per cent in Moncton. In Halifax, prices are up 68 per cent. And in the Ontario town of Tillsonburg (population: 16,815), prices have jumped 72 per cent. Throw in higher mortgage rates and it becomes near impossible for someone with a regular income to buy a home. The rental market doesn’t offer relief either. Tenants are facing the steepest rent hikes in decades amid high demand for a paltry number of units.
There aren’t simple explanations for how Canada ended up in this situation. Instead, a series of decisions and trends – some decades in the making, others quickly popping up – have coalesced to make homes way too expensive.
Not so high on supply
Like an upside down version of the famous Field of Dreams quote, Canada’s pace of home construction in the face of surging population is a case of they came, but we didn’t build it.
Housing undersupply is a chronic problem in Canada. But it’s become more acute since 2016, when population growth picked up in response to increased immigration targets, without a commensurate rise in housing starts. This dynamic was magnified over the past year, as the country’s population jumped by more than a million, while housing starts slowed from a 2021 peak.
As a result, affordability has gotten much worse over the past year. As Toni Gravelle, Deputy Governor of the Bank of Canada, put it in a recent speech, the widening gap “could explain why rent inflation continues to climb in Canada. It also helps explain, in part, why housing prices have not fallen as much as we had expected.”
It’s not that homes aren’t being built. Indeed, housing starts have been notably strong over the past three years, running around 20 per cent higher than the average in the years before the COVID-19 pandemic. A record number of homes, more than 350,000, are under construction. But the brisk pace of building is not enough to keep up with the country’s population growth, and there’s little evidence that the gap will close any time soon.
No vacancy
With demand for rental units outstripping supply, the rental vacancy rate has plummeted to a record low 1.5 per cent, from an average of around 3 per cent in the decade before the pandemic. That’s pushing rental costs up at a historic clip. Average rents across the country rose 8 per cent year-over-year in 2023, with much larger increases for units with tenant turnover.
The sharp decline in the vacancy rate corresponds to the surge in population over the past two years. Newcomers – immigrants, foreign students and temporary workers – tend to be renters. Meanwhile, inflated home prices and restrictive mortgage rates are forcing many would-be homebuyers to stay put, adding pressure on the rental market.
The lack of units designed for long-term tenancy and families is particularly glaring. Since the 1990s, developers have focused on condos instead of purpose-built rental buildings, which tend to have larger units and more security of tenancy. In the Greater Toronto Area, for example, almost 90 per cent of purpose-built apartments are more than 40 years old.
There’s been a pickup in purpose-built rental construction in recent years, spurred on by government incentives. But demand continues to outstrip supply. And it takes a long time to bring these buildings to market – an average of around eight years, according to Toronto’s Building Industry and Land Development Association.
Red tape headache
It can take years to get the necessary approvals for residential developments, an issue that is particularly problematic in Southern Ontario. Approval times aren’t much different whether a project has a few dozen units or a few hundred, according to a 2022 report from the Canadian Home Builders’ Association.
Moreover, project delays can lead to substantial increases in construction costs. The same report found that for every month of delay, construction costs rose by $2,600 to $3,300 a unit, another headwind for affordability.
Warped construction times
Even once the hurdles of getting approval for a new residential project are complete, that’s just one part of a lengthy process for getting new homes built. Construction timelines have grown considerably longer over the years, and have gotten worse since the start of the pandemic.
Construction of apartments takes the longest in Ontario cities, averaging 32.6 months in February, according to the Canada Mortgage and Housing Corp., up from 29.5 months for the same period five years ago. And even though construction times have risen for single and semi-detached homes nationwide, the gap between them and apartments has also grown more cavernous.
CMHC has examined lengthening construction times in its housing supply reports. Apartments are taking longer in part because they’re getting taller. In major cities, they’re also increasingly being built on smaller sites than before that involve more complex construction requirements. Meanwhile, timelines for detached and semi-detached homes have risen in part because of supply chain disruptions and labour issues.
These stretched timelines matter because they result in the delayed delivery of new housing supply at a time when it is sorely needed, while adding risk for builders, since construction loans need to be carried for longer and builders are exposed to construction cost inflation for longer, according to a February report released by Building Industry and Land Development Association, an organization that represents Toronto home builders.
Output obstacles
The construction industry has a productivity problem. Output in the sector is back to where it was in the late 1990s, and the gap with the overall economy is growing.
There are particular issues facing the industry, CMHC deputy chief economist Kevin Hughes noted in a recent blog post. The building process is complex and varies by building type, and many aspects of production fall outside of the developer’s control, which can lead to delays. Moreover, the residential construction industry is quite fragmented and includes small players who focus on bespoke projects, but also lack the capital to make investments that would boost their productivity.
It’s not an easy problem to fix, although governments could offer incentives to builders who use more prefabricated inputs. The use of off-site construction could speed up completion times.
2×4 inflation
From wood and concrete to steel and glass, residential construction materials have soared in price compared to before the pandemic, ending years of steady and predictable cost increases. On a national basis, construction costs have jumped nearly 60 per cent since the end of 2019, and are up 80 per cent since 2017, far outpacing overall inflation.
The cost surge has directly fed into rising home prices, but has a knock-on effect because municipal governments also tie the fees they charge developers to Statistics Canada’s construction price tracker. In Toronto, for instance, development charges for a one-bedroom rental apartment jumped 22 per cent last year from 2022, and 42 per cent for a non-rental one-bedroom apartment. Add in rising wages for construction workers, which have outpaced the overall job market, and it helps explain why housing starts have slowed sharply even as politicians promise a rush of new housing to meet demand.
Bank of Canada rains on the parade
Canadians are used to seeing eye-popping house prices, especially in Toronto and Vancouver. What’s new is the rapid run-up in mortgage rates over the past two years, as the Bank of Canada tightened monetary policy to fight inflation. This combination – pricey homes and restrictive mortgage rates – has transformed a long-simmering housing affordability issue into a thoroughly middle-class problem.
Existing homeowners are seeing monthly mortgage payments jump by thousands of dollars when they renew. Would-be buyers are shut out of the market, unable to qualify for a mortgage at higher rates.
Around half of all homeowners with mortgages have renewed since the central bank began raising rates in 2022. Most of the rest will do so in the next two years. Homebuyers who overstretched in 2020 and 2021, when interest rates were at historic lows, are in for a particular big shock.
There’s hope the Bank of Canada will start lowering interest rates this year, with analysts betting on a first cut in June or July. But central bank officials remain cagey, and Governor Tiff Macklem has warned that rates are unlikely to fall as fast as they rose.
Priced-out millennials
Young Canadians are managing to buy homes, although not to the same extent as before. And because homes are so expensive, young buyers often rely on their parents’ wealth to get into the market.
In November, a Statistics Canada report found that adult children of homeowners were more likely to own a home than those whose parents were non-homeowners, and this likelihood increased with the number of properties owned by their parents. The children of multiple-property owners have lots of social capital, access to quality education and wind up in higher-paying jobs, on average.
“However, the analysis establishes a robust positive relationship between parents’ property ownership and the likelihood of home ownership for their adult children, even when controlling for income, age and province of residence,” the report read. “Inequality of home ownership appears to be reproduced across generations as parents’ property ownership conveys significant financial advantages to their children.”
Seniors staying put
Over the past decade of rising house prices, anticipation has built around the idea that a wave of aging baby boomers will sell their homes and flood the market with new supply. That isn’t happening. Instead, more seniors are aging in their houses longer, a November report by CMHC found. The sell rate of homeowners aged 75 or older who sold their homes has fallen steadily since the early 1990s, dropping to new lows in the 2016 to 2021 time period.
If there is a seniors’ sell-off coming, it won’t be any time soon. The report found the sell rate among those aged 75 to 79, the leading edge of the first wave of baby boomers, was 21.5 per cent. Sell rates didn’t rise significantly until people were in their late 80s and into their 90s, when rates rose to 55.3 per cent to 72.4 per cent.
Of course, even if seniors did start selling en masse, it might not help much. Last month Statistics Canada reported that millennials now outnumber baby boomers in Canada, thanks to the influx of permanent and temporary immigrants.
Note: RBC’s affordability calculations use a five-year fixed-rate mortgage amortized over 25 years. The mortgage rate is the weighted average of those offered by chartered banks for insured and uninsured mortgages. RBC uses benchmark home prices from RPS Real Property Solutions, and it adjusts Statscan income data for timeliness. The bank assumes the buyer makes a 20 per cent down payment.
Housing has become one of Canada’s most vexing and all-consuming quandaries. This article is part of a Globe and Mail series that examines the country’s affordability crisis, its myriad causes and prospective solutions.
Canadian home prices were flat in February after falling for five straight months, a potential sign that the country’s housing market may be rebounding after last year’s slump.
The national home price index, which excludes the highest priced properties, was $719,400 last month, which was the same as in January, according to the Canadian Real Estate Association or CREA.
The last time the home price index rose was from July to August last year, a month after the Bank of Canada shocked the market with back-to-back interest rate hikes. The surprise move had led to a slowdown in sales and a drop in home prices as many would-be homebuyers had a tougher time qualifying for a large enough mortgage to make a purchase.
But now that the central bank has kept its benchmark interest rate steady at 5 per cent for more than six months, would-be buyers are starting to gain confidence that borrowing costs will no longer continue to rise. Prospective buyers who delayed their purchases last year are starting to look again and make bids. The real estate industry said there is pent up demand after months of lacklustre activity.
“People are itching to get going,” said Samantha Villiard, regional vice president for RE/MAX real estate agency. “More people are slowly getting comfortable getting back into the market,” she said.
Realtors have reported an increase in showings and bids in areas that experienced heavy competition during the pandemic’s real estate boom. That includes the suburbs of Toronto and Chilliwack, inland of Vancouver. Over the past month, the home price index rose in Oakville, Milton, Hamilton and Burlington, as well as Chilliwack.
At the same time, the home price index continued to fall in other markets that overheated when interest rates were nearly zero. That includes some parts of Ontario’s cottage country and less populated cities like Guelph.
Across the country, home sales fell 3.1 per cent from January to February after removing seasonal influences. B.C. and Ontario, the country’s largest real estate markets, led the way down with homes sales declining 7 per cent month over month in both. That followed a flurry of sales in December and January. Last month’s volume of sales is still higher than in the fall when homebuyers were still adjusting to the higher interest rates.
TD economist Rishi Sondhi said that activity is still below pre-pandemic days due to lower sales in Ontario, B.C. and Quebec. “This suggests that significant pent-up demand remains in these markets,” he said in a research note.
New listings rose 1.6 per cent from January to February with more homeowners putting their properties up for sale in B.C. and Alberta.
Editor’s note: This article has been update to clarify that Chilliwack is located inland of Vancouver.
It’s the Canadian way to believe in houses as an investment.
In a recent RE/MAX poll, 73 per cent of participants said they believe home ownership is the best investment they can make in 2024, a similar number to last year. Now for a reality check.
The national average housing price peaked at $816,720 in February, 2022, and then sank to $659,395 in January of this year. This drop of 19.3 per cent doesn’t kill the idea of houses as investments narrative, but it does offer some perspective.
Expect to hear a lot about housing this spring. Affordability for first-time buyers can only be described as awful, even if prices are well off the peak levels of a few years ago. Meanwhile, mortgage rates have edged lower and there are signs of revival in the housing market in several cities. Properties are selling faster and there’s even talk of bidding wars in Toronto.
Economic conditions on the surface don’t seem conducive to a housing rally – interest rates remain high, living costs are a challenge for many, late debt payments and defaults are on the rise and economic growth is barely perceptible. Demand for housing is partly fed by population growth and the natural flow of people buying property and starting families. But the RE/MAX poll suggests that another factor driving sales is the view of houses as investments.
One of the basic rules of selecting investments is that past returns are an imperfect indicator of what’s to come. Housing has been excellent in the past – the average annual increase in the national average resale price the past 10- and 20-year periods is roughly 6 per cent, according to Canadian Real Estate Association data. If a home is your principal residence, that gain is tax-free. But even with high levels of immigration, there’s reason to question if housing prices can keep up that pace of growth in a slow-growing economy where borrowing costs remain high.
The best investment you can make this year is in a diversified portfolio of bonds and Canadian, U.S. and international stocks that you hold for at least 10 years. Houses may outperform, but at what cost? Ten more years of 6 per cent annualized growth in house prices would give us a national average resale price of $1.2-million. At that point, houses turn into luxury goods.
The RE/MAX poll offers some insight into how people will afford homes both now and in the future. Almost half of participants said they would consider alternative ownership models like buying with friends or family, buying a home with a rental unit or a rent-to-own arrangement.
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Rob’s personal finance reading list
The inevitability of hot housing
Bidding wars are back in Toronto. I’ve been asked a few times lately what’s ahead for housing and right now I’m seeing signs that the slump of the past year or so is over. Now for a look at the cities with the highest percentage of houses listed for sale at or above $1-million.
Cheapest cars in Canada
I was surprised to find two vehicles still under $20,000, and a few others around $25,000. The average vehicle price these days is close to $46,000.
The investment case for gold
Gold prices have soared recently, and that means more chatter about the benefits of adding exposure to gold to an investment portfolio. I can’t see the point of gold myself because it’s so unpredictable, but many would disagree.
The battle for Rocco Jr.
A court case that involved custody of a deceased owner’s pet dog is a reminder to consider your pets when writing a will. The dog involved is a bull terrier named Rocco Jr.
Ask Rob
Q: I wonder if you plan to review the Wise card?
A: The Wise card is a great way to cut the cost of foreign exchange when paying for purchases outside Canada. I wrote about Wise in a column last year.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools, explainers, guides and charts
“Can someone please explain GICs to me?” – a Reddit thread
The Money-Free Zone
As I was cueing up a Willie Hutch song for today, I heard that Eric Carmen died. Mr. Carmen’s opus All By Myself pretty much defines the mellow rock popular back in the 1970s. Mr. Hutch was a soul/R&B singer on the Motown label whose creative peak was happening while All By Myself played endlessly on AM radio. His soundtracks for the movies Foxy Brown and The Mack are great from top to bottom, but the song I Choose You stands out for its shining production and vocals. It’s been sampled a bunch of times by other musicians.
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Important stuff to know about buying a home with a friend or family member.
On social media
Food inflation in February – pass the Tums.
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- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home down payment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada’s top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer’s guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
February auto sales hit an all-time high for the month after jumping 24.4 per cent from last year, DesRosiers Automotive Consultants Inc. said Monday.
Sales totalled an “astounding” 129,000 units for the month, the consultancy said, up from around 104,000 for the same month last year.
The sales total also eclipsed the 125,000 units sold in February 2020, the last time the month had an extra day and just before the pandemic threw the industry into turmoil.
The seasonally adjusted annual rate of 2.1 million units for the unseasonably warm month was the highest since January 2018, said DesRosiers.
The latest sales figures, marking the 16th consecutive month of year-over-year growth, shows many of the challenges faced by the industry are now under control, said Andrew King, managing partner at DesRosiers, in a release.
“February 2024 sales tell us that some of the hurdles of recent years – and specifically the supply constraints of new vehicles – are now well and truly in the rear-view mirror.”
The pandemic had created supply issues both through plant shutdowns and a surge in demand for electronics that led the auto industry to have a shortfall of semiconductors. The disruptions led to a shortage of supply and a surge in pricing as automakers focused on their priciest and most profitable models.
Production is expected to finally return to pre-pandemic levels this year.
A Scotiabank report last month estimated that North American production should hit 16 million units this year, roughly in line with the 10-year pre-pandemic average.
Last year’s production was estimated at 15.6 million units, while the 2021 low was 12.9 million.
But while production is recovering, prices are still elevated.
The average price of a new vehicle hit $67,259 in December, up 14.2 per cent from a year earlier, said AutoTrader in its latest monthly report. The average for used vehicles reached $36,863, a 1.7 per cent increase.
More supply does look to be at least taking pressure off price growth. The average new vehicle price in December was down 0.3 per cent from November, while the used vehicle price was down 2.4 per cent from the previous month.
But even with prices high, King said there is enough pent-up demand to keep helping drive sales.
The average price of a house in Rotorua has risen to $746,000 after the city’s average residential property values increased by 0.4 per cent in three months.
According to the latest data from the OneRoof Valocity House Value Index, taken at the end of January, property values across the country are up by 0.9 per cent compared to three months ago.
OneRoof’s latest House Price Report showed property values were up quarter-on-quarter in 90 per cent of suburbs nationwide, with the biggest quarterly lifts in Arrowtown, Mataura and Whitford.
Of the 793 suburbs with 20-plus settled sales in the last 12 months, more than 40 per cent saw year-on-year value lifts, reflecting the turnaround in the market.
Rotorua suburbs with more than 20 settled sales in the year ending January 31 included Hamurana, where property values increased by 2.1 per cent in the last three months to $1.23 million.
Western Heights saw the second-highest three-month increase in suburb property value, a difference of 2 per cent.
Rotorua Professionals McDowell Real Estate principal and auctioneer Steve Lovegrove said the post-summer, early autumn season was normally a busy one for real estate.
“The good news for everybody is that prices seem to be mostly stable, certainly not going backwards and probably increasing,” Lovegrove told the Rotorua Daily Post.
“We are starting to see the green shoots of property price increases.”
Lovegrove said there was also a lift in the stock available.
“So buyers do have a little more choice and less need to act urgently. We’re seeing a little bit of lag in decision-making and a significant lift in buyers actively entering the marketplace.”
Lovegrove said there was more competition for properties in the $500,000 to $700,000 value range.
“Anything just below that average price is getting hit quite hard with active buyers, mostly first-home buyers.”
Lovegrove said there was also a trend of people looking to downsize which also saw more buyers looking in the lower price ranges.
“There’s a lot of confidence, a positive vibe and a positive outlook looking forward. We’re not expecting a rapid price increase. We are expecting simply more confidence.”
Tremains central region general manager Stuart Christensen said there was more property coming onto the market.
“More people have decided to make a move. Westpac dropped their interest rates on Friday. All those are encouraging signs,” Christensen said.
“We are seeing an increasing number of people at our open homes. So there’s appetite to come out and a good number of first-home buyers are out there.”
Christensen said first-home buyers did have a window to make their decisions, however, as investors were coming gradually back into the market as well.
“Overall there’s a lot more positivity. It’s a new year. People are out looking for a move whether they are upsizing, downsizing or entering the market for the first time.”
The news comes after New Zealand’s average property value grew just 0.9 per cent in the three months to the end of November to $973,000, as buyers retreated from the market after a busy November and October.
Valocity global chief executive of real estate Helen O’Sullivan said sales volumes in December were lower than had been anticipated, given the lift in October and November, although they were up year-on-year.
Valocity data showed mortgages registered to first-home buyers in the last quarter of the year dipped to 44 per cent from the five-year high of 45 per cent the previous quarter. Mortgages registered to investors increased slightly from 22.4 per cent to 23.6 per cent over the same period.
O’Sullivan said the Reserve Bank’s announcement around debt-to-income ratios was unlikely to have an impact on the current market.
“The proposed settings are not expected to make a significant difference to prices or activity levels in the current high-interest rate environment,” she said.
“When interest rates are lower, [debt-to-income ratios] will limit the level of debt borrowers can assume despite being able to service the debt.”
Maryana Garcia is a regional reporter writing for the Rotorua Daily Post and the Bay of Plenty Times. She covers local issues, health and crime.
Lower home prices and declining interest rates on new fixed-rate mortgages are starting to translate into affordability gains in some Canadian cities, a Globe analysis has found.
While many Canadian cities have seen sizable home price drops over much of 2022 and 2023, soaring borrowing costs over that period have, until recently, wiped out any affordability gains for homebuyers. But with lenders lowering fixed rates on new five-year mortgages over the past two months, that’s beginning to change.
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The Globe and Mail compared the mortgage payments homebuyers would have to carry if they purchased an average-priced home in their local market today to what they’d have paid if they’d bought in February, 2022, right before the Bank of Canada began its rate-hiking campaign. In a handful of housing markets, those payments would be lower, the numbers show.
The analysis shows it currently takes a home price decline of around 25 per cent or more from February two years ago to produce a mortgage payment decrease of more than $100 a month.
But the good news for homebuyers is limited. The gains are typically modest and concentrated in mid-sized cities and smaller communities in Ontario, which saw the sharpest housing corrections since early 2022.
And in the absence of sizable increases to the housing supply, any affordability gains are likely to be short-lived, with buyer demand bound to quickly push up prices, CIBC Capital Markets deputy chief economist Benjamin Tal said, commenting on The Globe’s analysis.
“What we’re seeing now is a situation in which we are planting the seeds for some increasing prices down the road,” Mr. Tal said.
The Globe calculated mortgage payments in more than 20 markets tracked by the Canadian Real Estate Association. The analysis relies on estimates of the price of a typical home in February, 2022, and in December, 2023, the latest available data.
To calculate mortgage payments at the peak of the pandemic housing boom, The Globe used a rate of 2.94 per cent. That was the lowest nationally available five-year fixed rate for purchases that don’t require mortgage default insurance in mid-February of 2022, according to MortgageLogic.news.
For an estimate of mortgage payments for today’s buyers, The Globe used a 5.29 per cent rate, the current lowest five-year fixed rate. The calculations assume buyers have a 20-per-cent down payment and will take 25 years to pay off the mortgage.
Those steep price declines are mostly found in Ontario. In Cambridge, for example, where prices have dropped 28 per cent from their peak, a buyer today would likely face monthly mortgage payments around $300 lower for a typical home. Buyers will find similar conditions in London, Waterloo, Hamilton and Oakville.
The province also dominates the ranking of markets where prices have fallen by around 20 per cent, which currently produces mortgage payments that are roughly equal to those buyers faced two years ago, before the central bank began raising rates. Chilliwack, B.C., is the only city outside of Ontario among those analyzed to also exhibit these conditions.
In much of the rest of Canada, buyers are still contending with higher mortgage payments. In Halifax, for example, the monthly payment on a typical home is still roughly $400 higher, even though home prices are 6 per cent lower.
In Calgary, where prices are up 10 per cent since February, 2022, a new buyer would have to shoulder nearly $1,200 more a month in mortgage payments for an average home.
But for many buyers, strong wage growth over the past two years should help soften the financial pinch, said mortgage analyst Robert McLister, who runs MortgageLogic.news.
“You would find that the total affordability is not as bad as it would seem in some places if you factor in that,” Mr. McLister said.
And lower home prices mean down payments can go further to reduce the size of a mortgage and its monthly instalments.
With borrowing costs still elevated, Mr. Tal expects only a modest revival in housing activity this spring. But the affordability gains realized so far are so little that even small price increases would erase them in the absence of further interest-rate declines, he said.
A decade ago, Joe Bladek’s clients typically put down deposits of between $1,000 and $5,000 when making an offer on a new home. Today, the Barrie, Ont.-based mortgage broker said, those deposits are more commonly in the range of $5,000 to $10,000 – and recently, he worked on an offer where the buyer put down a $50,000 deposit and had to ask family for help to scrounge up the funds.
“A lot of clients don’t realize that deposits are quite large these days,” Mr. Bladek said. It’s partly owing to the higher cost of homes themselves, since deposits are typically between 1 to 10 per cent of the sale price. But it’s also a holdover from the pandemic bidding wars, when buyers sought to compete with firm offers. And while deposits come from the down payment, buyers need to have the money on hand.
It’s just one example of how the costs linked to buying and selling a home have crept up over the years, largely because of higher housing prices.
Experts say buyers should typically expect to spend between 1 and 5 per cent of a home’s purchase price on moving and closing costs.
Twenty years ago, if someone were to buy a house at the national average price of $245,149, they would have likely spent between $2,450 and $12,250 to close on their house and to move. At the end of 2023, someone who bought at the national average price of $657,145 would have needed to pay between $6,571 and $32,857 for moving and closing costs.
A statistic used often by the real estate industry, though hardly ever with a citation, says that Canadians move every seven years on average. If true, a hypothetical buyer who moved three times in the past 20 years could have spent a total of between $15,000 and $62,000, roughly, depending on the value of their homes.
In Toronto, where the average house price was $1.126-million at the end of 2023, moving and closing costs would range from $11,260 to $56,300. Now imagine today’s first-time buyers moving multiple times over a lifetime.
Rona Birenbaum, certified financial planner and the founder of Caring for Clients in Toronto, said moving costs can hurt someone’s financial plan in the short term. While she said they’re often not enough to derail someone’s financial picture, “they don’t give you any kind of return on investment; they are absolute expenses,” she said.
“That money that comes out of the client’s financial picture – if it was in the financial picture, it would be compounding. So you lose the compounding on that money, on that wealth.”
Ms. Birenbaum added that in particular for older Canadians, multiple moves later in life can eat into funds that should be earmarked for necessary living expenses and end-of-life care.
For some buyers at the margin, the costs associated with closing on a home and moving house can change the economics of buying.
“They can be very prohibitive,” said Mr. Bladek. “Some clients of mine who’ve come to me wanted to move into a new home and can qualify for that new home, but with all the fees involved and the market the way that it is … can’t make it at the end of the day.”
There are plenty of costs linked to buying or selling a home in Canada, including land transfer tax (in most provinces), lawyer and realtor fees, title transfer and insurance, deposit money, property appraisal fee, home inspection, a status certificate for condo owners, and of course, movers, among others.
The biggest cost for many buyers is the land transfer tax, said Daniel La Gamba, a real estate lawyer and founding partner of LD Law LLP in Toronto. Ontario, Quebec, British Columbia, Manitoba, Nova Scotia, New Brunswick and Prince Edward Island have such taxes, and Toronto homeowners pay double the tax of buyers elsewhere in Ontario. Montreal also has its own land transfer tax.
Land transfer taxes are based on property value and often run in the thousands of dollars, though each province takes a slightly different approach. New Brunswick and Prince Edward Island charge a flat rate of 1 per cent of the purchase price or assessment value; Nova Scotia’s is 5 per cent; the other provinces have marginal tax brackets. While the taxes themselves have remained consistent for years, steadily climbing home prices mean that someone buying today is likely facing a heftier upfront tax bill than they would have in years past.
Mr. La Gamba said that someone buying a million-dollar home in Ontario would pay $16,475, and that amount would increase to $32,950 for someone buying in Toronto.
Sellers also pay the commission for both their agents and the buyer’s, which come to a combined 5 per cent plus sales tax, though Mr. La Gamba noted there is the potential to negotiate.
The cost of moving services themselves also spiked during the pandemic as fuel and labour shortage costs hit local and long-haul movers. According to Statistics Canada, moving company rates increased a whopping 18.9 per cent in the third quarter of 2021, and have continued to post small increases in the years since.
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Global prices of gas and liquefied natural gas (LNG) are expected to remain relatively weak in 2024, with demand subdued due to high storage levels in Europe and Asia and a mild Northern Hemisphere winter, consultancy Wood Mackenzie said on Wednesday.
“Wood Mackenzie has been forecasting lower 2024 prices for much of last year, especially compared to forward curves, amid weak market fundamental expectations,” Massimo Di Odoardo, Vice President of Gas Research at Wood Mackenzie, said.
“Global LNG supply growth will remain limited at 14 million tonnes (Mt), but with Asian LNG demand still weak, competition for LNG is unlikely to heat up,” he added.
LNG prices dropped 58 per cent in 2023 to levels slightly below $12 per million British thermal units (mmBtu) and fell further in the first two weeks of January to $10.025 on Wednesday, their lowest level since June 2023.
In Europe, gas prices have fallen 45 per cent to $10/mmBtu in the past three months, the report said, expecting market sentiment for gas and LNG to remain bearish into 2024.
Gas demand in Europe fell by 7 per cent in 2023 as mild weather reduced consumption, the report said.
“Normal weather dynamics and a possible economic rebound would support demand, however with renewable supply increasing by more than 100 terra watt hours and nuclear production in France continuing to come back, European gas demand will remain flat at best.”
In Asia, demand this year is expected to grow by 12.5 million metric tons, or 5 per cent from 2023, but remains 3 million tons lower than its 2021 levels.
On LNG contracting, Di Odoardo said overall activity is expected to soften in 2024 compared to a huge numbers of deals signed in 2021 to 2023.
Key LNG portfolio players are expected to be more selective this year, after signing 72 million tons per annum (mmtpa) in contracts in 2022 and 2023, the report said.
“However, some buyers might take a more opportunistic approach, with U.S. independent players leveraging on low Henry Hub prices to seek more exposure to global LNG prices by taking long-term LNG capacity positions, or more activity emerging in price sensitive Asian markets if contract prices fall further,” the report said.
The United States supplies buyers in both Europe and Asia, but is increasingly focused on Europe, especially with the loss of much of the continent’s supply of Russian pipeline gas following Moscow’s invasion of Ukraine two years ago.