Facts By Email

IN THIS WEEK’S FACTS BY EMAIL:

  • QUESTIONS, QUESTIONS
  • MILLENNIALS ON THE HOUSING SIDELINES
  • SOME REITS MAY BE EYING THE EXIT, LIQUIDATION RAMPANT
  • GREENING VANCOUVER PUSHES HOME PRICES HIGHER
    Tweaks include change to concrete balconies
  • VICTORIA RENTAL BUILDINGS NOW $185,000 PER DOOR
  • FORT MAC LANDLORDS DON’T APPEAR TO BE GOUGING
  • QUICK LOOK AT 2 OUTLIER MARKETS
    (Kelowna and Vancouver Island)
  • TESTING A PHOENIX HOME SEARCH APP

 

Questions, Questions

Q: I question your comment on higher interest rates slowing the hot market.

  1. First, outside of Vancouver and Toronto, the rest of the country doesn’t have a clue what a real hot market is.
  2. Higher interest rates would put a serious dint in the real-estate markets outside of Vanc. & Toronto.
  3. But even if there were only a handful of offshore investors coming into Vancouver with their suitcase full of cash, that would still be enough to drive prices through the roof.
  4. So, would higher interest rates really be of any consequence to Vancouver & Toronto markets?
  5. I have stood in line at some open houses and seen who will be making the big bids. These people don’t know what the word mortgage means! They are simply doing the math to see how many purchases they will make today before they need to re-fill the suitcase. If I asked them what “subject to” clauses they plan to use they would wonder what I’m talking about?
  6. It only takes 2 people bidding on a house (or any commodity) to drive up the price. The top price is determined by the 2 top bidders and the rest of the crowd doesn’t even need to be there.
  7. So am I missing something here?

A: Not on the face of it, your argument is sound. If all factors were as you pose them. But while foreign buyers are very much present they do not represent most of the market. It also always takes a catalyst to move markets from a sharp price rise. Interest rate increases are as much psychological as they are real. (Look at stock market gyrations for just a ¼ percent possible change in the US prime.) Usually when rates went up in the past many buyers actually jumped in to lock in the better rate initially. However, once that is over the general market adjusts downward. The question is – how much of a rate hike would it take? In my view the low, low interest rate and with it Mr. Poloz are entirely to blame for much of the price surges. Thus it probably would take at least a 1% or even 2% rise to crunch the market. Finally, small markets have caught fire now also, which was part of my OUTLOOK forecast. Excess cheap cash printed goes to the rich first and settles down in hard assets to all of us later. Higher rates would slow them down fast as affordability matters in small markets. Having said that I do NOT expect higher rates this year.

 

$27,000 In Cash And Looking To Buy: Millennials On The Housing Sidelines

The typical young Canadian – those aged 20 to 34 – should be in the cat seat in the current housing market. With average household incomes of $75,000 and average savings of $27,000, 61% expect to make a down payment of less than 20% of the purchase price of their home. The group is also expecting to front their down payments themselves, with 73% relying on their own personal savings and only 36% relying on gifts or loans from family.

This is according to a seminal study of millennials by the Mortgage Professionals of Canada, The Next Generation of Homebuyers, released this week.

The study found New Gens are optimistic:

59% plan to buy a detached house, while 13% want a townhouse but, in Western Canada, 19% would opt for a condominium apartment.

The majority of Next Gens feel that Canadian real estate is a good long-term investment and 72% see a mortgage as “good debt.”

Young Canadians also want to continue saving for a down payment or are waiting for important milestones in their lives like a promotion or marriage. These factors together with the high costs of homeownership are causing a majority of Next Gens to delay their purchase to sometime in the next five years.

In fact, only 31% expected to buy in the next five years.

Major Point: There were some surprises when Next Gens were asked what they would sacrifice when buying a home: Topping the list was smart technology. When asked for the 3 top reasons they would buy, they chose a nice neighbourhood, a short commute and safety.

 

Some REITs May Be Eying Liquidation

Some shareholders in residential-weighted real estate investment trusts may be looking for liquidation and a cash-heavy exit because of the current prices and future prospects of large apartment portfolios.

The trend is being seen in the REIT commercial sector, as witnessed by the liquidation of the InnVest REIT hotel portfolio, which was sold to Hong Kong backed-Blue Sky Hotel and Resorts Ltd. Also, Dream REIT has just sold off 50% of its Scotia Plaza in Toronto.

In the multi-family sector, InterRent REIT of Toronto sold $32 million worth of Ontario apartments last week and, all together, has sold 876 rental apartments this year.

Calgary-based Boardwalk REIT, which owns about 34,000 rental apartments, sold off 1,685 units in Windsor, Ontario, for $80,800 per door, an offer that Boardwalk said was impossible to refuse. (Boardwalk has zero holdings in Metro Vancouver, but a lot in Prairie cities, all of which are facing higher rental vacancy rates this year. Shareholders may be wondering if Boardwalk should take more chips off the table while apartment properties are trading at high values.)

Also, consider Canadian Apartment Properties REIT, which bought up 19 apartment buildings in Metro Vancouver last year, Canada’s largest landlord now owns 36,671 rental apartments and 30 mobile home parks across Canada. As of March 31, its assets were worth $7.2 billion, or about twice the REIT’s market cap of $3.8 billion. Who are the potential buyers for residential REITs? Pension funds, which have the capital and long-term horizons needed.

Major Point: In the U.S., activist investors are increasingly taking aim at REITs, pressuring them to dispose of assets to boost unit values, or even sell everything and close up shop. If property values in southern Ontario and B.C.s Lower Mainland continue to heat up, we may see the same pressure in Canada.

 

Greening Vancouver Pushes Home Prices Higher

Tweaks include change to concrete condo balconies

It already costs from $25,000 to $40,000 more to build a new detached house in Vancouver compared to neighbouring Burnaby because of the strict, green-tinged Vancouver Building Bylaw, which represents the only city in the province with a different building code than in the rest of the province.

But on July 12, Vancouver planners and its Greenest City Action Plan committee will present a new set of building guidelines to city council that, if enacted (and likely will) could add even higher costs to new condominiums.

In discussions with city insiders this week, we discovered that among the changes being recommended is thermal breaks on concrete condo balconies, because current balconies allow too much heat to leak out from buildings.

There is also a recommendation that every new Vancouver condo apartment be equipped with its own heat recovery ventilator (now they are only required for common areas).

Plus, the city will be asked to consider ending poured-in-place concrete construction in favour of pre-cast insulated wall panel construction, which is both more energy efficient and expensive.

And existing condo and apartment buildings are not exempt.

The city’s Tenant Improvement Program, which aims to bring older buildings up to standard, has resulted in long delays. Even small renovation programs now require a field review and submit energy documentation as part of the permit application, according to a study by Colliers.

Similar delays have occurred for demolition permits, which now require documentation verifying that waste is free of asbestos. Projects that require an assessment for life safety issues or are otherwise ineligible for field review require more intensive scrutiny that could take up to three months.

Major Point: Construction costs for a concrete high-rise condo in Vancouver are already in the $210 to $270 per square foot range, the highest in Canada. (And that does not include land values that can add from $200 to $400 per square foot.) Vancouver may eventually have the greenest and most unsold condominium towers in the country. 

 

Victoria Rental Buildings Now $185,000 Per Door

Victoria is becoming one of the hottest landlord markets in B.C., if not Canada, with less than a 1% apartment vacancy rate, growing demand and higher per-door prices.

Ken Cloak, a multi-family specialist with Colliers Victoria office, said the average price per door for a Victoria rental apartment building is now $185,500, up from $152,000 a year ago. Capitalization rates have dropped to 4.3% down from 4.8% in mid-2015. Cloak said the higher prices are “a reflection of a number of smaller building trades that tend to sell for a per unit premium.”

He added they are seeing more investors from the Lower Mainland seeking higher yields that they can get in Metro Vancouver, where cap rates often in the 3% range and per-door prices average around $240,000.

Major Point: Investors, however, will be competing with a rush of purpose-built units.

In all, 1,524 new rental apartments are under construction in Victoria and another 1,070 have been approved by the city.

The gap between the cost of buying and the cost of renting is a factor driving Victoria rental demand. The benchmark price for a single-family house in Victoria was $706,500 in May, up 19% from May of last year. The cost of a condominium apartment has gone up 11.8% in the same period, to $353,560.

 

Fort Mac Landlords Don’t Appear To Be Gouging

Landlords in Fort McMurray have been warned against price gouging by the Regional Municipality of Wood Buffalo (RMWB) as thousands of residents begin returning to the fire-ravaged city where about 1,600 homes were destroyed. It appears that landlords have got the message.

Operators must maintain the prices that were in effect on April 30,” the regional municipality said in statement issued June 2.

According to Canada Mortgage and Housing Corp., the average rent for a two-bedroom apartment in Fort McMurray in December 2015, was the highest in Canada, at $1,841 per month. But rents had been tracking downward sharply since then as the price of oil plunged and rental vacancy rates soared to 30%, the highest in Canada.

“Those landlords and property owners that are charging prices above April 30 prices will be investigated and enforcement action will be taken. We will be monitoring this issue closely,” the RMWB warned.

We checked local rentals this week and found prices fairly reasonable: a modern 3 bedroom detached house for $2,200; 3-bedroom townhouses offered to rent at from $1,300 to $1,600 per month; and a 1-bedroom basement suite in Timberlea for $800 a month.

 

Quick Look At Two Outlier Markets

• KELOWNA PRICES ECLIPSE THE LAST BOOM
The average price of a detached house in the Central Okanagan topped $600,000 in May, a record high and $50,000 above the last housing boom in the area seven years ago. Kelowna realtors say they are seeing more buyers from much higher-priced Metro Vancouver, but the bulk of the market remains locals.

And, despite the higher sales and prices, it still takes time to sell a house. It now averages 77 days, down from 93 days a year ago, reports the Central Okanagan Real Estate Board. Sales of all MLS homes were up 35.5% in May compared to May 2015.

• VANCOUVER ISLAND HOUSE PRICE UP 9.3%
The benchmark price of a house on Vancouver Island north of Victoria in May was $364,500, up 9.3% from year earlier. Total MLS sales of detached houses, at 771 houses, were up 46% from May 2015. Total detached listings, at 1,684 houses, were down 32% from a year earlier. It is shaping up as a strong sellers’ market.

Parksville-Qualicum is leading the market, posting a 22% increase in detached house prices to $445,000. Nanaimo detached house prices are up 13% to $405,000. While nearly every Island market has seen price increases, Port Alberni house prices remained unchanged at $197,000 for a detached house in May, which is perhaps the lowest price in southern B.C.

 

BC ROCKS!

The British Columbia Real Estate Association (BCREA) reports that a record 13,458 residential unit sales were recorded in May, up 32 per cent from the same month last year. Home sales last month exceeded April’s record of 12,969 units. Total sales dollar volume was $9.72 billion in May, up 51.1 per cent (!!) compared to the previous year. The average MLS® residential price in the province was up 14.2 per cent year-over-year, to $722,146.

Major Point: The whole province seems to be afire!

 

Nationally Prices Were Up 9% Year Over Year Last Month

However, sales were down by 3.8% in May.

NOTE: Strictly anecdotal: A group of Realtors spread out from Victoria throughout the Lower Mainland reported, at our REAG conference last Monday … slower sales, slower open houses and much fewer multiple offers. “I even got full prices offers” one mused. Only our Victoria Ace Rick Hoogendoorn reported continued HOT market conditions.

Overall it is normal to slow into the summer. There are also no stats to support a general LM slowdown. There are national stats showing a minor slow down however.

Major Point:

  • Revisit the recommendation on selling your multi-level older walk up apartment building
  • If you are at retirement age and sitting on a few million profit, remember that that is a paper profit. If you can grab 2 or 3 million tax free … now may be the time to analyze that course of action.

 

Test Driving A Phoenix Home Search App

There is now a handy app for anyone looking to buy a home in Phoenix, which is one of the top rental markets in the U.S. The app is Street Scout (www.streetscout.com) and it breaks down sales and prices in all Phoenix neighbourhoods. We tested it in Surprise, an affordable community of about 35,000 and one of the fastest growing suburbs. The median resale home price in Surprise is $205,000 – the median for a new home is $278,724, according to Street Scout Home Values.

In the first three months of this year, 944 homes were sold in Surprise, up 12% over last year, according to Street Scout. The current median home value is above the $200,000 mark.

And here is Street Scout’s take on the Phoenix housing market for 2016:

An April Street Scout survey of Valley home buyers and sellers found millennials and boomerang buyers who lost houses to foreclosure during the crash are buying metro Phoenix homes at a pace the market hasn’t seen before.

  • Home sales in metro Phoenix climbed to 9,041 in April, up 8% from last April. Condominium sales reached 1,637 up from 1,514 in April 2015.
  • The Valley’s median home price rose to $235,000, up from $215,000 a year ago. The median condo price reached $146,500, compared with $142,000 a year ago.
  • Banks foreclosed on only 231 Phoenix-area houses in April, the lowest level since December 2006.
  • Home building in the Valley is up 25% from last year’s pace
  • Despite home-price increases, metro Phoenix is still the eighth most affordable big U.S. metro area to buy a home.
  • And finally, moving company U-Haul’s annual survey for the most one-way rentals in 2015 shows Metro Phoenix ranked 10th nationally for the most popular place for people to move to.

Major Point: There are still a lot of Canadian cash walking to Phoenix. Not too surprising when you see the cash flow the low prices produce … and then there is the Canadian/US dollar play. Some of our clients expect the Canadian dollar to keep falling. If it did (if) and went back to 68 cents … you’d have an instant 10% profit.

 

Hot Property

Please note: Nothing caught our eye this week. Remember to check your password protected website at Jurock.com. Subscribers continuously post – what they perceive as – good deals. Anyone that has a good deal, can be featured here. There is no fee. However, WE RESERVE THE RIGHT to accept or not to accept a specific deal. What makes it a deal? We look for: Low down payments, special discount, owner carries mortgage, etc. Also note…we do not vet the deal, we just think it may be of interest. You MUST do your own due diligence. Please get contact info from your password protected website or e-mail Max at max@jurock.com … and read the disclaimer!

 

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