Facts By Email

IN THIS WEEK’S FACTS BY EMAIL:

  • AFTER BREXIT: WHAT NOW FOR REAL ESTATE?
  • SOUTH SURREY VS LOS ANGELES VS LONDON VS NYC
  • BULLISH HOME BUILDERS AS HARBINGERS
  • WHAT TO WATCH IN METRO VANCOUVER SUBMARKETS?
  • U.S. FLIPPING UP 20%; TYPICAL GROSS US$54,000
  • 10 LEAST AFFORDABLE AMERICAN CITIES
  • HOT PROPERTY: 298 ACRE RANCH FOR $299,000

 

Brexit: What Now For Real Estate?

The stunning news that the U.K. has voted to exit the European Economic Union has already had a negative effect on worldwide stock markets, the political future of Great Britain and the value of both the English pound and the Canadian dollar.

But what effect, short and long-term, will Brexit have on Canada’s real estate?

We believe it will have a positive influence for real estate investors over the short and long term and a negative effect on those who are still trying to buy a home to live in.

The most immediate effect is lower interest rates, perhaps for years. The Bank of England, the European Central Bank and the U.S. Fed – which had been positioned to raise rates this fall – will push to keep lending rates low as Brexit ripples through the global economy. This will take at least three to four years, with no pressure to increase volatility with a rise in lending rates. The Bank of England could cut lending rates within days.

The Bank of Canada will also keep rates low as Canadian manufacturers and suppliers grapple with the potential reduction in U.K. exports, which currently only make up no more than 3.5% of Canada’s global trade, combined with a rise in the value of the U.S, dollar. A further BOC rate cut, in fact, is not out of the question.

Lower interest rates are a stimulus for real estate investors, but are also a signal of the protracted low-growth economy that has and will continue to keep many millennials and others out of the housing market.

Real estate investors, however, will also benefit from a shift in international investments from London to Frankfurt (?), Berlin (!), the U.S. and Canada, particularly Vancouver and Toronto. U.K. and London real estate prices, which overall increased 5.5% in the past year, will take a hit as housing sales sink in the Brexit wake. A near certain downturn in net U.K. immigration resulting from Brexit will also negatively affect the U.K.’s rental sector.

Asian and Middle East real estate investors will be looking for safer havens, and North America will be a primary destination, while Canada’s lower dollar will make our real estate a bargain. Watch for China-based investments in Vancouver to increase.

FINAL THOUGHTS

Most analysts and talking heads think that the implications are serious and far reaching and while I do not see us in Canada seriously affected there is the question of contagion and/or effect on China to consider. I believe that I have to do some more serious reflection but here is what I will be looking at:

  1. We may see Referendum Mania as individual’s feel over- regulated and underpaid. Even our quiet nice Canadians voted by only 25% that the NAFTA treaty was a good thing, 75% think it isn’t! However, with a British Pound it was easier to leave than if you are in euros.
  2.  All European Countries will now be pushing for their own concessions (As we predicted 2 years ago … after the original Greek debacle.)
  3. A lot of the European political theatre is a consequence of no economic growth in the last 9 years. The QE is no longer working and negative interest rates are a disaster. Populations hate and distrust the establishment – not just in England (Revisit Martin Armstrong’s cycle Theory! From the Campbell World Outlook conference). Anti-immigration was strong in Britain but much more so in rest of Europe.
  4. Nothing is certain but uncertainty. Remember, Greece voted to exit the EU and then HAD TO stay in!
  5. US dollar will do well on this – 62% of global reserves are now in the US dollar … now there will be more
  6. Realityeuro as a currency has demised. It has a diminished role and will be off the table as an international currency
  7. This does not help global growth – it was already declining – not good for global trade. Not good for Canada.
  8. Dollar denominated debt has doubled in US dollars … Can you imagine you took out a loan at $1.05 Canadian and had the debt in US dollars? You now would owe 150% of what you borrowed. Most under developed nations hold their debt in US dollars are in worse position then that and likely will not be able to repay! Massive deleveraging of countries depending on commodities … may hurt Canada.
  9. Canadian dollar will get hit on a relative basis – not a disaster – but Canadian dollar down to 70 cents very likely…
  10. US capital markets … and Japan’s are the only places to hide (at least until a new financial centre emerges – it may still be London, but could be Frankfurt or New York).
  11. REITS may do a little better.
  12. Interest rates will stay low for 3 or 4 years. They could rise only if Britain’s pound sank to such lows that the BOE had to support it. Not likely as both the British and Canadian central bankers sing from the same low interest song sheet.
  13. What we export to Britain will become more expensive,
  14. What we export will be more competitive (but we only export 3.5% of our goods to Britain)
  15. Biggest worry? Italy, then France (as we wrote about 3 years ago)
  16. Property companies, travel companies and financial institutions will be hurt. No one will be doing any capital expenditures in Europe this year.

Major Point:  Never count the U.K. or London out. If anything, be more concerned about the future of the European Economic Union after Brexit. As we mentioned 3 years ago and on February 28 this year, France (no balanced budget since 1974!) and Italy are both running huge debts and deficits and will suffer from Brexit. Germany may even finally decide that, as the only adult left in Europe, it may also be better off going alone. Finally, for now … cash is a good thing! Stay on the sidelines. It is not over.  

 

South Surrey vs London vs NYC vs Los Angeles

The benchmark price of a detached house in South Surrey-White Rock had increased 41% in May compared to May of 2015(!!) This is not only the highest appreciation in Metro Vancouver, it is very likely the highest in the world (!!) And, at a benchmark price of $1.3 million (and an average price of $1.75 million) South Surrey houses are among the most expensive on the planet.

It seems absurd, but many global investors would have been better off, financially, buying real estate in Orchard Park than near Hyde Park, Central Park or the Hollywood Hills.

The average price of a home in New York City rose 5% in the past year; the average price in London, U.K was up 5.5% and Los Angeles home prices in May were up 8.2% from a year ago. In Canadian dollars, a New York city home now sells for an average of $2.5 million; it is $1.2 million in London and $786,000 in Los Angeles. In other words, in the past year, an investor buying and selling a home would have grossed $700,000 in South Surrey, $66,000 in London, $125,000 in New York City and a comparatively paltry $64,400 in Los Angeles.

Major Point: We point this out not to urge everyone to buy in South Surrey or White Rock but to point out a very scary question: Why in the world is a home rising faster in value in a minor if pleasant B.C. suburb than in three of the most powerful, richest, most populated and influential cities in the world?

 

Bullish Home Builders As Harbingers

Home building is the harbinger, the canary in the coalmine, of predicting a downturn in the housing market.

In April 2006, for instance, as U.S, housing sales and prices were reaching a crescendo, starts of new housing suddenly slowed sharply. A year later, the U.S, housing market crashed and nearly brought the economy down with it.

The same scenario has held up in every major recession or depression since the 1920s. The reason is that home builders and residential developers have more to lose than anyone else and so they are more finely tuned to signals of a correction. They notice first when buyer traffic declines and are sensitive to fluctuations in response to marketing.

So what does this current home building pace suggest in Western Canada’s major housing market?

A prolonged slump in Calgary and Saskatoon, a modest downturn in Winnipeg and a continuation of the mother of all housing booms in Vancouver, based on recent building permit investments.

Investments in residential construction in Alberta, as of last month, are down 28% from a year ago. In Saskatchewan, they dropped 24.6% and, in Manitoba, home building permit values are down 7 per cent from 2015.
Investment in condo construction in Vancouver, however, is up nearly 49% in a year, while investment in detached house construction is up 17.2% in Vancouver.

Housing starts in Metro Vancouver were trending at 28,267 units in May compared to 27,304 units in April, according to Canada Mortgage and Housing Corporation.

Major Point: A key thing to remember is that Canadian home construction is dominated by big players who have the research and data to read the market better than ever and pockets deep enough to wait out a slump. When such developers in Vancouver and Toronto cut production, get ready to tighten your belt.

 

TVS Now Can Get Credit Reports On Your Tenants

Minimize your risk of rental income loss, fewer late payments and less property damage. Start reporting rent payments. Tenant Verification Service dba www.landlordcreditbureau.ca will be reporting tenant rent payments to Equifax Credit Bureau:

• Sign up at www.tenantverification.com to obtain an Equifax credit report and report rent payments to www.landlordcreditbureau.ca directly.

• Sign up at www.landlordcreditbureau.ca to search for rent payment history … and to report rent payments of current/future tenants.

Major Point: Landlords: This is very helpful! Good tenants benefit, bad or high risk tenants are negatively impacted. Visit websites for more information or email marv@tenantverificaiton.com.

 

What To Watch In Metro Vancouver Sub-markets?

B.C.’s Lower Mainland represents the hottest housing market Canada has ever seen, but there are subtle changes both good and bad for investors that can affect the potential in some sub-markets. Here is a round-up of what to watch for now and over the next few months:

Up-zoning in East Vancouver’s Joyce-Collingwood area. The City of Vancouver plans to rezone 150 detached houses in this area to allow high-rise and low-rise residential development. The change is not yet in effect but is imminent and is already being seen in low-level lot assemblies in an area that covers a 30-acre radius around the Joyce-Collingwood SkyTrain station. In May, 13 detached houses sold in the Collingwood area, with benchmark prices up 6.7% from a year earlier and up 14% in the past three months, to $1.28 million. This price is below the $1.45 million benchmark for all of East Vancouver.

What to look for: older houses on larger lots with existing rental income and close to SkyTrain, priced under $1.4 million, an example is MLS: R2061986.

New Westminster bans demolitions in Queens Park.

The Royal City has put a one-year moratorium on the demolition or alteration of homes in this heritage neighbourhood. This affects demolitions, renovations of the building exterior or alterations to the roof of any Queens Park houses built before December 31, 1966. (Recently, an old bungalow in Queens Park sold for $1.9 million, $710,000 over the list price.) The moratorium will likely result in a permanent ban or severe restrictions on demolitions or major renovations of old houses in the neighbourhood, which could have a negative effect on prices and appreciation.

North Vancouver zoning changes:

Two North Vancouver single-family detached neighbourhoods are or will be rezoned for higher-density residential. Last month, the City of North Vancouver changed the zoning in Moodyville (an area east of Lonsdale Avenue above the Lower Road, basically in the 500-600 block of East 2nd to East 5th Avenues) from detached to townhouses. Right now there are 309 lots in the area, some with Inlet views, and the plan is to encourage construction of about 1,900 townhouses. This has been in the works for two years and lot prices have been already been bid up to the $2 million range as developers scout land assemblies. A determined speculator could still make money, however.

Meanwhile, Upper Capilano is being eyed for a North Vancouver District zoning change that would allow 66-foot lots to be split into two smaller lots in the upscale community. These changes could mean multiple bids on larger detached lots for those quick enough to buy before the zoning kicks in, likely late this year. In May, detached houses in Capilano benchmarked at $1.7 million, up 6.6% from April and 11.8% higher than three months earlier.

Richmond arterial road zoning:

Richmond is adding density under its arterial road densification proposals. This zoning change will affect more than 1,600 detached lots that could have higher density added to create more than 6,100 new strata units, mostly townhouses. Key areas are on Railway Avenue between Granville Avenue and Steveston Highway, where low-rise apartments are also being considered.

Sechelt jacks up some development charges:

The District of Sechelt on the Sunshine Coast is increasing most of its development cost charges (DCCs), but new condo apartments are getting a break. The plan, not yet law but apparently to be phased in within a year, will increase the DCC for new detached houses by 108% to $22,484, The rate for new townhouses will rise 41% to $15,208. However, the DCC for new condominium apartments is to be decreased by 7% to $10,033 per unit.

Major Point: What we teach in our Real Estate Action Group is to stay close to your planning department, study the Official Community Plan and attend council meetings. Early warning about a rezoning can mean big money in your pocket!

 

Money Laundering, Showdow Flipping, Empty Houses To Blame. Really?

By Dustan Woodhouse

Recently I threw the word ‘xenophobia’ into a conversation with a client about the general sentiment shown by the Brexit voters, the Trump supporters, and to some extents the media surrounding Vancouver Real Estate.  I suggest that these challenges we face are far more complex that assigning the bulk of the blame to one specific group of people. Such a dumbing down of complicated problems into finger pointing at an easily identifiable group seems a slippery and often regrettable slope to be setting foot on. “Well, what else could it be” I was asked. I asked for a list of their key points to address one by one with a simple alternative explanation:

High Vancouver home prices are driven by:

  1. Money laundering
    OK – you mean like the three billion dollar per year BC bud industry run largely by rural white guys?
    A crackdown (or simply legalization) would be great. I agree. Next…
  2. Shadow flipping
    Not exactly a foreign investor created issue, although certainly an issue that has cost foreign investors millions. It seems more of a crooked CDN citizen (some, not all, of them Realtors) issue. But maybe these shadow flippers are the modern day Robin Hoods in this problem you think has a single cause. After all the people flipping the paper in the article were CDN locals. Spending the millions, they fleeced from foreign investors here in our city.

In any event the new contract assignment rules have essentially stopped this practice – and created a problem for many first time buyers who realize too late that only one of their names should have been on the contract as they are now both losing their first time home buyer status. So a crackdown that ensures foreign investors get fleeced a bit less often, and local first timers get caught in an $8,000 contractual error. Next.

  1. Empty houses

Empty homes (should) mean no homeowners grant, so thus we collect higher property taxes.  And really half of the homes on my own street might as well be empty as we never see a soul coming or going from them. Either working class people up and gone early to work, or retired people early to bed. 90% of the suburban block I live on is Caucasian for the record. Besides how exactly is an empty house really negatively affecting your personal life. If anything it means less crowded schools, lighter traffic, and a shorter wait at the hospital. Next.

  1. The general buyer profile pays no capital gains, income taxes, property purchase tax etc.

What profile is this?

Capital gains tax – Foreign buyers pay capital gains on a sale, locals do not.

Incomes taxes – I know an awful lot of locally born and raised millionaires, on paper that pay no income tax – in particular every single retired person over the age of 65. Most of whom will live for 30yrs income tax free drawing down far more in cash and social services than they ever put into the system. Due to the combination of inflation and increased life expectancy. This is not their ‘fault’ but when you look at the economics of the demographic, these are an expensive bunch these retirees.

Property purchase tax – 100% of buyers pay this – unless they are a CDN resident, have been in BC for 365 days, and are buying under $475,000. That $475,000.00 exemption limit was brought in 30 yrs. ago by Vander Zalm and was sold politically at the time as a ‘luxury tax’. Always be careful about voting in taxes on the ‘rich’. One day you too might be considered ‘rich’.

Annual property taxes – Foreign investors pay the highest rate – whereas locals over the age of 55 can defer taxes until their death or the sale of the home effectively paying nothing into the system for decades.

SO, was the ‘general buyer profile’ you referred to retired people?

Bottom line:  

The list goes on, and so could I. This craziness in the market is driven by more than one thing, and it is driven by more than one group of people. Indeed, BC had more migrants from across Canada flow through its borders than immigrants from outside Canada in the past 12 months. In any event there are just shy of 100,000 new bodies in BC expected in the 24-month period we are in the middle of, and they all want a roof over their head. Thus far the supply has not been there to meet the demand.

Best Mortgages rates this week: 

TERM Best
Rates
One Year 2.19%
Two Year 2.14%
Three Year 2.29%
Four Year 2.49%
Five Year 2.44%
Seven Year 3.44%
Ten Year 3.84%

Variable P-.40% net rate 2.30%

June 28, 2016

Dustan Woodhouse is an Ace Mortgage Broker – you can reach him at www.dustanwoodhouse.ca

 

U.S. Flipping Up 20%; Typical Gross Profit US$54,000

While home price appreciation in most of the U.S, pales in comparison to Metro Vancouver, flipping is back with a vengeance in the American market.

An example is Brooklyn Heights, the New York City sub market where the average price of a condominium has increased 79% in the past two years, to an average of US$1,602 per square foot.

In some U.S markets flipping is at an all-time high, according to a recent RealtyTrac analysis. RealtyTrac reports that 6.6% of all single-family and condo sales in the first quarter of 2016 were flips. That’s up 20% from the previous quarter and 3% year-over-year. And the number of flippers grew by 8% from the first quarter of 2015.

Flipping as a percentage of all sales reached an all-time high in the following markets this year: Baltimore, Maryland, Buffalo New York, Huntsville, Alabama, New Orleans, Louisiana and York-Hanover, Pennsylvania.

The return on investment, or the gross profit on the flips, was strong. Homes flipped in the first quarter saw an average gross profit of US$58,520, a 10-year high. In some markets, flippers saw gross profits of 80% or more of the price they paid for homes.

The three most lucrative cities for flippers were all in smaller Pennsylvania cities, but Flint, Michigan was a surprising fourth place, with an average price increase of 105.8%. New Haven, Connecticut was in fifth place, with an average gross of 104.8% on a house flip, RealtyTrac reports.

According to RealtyTrac, the average flip takes six months to complete and out of the gross profit come rehab expenses, marketing, real estate agent commissions, and other costs to upgrade and hold the home until it sells. However, the majority of flippers is paying cash for their property and, on average, are buying at 27% below local market values, an indication that foreclosed homes are being targeted and that most flippers are playing it safe.

Phoenix also participated. One of the JVs we were involved in was bought in Mesa in December 2012 for $4.1 million and just sold for $6.55 million (US dollars).

Major Point: Think the U.S. flipping returns are impressive? Consider that the typical house on the west side of Vancouver and in West Vancouver increased in price by more than $500,000 from May 2015 to May 2016!

 

10 Least Affordable Cities In America

Eight years after a real estate crash that nearly crushed the U.S. economy there is now talk of another real estate bubble rising in America. Poppycock, of course. The current over-regulated and sluggish American economy is a far cry from the frothy days that preceded 2008.

But the stagnant growth of wages and the startling increase in higher-priced housing sales has created American cities that are increasingly unaffordable to the average consumers. It is also a reflection of the growing income inequality in the U.S, which is producing more billionaires today even as typical incomes stagnate.

The following is an interesting list from RealtyTrac of the 10 least affordable cities in America, with the percentage of average wages required to buy the median-priced home.

  1.  Brooklyn, NY — 121.70%
  2.  Marin County, Calif. — 118.10%
  3.  Santa Cruz, Calif. — 113.50%
  4.  San Francisco, Calif. — 94.60%
  5.  Maui, Hawaii — 92.80%
  6.  San Luis Obispo, Calif. — 90.40%
  7.  Napa, Calif. — 86.90%
  8.  Monterey, Calif. — 84.50%
  9.  Queens, NY — 83.60%
  10.  Sonoma, Calif. — 82.10%

Major Point: All of these cities share the characteristic (even Brooklyn which has become one of NYC’s hottest housing market) of a high concentration of multimillionaires.

 

Hot Property

  1. 150 Mile House, 12 acres with pond on a paved serviced road. Price: $89,000;
  2. Williams Lake, Ross Meadow Ranch, 298 acres, small lakes, no buildings. Price: $299,000;
  3. Quesnel, Fraser River area, OV Ranch, 298 acres, log house, barns, airstrip, small lake, water rights. Price: $865,000.

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To subscribe to Jurock’s Facts by Email call 1-800-691-1183 or 604-683-1111 or fax 604-683-1707. While the above information is compiled from sources believed to be reliable, its accuracy cannot be guaranteed. Any type of investing carries inherent risks; as such, JREI cannot assume responsibility for any subscriber’s actions.