Are Rates Really Coming Down? + Building-Led Recession? - Toronto & Vancouver Roundtable Mar 2024
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- เผยแพร่เมื่อ 30 พ.ค. 2024
- It’s time for our March Toronto-Vancouver real estate roundtable with Urmi, Steve and John!
As both the market heats up, John and Steve assess whether anticipated interest rate declines later this year will actually happen and how it will impact the real estate market. Also, an audience question asks whether a slump in the construction sector on which the Canadian economy is so dependent may lead to a recession. Plus Urmi asks John and Steve to assess whether some of the many new housing measures suddenly being thrown at the housing affordability crisis are helping or hurting.
[TIME STAMPS COMING]
Contact Us
Follow Steve on X-Twitter @SteveSaretsky; Email at: steve@stevesaretsky.com
Follow John on X-Twitter @JohnPasalis; Email at: askjohn@movesmartly.com
Follow Urmi on X-Twitter @MoveSmartly; Email at: editor@movesmartly.com
About This Roundtable Series
Each month, Move Smartly.com editor, Urmi Desai, talks to John Pasalis, Housing Analyst, Broker and President of Realosophy Realty in Toronto, and Steve Saretsky, Housing Analyst and Realtor at the Oakwin Realty Group at Oakwin Realty in Vancouver about the latest data and on-the-ground insights in Canada's biggest residential RE markets. (Thanks to Jesse Bains, now at Linked In News, for kicking off this series at Yahoo Finance originally!)
About This Show
The Move Smartly show is co-hosted by Urmi Desai, Editor of Move Smartly, and John Pasalis, President and Broker of Realosophy Realty. MoveSmartly.com and its media channels on TH-cam and various podcast platforms are powered by Realosophy Realty in Toronto, Canada.
You can listen to the Move Smartly show on your favourite podcast platform using this link: link.chtbl.com/movesmartly
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With each passing month, high rates are more and more restrictive. Folks have been hanging on but cracks are appearing… soaring credit card balances, bankruptcies and power of sales are rising…. 80,000 mortgages a month are up for renewal. That is 80,000 kitchen table conversations about where to cut discretionary spending…. The kind of spending that drives the Canadian economy. The worst is yet to come…
Exactly!! The amount of stress out there must be a soot amazing. Here is a bit of anecdotal info. We went to the boat show this year in Toronto the very last day. We spoke to one of the vendors. The boat show numbers were down 40% from the previous year. That’s telling.
Expect the Canadian government to continue big time spending leading to greater inflation. Expect local governments to continue to make it harder to build as they hire more bureaucrats.
Thanks for the informative session. I like you guys take both sides of the market, bull and bear market. When the other groups take a tunnel vision on one side, it doesn't seems realistic
Steve is on the point. Rates are not cutting by much. I've seen Steve telling truly telling unbiased things and things that make sense by common sense unaffected by biases that realtor have..
He is not non biased, he just do not want to talk big and then ppl are account on him. But in fact, he was expecting house price was weak and drop a lot last year. Buy house price up a lot in Jan 2023 to May 2023. I do not brought much, all theoretical talking .
The buyer pool is so large that the next bull run will be fairly quick to start.
It's all a matter of when will it happen. Buyers right now have time to look and put offers in. Rather than in 12 months may just be a different story.
@@baseline6786 looks like you're so out of touch of what current economy and world dynamics are doing. Also buyers pool is large but much much larger was the investor pool and I know that smart investors ARE OUT.. they know. I know people who are smart at investing and they've sold and put their money in total different kinda assets and some overseas. If you believe your theory I really encourage you to go buy right now cause prices will go up according to you and we'll see what happens to your money. Also I actually want prices to go up cause then it'll trigger other events so please do whatever you can to do that!!
Justin T is worse PM of Canada .Home crisis is big issue .last 10 years worse under LIBERALS . He need to resign
... a lot of times the price is much higher than it's worth ... that sums up Canadian Real Estate everywhere in the country
Regarding rent control:
Yes, with enough incentives (no gst, super cheap financing) govt can more than offset the disincentive of rent control for building PBRs. But rent control is nevertheless a disincentive
As a long term LL I didn’t have a problem with inflation + 2% (we had this in BC for 20+ years), but 0-3% for the last 5 years vis a vis inflation much higher than 0-3% and expenses for LLs increasing even more than the overall rate of inflation is intolerable and is causing problems in the rental market
LLs also used to be able to apply for an additional rent increase if their rents got way below market due to long term tenancies. This is no longer an option. So even if your tenant is paying 50% of market rent (I have this) you still have to reduce their rent every year in real terms.
Whether or not one thinks tenants should be entitled to below market rent seems irrelevant to me. Imo, what should matter is if rent control has the desired effect/is good policy, and the empirical data/evidence overwhelmingly shows that in the long run rent control causes more problems for tenants (overall) than it solves. Ie, it’s not good policy.
The unintended consequences of rent control are particularly severe in Vancouver because most of the rental stock is in the form of individually owned condos (not PBRs). If these units have long term tenants in them they are being sold to end users (and tenants have to leave). So tenants aren’t really protected from market rents and the supply of rentals is ⬇️
I’ve owned two triplexes (converted SFDs) in the GVRD for 20 years. During this time I believe I’ve more than held up my end of the bargain. And although all but one of my 6 tenants are fantastic, all but one are also very long term (15 years, 9 years, 6 yrs, etc.) What this translates into is a 2% cap rate instead of a 4% cap rate. Ie. my income is reduced by 50% due to rent control. Moreover, I can get more than twice this return in a hassle free GIC (2% cap rate v 5% in a gic), which means it’s not rational to keep these properties because they are a relative hassle and the opportunity cost of keeping them is huge.
So I will be selling these homes and they will almost certainly be sold to end users (no investor will assume my below market tenants and the homes can easily be converted back to SFDs)
So 6 tenants will likely have to find new homes at market rent and 6 fewer rental homes will exist.
My plan was to never sell these properties but I’m being forced to sell due to effectively being taxed 70% on my rental income (50% via rent control + 40% on my remaining taxable income)
Extreme rent control doesn’t work
The market feels like two tectonic plates … small seismic activity building as tension builds to a shift. Alas, who the heck knows which way she’ll buckle (; Thank you for sharing
@john
Continuation from my comment below:
One of the points I’m trying to make is that even if the incentives are sufficient to keep PBR supply coming (in spite of rent control), this does not mean that rent control doesn’t have a deleterious effect on the rental market.
To reiterate, existing rental supply is shrinking due to LLs selling units with long term tenants in them to extricate themselves from artificially low returns. It’s quite possible that this results in a net loss in terms of overall rental supply (even if PBRs are still coming). But even if it’s not a net loss, new PBRs are rented at market rent whereas the units that are being sold are below market rentals - so even if the overall supply of rentals isn’t shrinking due to rent control, the supply of below market rentals is shrinking due to rent control; and this outcome is obviously at odds with the desired effect of this policy
And keep in mind that the status quo in terms of rental supply ain’t gonna cut it - we need a dramatic increase in rental homes (per
I’ve been flipping houses in Vancouver for decades. Takes over a year to get the permits. By the time you can stick a shovel into the ground you’re in the clear on this tax.
@john is it really true that Ontario purpose built buildings were not rent controlled between 1992 and 2018? I believe they were all rent controlled on renewals. You could only increase rents by CPI. That is exactly why the new purpose built construction would have stopped after 1992 and started after 2018. Rent control absolutely does not make sense at 2%; 10% may be. I have seen hundreds if purpose built building leasing units at negative rate changes ( turn over/ tradeout) in non-rent controlled markets. There is also a lot of construction and supply in those markets as capital does not like to be limited. The CPI rent control has driven the rents ups. I also see that over and over, where purpose built buildings with rent control would rather give a one or even two months free, but not lower the face value of the rent.
Up until 2017, any residential property that was built, or first occupied after Nov 1991 was not rent controlled. In 2017 the Wynne government introduced rent control for all housing and then Ford updated the legislation so that units built before Nov 2018 are rent controlled and anything built after that is not.
@@john_pasaliswow, I thought new builts only got rent control free after Ford's Non 2018 changes.
The haves and the have-nots. Indeed. Who thrived during the pandemic? Billionaires. Qu'elle surprise.
yes steve
Thank you Tiff.. you fixed the crazy housing market single handedly. Please don't cut rates.
@Johnpasalis I like yor idea that the hosuing market may stay lukewarm even if the rates drop by 100 bps due to added supply. What would you expect if the rates don't come down at all, or only come down 25 to 50 bps by December? A drop in prices ?
The door on the Boeing 8max held as well with few screws and it suddenly blew open at once! That’s how the high rates work.
Given that a suburban home requires 2 cars (or at least that’s what most people are used to) and given the average age of cars on the road is 10-11 years, higher sticker price, financing rates and 60% mortgage renewals in the next 2 years will cause a lot more pain than people expect. Half of Canadians are $250 from being broke. Even if many of these folks rent, homeowners will still be represented here. Home refinancing has run its course, so when those 11 year old cars die, look for $800+/month car loans to add to the $1,000+ increase to mortgage payments. It will not be pretty regardless of how strong the job market is. And no, I’m not writing from my parent’s basement. Long term, GTA r/e is great, but this is going to be rough since we never had our subprime shakeout in 2008. We are about to go through it, IMO.
Interest rates are primarily intended to cut inflation down to the fed's target of 2%. Housing and rental units do play a role but are not the determining factor. CPI takes precedence.
Justin T is worse PM of Canada .Home crisis is big issue .last 10 years worse under LIBERALS . He need to resign
No, they're going to go up more.
Best Case Scenario; the Bank of Canada to KEEP rates at the current 5% level throughout 2024, 2025, and 2026 then evaluate the situation and decide to cut or keep at 5%.
Worst Case Scenario; the Bank of Canada to CUT rates and the MASSIVE inflation start to bounce back and the bank has to raise the rate again and at that time BoC has to raise the rate way above the 5% current level.
At this critical point, public confidence in the economy and BoC will be lost, which will lead to public confusion, uncertainty, and instability, and all sectors of the economy will start to melt down, a painful nightmare for all Canadians.
The government and the Bank of Canada know something that the public doesn't know and that would be the growing geopolitical tensions and the risk of much bigger conflict in Europe and West Asia, the major cause of the current inflation crisis and economic downturn.
It is in the BEST interests of the country and the public, the Bank of Canada to KEEP the rates at 5% with NO CHANGE for at least 3 years to ride out the global geopolitical storms and their fallouts, supply chain, energy, and inflation crises.
Warning: Any premature rate cut at this point will be followed by a MASSIVE rate HIKE to a much higher level than the current 5%.
We may need "Paul Volker" to come in and clean up the mess once again.
I doubt it. Consumers make up 65-70% of all the spending in the economy, and they will be tapped after another year at 5%. Rates can come down, gradually, they just won’t be returning to 2% or even 3% any time soon. This isn’t the 70’s. Paul Volcker can rest in peace.
Just another ranting crazy person with a keyboard
i honestly think so too, maybe not exactly 5% but maybe 4.5 or so for a couple years
Climate change is going to have an effect on inflation.
Bottom line governments around the world cannot service their debts long term at these rates. Not to mention there is zero appetite for austerity these days. So no rates will not be 5%+ for much longer
Im a builder in the GTA.mim legit I do the Tarion and pay the HST. If they bring a flipping tax to Toronto, isa new construction build consider a flip?. If so I will not buy build again! That would be the final nail in the coffin.
The rate is not drop yet , the market of course will not boom as before . But when the rate drops, it will be very different market . You guys have guess wrong before, predict too conservative , investors or potential buyers will lose opportunities.
it only goes up
Governments in all levels are the reason for all this issues you are talking about, I don't think it is smart to expect the arsonist to put the fire down.
👏
Vancouver down 5%??? 5% from all time high is NOTHING! Where is that 5% from?
From ATH
Thank you John you are right on! Steve sounds clueless and not in touch with the real world
Disagree completely. John very emotionally attached to the market and what “should happen.” Mr market doesn’t care what you think and this is where Steve severs this from reality
They agree on a lot. But John is out to lunch regarding rent control being good policy - there is gobs of evidence that in the long run rent control hurts tenants more than it helps them
I think when minimum wage was allowed to drop below the minimum required for a full-time worker to buy their own land we should have all stopped paying taxes and went back to a more civilized society
When was minimum wage ever enough to buy land? It wasn’t. Time to put the cuckoo back in the clock
@@user-wh2dx8ro9v there was a time you could buy land for $200
I think, in 1954 mortgages were marketed as a good thing for people
This mind shift about consumer debt changed the perception of what constitutes quality of life, IMO
not surprisingly, it was in this time period that the price of land spiked upwards 🤔
After that spike, it was still the usual or common price to buy land, with a decent size house on a full basement with windows and e light backyard space for a playhouse, garden, chicken coop, and storage shed, plus flower beds in the front yard, for under $50K
Then about 2006-ish when the government was marketing oil production, gas wells, and all the wonderful reason to further increase our national debt to help these companies pay Canadians an exorbitant salary, was the next giant spike in real estate 🤔🤔
That spike was so high and across the board that it felt much like the black Tuesday crash in pearl harbour, the real estate changes and trading changes through COVID and probably the same as the one in the 1950.
I think it's interesting that around that same time, mid 1950, Bill Gates made a deal with IBM that I believe made it clear his moral compass for people, humanity, and business.
The first super computers came out shortly thereafter. Just interesting
All that being said, I am not old enough to remember the minimum wage during most of those times and I couldn't find reliable information stating what minimum wage actually was.
Regardless of what minimum wage has ever been, it doesn't change my position ❤️
Thank you for sharing your insights into this issue. Your comment made me realize there is at least one more angle of purpose that needs to brought to the table 😀
Minimum wage has never been enough ti afford a home. 🤡