At a recent roundtable discussion in Toronto and Vancouver, experts debated the state of the real estate market and whether or not interest rates are truly on the decline. The conversation also touched on the possibility of a building-led recession and its potential impact on the Canadian economy.
The discussion began with a closer look at interest rates, which have been on the rise in recent years. Many experts predicted that rates would continue to climb, making it more difficult for homebuyers to afford mortgage payments. However, some participants argued that recent economic indicators suggest a possible decrease in rates in the near future.
One key factor influencing this potential shift is the current state of the global economy. With uncertainties surrounding geopolitical tensions and trade wars, central banks may opt to lower interest rates in order to stimulate economic growth. This could provide a much-needed boost to the real estate market, making it more attractive for buyers and investors.
Despite the possibility of lower rates, the roundtable also addressed concerns about a building-led recession. With an oversupply of housing units in major cities like Toronto and Vancouver, there is a risk that a slowdown in construction activity could lead to a broader economic downturn. This is particularly worrisome given the significant role that the real estate sector plays in the Canadian economy.
To mitigate the risk of a building-led recession, participants suggested a number of strategies, including diversifying the economy, encouraging investment in other industries, and implementing policies to address housing affordability issues. By taking proactive steps to address these challenges, Canada may be able to avoid a potential crisis in the real estate market.
Overall, the roundtable discussion highlighted the complex and interconnected nature of the real estate market and the broader economy. While there are concerns about rising interest rates and the risk of a building-led recession, there are also opportunities for growth and innovation. By staying informed and proactive, stakeholders in the real estate sector can navigate these challenges and contribute to a more sustainable and resilient economy.
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Justin T is worse PM of Canada .Home crisis is big issue .last 10 years worse under LIBERALS . He need to resign. Please make video on
Historic zoning changes B.C.’s housing landscape.
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.
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.
yes steve
@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 <1% vacancy rate) and rent control means fewer rentals versus no rent control.
Bottom line: trying to force the private sector to provide subsidized housing isn’t sustainable. The market finds a way
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
Vancouver down 5%??? 5% from all time high is NOTHING! Where is that 5% from?
500 BASIS POINT RISE IN RATES! If it were not for Banks twilight zone style bailouts and extending amortisations, deferrals, lengthening loans on and on! Well, not one Economist saw this happening at all, no one, absolutely no one mentioned the Banks irrational moves. I mean for goodness sakes Chief Economist Rosenberg thought 100 basis point rise would harpoon the housing bubble which he called ¨the biggest bubble in the Universé´´´yet 500 basis points and nothing, so Big Five schedule banks Rule Canada and do not let natural economic cycles to play out they put a fork in it and keep on stoking housing prices!
@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 ?
@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.
Thank you John you are right on! Steve sounds clueless and not in touch with the real world
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.
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.
it only goes up
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…
The haves and the have-nots. Indeed. Who thrived during the pandemic? Billionaires. Qu'elle surprise.
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.
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
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..
Thank you Tiff.. you fixed the crazy housing market single handedly. Please don't cut rates.
Rent control is for commies.
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.
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.
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.
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
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