BCREA ECONOMICS Mortgage Rate Forecast

unemployment rate and inflation near its 2 per cent target— would not normally engender speculation of looser monetary policy. However, when the outlook for the global economy can change with a Tweet, markets trade on fear rather than data. While interest rates have recently bounced off their lows, global risk remains tilted to the downside. Our baseline forecast is for 5-year fixed rates to remain relatively constant over the next year at 2.77 per cent. As for the 5-year qualifying rate for insured mortgages, its lack of variation remains a puzzle. While underlying 5-year bond yields were once a reliable guide to movements in the qualifying rate, that relationship appears to have changed. The statistical relationship between 5-year fixed rates and the 5-year government bond yield has deteriorated since the financial

Mortgage Rate Outlook Canadian mortgage rates continued to decline in the third quarter as rising trade tensions between the United States and China fed growing fears of a global economic slowdown. Those fears pulled long-term Canadian interest rates low enough to invert the Canadian yield curve, a frequent— though not infallible—pre cursor to recession. As bond yields fell, the average 5-year contract rate offered by Canadian lenders declined to an average of 2.86 per cent, with 5-year fixed rates as low as 2.25 per cent currently available. The 5-year insured rate, however, which given the decline in contract rates is currently the stress test rate for both insured and uninsured borrowers, has remained stubbornly unflinching. As a result, borrowers subject to the B20 stress test are now forced to qualify at a risk buffer (stress test rate minus contract rate) of approximately 250 basis points. The unpredictability of US trade policy makes the future direction of interest rates cloudier than usual. Indeed, current Canadian economic conditions—a historically low crisis of 2008 and even more so with the introduction of tighter qualifying rules for insured borrowers in 2016. Our base case is therefore for the qualifying rate to remain unchanged over the next year.

Economic Outlook After faltering for two quarters, Canadian economic growth appeared robust in the second quarter, registering a twoyear high of 3.7 per cent. However, the details underlying the near 4 per cent rise in real GDP were less optimistic. Business investment contracted nearly 7 per cent at an annualized rate, driven by a 16 per cent decline in spending on non-residential structures, and machinery and equipment. Second quarter household spending slowed to just 0.5 per cent, the lowest reading since the first quarter of 2015. A 13 per cent jump in exports following nearly a year of flat or even negative quarters was the main driver of growth, a feat which is unlikely to be repeated. Given those details, we expect that growth will moderate to between 1.5 and 2 per cent in the second half of 2019. We expect the Canadian economy will post trend growth of about 1.8 per cent in 2020, though significant downside risks remain due to elevated trade tensions and their consequent impact on exports and investment.

Interest Rate Outlook The Bank of Canada has remained on hold for much of the past year, opting to not follow the majority of other global central banks in lowering its policy rate. However, it has left the door open to lowering rates should developments in the global economy warrant doing so. Whether the US Federal Reserve opts to follow up its recent 25 basis point rate cut with something more aggressive will be important to how the Bank of Canada sets its own rate going forward. With the US Federal Funds rate now essentially parallel to the Bank of Canada’s policy rate, a further cut by the Fed may place upward pressure on the Canadian loonie, which would exacerbate an already strained climate for exports and lower the outlook for Canadian economic growth. Currently, the baseline outlook for the Canadian economy is not signalling the need for further stimulus. Core inflation is expected to trend at the Bank’s 2 per cent target and growth is near potential. Moreover, policymakers remain weary of re-igniting a build-up in household debt, particularly after imposing policies designed to bring those debt burdens down. We expect the Bank will therefore remain on hold as long as the Bank’s assessment of economic risk does not reach a tipping point.

Housing supply up, home sales and prices down in June

With home buyer demand below long-term historical averages in June, the supply of homes for sale continued to accumulate in Metro Vancouver.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 2,077 in June 2019, a 14.4 per cent decrease from the 2,425 sales recorded in June 2018 and a 21.3 per cent decrease from the 2,638 homes sold in May 2019.

Last month’s sales were 34.7 per cent below the 10-year June sales average. This is the lowest total for the month since 1998.

“We’re continuing to see an expectation gap between home buyers and sellers in Metro Vancouver,” said Ashley Smith, REBGV president. “Sellers are often trying to get yesterday’s values for their homes while buyers are taking a cautious, wait-and-see approach.”

On the supply side, there were 4,751 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in June 2019. This represents a 10 per cent decrease compared to the 5,279 homes listed in June 2018 and an 18.9 per cent decrease compared to May 2019 when 5,861 homes were listed.

The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 14,968, a 25.3 per cent increase compared to June 2018 (11,947) and a 1.9 per cent increase compared to May 2019 (14,685).

“Home buyers haven’t had this much selection to choose from in five years,” Smith said. “For sellers to be successful in today’s market, it’s important to work with your local REALTOR® to make sure you’re pricing your home for these conditions.”

For all property types, the sales-to-active listings ratio for June 2019 is 13.9 per cent. By property type, the ratio is 11.4 per cent for detached homes, 15.8 per cent for townhomes, and 15.7 per cent for apartments.

Generally, analysts say that downward pressure on home prices occurs when the ratio dips below 12 per cent for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $998,700. This represents a 9.6 per cent decrease over June 2018 and a 0.8 per cent decrease compared to May 2019.

This is the first time the composite benchmark has been below $1 million since May 2017.

Sales of detached homes in June 2019 reached 746, a 2.6 per cent decrease from the 766 detached sales recorded in June 2018. The benchmark price for detached properties is $1,423,500. This represents a 10.9 per cent decrease from June 2018 and a 0.1 per cent increase compared to May 2019.

Sales of apartment homes reached 941 in June 2019, a 24.1 per cent decrease compared to the 1,240 sales in June 2018. The benchmark price of an apartment property is $654,700. This represents an 8.9 per cent decrease from June 2018 and a 1.4 per cent decrease compared to May 2019.

Attached home sales in June 2019 totalled 390, a 6.9 per cent decrease compared to the 419 sales in June 2018. The benchmark price of an attached unit is $774,700. This represents an 8.6 per cent decrease from June 2018 and a 0.6 per cent decrease compared to May 2019.

Download the June 2019 stats package.

LIABILITY FOR STRATA INSURANCE DEDUCTIBLES

Many strata owners do not know they may be personally liable to reimburse their strata corporation for its insurance deductible, the portion of the loss the insured must pay in an insurance claim, which can be many thousands of dollars. The British Columbia Law Institute’s formidable committee of strata experts (the “Committee”) recently recommended changes to the Strata Property Act, which would require most owners to insure themselves against this liability.1 The Committee observed,2 Many strata corporations have seen their deductibles, particularly for damage caused by water ingress, rise significantly. An owner who isn’t adequately insured against this risk could face a crippling liability. Background The Strata Property Act requires a strata corporation to carry property insurance over, “(a) common property, (b) common assets, (c) buildings shown on the strata plan, and (d) fixtures built or installed on a strata lot, if the fixtures are built or installed by the owner developer as part of the original construction on the strata lot.”3 A strata corporation must also carry liability insurance against claims for injury or damage to the person or property of a third party caused by an accident or negligence.4 Each year, a strata corporation must review its insurance needs and report on its insurance coverage at the annual general meeting.5 Deductibles vary and can be large, depending on the risk insured or the strata corporation’s own claims history. If a strata corporation claims against its insurance policy for an amount exceeding the deductible, the corporation usually absorbs the deductible as a common expense to which every owner contributes through their respective strata fees or a special levy. What if the cause of the strata corporation’s insurance claim is an owner’s mishap?6 Even though the deductible is a common expense, the Strata Property Act permits the strata corporation to sue that owner to recover its deductible if the, “owner is responsible for the loss or damage” in question.7 The Act sets a low threshold, making the owner responsible for the deductible if they are the primary cause, or answerable for, the mishap.8 There is no need to prove negligence, being the failure to meet a particular standard of care. In one case, an owner’s plugged toilet caused water to back-up and escape into suites below, producing approximately $50,000 in damage. The strata corporation claimed against its insurance policy for the repairs, charging back the $10,000 deductible to the owner. The court confirmed the owner’s liability for the deductible. Since the water came from a toilet in the owner’s strata lot, he was responsible; there was no need to prove him negligent.9 A strata corporation can amend its bylaws to require a higher standard of liability, such as negligence. In one case, the strata corporation’s bylaws stated that any insurance deductible paid by the strata corporation arising from an owner’s, “act, omission, negligence or carelessness” will be charged to the owner.10 An owner’s clogged toilet over-flowed, causing $42,538 in damages to other units. To pay for the repairs, the strata corporation claimed against its insurance policy, charging back its $25,000 deductible to the owner. Even though the bylaw set a higher standard than the Strata Property Act, the court enforced the bylaw. After flushing the toilet, the owner breached the standard of care by failing to ensure the waste cleared the bowl and the water shut off. This was negligence, as required by the bylaw, and the court ordered the owner to pay the $25,000 deductible. Recommendations11 The Strata Property Act’s Schedule of Standard Bylaws constitutes the default bylaws for every strata corporation, except to the extent a corporation modifies them by filing an amended bylaw at the Land Title Office. The Committee recommends adding a new standard bylaw to require every owner to have insurance to cover payment of a deductible under the strata corporation’s property insurance policy. Where an owner is responsible for the loss giving rise to the strata corporation’s insurance claim, the Committee recommends amending the Act to allow the corporation to charge back to the owner the lesser of the cost of repairing the damage or the deductible. The Committee also recommends amending the Act to require a strata corporation each year to inform owners and tenants of any material change in the corporation’s insurance coverage, including any increase in a deductible. Pending these changes, a REALTOR® acting for a strata buyer is wise to warn the client about this liability. It’s also prudent to ask about the strata corporation’s deductibles and check the bylaws for any provision affecting this risk. A careful buyer agent will warn their client to purchase property insurance to protect the buyer against liability for the strata corporation’s deductible. Mike Mangan B.A., LL.B.

BC Home Sales to Rise in 2020

BCREA 2019 Second Quarter Housing Forecast

Vancouver, BC – June 18, 2019. The British Columbia Real Estate Association (BCREA) released its 2019 Second Quarter Housing Forecast today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 9 per cent to 71,400 units this year, after recording 78,346 residential sales in 2018. MLS® residential sales are forecast to increase 14 per cent to 81,700 units in 2020. The 10-year average for MLS® residential sales in the province is 84,300 units.

“The shock to affordability from restrictive mortgage policies, especially the B20 stress test, will continue to limit housing demand in the province this year,” said Cameron Muir, BCREA Chief Economist. “However, a relatively strong economy and favourable demographics are likely creating pent-up demand in the housing market,”

The inventory of homes for sale has climbed out of a cyclical low, leading to balanced market conditions in many areas and buyer’s market conditions in some communities and across some products types. Current market conditions are expected to provide little upward pressure on home prices this year, with the average annual residential price forecast to remain essentially unchanged, albeit down 2 per cent to $697,000. Modest improvement in consumer demand is expected to unfold though 2020, pushing the average residential price up 4 per cent to $726,000.

Stats Centre Reports – May 2019

The Complete Stats Centre Report for Metro Vancouver click here.

To view the latest Stats Centre Report for Vancouver East, click here.
To view the latest Stats Centre Report for Vancouver West, click here.

REBGV May 2019 market update video

Click on the image above to view the REBGV May 2019 market update video featuring Board President Ashley Smith

May sees modest increase in home sales while housing supply reaches five-year high

Monthly Metro Vancouver home sales eclipsed 2,000 for the first time this year in May, although home buyer demand remains below historical averages.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 2,638 in May 2019, a 6.9 per cent decrease from the 2,833 sales recorded in May 2018, and a 44.2 per cent increase from the 1,829 homes sold in April 2019.

Last month’s sales were 22.9 per cent below the 10-year May sales average and was the lowest total for the month since 2000.

“High home prices and mortgage qualification issues caused by the federal government’s B20 stress test remain significant factors behind the reduced demand that the market is experiencing today,” Ashley Smith, REBGV president said.

There were 5,861 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver last month. This represents an 8.1 per cent decrease compared to the 6,375 homes listed in May 2018 and a 2.1 per cent increase compared to April 2019 when 5,742 homes were listed.

The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 14,685, a 30 per cent increase compared to May 2018 (11,292) and a 2.3 per cent increase compared to April 2019 (14,357). This is the highest number of homes listed for sale since September 2014 (14,832).

“Whether you’re a buyer looking to make an offer or a seller looking to list your home, getting your pricing right is the key in today’s market,” Smith said. “To be competitive, it’s important to work with your local REALTOR® to assess and understand the latest trends in your neighbourhood and property type of choice.”

For all property types, the sales-to-active listings ratio for May 2019 is 18 per cent. By property type, the ratio is 14.2 per cent for detached homes, 20 per cent for townhomes, and 21.2 per cent for apartments.

Generally, analysts say downward pressure on home prices occurs when the ratio dips below 12 per cent for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.

The MLS® Home Price Index² composite benchmark price for all residential homes in Metro Vancouver is currently $1,006,400. This represents an 8.9 per cent decrease over May 2018, a 3.4 per cent decrease over the past six months, and a 0.4 per cent decrease compared to April 2019.

Sales of detached homes in May 2019 reached 913, a 1.4 per cent decrease from the 926 detached sales recorded in May 2018. The benchmark price for a detached home in the region is $1,421,900. This represents an 11.5 per cent decrease from May 2018, a 5.4 per cent decrease over the past six months, and a 0.5 per cent decrease compared to April 2019.

Sales of apartment homes reached 1,246 in May 2019, a 12.9 per cent decrease compared to the 1,431 sales in May 2018. The benchmark price of an apartment property is $664,200. This represents a 7.3 per cent decrease from May 2018, a two per cent decrease over the past six months, and a 0.5 per cent decrease compared to April 2019.

Attached home sales in May 2019 totalled 479, a 0.6 per cent increase compared to the 476 sales in May 2018. The benchmark price of an attached unit is $779,400. This represents a 7.6 per cent decrease from May 2018, a 3.5 per cent decrease over the past six months, and a 0.6 per cent increase compared to April 2019.

DEATH AT A PROPERTY REVISITED

In 2007, a man was murdered outside the gates of his Shaughnessy home. The murder, described by the police as a targeted killing, remains unsolved. The victim lived in the home with his wife and two children. The property was owned by his mother-in-law, who resided in China. One of his daughters attended a private school nearby. When the school learned that the killing might be linked to organized crime, the daughter was asked to leave the school as they feared for the safety of the other students. The daughter relocated to a public school. The next year, the daughter enrolled in a private school in West Vancouver and the family moved to West Vancouver. Roughly a year later, the wife (“Seller”) listed the Shaughnessy property for sale on behalf of her mother.

The Seller told the listing agents that she was selling the property because of her daughter’s enrollment in the West Vancouver school. She asked the listing agents if she was required to disclose the murder of her husband to prospective buyers. She was advised to seek legal advice on that matter. In the Property Disclosure Statement, the Seller denied knowledge of any material latent defect in the property.

A prospective buyer had their agent ask the listing agent the seller’s reason for selling the property. The listing agent advised that the family had moved to West Vancouver to be closer to the daughter’s school. No mention was made of the murder. The buyer entered into a Contract of Purchase and Sale but before completion, discovered the details of the murder and refused to close on the grounds that the Seller had failed to disclose the murder as a material latent defect in the property.

The trial judge found that the murder is not a material latent defect in the property, which would need to be disclosed, but a stigma in the property, which does not.¹ A stigma is most readily described as a subjective factor that might be important to some buyers but not others. The trial judge did, however, find that the seller’s answer to the question of why she was selling was incomplete and amounted to a fraudulent misrepresentation by omission. The trial judge determined that the husband’s murder was a factor in her selling the property and even though the question asked was a general one, the buyer “was entitled to an accurate answer, rather than one calculated to conceal Mr. Huang’s death as a reason for the plaintiff’s decision to sell the property.”² 

On appeal, the trial judge’s decision was overturned.³ The BC Court of Appeal stated: “if the law were now to be modified to require that upon being asked a general question like the one asked in this case, vendors must disclose all of their personal reasons and explain the causes for those reasons, even when they bear no relationship to the objective values or usefulness of the property, the door would be open to a huge number of claims…The doctrine of caveat emptor…places on the buyer the onus of asking specific questions designed to unearth the facts relating to the buyer’s particular subjective likes and dislikes. The answer given by the plaintiff’s agent to Mr. Deng’s question (that the daughter needed a better chance to practice her English) was an honest answer as far as it went, and in my opinion she was not required to supplement it with a description of the entire chain of events that led to the enrollment of the plaintiff’s daughter at the new private school—unless the buyer asked specifically why the girl had been at a public school or whether any violent deaths had occurred during Ms. Wang’s tenure of the property.”⁴ 

Once again, BC’s highest court has reminded us that the doctrine of caveat emptor or buyer beware is alive and well in this province. A seller is not required to disclose the existence of a stigma in the property, which may be an issue for one buyer but not another. If buyers have personal concerns such as death, ghosts, allergies, etc. that would affect their decision to buy a property, the onus is on them to inquire, by way of a specific rather than general question, as to whether those conditions exist.

Affordability Continues to Weigh on Housing Demand

Vancouver, BC – May 14, 2019. The British Columbia Real Estate Association (BCREA) reports that a total of 6,652 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in April, a decline of 18.9 per cent from the same month last year. The average MLS® residential price in the province was $685,304, a decline of 6.2 per cent from April 2018. Total sales dollar volume was $4.6 billion, a 23.9 per cent decline from the same month last year.

“BC home sales were essentially unchanged from March on a seasonally adjusted basis,” said BCREA Chief Economist Cameron Muir. “Prospective home buyers continue to grapple with the decline in their purchasing power caused by federal government changes to mortgage policy.”

Total MLS® residential active listings increased 33.6 per cent to 38,672 units compared to the same month last year. The ratio of sales to active residential listings declined from 28.4 per cent to 17.2 per cent over the same period.

Year-to-date, BC residential sales dollar volume was down 29.8 per cent to $13.9 billion, compared with the same period in 2018. Residential unit sales decreased 24.5 per cent to 20,479 units, while the average MLS® residential price was down 7 per cent to $680,671.

$5 billion laundered through B.C. real estate in 2018, drove up home prices

A report that estimates $5 billion was laundered through British Columbia’s real estate market last year also lifts the lid on the extent of illegal cash moving across Canada.

Some $7.4 billion overall was laundered in B.C. in 2018, out of an estimated total of $47 billion in Canada, concluded the report by an expert panel led by former B.C. deputy attorney general Maureen Maloney.

The report is one of two released Thursday and says B.C. ranks fourth for money laundering among a division of six regions in Canada, behind Alberta, Ontario and the Prairies — collectively Saskatchewan and Manitoba.

The report says the higher estimates of money laundering in Alberta and the Prairies may be “surprising,” but crime rates are rising in those provinces and illegal cash finds homes in jurisdictions where real estate is more affordable than B.C.

“What this report makes clear is this is not an issue simply for B.C.,” Finance Minister Carole James said at a news conference. “This is an issue for all of Canada. This is an issue for all jurisdictions.”

B.C. tabled legislation last month aimed at preventing tax evasion and money laundering by shining a spotlight on anonymous real estate owners hiding behind shell and numbered companies.

“The key here is we’re not waiting,” said James. “Yes, we need to work with the other provinces. Yes, we need to work with the federal government.”

Attorney General David Eby said money laundering is a national crisis and until recently the federal government was not paying proper attention.

Eby and Federal Organized Crime Reduction Minister Bill Blair have met in recent months to discuss strategies to fight money laundering.

“Wealthy criminals and those attempting to evade taxes have had the run of our province for too long, to the point that they are now distorting our economy, hurting families looking for housing, and impacting those who have lost loved ones due to the opioid overdose (crisis),” Eby said.

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