Month: June 2020

The coronavirus pandemic will likely impel growth in Canadian debt levels by an average of 20% of GDP this year, according to an analysis by Moody’s.

“We estimate that on average … debt/GDP ratios will rise by around 19% points, nearly twice as much as in 2009 during the Great Financial Crisis,” the Moody’s report said. “Compared with the GFC, the rise in debt burdens will be more immediate and pervasive, reflecting the acuteness and breadth of the shock posed by the coronavirus.”

Other nations that might see debt ratio growth of around 20% include France, Spain, New Zealand, and the United States.

The greatest increases (around 25%) will likely be seen in Britain, Italy, and Japan, Reuters reported.

Data from the Bank of Canada showed that this worrying trend is well on its way as household debt continues to grow – and might even reach record highs in the coming months.

Approximately 20% of Canadian households have only two months or less of mortgage payments saved up, while roughly 33% have four months of liquidity, the central bank said recently.

“All of these numbers assume no additional debt being carried, which would lower the value,” Better Dwelling said in its analysis of the BoC calculations. “Bank deferrals aren’t expected to relieve all of this pressure. Many industries expect the pandemic fallout to last more than a year.”

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Despite barriers caused by the coronavirus pandemic, Toronto’s mega-development boom continues to reshape downtown Toronto as the city goes vertical. Construction sites that had been halted due to COVID-19 are back in operation, cranes that had been idled are now up and running, and workers are taking a ‘full-steam ahead’ approach as the summer construction season begins.

Real estate developers continue to assess the impact of the pandemic on their projects, while also looking ahead for new, innovative ways to incorporate more green space and other living conditions conducive to social distancing practices — for instance, working from and spending more time at home.

At the site of the in-development megatower The One, President of Mizrahi Developments, Sam Mizrahi, says the pandemic has given him and his team plenty of time to think, plan ahead and incorporate a new way of living into his construction projects, both at The One and at his Ottawa project, 1451 Wellington.

“Both of these buildings will be constructed to enhance the resident’s world inside and to be safe and inspiring should an unfortunate pandemic happen again. Hopefully it won’t, but if it does our buildings will be well prepared well in advance,” Sam Mizrahi notes.

On the corner of Yonge and Bloor Streets, which is the site of The One, crews have already made plans for wider sidewalks at street level and will incorporate green spaces inside of the building in order to promote social distancing and healthy living.

In addition to these features, Mizrahi adds: “ … now we are implementing technological and valet services for The One, and for our building at 1451 Wellington in Ottawa, that would incorporate pandemic measures that would keep residents safe, healthy, inspired, productive and restored (for example, to start, social distancing measures in place for valet parking and security for the building, all health and gym areas have required social distancing of all equipment and proper hygiene standards, security will monitor health and wellness protocols to include thermal scanners for fever detection in the public areas of the building, that will be built into the security cameras).”

Mizrahi and his team continue to drive forward their milestone project, The One, with Mizrahi Developments most recently announcing that it had entered into an agreement with Hyatt Hotels Corporation to build a luxury Andaz hotel in the tower.

Upon completion, The One, which will be Canada’s first supertall (300+ m) skyscraper, will also feature high-end retail (including an anchor tenant that will occupy 17,000 square feet of corner retail space) restaurants and a condominium tower (with multi-level penthouses).

The 85-storey residential and retail tower designed by Foster + Partners will feature a signature hybrid exoskeleton, an architectural element which will place the bulk of The One’s structural support system on the tower’s exterior. This, in turn, will allow for the construction of wide-open, naturally-lit floor plans in the building’s interior.

If navigating through coronavirus-related red tape is any indication of Mizrahi’s drive to keep the project on schedule, today at-grade construction on The One is near completion, as is work to the underground of the building.

The developer behind The One clarifies the current status of the project, “Our construction site was closed during the COVID 19 requirements, as legislated under law, but now under the new guidelines we have resumed construction, adhering to the regulation safety guidelines for our workers and moving forward to make up for the downtime.”

Mizrahi says the process of obtaining above grade permits are underway for the erection of the superstructure above ground — welcome news for Sam Mizrahi and his team.

In terms of sales for The One, Sam Mizrahi says things are not slowing down, “We are currently over 77 per cent pre-sold in our residential condos and we are 100 per cent fully leased on our commercial retail.”

Despite the pandemic, Mizrahi says the luxury real estate market has remained strong. One reason — supply and demand for luxury living has not been altered.

“Toronto is still one of the key immigration centres in Canada with over 125,000+ immigrants calling Toronto home every year and there is still a shortage of condo units to meet this demand, especially in the high-end luxury condo market.”

As far as altering blueprints to accommodate a post-coronavirus pandemic style of living, Mizrahi says developers may see heightened demand for more home office space.

“Our team of architects, constructors, engineers and so on will be continuously reviewing what those requirements are going to look like,” explains Mizrahi.

Although the future of the pandemic is unclear, one thing is certain; expanded immigration and a growing tech industry, among other factors, have fueled a condominium boom in Toronto. There are 400 proposed high-rise projects in the pipeline and the city has the most construction cranes in North America.

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Interest in refinancing is accelerating significantly amid the COVID-19 pandemic, according to comparison site Lowestrates.ca.

“We have seen a huge increase in the number of consumers coming to our site to compare rates and see if they can save money by breaking their current mortgage and renewing early or refinancing,” said Justin Thouin, chief executive of Lowestrates.ca.

The site’s metrics showed that the volume of refinancing inquiries made through the site increased by 326% month-over-month in March, when the coronavirus first took hold of Canadian markets, according to CBC News.

In early June, Statistics Canada said that mortgage borrowing – and overall credit market activity – has grown along with a noticeable decline in debt-servicing costs.

As of the end of Q1, national credit-market debt was at $2.33 trillion, with $1.53 trillion in mortgage balances and $802.1 billion in consumer credit and non-mortgage loans. During the same time frame, the household debt-service ratio (DSR) stood at 14.67%, from the 14.81% in Q4 2019.

“One silver lining in [the latest] report was the decline in debt-servicing costs, with the DSR falling for the first time in more than two years as interest rates fell across a broad range of loans,” said Ksenia Bushmeneva, TD Bank economist. “In addition to lower interest rates, deferrals and other modifications of mortgages and other credit products also helped lower expenses related to debt servicing.”

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On Tuesday, the Canadian Mortgage and Housing Corporation released its summer 2020 Housing Market Outlook, the most recent in a series of wild guesses the organization has made around the post-COVID-19 growth expected in Canada’s major housing markets.

The report forecasts a long road to recovery for Canadian housing but says certain markets will recover faster than others. Cities built around the service sector will likely rebound faster, as companies operating in the space are able to operate remotely. Those reliant on oil and gas, like Alberta’s major metropolitan areas, have been deemed the riskiest in Canada.

Robert McLister, founder of RateSpy.com, has little patience for CMHC’s recent projections.

“Forecasting the recovery time-frame is like forecasting next winter’s snowfall,” McLister told MBN. “How can you confidently know when a vaccine will be widely available, or how many people won’t be rehired, or how long government income support will last, or if mortgage deferrals will be extended, or when immigration will ramp back up, or how many homeowners will panic-sell, and so on and so on.”

McLister stressed that employment and income numbers remain the key metrics in predicting the future of Canada’s housing markets.

Past recessions have seen significant depressions in home prices, even if only temporarily. McLister says, though, that policy moves like the CERB coupled with a disproportionate unemployment hit to non-homebuying demographics might see Canada avoid the price slumps of 1981, 1990, and 2009.

Migration – one more giant question mark

The report raised concerns around the moratorium on migration due to the pandemic, noting that rental housing will be the most impacted by a lack of new immigrants. McLister agrees, saying a drop in immigration is unlikely to directly impact the purchase market in the short-term. CMHC believes that reduced immigration could lead to a brief decrease in housing starts, which could impact already strained supply levels.

It’s a concern shared by James Laird, co-founder of RateHub.ca.

“[I]n the longer term, we’ll see slowed house construction, which might counterbalance the immigration effects we’d see in the long term,” he says, stressing the important role immigration plays in supporting both population growth and the Canadian housing market.

“Removing immigration takes away a significant variable that was adding a lot of demand in major urban centres,” he says. “We’ve been welcoming hundreds of thousands of new Canadians every year, many of them coming with wealth and looking to buy a home. Until immigration is able to open up again, that will take some demand from the market.”

City by city

Edmonton and Calgary are the two highest risk Canadian cities listed on the report, due to their deep economic ties to oil and gas. McLister says brokers in Alberta should “hope oil stays north of $40 a barrel,” and secure a HELOC for clients that might need access to their equity in future.  

Vancouver housing sales had been slowly recovering from a recent nadir in 2018/19. The report says the pandemic is likely to slow that recovery even further. Rentals in Vancouver, too, are more exposed to the impacts of rising unemployment and a closed border. Coupled with ongoing construction projects, the report predicts an increase in the supply of rental housing coupled with falling demand.

The report predicts that housing starts in Toronto will rebound in 2021, recovering faster than the rest of Ontario. Sales and prices are predicted to rebound in 2022 largely due to a well-developed service economy in Toronto, especially financial services, which could see economic recovery ongoing in Toronto despite a potential second wave of the virus. The report says that with construction restarting in Toronto, there could be a glut of housing stock on the market that outpaces a depressed demand.

McLister isn’t panicking, though. He says indicators like HouseSigma’s median GTA price trend,  which suggests median prices could hit all-time highs in June, are reason for hope

CMHC says Montreal’s housing boom, which hit new heights in Q1 of 2020, was snuffed out by the pandemic. Recovery there may follow a similar trajectory to Toronto’s, but migration numbers in coming years will play an even more significant role in the vacancy rate for Canada’s second largest city. 

In this environment of uncertainty and regional disparity, James Laird says that brokers need to rely on practice fundamentals and a commitment to client service.

“The benefit of being a mortgage broker is we’re able to ebb and flow with what happens in the market, when purchases dry up we can refocus on refinances and renewals,” Laird says. “By nature we’re resilient. Brokers need to continue to focus on the financial health of the household and make sure people are prudent with what they’re purchasing and I think we should be fine through the coming years.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate