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Archive for October, 2018

Interest rate announcement left out an important word

The Bank of Canada’s decision to increase interest rates to 1.75% Wednesday was not a surprise to many, but an omitted word is perhaps more so.

Dr Sherry Cooper, chief economist of Dominion Lending Centres says it was interesting that Governor Stephen Poloz did not continue to say that rates would rise “gradually”.

“Market watchers will certainly note this omission,” she says. “For the first time in years, the Bank has acknowledged it expects to remove monetary stimulus from the economy entirely.”

Dr Cooper says that the policy of the BoC is now to increase interest rates to a ‘neutral stance’ of between 2.5% and 3%. That will require another three rate hikes of 25 basis points over the next year or so.

 

Household debt is a concern


Although the economy is moving in the right direction, the BoC remains concerned about Canadian oil prices, especially with constrained pipeline capacity.

Then there is the issue of rising household debt.

In the BoC’s Monetary Policy Report is states: “Higher mortgage rates and the changes to mortgage guidelines are affecting the dynamics of housing activity. Housing resales responded quickly to the new mortgage guidelines, and the level of resale activity is expected to continue on a lower trajectory than before the changes. New home construction is shifting toward smaller units, although stronger population growth is estimated to raise fundamental demand for housing."

Although the level of high loan-to-income ratio mortgages has declined which the BoC says has “reduced household vulnerabilities”, Dr Cooper points out that the bank remains concerned about the “sheer size of the outstanding debt”.

This, she says, is bank double speak for three more rate rises.

Canada’s big banks have all reacted to Wednesday’s BoC decision with increases to their prime lending rates.

by Steve Randall

25 Oct 2018

 

https://repmag.ca


Ford’s call to derail energy audits will benefit the home sale process



The Ontario government’s decision to repeal the Green Energy Act has also changed the rules for homeowners looking to sell their properties\
In an email to me last week, Sydney Stonier, press secretary to provincial Energy Minister Greg Rickford, confirmed that “the repeal will terminate mandatory home energy audit initiatives.”



  Under the former Liberal government, the program would have come into place by next year and forced energy audit before Ontario homeowners were allowed to sell their homes.
The original proposal to implement a home energy rating and disclosure system (HER&D) grew out of the former government’s 2009 Green Energy Act and the 2016 Ontario Climate Change Action Plan. But the introduction of Bill 34 — The Green Energy Repeal Act, 2018 — ended plans for mandatory audits.



A day after the repeal legislation was introduced at Queen’s Park, the Consumers Council of Canada released its long-awaited report: “Mandatory home energy rating and disclosure for existing houses: opportunities and risks for consumers.”
The report found that Canadians generally say they are willing to improve their homes and make them more energy efficient, whether to reduce their contribution to climate change or to improve the comfort or cost-effective operation of their homes.
Although the report does refer to some of the risks of requiring mandatory home energy audits, it downplays the disruption such a program would cause to the home sales process. This could include stigmatizing a home with poor insulation or an inefficient furnace; the delay and extra costs involved in trying to find an available energy consultant; and the imposition of unnecessary audits when a house has been inherited or is about to be demolished.
During the long consultation process over imposing mandatory energy audits, a split developed among industry stakeholders. The Ontario Home Builders’ Association was supportive, touting numerous spinoff benefits including increased jobs and reduction in energy demand.



Ontario’s realtors, on the other hand, were strongly opposed to the imposition of “time of listing” energy audits. The Ontario Real Estate Association (OREA) detailed its objections in a 2015 submission to the energy ministry — they included that the audits are unfair, would put consumers at risk, hurt the housing market and do little to curb greenhouse gas emissions.


OREA proposed an alternate solution by making energy audits part of an optional standard home inspection. This, it suggested, would protect consumers, limit market disruption and help achieve the province’s intended policy objective.

By BOB AARON   Fri., Sept. 28, 2018

Bob Aaron is a Toronto real estate lawyer. He can be reached at bob@aaron.ca or on Twitter: @bobaaron2

 


 

 


Interest rate hikes are stoking Canadians’ fiscal fears

The latest Consumer Debt Index by insolvency practice MNP LTD reported that 1/3 of Canadians are concerned that rising rates could push them towards bankruptcy.

Over half (52%) of the study’s respondents also said that rate hikes will affect their ability to service their existing debts.

“It’s been over a year now since the first interest rate increase and as rates continue to inch higher, more Canadians are feeling it. With little decrease in household debt and the pace of rate hikes expected to accelerate, we will likely see a more immediate and significant effect on borrowers with rate increases in the future,” MNP LTD president Grant Bazian stated.

Meanwhile, 40% of Canadians are concerned about their existing debt loads, the highest proportion ever since MNP started tracking this metric in June 2017. Another 43% regretted the amount of debt that they have taken on in their lives.

“Rising interest rates have forced people to take a more serious look at their debts. Still, many are reluctant to get professional help. They may not know where to go or they feel helpless,” Bazian said.

Young Canadians most acutely feel the pressure of these fears. The study found that 50% of millennials are already feeling the worst effects of interest rate hikes, compared to 48% of Gen X’ers and 38% of boomers.

The millennial demographic is also more likely to express concern about interest rate hikes and their impact on debt repayments (62% of millennials vs. 57% of Gen X’ers and 40% of boomers), or the risk of bankruptcy (46% of millennials compared to 38% of Gen X’ers and 22% of boomers).

“Millennials have never experienced a time when credit wasn’t cheap and easily accessible. Some have over extended themselves on their homes and vehicle payments and are in the habit of relying on credit to cope with any kind of unexpected expense,” Bazian said.

by Ephraim Vecina 

23 Oct 2018

 


This demographic suffers the most under tighter stress tests

Among Canada’s aspiring home owners, the millennial demographic endured probably the worst impact of the federal mortgage stress test that came into effect earlier this year, according to Mortgage Professionals Canada.

“The government’s recent policies stifled the hopes of aspiring homeowners,” MPC board member Mark Kerzner said at a press conference last week, as quoted by CTV News.

“Our members have seen, firsthand, a significant portion of aspiring Canadians who have been pushed out of the market.”

This has inevitably steered young Canadians towards rental property as the only reasonable alternative.

The need to save for already crippling down payments means that millennials need to stay in this housing type for longer periods – thus inducing further negative feedback onto the market by pulling down vacancy rates to record lows and heating up rental price growth.

“I would suggest that the Liberals are acutely aware that millennials are a large voting demographic … and individuals whose interest they are looking to protect long-term,” MPC president Paul Taylor stated.

Read more: Homeownership rates decline after almost 50 years of continuous growth

Aside from derailing millennials’ home ownership plans, the stress test requirement also played a central role in the sales decline observed across the country’s markets, Kerzner noted.

Latest data from the Canadian Real Estate Association indicated a 0.4% month-over-month sales drop in September, the first such decline since April this year. This mirrored the larger annual trend with last month’s sales falling by 8.9% compared to September 2017.

by Ephraim Vecina

22 Oct 2018

https://repmag.ca


USMCA will positively impact market in Q4: Royal LePage

Now that the United States-Mexico-Canada Trade Agreement is settled, expect the real estate market to receive a boost.

According to Royal LePage, the USMCA will function as a double-edged sword, but it will mainly be positive and the country’s real estate should bear witness to a 1.5% price gain.

“On the positive side, if you look at the underlying economy in 2018, it was a buoyant place—the best we’ve seen in 40 years,” said Phil Soper, Royal LePage’s CEO. “GDP growth has been strong, household formation is marching along, and yet for large purchases in particular in the housing industry, the number of transactions were down considerably. Our feeling is that the trade friction that existed between Canada and the United States—some of the very unstatesmanlike, aggressive attacks from the American administration aimed directly at Canada, Canadian leaders and business sectors were worrying people considerably to the point where there was actual job insecurity.”

Indeed, President Donald Trump threatened auto tariffs at one point, which could have decimated the industry north of the board. While the new trade agreement has allayed those fears, the psychological impact on the market was real.

“When consumer confidence wanes and there are employment concerns—people worrying about their jobs—it has a direct negative impact on large asset purchases such a buying a home,” said Soper. “That impediment, that drag on the market, was lifted with the US-Mexico-Canada Agreement, therefore, it should be a positive stimulus to consumer confidence and people’s willingness to engage in real estate transactions.”

Employment concerns may have subsided, but the Bank of Canada will almost certainly raise the interest rate—probably by 25 basis points, as it usually does—on Wednesday now that the USMCA has been established.  That could result in a temporal decline in activity.

“With the agreement, it clears a path for the Bank of Canada to raise interest rates, which will be a drag on the market. On balance, the two things work against each other. A significant increase in consumer confidence and the drag from a quarter point increase in the interest rate will have a positive impact on the Canadian and American real estate industries. Overall, it’s a good thing, but not without its qualification.”

 

by Neil Sharma

18 Oct 2018

https://repmag.ca


Clearing the smoke on condo no-smoking rules before cannabis legalization

With the legalization of marijuana next month, landlords, tenants and condominium owners may still be uncertain about their rights to either smoke — or prohibit smoking — in apartments and condominiums.

The starting point of a discussion about the rights of smokers and non-smokers begins with the principle that there is no right enshrined in Canadian law, including the Charter of Rights and Freedoms, to smoke tobacco or marijuana in a rental property. In a 1991 Federal Court decision, the judge wrote: “The smoking habit is far from a legal or constitutional right to which the state must pander.”

Under the 2006 Smoke-Free Ontario Act, smoking is not allowed in indoor common areas of an apartment building or a condominium. That includes elevators, hallways, parking garages, party rooms, lobbies and exercise rooms.

In addition, landlords have the right to impose on their tenants a prohibition against smoking marijuana or tobacco, and there is a separate section of Ontario’s new standard form lease which permits the imposition of a smoking ban.

Landlords cannot, however, change the rules in mid-stream and force existing tenants to stop smoking in their apartments. Tenants who rent condominium units are also bound by any no-smoking rules imposed by the condominium corporation, whether or not there is a prohibition in their individual leases.

But even if tenants are not prohibited from smoking tobacco or cannabis in their leases, they do not have the right to interfere with what the law calls the “reasonable enjoyment” of tenants in neighbouring units.

As well, landlords must use their best efforts to minimize smoke-related disturbance to tenants with sensitivities to cigarette or marijuana smoke.

In a 2013 case that went before the Landlord and Tenant Board, tenants accused the landlord of harassing, coercing and threatening them. They complained that the landlord wrongly accused them of smoking marijuana in the unit. The adjudicator found that the tenants did in fact smoke marijuana in their unit, that there was a strong marijuana smell coming from the apartment, and that the landlord did not substantially interfere with their enjoyment of the unit.

In other cases where landlords were unable or unwilling to stop smoke infiltration into neighbouring units, the LTB ordered rent reductions.

The bottom line is that there are no guaranteed outcomes when landlords and tenants bring their smoking cases to the LTB.

When it comes to tenants with disabilities, the Ontario Human Rights Code overrides the provisions of the Residential Tenancies Act and the Condominium Act. Rental housing providers have a duty to accommodate the Code-related needs of tenants who may have a disability or health problem aggravated by exposure to smoke. No doubt the courts will soon have to deal with conflicts between these tenants, and those who have the right to smoke medical marijuana for health reasons. Both parties are entitled to protections under either the Human Rights Code, or the Residential Tenancies Act, or both.

By BOB AARON   Fri., Sept. 28, 2018

Bob Aaron is a Toronto real estate lawyer. He can be reached at bob@aaron.ca or on Twitter: @bobaaron2