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20% of New Condo prices due to Government fees

Thanks to Tony Spagnuolo for this research:

We have all heard how developers are greedy, but ever wonder who makes the most money on a real estate development?  Local, provincial and federal governments, that’s who!

According to CMHC, fees and charges accounts for 20% of the price of a new condo apartment.  Want proof?  Check out CMHC confirms government costs raise new home prices – Western Investor –  link:   https://www.westerninvestor.com/british-columbia/cmhc-confirms-government-costs-raise-new-home-prices-5621105?utm_source=Western+Investor+Newsletter&utm_campaign=d5759c29f1-EMAIL_CAMPAIGN_2018_01_03_COPY_01&utm_medium=email&utm_term=0_9b89d35e1e-d5759c29f1-96730905

The report further states a typical developer’s profit on a new condo project is estimated at between 10% to 15%.

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Thomas Paine wrote in the late 1700’s a book “Common Sense”. Here is an excerpt.

…some writers have so confounded society with government as to leave little or no distinction between them;

whereas they are not only different, but have different origins.

Society is produced by our wants, and government by our wickedness;

The former promotes Positively by uniting our affections,

The latter Negatively by restraining our vices.

The one encourages intercourse, the other creates distinctions.

The first (society) a patron, the last (government) a punisher.

These are the times that try men’s souls

Canadian 5-Year Bond Yield Surges

In an unprecedented move, bond yields are spiking around the world. Yields globally are now at levels last seen before the coronavirus spread worldwide. At the same time, commodity prices are surging, including energy, metals and minerals, agricultural products and lumber. The Biden administration’s $1.9 trillion stimulus package has triggered fears that if the US economy returns to full employment too quickly, inflation might be the result.

Central banks have attempted to soothe markets. Bank of Canada Governor Tiff Macklem told us earlier this week that it’s a long road to recovery for the Canadian economy. The Bank of Canada will continue to provide support every step of the way. Many Bay Street economists took this to mean that he reinforced the BoC’s commitment to keeping the policy rate at its effective lower bound of 25 bps until sometime in 2023.

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Housing Continued to Surge in January

Today the Canadian Real Estate Association (CREA) released statistics showing national home sales hit another all-time high in January 2021. Canadian home sales increased 2.0% month-on-month (m-o-m) building on December’s 7.0% gain. On a year-over-year (y-o-y) basis, existing home sales surged 35.2%. As the chart below shows, January activity blew out all previous records for the month.

The seasonally adjusted activity was running at an annualized pace of 736,452 units in January, significantly above CREA’s current 2021 forecast for 583,635 home sales this year. Sales will be hard-pressed to maintain current activity levels in the busier months to come, absent a surge of much-needed new supply. However, that could materialize as current COVID-19 restrictions are increasingly eased and the weather starts to improve.CREA Chair Costa Poulopoulos said, “The two big challenges facing housing markets this year are the same ones we were facing last year – COVID and a lack of supply. It’s looking like our collective efforts to bring those COVID cases down over the last month and a half are working. With luck, some potential sellers who balked at wading into the market last year will feel more comfortable listing this year.”

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Supply Chain

The general population is, by now, well aware of the house buying frenzy brought on by pent-up demand and a severely restricted supply of homes.  

The ensuing price wars and related price increases are taking the affordability of detached homes further out of the reach of many Canadians – despite the incredibly low interest rates.

What is not apparent to many, is the increasing supply restrictions in industries other than house selling. 

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The Effects of COVID-19

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 21 per cent to approximately 61,000 units this year, after recording 77,347 residential sales in 2019. MLS® residential sales are forecast to increase 45.3 per cent to 88,500 units in 2021.  

We are forecasting the provincial MLS® average price to finish the year up 1.8 per cent and to increase a further 5.6 per cent in 2021. 

COVID-19 Stats
https://www.bcrea.bc.ca/wp-content/uploads/COVID-19-Dashboard.pdf

About 35% of BC is on the move’ now compared with normal .  Seoul is the city that is mostly ‘back to normal’ –  posting almost 50% of the country ‘on the move’

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New CMHC Rules for High-Ratio Buyers

May 21, 2020 Canada Mortgage & Housing Corp (CMHC) predicted that BC’s housing prices would fall 9-18% this year.  That was met with  a lot of skepticism  by many.

Perhaps to support their prediction – on June 4th CMHC  came up with a change to the qualification rules for high ratio buyers for properties under $1 million. – effectively reducing their purchasing power by 11%.  This, most economists would tell you is the wrong thing to do during a recession.

Dustan Woodhouse of Mortgage Architects has a great explanation of this latest change.

Mortgage Deferral Procedure

Mortgage Broker Simon Wong from Dominion Lending Has kindly provided the following information.  I hope you find it helpful.

I hope you are doing well during this pandemic and adjusting to self-isolation. As you may know, over 500,000 requests for mortgage deferrals or skip a payment have already been completed or are in process since Canada’s banks announced a mortgage deferral program over three weeks ago. Taken together, the country’s six largest banks have deferred more than 10% of the mortgages in their portfolio.

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The Resiliency of BC Real Estate

Throughout our recent history, Canada – and British Columbia have felt the impact of world events, and diseases. Here is a graph of the average prices of real estate in the Lower Mainland from 1977 to today. Generally, one can see that the only dramatic effect on our prices was the Sub-Prime crisis and related recession from 2007-2009.  

Strata Insurance

Why are strata building insurance rates rising 25- 300%? 

The Strata Property Act Part 9 requires strata buildings to be insured for full replacement value of all common property, common assets, and fixtures.

Similar to lending rates, insurance companies are reacting to market forces and global disasters.

  • Claims have increased in number, which hikes costs and premiums
  • The cost of rebuilding has increased
  • Property values remain high in BC and across Canada 
  • Extreme weather events globally have cost insurance companies more in payouts
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