Daily Market Update

by REP24 Feb 2015
Unsold condos stacking up
Winnipeg, Montreal and Moncton are grappling with a surplus of unsold condo units driven by a surge in new construction and a dwindling supply of first-time buyers in the wake of Ottawa’s decision in June 2012, to limit mortgage insurance to amortization periods of 25 years or less from 30 years.  According to an article in the Globe and Mail, while investors in Toronto and Vancouver stepped in to fill the void, the picture has been different in smaller markets where condo sales are driven largely by first-time buyers. “It definitely had an effect on first-time buyers,” said Paul Cardinal, manager of market analysis for the Quebec Federation of Real Estate Boards. “What’s not really intuitive is that you would have thought the most expensive markets would have been impacted more than the less expensive market, but that’s not necessarily the case.”

Low interest rates to save housing market?
According to an article in Maclean's, low interest rates might not be enough to save the housing market. Low interest rates induce people to borrow. Cheap carrying costs encourage people to load up on debt, whether to take out a mortgage or buy a new car. With regards to the housing market, many analysts cite low rates as a factor that will continue to support prices despite obvious overvaluation. So long as rates are low, the argument goes, demand for housing will remain strong. Japan is seen an example though of where the opposite is the case. Despite rock-bottom interest rates, Japanese corporations did not borrow new money. In fact, they started paying back existing loans. The problem was that because so many companies bought real estate at vastly inflated prices during the bubble, gaping holes were left in corporate balance sheets. Assets plunged in value but the debt remained, leaving systemic insolvency in its wake. Could the same thing happen in Canada?

Confidence in Canadian markets varied: Conference Board of Canada
Approximately 20 per cent of those surveyed expect real estate prices to fall. That’s the highest percentage since 2009, and almost double the level recorded in September of last year. The Conference Board released figures Monday that showed Ontario consumers have replaced those on the prairies as Canada’s most optimistic. The index of consumer confidence calculated by Nanos Research also found that residents of Alberta, Saskatchewan, and Manitoba are quickly becoming the country’s most pessimistic. Every week, Nanos Research conducts telephone interviews with 1,000 Canadians to ask their views on personal finances, job security, the outlook for the economy and where real estate prices are headed. The survey data is compiled for Bloomberg News.



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