Pricing risk
Government moves to cool the housing market could lead to higher mortgage rates for those seeking refinancing.
Paul Taylor, president and CEO of Mortgage Professionals Canada in Toronto, recently remarked that “a sizable minority” of borrowers could be knocked out of the market by the changes that require them to meet stress tests to qualify for insured mortgages. However, Jamie Feehely, managing director of the Canadian structured finance division at ratings agency DBRS Ltd., told Business in Vancouver during a visit to Vancouver last week that cash will continue to be available – but it’ll cost ‘em.
“I don’t think it’s going to fundamentally change people’s behaviour,” he said of the changes. “They’re going to still want to take money out.”
Feehely expects Canada to see a greater tiering of mortgage rates than has typically occurred, which will be one way to accommodate clients who need cash but don’t meet the stress tests for insured mortgages.
That in turn will increase demand for asset-backed securities, which banks will require to demonstrate that they have the capacity to make loans that are considered riskier.
“You could see more of these mortgages that need to be refinanced, since they can’t be insured, end up in ABCP (asset-backed commercial paper) or ABS (asset-backed securities), because they have to be funded somewhere, and that’s a viable alternative,” he said.
For the duration
One of the hottest points of speculation regarding recent government interventions in the housing market is the time it will take for the dust to settle.
When the topic came up at industry meetings in September, consensus seemed to revolve around a three- to six-month window of adjustment. Helmut Pastrick, chief economist at Central 1 Credit Union, went so far as to say that resale prices would likely be as high as or higher than they are now come next summer. Two months after Victoria boosted the property transfer tax on foreign homebuyers in Metro Vancouver, RBC Economics says the effects of the tax are starting to taper off. Home starts even seem to be maintaining their stride, despite fears the Greater Vancouver Home Builders’ Association has expressed regarding job losses.
“Vancouver housing starts reset on an upward trend in September,” observed Robyn Adamache, principal market analyst for Vancouver with the Canada Mortgage and Housing Corp.
However, Feehely pointed out that the changes have hit real estate markets as they enter a slower time of year. The real impact will be known come spring, when starts and sales activity typically pick up.
The RBC economist tends to agree, noting the potential for completions in 2017 to outstrip household formation and even the most recent cyclical high of 19,150 units seen in 2008.
Starts might be strong, and standing inventories low, but RBC’s read of the stats include “a potential for the supply of new units to overshoot demographic requirements.”
The long haul
Twenty years after its first industrial investment, Concert Real Estate Corp. has spun its billion-dollar commercial and industrial portfolio off into a new entity.
While many real estate funds solicit partners to develop a portfolio of properties, Concert established CREC Commercial Fund LP to facilitate the development of its portfolio of 60 non-residential investment properties. The fund, which closed on October 1, attracted $320 million from 23 parties that included nine existing shareholders as well 14 new institutional investors. The investment represents a 40% equity stake and provides a further $120 million for acquisitions.
Concert president and CEO David Podmore said Concert will match the extra funds with $150 million to maintain its 60% stake, creating a significant pool of cash for future investment. Podmore said CREC is assessing opportunities in Alberta as well as the Toronto area, where there’s a good selection of product at attractive prices. •
