Divining the future
It’s mere coincidence that forecasts for the year ahead tend to start being made around Halloween, but they’re more than “eye of newt and toe of frog” (or that rarer heritage ingredient, “fillet of a fenny snake”).
A close listen to Central 1 Credit Union chief economist Helmut Pastrick at the recent breakfast of commercial real estate association NAIOP wouldn’t have heard references to a witches’ brew from Shakespeare, but there would have been advice for how to read the times.
Speaking of interest rates, and the various factors that cause them to shift, he concluded that some risk has been factored into the market, but ongoing political wrangling in the U.S. ensures no significant rise will occur much before late 2014 or early 2015. And even then, the rise will be gradual.
But then he threw out the kicker: “Of course, it’s all data dependent.”
In short, what we know says a lot, but what we don’t foresee can render what we know moot.
“These expectations will change, that’s for sure,” he said.
Similarly, while the recovery is now in its fifth year, and will likely last another three to five years, an unexpected event could delay a period of more robust growth.
CIBC World Markets Inc. deputy chief economist Benjamin Tal, in town last week to address bank clients, quips that macroeconomic statistics are like bikinis – they show a lot, but cover the smaller bits that are most interesting.
And, like Pastrick, Tal underscored the importance of maintaining a responsive perspective on the economy.
“I see 2013 as a transition year between something and something better – not good, better,” he said, noting that growth will continue to lag pre-recession levels.
“It’s still a very, very challenging place, but when you move from a negative to even a little bit of a positive, it’s a big positive.”
The benefits to B.C. lie in a soft landing in China, an uptick in U.S. performance, as well as slight gains in Europe.
Whither rates?
The slight gains made by economies elsewhere in the world next year bode well for Vancouver, but Tal expects housing affordability in the city to come under pressure if interest rates rise.
While he doesn’t expect the Bank of Canada will start raising rates until 2015, Tal expects long-term interest rates to rise 50 to 60 basis points through 2014, in addition to the 100-point boost logged to date.
But as Pastrick pointed out to NAIOP, a fair amount of ground has already been covered and property owners should have time to adjust to the emerging conditions.
Some home-buying has come forward to take advantage of lower rates, while Colliers International notes that real estate investment trusts and other investors will likely make similar moves before withdrawing for a period.
Still, there are no guarantees regarding mortgage rates.
“When you look at the economic fundamentals,” Pastrick said, “our bond yields should probably be 50, maybe 75 basis points lower than they currently are, so all of this is being driven by – basically – market expectations.”
The next hurdle for mortgage applicants to swallow will be a rise in the Bank of Canada rate.
Pastrick doesn’t expect an increase much before early 2015, and when it happens it will likely be a gradual rise over 12 to 18 months.
His forecast calls for an increase of just 100 to 125 basis points by the end of 2016.
Not a question
There’s a good chance financing wasn’t an issue for buyers who have snapped up more than $34 million worth of real estate at the Private Residences at the Hotel Georgia in recent months.
Rennie Marketing Systems reports that 18 units in the 156-unit project sold this summer.
Built by Delta Land Development Ltd., the Howe Street tower had logged 100 sales by this time last year. •
