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All Is Well … Except … Bank Of Canada Allows That We May Need Negative Inerest Rates … Huh?

At the JUROCK REAL ESTATE INSIDER Landrush conference in February and in several FBE issues that followed we mused “What is Poloz thinking?” I mean, he called us “the most indebted nation with house prices that are up to 30% overvalued”. Then he followed up that statement with the action of lowering interest rates – making it even easier to borrow! Huh, what gives? What is Poloz worried about – we asked. We also forecast that this would mean that he together with CMHC HAD to make some other mortgage related changes – increase in down payments, shortening amortization periods etc. – to slow down the boom he helped create. They now have done so, although the latest change is very minor and maybe just be the proverbial shot across the bow, but more is to come. We predicted it – it is here … no surprise.


He allowed that if all else fails (huh?) he would not be against negative interest rates to ‘invigorate’ the economy. Well, some 40% of European banks have from time to time ‘invigorated’ their economies through negative rates – but they and we – the world’s population – now more and more millennials … are not spending as much as our boomer daddies and mommies.

Because that is what it is all about. He may call us indebted, but he is concerned we are not indebted enough! Huh – again?! With negative rates, commercial banks would be charged a nominal fee when they store money in the central bank… So, banks will be forced to pay for their money from the Central bank which in turn means they have to lend it to us (corporations and individuals) at a higher rate, or actually lose money themselves. Ha-ha … no worries … that will never happen. I mean, them not charging us more.

Major Point: All joking aside … this is serious. We now have a serious banker (?) voicing a serious concern about the future of the Canadian economy. A potential risk is that banks may turn to investing in riskier assets to secure a return, potentially inflating asset values and driving new asset bubbles. (You bet – real estate will be one of them!). So, if our boom persists or a new one is created by the banks’ actions (!) expect more draconian measures to slow our home purchases – which may accidentally affect markets even in the hot cities. All markets become the stories people tell about them eventually … Our recommendation stands – sell losers, keep cash flow and some cash is a good thing. (Re-visit FBE Issue Number 17 May 6, FBE Issue Number 18 and hotline May 7.)

Major Point 2: Will that mean that we have to lose money on our savings in order to keep it in the bank? Possible, but not likely. I mean, why would you leave it in the bank, when you can keep it in your backyard for free? But NOW stay vigilant. These are NOT NORMAL TIMES! To me the implementation of negative interest rates denoted in other nations was to solve an expected “economic crisis” – a “sign of desperation.”

Maybe Bill Bonner’s admonition to take your cash out of the bank needs some more discussion?


Oil – We Told You So – Or Rather Quoted Josef Schachter

We have talked at length earlier this year about oil prices, our Canadian dollar’s connection to it and in particular in the FBE issue of 18 May 14 we featured this headline:

Josef SCHACHTER – Oil Analyst – Sees Canadian Dollar At .76cts.

Further, we pointed out in a number of following issues that in Michael Campbell’s view our Canadian dollar is tied to the price of oil and that the loonie and oil in recent years have danced together closely. In fact, for every $10 decline in the price of oil, the loonie has dropped 4 cents or so.

(Revisit FBE Issue Number 17 May 6 and Hotline May 7).

Major Point: Goldman Sachs now allows that $20 oil is a possibility…!? We will try and talk to ‘de man who had it right’ Mr. Josef Schachter this week and report back.


Alberta Realtor Romp

Nothing like getting it from the ‘realtors mouth’ – working experts that are in the market place daily. Edmonton Re/Max realtor Duane Ritter ritter@telus.netassembled some very interesting feedback from real estate agents that he works with from many different corners from all over Alberta. Write him directly if you have an interest in any of the comments.

The phone is not ringing, and don’t expect much until the governments get their act together, and I’m not holding my breath.

The housing market is favouring buyers due to high inventory levels and weak sales activity.
“The housing market is reflecting the realities of the economic conditions,” said CREB chief economist Annmarie Lurie. “Calgary has continued to post job losses in the energy sector, unemployment levels are high, wages are down and recovery expectations have changed. All of these factors have contributed to the weak demand we have seen throughout the year.” The benchmark price in Nov declined to $450,700, a 0.5% drop from last month and 2% drop from last year.
Detached houses have done the best with less increase but still a 0.6% compared to last month and 1.52% from last year in the benchmark price of $510,700.
The apartment sector was hit worst in the last few months with a huge increase in supply, 6.9% in November. The benchmark prices slid to 0.5% from October to $287,000. And a 4.6% drop from last year.

In November we found, once again, that the market for single family homes under $500K is still fairly strong but that apartment style condos and the higher end single family homes are still not nearly as strong. The type of market conditions being experienced continues to depend on what type of property it is and what price range it is

Devon had 7 sales in the month of November compared to 8 sales in October a little higher priced properties sold in November average sale price being about $398,000. Typically Devon average price is about $320,000.

Volume of sales this year will come in about 47% below 2014 levels. We are sitting at 15 months of inventory and have been for all of 2014. Prices are about 15% below 2014 levels.
Still getting about 3 new listings for every sale (and about 3 price drops).
The red is quite evenly distributed across urban, rural, price range and housing types.
What is interesting about the carbon/climate agreement is that, unlike the oil price, it cannot be argued to be a temporary change – it is very permanent, and as such, it could be more important for our local housing market, as people’s long term expectations of employment, wages etc. are revised downwards. We are expecting sales volumes for 2016 to be comparable to this year (roughly half the boom year volumes). We expect prices will adjust another 10-25% relative to today’s values. We are building our business for that scenario.

The market in Grande Cache is on a steady decline. House prices are dropping and buyers are waiting to see how low prices will go.

Our market is still very quiet with some sales. Prices still seem to be coming down. Lots of listing on the market for this time of year, find it’s a buyers’ market higher end still slow with lower end with some sales as for the future were all thinking were going to be in for a tough year for 2016

As anticipated, the volume of sales was down slightly from October which is the usual trend as we get deeper into fall.
There is obvious concern with the local economy and job losses. We only had one sale over $500,000. The majority were in the $250K to $400K range. 12% of our sales were new homes.
Listing prices have been reducing in several instances as sellers are tuning in to the fact that it is a buyer’s market and there is brisk competition to obtain the buyer. It is noticeable that a few foreclosures are starting to surface in our market.
New home builders have been offering incentives and discounts on their spec homes in an effort to reduce their inventories and possible carrying costs in the weeks and months ahead.

Game changing November here in Lethbridge with sales of single family homes up 39% year over year. A whopping 93 single family homes changed hands compared to just 67 in November of 2014. That brings our YTD total transactions to an increase of 7% over last year with one month left to go. The average price of a sold home slipped 11% month over month bringing the annualized home price down 1% to $301,279. Along with that, listings of those single family homes are basically on par with last year. It’s been a fine year in the Lethbridge, just like the year before it and the year before that.

Market in Lloydminster still running slower than last year. Sales are still running about 30% below 2014 levels and prices are down from December 2014 approx. 5-7%. The rental market is still subject to higher than normal vacancy rates and rental rates are down about 10%.

Well November proved to be a flat month in Medicine Hat, and a slight uptick in Brooks. Inventories are stable in both markets which I find odd. Another thing I find odd is that the average price per home is up in both markets. I think if something doesn’t happen with oil soon we will be in for an even rougher ride next year!

Currently although the market has slowed down quite a bit, I am personally involved in quite a few sales. Buyers are very confident, making the necessary price adjustments, and going for really fast possessions. Sellers are really needing to question how motivated they are as buyer’s are not wasting a lot of time at the negotiation table before moving on to another home. The longer term picture is not looking very positive and it will be really interesting to see what spring brings.

We’re pretty slow right now, as can be expected at this time of year, but I’m getting a pretty common consensus from my clients who own rentals that the rental market is also depressed.

… it is pretty slow with whoever I talk to. Potential Sellers and Buyers are very aware of what the market is doing, whether it is up or down, we don’t have to tell them. Over all I think there are a lot of scared people out there right now. They better brace themselves for some hard times, on the other hand it is definitely a buyers’ market. It is slower usually at this time of the year anyways.
– Sherwood Park: 241 Listings and 83 Sold
– Ft. Sask: 243 listings and 32 Sold
– Rural Strathcona: 194 listings and 26 sold
– Tofield: 20 listings and 2 sold

It is a season of uncertainty and of fear unfortunately! November was a lot quieter this year than in 2014. Our phones are still ringing, we are still going on showings and the offers are being written, even if they aren’t as many as last fall at this time!

Spruce Grove for the month of November had 34 sales compared to 27 November 2015 and 25 sales in October – so 9 more sales from last month. The average sale price was $393,226 compared to October $382,696. The market is staying stable despite having an eight month supply of inventory.

Stony Plain had 20 sales during the month of November. Average sale price $346,840. Also a stable market with about a 7 month supply. In the County of Parkland there was 30 acreages sold in November for an average price of$530,200. Up from October with 38 sales with an average price of $494800. The average sale price went up about $36,000 between October and November however there is a lot of inventory in the country.
The recreation market is typical for November, very slow.

Year to date for the same time last year to this year, residential sales in the town of St. Paul are down by 10 sales. The average sale price is up 1.5% but we have noticed the days on market have increased to 108 which is up 31 days from last year. Many potential buyers are uncertain if they should enter into the market, thinking prices may go down. St. Paul has had a long standing history of a pretty stable market through the last two or three downturns.

We had a pretty slow November, a few sales happening, but not much, and not much happening on the listing side either, which is pretty normal for this time of year. Inventory in the City of Wetaskiwin is balanced, no oversupply. The country listings are still in a shortage of listings, they never did get into an oversupply here except for the recreational ones. They have been in an oversupply position for about 8 years.
Oil industry businesses are closing, and oil related jobs are scarce I hear, lenders also being hard on loan approvals to oil workers. It will no doubt cause some concern in the market.


Slower here but will selling. Still concern over oil prices. Vacancy low despite lots of new builds. Pembina pipeline starting summer providing upwards of 1000 jobs for over a year. No camps so will fill hotels as well as rental units.

Major Point: Obviously the collapse in oil prices has affected Alberta as these reports of Realtors indicate. But it also spells opportunity. We still like Alberta, are convinced of its eventual recovery and have ‘eyes on the ground’ for that deal of a lifetime … Yes, markets are heading further down … but the best deals are often made in slow markets.


The Vancouver Board Of Trade Energy Outlook Conference

Long time subscriber and developer David Steele spent a day last week at the Vancouver Board of Trade Energy Outlook 2015 conference. He reports:

The energy conference certainly doesn’t paint the brightest picture of Alberta with capital spending having dropped from $81, 000, 000, and 00 to $45,000,000,000 in the last year and 40,000 lost jobs in the Alberta economy. The overall mood certainly wasn’t one of excitement with oil under $40 a barrel, a falling Canadian dollar and an energy industry that knows it has to change to keep up with the world demanding environmental changes.

As the day progressed, it became evident that we are in a pretty good place in British Columbia and particularly Northeast BC. We heard a lot about natural gas and the clean energy that natural gas will deliver to Asia.

We heard that worldwide demand for natural gas is expected to increase 2 1/2 times in the next 20 years. We all also got a first-hand view 2 days ago, when Beijing’s city government issued its first red alert for pollution. The air quality index stood at 250 Tuesday morning, classed as “very unhealthy” and 10 times higher than the World Health Organization’s recommended levels.

We heard that we have an incredible abundance of natural gas in Northeast BC. The two natural gas plays-the Horn River and the Montney Basin have an astounding amount of gas. In fact, one of the experts stated that there is enough natural gas to heat every house in Canada for 8000 years. As the day wore on, we heard from panelists like Seaspan that are powering their Ferry fleets with natural gas and Vedder transport that are converting their trucking fleets as well. All of this was followed by an executive from Fortis BC showing off PowerPoint slides of the new one billion cubic foot natural gas storage facility that is just being completed in Tilbury.

When Rich Coleman, the minister of natural gas for British Columbia, took the stage at 12 noon, the mood became significantly more upbeat. He talked about all of the reasons that he felt British Columbia would become a major world player in the natural gas business. He talked about the fact that British Columbia has world-class ports and the cleanest natural gas process in the world. He talked about the fact that the natural gas business already employs over 13,000 people in British Columbia and he made it very clear that BC is 58 hours shorter shipping distance than any of its competitors. (JREI wrote about this in 2009)

He acknowledged that the BC government took huge steps as early as 2011 to attract companies that would build the infrastructure to take advantage of the opportunity to develop and export to Asia. Further, he made it abundantly clear that many in the media and across the aisle in government don’t believe that it will ever happen. (!) In the meantime, there are over 20 projects at various stages in the process. If they were all to go ahead, they would represent an investment estimated at $300-$400 billion.

During the question-and-answer period, the minister was asked, “If you were a betting man, how many of the 21 LNG projects you see proceeding?” His answer was that he saw 3 major projects and two midsize projects being given final investment decision within the next year (!) He said that he wouldn’t be surprised if we see 50- 75 billion dollars committed by the end of 2016. 

Major Point: A very interesting report. I chatted with Steele about Northeast BC in general and he remains bullish on Fort St. John. “In a nutshell” he said “No matter what happens with all projects, it was recently announced that site C dam would proceed. Site C dam is an $8.77 billion project-7 km away from downtown Fort St. John. The president of the BC concrete Association was quoted as saying “Site C dam is the equivalent of building 88 high-rise condominium towers. This project will likely carry Fort St. John on its own for the next decade, and is certainly an excellent safety net for anyone looking to invest in real estate in the region.”


Best Mortgage Rates

Further to our ‘breaking news’ (you were the first to know – first of all news services!) of the possibility, last Friday Dec 11, Finance Minister Bill Morneau announced that they will be increasing the minimum down payment for properties over $500,000. The minimum down payment is still 5% for properties under $500,000 but 10% down is required on the property value between $500,000 and $1million (CMHC doesn’t insure purchases over $1million with less than 20% down). This means a down payment of up to 7.5% for purchases of $999,999.

($700,000 mortgage will need 6.4% down for insurance)

“Overall, this move will only impact a small number of first time buyers. CIBC economist Benjamin Tal estimates this will only impact about 4% of buyers in Canada, although this will probably impact a larger percentage in Vancouver and Toronto,” says Kyle Green of Mortgage Alliance (778-373-5441, Kyle@GreenMortgageTeam.ca). “It is likely the intention was to slightly slow down those two markets without having a huge inverse impact in other smaller markets, but markets like Calgary and to a lesser extent Edmonton/Montreal will probably feel the pain as a much higher percentage of borrowers in those markets put less than 20% down on average.”

This change will take effect for all borrowers who get approved (not pre-approved) after February 15, 2016, but many banks will likely start to make changes leading up to this date.

“Perhaps greater news that came out the same day was news that CMHC would be making changes to their securitization fees, which is likely to get passed on to consumers,” states Green. “Most major banks bundle up mortgages and sell them (known as an MBS, or Mortgage Backed Security). Many lenders use CMHC to insure these bundles even when the bundles contain mortgages with 20%+ down in order to more easily sell to international investors – what better safety than have the government back the investment?”

Estimations are that this could have a .05% – .1% impact on mortgage rates. This may be why we have seen many lenders raise rates over the past 3-4 weeks even though bond yields have stayed flat or fallen (mortgage rates are highly correlated with bond yields).

“This news will likely affect all borrowers, not just those putting less than 10% down, and isn’t getting nearly the same amount of press,” says Green. “This change is likely to cost the average borrower about $750 – $1,500 over 5 years on a $300,000 mortgage.”

Dec 12, 2015 1 yr 2 yr 3 yr 4 yr 5 yr 7 yr 10 yr
Mortgage Alliance 2.39 2.19 2.24 2.54 2.64 3.54 3.79
Posted Rates 3.00 3.05 3.45 4.09 4.64 6.35 6.75


Hot Property

1. Harrison Hot Springs 2 Bed/2 Bath River View Apartment in the centre. Easy to rent out for $1200 to $1400. Price: $199,900;

2. 150 Mile House 40 acres prime Hunting and Fishing real estate with 1300 sq ft Building Envelope, easy year round access. Building value way over asking price, asking $98,000;

3. Gibsons Beautiful ground floor 1 bedroom + den townhome in Gibsons; walk to all amenities. Current tenant pays $1,250/month. Price: $158,000.

Have a deal? Place it on your deal section at your password protected website at Jurock.com. It may be featured here if you send it to Ozzie for evaluation. There are no guarantees here. They look just interesting to us. You have to do your own due diligence. Please read the disclaimer on your website.