Mortgage, housing agency says home prices won’t recover from COVID for years

Mortgage, housing agency says home prices won’t recover from COVID for years

By David Paddon

THE CANADIAN PRESS

TORONTO _ Canada Mortgage and Housing Corp. officials said Tuesday they expect real estate prices won’t return to pre-recession levels until late 2022 at the earliest.

The housing agency also cautioned that the impact of the COVID-19 pandemic is unpredictable and beyond its worst-case estimates prior to the outbreak.

CMHC routinely does stress tests to estimate what could happen under various severe conditions, but chief executive Evan Siddall said the stress tests focus on what’s considered to be “plausible” scenarios.

“We did, back in January, look at a pandemic scenario that was not as severe as this,” Siddall said in a teleconference to discuss CMHC’s annual financial report for 2019.

“And I’m sure that you’d understand that the realm of plausibility has expanded significantly as a result of all the experience we’ve had.”

Siddall said the federal Crown corporation which provides market analysis for housing-related industries, mortgage insurance for lenders and funding for public housing projects is now revising its estimates on an expedited basis based on experience during the spring and summer.

He said preliminary figures indicate that about 10 per cent of homeowners across Canada have chosen to defer their mortgage payments, although the rate seems to be higher in parts of the country that rely heavily on the oil and gas industry.

“Tens of thousands of Canadians are having trouble meeting their mortgage commitments,” Siddall said.

Canadian Mortgage and Housing has given lenders the flexibility to extend mortgage deferrals by a further six months, he said, but the deferrals will mean that missed payments will be added to the total mortgage amount owing on terms determined by contractual agreement between lender and borrower.

CMHC chief economist Bob Dugan said that reliable forecasts are difficult to make because there are so many unknown variables, including how much income levels deteriorate because of unemployment, the timing of future immigration and how the construction industry responds.

“But for Canada and for Ontario, I think, the best case we’re looking at … house prices getting back to their pre-recession levels, at the earliest, by the end of 2022,” Dugan said.

The CMHC presentation came shortly after the release of April statistics for Canada’s largest real estate market.

The Toronto Regional Real Estate Board said April home prices in the Greater Toronto Area fell 11.8 per cent from March, when COVID-related shut-downs including open houses began to be put in place mid-month as Canada stepped up its fight to control the health impact of the coronavirus.

Prices for GTA renters were also down for the month, with the average one-bedroom rent falling 2.7 per cent to $2,107, and the average two-bedroom rent falling 4.1 per cent to $2,705 _ still high in comparison with many Canadian cities.

On Monday, Greater Vancouver’s real estate board said its composite price benchmark index was up 0.2 per cent from March, but that the number of sales hit the lowest levels in nearly 40 years  62.7 per cent below their 10-year average.

Other major cities will be releasing their local and regional figures ahead of a national tally to be published by the Canadian Real Estate Association on May 15.

Siddall said that recent federal emergency legislation will ensure CMHC gets the financial resources it requires to perform its functions which, for the first time, include assisting small businesses through a rent-assistance program announced last month.

However, he said, CMHC had ended 2019 with a strong financial position and said it continues towards a 2030 goal of ensuring all Canadians can get the housing they need at affordable prices.

In the meantime, he said, it’s likely that both incomes and home prices will “sag.”

“And it’s how those move relative to each other that will define the gap between where we are now post-crisis and where we will be.”

Warning of collapse in B.C. condo market

The excerpted article was written by Ross McLaughlin, CTV News Vancouver

VANCOUVER — There are dire warnings that the condo real estate market in B.C. could collapse unless the province steps in to stop it.

It all has to do with skyrocketing insurance rates. And some condo buildings are unable to get insurance at all, putting owners at risk of losing their financing and being unable to sell their properties.

Zafar Khan had an offer on a Cloverdale condo he was selling, and the deal was to close Feb. 3. But at the last minute it all fell apart, as the buyer pulled out of the sale.

“I found out the strata ran out of insurance,” said Khan.

He said he had no idea, and only learned about it later from the buyer’s real estate agent, Sevin Atilla.

“We found out the strata’s insurance came up for renewal and they were not able to renew it,” said Atilla, who works at Oakwynn Realty.

“I don’t blame the buyer at all,” Khan said.

Banks won’t finance uninsured buildings and that’s what happened with the loan the buyer had secured.

“As soon as they found out there was no insurance in place, they retracted the mortgage approval,” explained Atilla.

CTV News reached out to the property manager, Crossroads Management Ltd. The company said it tried five different insurance brokers, all of which were unable to find an insurance company to insure the complex.

Crossroads said it’s still looking.

Owners are now at risk if disaster strikes; their banks could pull their financing and they will be unable to sell their properties.

“This affected our deal and we will see more of these deals collapsing in the future,” said Atilla.

“This is something no one had foreseen,” said Tony Gioventu, executive director of the Condominium and Homeowners Association of B.C.

Gioventu knew skyrocketing insurance rates and high deductibles were coming as insurance companies pulled out of B.C.’s high real estate market and struggled to keep up with claims from global disasters, but buildings unable to get insurance at all is something that no one expected.

“This will collapse our real estate industry because no one will be able to get mortgages and there will be no buyers and no sellers,” Gioventu said.

Gioventu knows of a handful of buildlings currently unable to get insurance, and said there could be more out there.

And massive insurance premiums are adding to the pressure.

The strata president of one Burnaby condo told CTV News their annual insurance premium has quadrupled, from $200,000 a year to $810,000, and they can no longer afford to pay it.

High premiums coupled with extremely high deductibles are also resulting in massive increases in maintenance fees or special assessments.

“This is not a small number of buildings now. We’re now looking at several hundred buildings throughout the Lower Mainland that are seeing such dramatic increases,” said Gioventu.

Doug Whicker, a strata president of a New Westminster condo complex facing a 40 per cent insurance premium increase, has sent a letter to Premier John Horgan asking for intervention. He says it’s reached a crisis and suggests that B.C. set up a non-profit strata insurance corporation similar to ICBC.

“Immediately. We can’t wait,” said Whicker.

“Government intervention is necessary and it’s imperative,” added Khan.

CTV News reached out to B.C. Finance Minister Carole James, who has acknowledged the problem.

“We think there are good opportunities to be able to talk with the industry, to talk with condos, to talk with insurance companies, and look at how we can address this issue,” she said.

Robert de Pruis with the Insurance Bureau of Canada’s western office told CTV News the IBC has been in contact with insurance brokers, underwriters and condo groups and is planning to hold regional meetings across the country to address the condo insurance issues — including one in B.C. in March — to try to find creative solutions to address the problem.

If you’re a condo owner reading this and are worried about how to protect your investment, there’s little you can do except to try to find insurance to cover high deductibles. But without a master condominium insurance policy, you’re out of luck.

The buildings that are being hardest hit are those that are the most expensive: buildings with a high number of recent claims and strata corporations that have failed to keep up with maintenance and repairs.

The Insurance Bureau of Canada says it’s a complex issue that won’t be solved quickly.

However, for Khan and others in his situation without insurance it’s an emergency.

“If my lender finds out they’ll pull the mortgage,” he said.

What Australia’s fires could mean for insurance & real estate in Canada

The excerpted article was written by 

Australia’s devastating fires have already destroyed nearly 1,900 homes, but they’re just one of the many types of hazards facing homeowners.

Climate change is raising the frequency and severity of a number of natural disasters, from flooding and cyclones to soil subsidence, which causes structural damage when clay soils start to contract during prolonged periods of drought.

The increased risk has implications for insurance and beyond, according to climate risk analyst Karl Mallon. A recent report from his firm, Climate Risk, projects that 720,000 homes, or five per cent of Australia’s housing stock, will be uninsurable by 2100 as coverage becomes unavailable or prohibitively expensive.

That kind of analysis has caught the attention of lenders. Two of Australia’s largest banks have recruited Mallon to help them assess how climate-related risks might affect their mortgage portfolios. One of them projected that increased insurance costs would increase its share of high-risk mortgages 10-fold in the span of around 40 years, from 0.01 per cent in 2018 to 0.1 per cent by 2060.

Data on exposure to flood risk is already driving decisions about whether to issue mortgages in some cases, Mallon said.

Over time, Mallon sees areas where getting a mortgage will become very difficult. The risk for those properties is that they’ll become hard to sell and eventually decline in value, he added.

The link between natural disasters, insurance and mortgages may be emerging in Canada as well. In both Australia and Canada, however, the issue seems to be centred around flooding for now.

Australia bushfires: Why the situation is likely to get worse

Australia bushfires: Why the situation is likely to get worse

What about fires?

Whether Australia’s extraordinary fire season will have an impact on insurance premiums remains uncertain.

For one, it’s only the beginning of the summer Down Under, and Australians are holding their breath for what the rest of the season might bring.

Until now, though, “bushfires traditionally have been no cause for concern on the insurance front,” Mallon said.

That’s because even though Australia is prone to fires, they haven’t caused damage on a scale that insurers would consider “an unacceptable probability,” he added.

It’s too soon to tell whether the current fires will change that.

Fire and water are significantly different beasts in the world of home insurance, said Rob de Pruis of the Insurance Bureau of Canada.

Overland flood insurance, which covers damage from water flowing above ground and seeping into buildings through doors, windows and cracks, only became available in 2015 in Canada. Its introduction was largely an industry response to the 2013 southern Alberta floods, which resulted in $6 billion in damages, of which just $1.7 billion was covered by insurance.

Damage from sewer backup is also a growing issue for insurers. They are facing both an increased likelihood of flooding caused by flash rain, which has been linked to climate change, and higher repair costs, partly because finished basements have become more common.

Home insurers are also struggling with a lack of up-to-date information about where flooding is likely to happen, although the government is working on updating Canada’s flood-risk maps, de Pruis said.

Severe flooding is also happening with increasing regularity, a problem for insurance, which is meant to cover events that are “infrequent and unforeseeable,” de Pruis said.

Fire, by contrast, is a familiar hazard to the home insurance industry, which traces its origins to the Great Fire of London in 1666, which nearly destroyed the city. Coverage for fire damage, including from wildfire, is standard in any home insurance policy.

Extensive losses from fires, on the other hand, have remained relatively rare in both Canada and Australia so far.

In Australia, for example, it usually takes several years after a bushfire for vegetation to grow back to a point where there is fuel for another fire, Mallon said.

In Canada, even the Fort McMurray fire of 2016, the most expensive event for insurers in modern Canadian history, did not shake the industry.

Canada’s domestic insurance companies had their own insurance to fall back on, something known as re-insurance, according to de Pruis. And the $3.7 billion in insured damages claimed by the Alberta blaze remain a relatively small price tag for the trillion-dollar giants of the global reinsurance market, which have seen natural disasters billed at tens of billions of dollars in other parts of the world, de Pruis said.

And for now, de Pruis added, there is just not enough information to predict the future of wildfires in Canada.

But experts warn climate change is helping make wildfires worse.

Is real estate still a good investment for Canadians?

Read more

Canada is home to two of the world’s most overvalued real estate markets

Toronto is the second-most overvalued real estate market in the world, according to a UBS report.

The Global Real Estate Bubble Index found only Munich is deeper into bubble territory.

“Price bubbles are a regularly recurring phenomenon in property markets. The term ‘bubble’ refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proven unless it bursts,” said the report.

“The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns.”

Experts say Toronto’s plight is due to factors like a lack of supply and foreign money. But measures to tackle the issues it faces have largely been unsuccessful in countering rising prices.

“Real housing prices in the city almost tripled between 2000 and 2017.”

“As in Vancouver, local authorities introduced a foreign buyers’ tax, rent controls and tighter mortgage standards to tackle worsening affordability.”

Vancouver is lower down the list in seventh place, but is still considered a bubble risk.

“In just a couple of quarters, year-on-year price growth rates have reversed from 10 per cent to minus seven per cent,” said the report.

“Sky-high valuations and overstretched affordability have made the market vulnerable to even minor demand shifts.”

Despite the cooldown, Vancouver is still home to Canada’s highest-priced real estate with the average home costing as much as $993,300.

Hong Kong, Amsterdam, Frankfurt, Paris, Zurich, London and San Francisco round out the top 10.

UBS said we could be at the end of the global boom in high-priced real estate markets.

“Price growth rates have continued to slow in a majority of cities,” said the report.

“Average price growth has come to a standstill for the first time since 2012.”

Jessy Bains is a senior reporter at Yahoo Finance Canada. 

Founder of Chinese company with billions in B.C. assets gets 18 years for fraud

SHANGHAI _ A court in Shanghai sentenced the founder of the Chinese insurance company that owns New York City’s Waldorf Hotel to 18 years in prison on Thursday after he pleaded guilty to fraudulently raising billions of dollars from investors, state media reported.

Shanghai’s No. 1 Intermediate People’s Court also ordered the confiscation of 10.5 billion yuan ($1.6 billion) in assets from Wu Xiaohui, the former chairman of Anbang Insurance Group, which had gained a reputation for ambitiously expanding into hotels, real estate and insurance from Canada to South Korea.

Wu, who founded privately owned Anbang in 2004, has been accused of misleading investors and diverting money for his own use. He was detained last year and regulators seized control of Anbang in February. He was shown on state TV in March admitting guilt.

Wu initially had denied his guilt at his one-day trial, according to an earlier court statement.

According to Xinhua, Wu concealed his ownership of shares in companies controlled by Anbang, filed false statements with financial authorities and lured investors by offering rates of return above that offered elsewhere. Much of the business relied on selling insurance products to raise investment capital.

It said he used more than 100 companies under his control to manage funds and authorities later recovered bank savings, real estate and other assets. Wu used his position to misappropriate 10 billion yuan ($1.5 billion) in Anbang’s deposits, according to Xinhua’s lengthy report.

Xinhua said the court determined the length of the sentence according to the facts of the case, the severity of the crime, and its “degree of social harm.” It said more than 50 people were present at the sentencing, including Wu’s relatives and journalists.

Anbang last month said it was receiving a $9.6 billion bailout from a government-run fund. That would mean the government fund owns 98 per cent of the company, wiping out most of the equity stake once held by Wu and other shareholders.

The company had engaged in a global asset-buying spree in recent years, raising questions about its stability. Anbang discussed possibly investing in a Manhattan skyscraper owned by the family of U.S. President Donald Trump’s son-in-law and adviser, Jared Kushner. Those talks ended last year with no deal.

The negotiations with Kushner Cos. about 666 Fifth Ave. prompted members of the U.S. Congress to raise ethics concerns.

The Anbang case is one of a string of scandals in what had been a stodgy Chinese insurance industry long-dominated by state-owned insurers. The industry’s former top regulator was charged in September with taking bribes and other insurers have been accused of reckless speculation in stocks and real estate.

The Communist Party has made reducing financial risk a priority this year after a surge in debt prompted rating agencies last year to cut Beijing’s credit rating for government borrowing.

Anbang is being run by a committee of officials from China’s insurance regulator, central bank and other agencies. They have said its obligations to policyholders and creditors are unaffected.

Over the years, Anbang grew to more than 30,000 employees with 35 million clients. It diversified into life insurance, banking, asset management, leasing and brokerage services.

Speculation is rife over possible sales of Anbang’s assets, which, in addition to the iconic Waldorf purchased for almost $2 billion include Dutch insurer Vivat NV, the San Francisco Westin St. Francis and hotels, real estate and insurance holdings in Canada, Belgium and South Korea.

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