登录查看更多内容

Sean's Market insight Volume 5

Sean Zahedi

Executive Sales & Marketing Strategist - New Developments/ Philanthropist / Columnist/ Speaker

发布日期: 2024年6月6日

Bank of Canada cuts interest rate for first time in four years

The Bank of Canada (BoC) made a significant announcement on Wednesday, marking the very first interest rate cut in four years. This decision, long anticipated, involved a 25 basis point reduction, bringing the policy rate down to 4.75%. The rate had remained at a 22-year high of 5% since July 2023. This rate cut follows the last reduction in March 2020, a response to the COVID-19 pandemic, when the rate was lowered to 0.25%. The announcement coincided with Statistics Canada's release of its latest report on gross domestic product, indicating continued contraction in the Canadian economy during the first quarter, with a softer-than-expected 1.7% annualized GDP growth. Looking forward, the BoC has four more announcements scheduled for this year, but plans for the remainder of the year are yet to be disclosed. However, a separate report by CIBC economists predicts a further reduction in the policy rate to 4% by September.

Interest Rate Cut unlikely to help housing market fast enough

While the interest rate reduction aims to make borrowing cheaper, experts caution that its effects on the housing market will take time to materialize. Although lower borrowing costs could facilitate financing for new construction projects, analysts stress that the impact will unfold gradually. They doubt that lower rates will lead to a construction boom immediately. Monetary easing will require time to stimulate projects currently on hold, given the structural challenges facing Canadian housing construction. Historical data suggests that previous rate cuts took time to significantly affect the real estate sector. Lower borrowing costs need time to boost developer confidence and construction activity. In the short term, developers may remain cautious due to high material costs, labor shortages, and regulatory obstacles. Slow sales in the resale market directly impede the construction of new homes. The absorption of existing inventory, whether through resales or properties held by developers, is essential before a significant increase in new housing construction activity can occur. Several factors, such as stricter mortgage stress tests and rising household debt levels, also contribute to pressure on the housing market. Despite these challenges, lower borrowing costs could eventually increase demand for housing, stimulating housing starts and providing a much-needed boost to the construction industry. However, whether this will be enough to balance the market and restore supply and demand equilibrium remains uncertain.

Assignment Market, NOT as lucrative as many think

The Canadian real estate market has experienced many ups & downs over the past few years, presenting both opportunities and challenges for investors and real estate agents. One area of interest is the assignment market, which saw significant activity in 2021 driven by low interest rates but has since slowed down in 2023. The current assignment market climate favors buyers, posing challenges for some investors in closing deals. Several factors have contributed to the downturn for assignors in the assignment market, including rising interest rates and assignment taxes. While these measures aim to support first-time homebuyers and deter speculative trading, they have created an overly restrictive environment in the housing market, hindering market activity and investment opportunities. Despite these challenges, the assignment market's conditions vary depending on the targeted areas, with some markets showing resilience and potential for investors.

Halifax to convert old office buildings to Condos, can Toronto be next?

In response to its persistent housing shortage, Halifax is exploring avenues to incentivize developers to transform old office spaces into new residential units. Following an agreement reached last Fall to access funding from the federal Housing Accelerator Fund, Halifax has initiated the development of a pilot program. This program will allocate a portion of the federal funding towards grants aimed at converting select downtown office buildings into residential spaces, addressing the housing crisis while repurposing unused office areas. City officials estimate that the grant program will utilize "a couple of million" from the $79 million federal housing allocation, sufficient to fund "two or three" pilot conversions. Proposed candidates for the pilot program include the former Centennial building on Hollis Street, the former RBC building, and the former BMO building, both located on George Street. The initiative promises rapid housing provision, minimal disruption to the urban landscape, and enhanced environmental sustainability compared to demolishing old structures. A recent report by CBRE highlights the dynamics of the Canadian office market in the first quarter of 2024, indicating a trend of commercial tenants vacating older downtown offices in favor of newer premises. Halifax's overall office vacancy rate stands at 14.1%, with a higher downtown vacancy rate of 18%, prompting conversions to gain traction as obsolete office towers are repurposed into residential buildings.