Front-Running, U-Haul Migration, Foreign Buyers, Student Cap, Hotel Comeback

The housing market is off to a strong start—the prevailing consensus being that buyers are front-running the expectation of lower interest rates, even though it remains speculative at this point. While the key overnight rate was held at 5%, the central bank's discussions are shifting from whether monetary policy is restrictive enough, to how long to maintain the current restrictive stance. Overall, the thesis is that people are making a bet on overwhelming demand, and perpetually low supply. Multiple and subject-free offers are once again taking place for entry-level homes. In situations where a deal looks too good to be true, be prepared to engage in competitive bidding against a multitude of other prospective buyers.
Credit: Hedgeye

January signalled a transition back to a seller's market, marked by a disparity between the rate of newly listed properties and the surge in home sales. Following a subdued December, Greater Vancouver witnessed a 38.5% uptick in sales compared to January 2023, although it remained 20.2% below the 10-year seasonal average. Meanwhile, the Fraser Valley outpaced this growth with a noteworthy 52% year-over-year increase in sales.

Currently, the sales-to-active listings ratio stands at 17.2%, indicating a balanced market. However, specific property types tell a nuanced story, with detached homes favoring buyers at 11.9%, attached homes at 22.9%, and apartments at 19.9%. The overall supply of listings in Greater Vancouver sits at 6 months of inventory, while some of the most active markets, including Burnaby North and South, New Westminster, and Port Coquitlam, are more constrained with 4 months of supply, suggesting varied opportunities and challenges across different segments.

Having engaged with numerous sellers who chose to withdraw their homes from the market towards the end of last year, some simply experienced a change of heart, opting to retain their property as a long-term investment. If January's sales figures serve as a precursor to the upcoming spring market and sellers continue to refrain from listing, the competition among buyers will intensify, shifting the market back into sellers' favour as available inventory struggles to match growing demand. 

Lowest national 5-year fixed rates since June

As reported in the Canadian Mortgage Rate Survey produced by mortgage columnist and rate strategist, Robert McLister, the lowest national 5-year fixed rates as of yesterday were: 
  • Insured: 4.69%
  • Uninsured: 5.29%
The lowest nationally available rates are determined based on providers who advertise online and lend in at least nine provinces. If a provider’s rates differ by province, the highest rate they offer is displayed. Insured rates apply to those buying with less than a 20% down payment or switching a pre-existing insured mortgage to a new lender. There's no telling how long these rates will last in the face of rising funding costs. For spring home-hunters, best to lock down a 120-day rate hold after a string of resilient economic data.

U-HAUL transactions indicate interprovincial migration

As a real estate investor, you want to skate to where the puck is going, and U-HAUL, being the leading moving and storage resource, is an excellent indicator of migration patterns in North America. To no surprise, Alberta had the highest growth rate for 2023, while its largest market, Calgary, is Canada's top growth city based on one-way U-HAUL transactions. Its population was the fastest growing in Canada, rising by over 10,000 for five consecutive quarters. British Columbia jumped from 9th place in 2022 to 2nd place in 2023 among all growth provinces, mirroring Alberta's success. Ontario posted the biggest net loss, despite its 9 markets that are in the top 25 Canadian growth cities.

"We first noticed a strong trend of U-Haul customers moving into Alberta in 2020 because of the affordable housing, and since then the province has continued attracting residents and bringing in new jobs," stated Naga Chennamsetty, U-Haul Area District Vice President of Western Canada. "Cities like Calgary and Edmonton saw a good influx of new residents again in 2023."
U-HAUL migration in Canada

Government continues to clamp down

The Federal Government extended the Foreign Buyer Ban for another 2 years until January 2027. A ban that's had a negligible effect on housing affordability given the relatively small share (~1%) of the overall housing market. With the amount of loopholes and exemptions, it's been no more than political theatre rather than effective economic or housing policy.

2023 saw record population growth at a quarterly rate of 1.1%, pushing the total population beyond 40.5 million. In an effort to control the surge in population, the Feds also announced a 2-year cap on international student admissions. It's estimated it will reduce new student visas by about 35%—a necessary step on the heels of a 22% increase in rents across Canada over the last 2 years, according to Urbanation and

"It's good to see the federal government start to bring some rationality back to the number of international students," said Mike Moffatt, an economics professor and expert on housing from Western University. "We need to bend the curve and allow the housing market to catch up to our population growth.

Hotels making a comeback

With looming short-term rental restrictions coming into effect May 1, 2024, cities like Kelowna have taken a step further and approved sweeping policies far exceeding those introduced by the province. Their city council's decision came down to what would benefit the community as a whole and not individual homeowners, encouraging developers to focus on long-term housing and protect the city's housing stock.

Developers and hospitality groups must have smelled blood in the water, as a building boom for hotels is underway. It's a rather opportunistic combination of steadily escalating prices, high occupancy, and a forecasted shortage of hotel (and short-term rental) accommodation. Vancouver is seeing the highest surge of hotel planning and development across all major cities in Canada, and is ranked #1 in terms of revenue generated per room. According to development consultancy Lodging Econometrics, there were 294 projects, or 38,000 rooms in the works as of the end of 2023.

Vancouver-based real estate developer Bosa Properties and Listel Hospitality Group jointly announced that the Listel Hotel in the Vancouver's West End is set for redevelopment, in what the two referred to as a "strategic partnership." The six-story Listel Hotel will be transformed into a 28-storey mixed-use tower. Following the redevelopment, the building will consist of 174 hotel rooms occupying the lower portion of the tower and 126 rental units — ranging from studios to three-bedrooms — occupying the upper portion. Combining hotel rooms with long-term housing, to smooth out any hotel-revenue fluctuations, is a winning strategy employed by similar Hotel brands in the city such as Pacific Rim and Shangri-La.

"Rental is easier to finance than all hotel," said Marc Ricou, a vice-president at Bosa. "Hotels are quite economically sensitive, so it’s a way to diversify and reduce the risk."
Listed Hotel redevelopment
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