REAL ESTATE

• World's bubbliest housing markets are flashing warning signs

Enda Curran, Bloomberg News

A world economy already contending with raging inflation, stock-market turmoil and a grueling war is facing yet another threat: the unraveling of a massive housing boom.

As central banks around the globe rapidly increase interest rates, soaring borrowing costs mean people who were already stretching to buy property are finally reaching their limits. The effects are being seen in countries such as Canada, the US and New Zealand, where once-hot residential real estate markets have suddenly turned cold. 

It’s a sharp reversal from years of surging prices fueled by rock-bottom mortgage rates and government stimulus, along with a pandemic that popularized remote work and sent homebuyers on the hunt for bigger spaces. An analysis by Bloomberg Economics shows that 19 OECD countries have combined price-to-rent and home price-to-income ratios that are higher today than they were ahead of the 2008 financial crisis — an indication that prices have moved out of line with fundamentals.

Taming frothy home prices are a key part of many policy makers’ goals as they seek to quell the fastest inflation in decades. But as markets shudder from the prospects of a global recession, a slowdown in housing could create a ripple effect that would deepen an economic slump.

Falling home prices would erode household wealth, dent consumer confidence and potentially curb future development. Animal spirits are typically tamed when people are faced with higher repayment costs on an asset that’s losing value. And property construction and sales are huge multipliers of economic activity around the world.

“The danger is business and financial cycles turning down simultaneously, which can lead to longer-lasting recessions,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “A decade of QE has fueled frothy housing markets and we could be entering the other side of this soon, as housing affordability is stretched and debt-service ratios could rise sharply.”

Such a scenario would gum up bank lending as the risk of bad loans increases, choking the flow of credit that economies thrive on. In the US and Western Europe, the housing crash that precipitated the financial crisis hobbled banking systems, governments and consumers for years.

To be sure, a 2008-style collapse is unlikely. Lenders have tightened standards, household savings are still robust and many countries still have housing shortages. Labor markets are also strong, providing an important buffer.

“Lower prices will have a direct effect on consumer spending and the whole economy, as typically real estate makes up a significant part of households’ wealth,” said Tuuli McCully, head of Asia-Pacific economics at Scotiabank. “Nevertheless, as household balance sheets in many major markets remain healthy, I am not particularly worried about risks related to house prices and the world economy.”

Still, the risk of a sharp drop in prices is clearly greater when there’s a synchronized global tightening of monetary policy, said Niraj Shah of Bloomberg Economics in London. More than 50 central banks have raised interest rates by at least 50 basis points in one go this year, with more hikes expected. In the US, the Federal Reserve last week boosted its main interest rate by 75 basis points, its biggest increase since 1994.

Housing markets in New Zealand, the Czech Republic, Australia and Canada rank among the world’s bubbliest and are particularly vulnerable to falling prices, according to Bloomberg Economics. Portugal is especially at risk in the euro area, while Austria, Germany and the Netherlands also are looking frothy.  

In Asia, South Korea house prices also look vulnerable, according to an analysis by S&P Global Ratings. That report noted risks from household credit relative to nominal GDP, the growth rate of household debt and the speed of house-price gains. Elsewhere in Europe, Sweden has seen a dramatic turnaround in housing demand, sparking concern in a country where debt runs at 200 per cent of household income.

Goldman Sachs Group Inc. economists wrote in a report last week that the signals from home sales typically precede prices by about six months, indicating that several countries are likely to see further declines in values. A substantial cooldown in housing markets is an important reason why developed economies will likely slow, according to the economists led by Jan Hatzius.  

“The very rapid deterioration in affordability and large drops in home sales suggest that a hard landing is a meaningful risk, especially in New Zealand, Canada, and Australia, although that is not our baseline given current tightness," the Goldman economists wrote.

Central banks are issuing warnings of their own. The Bank of Canada said this month in its annual review of the financial system that high levels of mortgage debt are of particular concern as interest rates rise and more borrowers are strained to pay bills. The Reserve Bank of New Zealand’s semi-annual Financial Stability Report said that the overall threat to the financial system is limited, but a “sharp” decline in house prices is possible, which could significantly reduce wealth and lead to a contraction in consumer spending. 

“As borrowing costs rise, real estate markets face a critical test,” Bloomberg's Shah said. “If central bankers act too aggressively, they could sow the seeds of the next crisis.”

Here is what’s unfolding in bubbly housing markets around the world.

 

NEW ZEALAND

If 2021 was the year New Zealand’s house-price growth reached dizzying heights, with an annual increase of close to 30 per cent, 2022 is shaping up to be the year the music stops — and the abrupt change has left people scrambling.

In March, Jonathan Milne decided it was time to sell a family home in the Auckland suburb of Onehunga and purchase a larger house nearby for NZ$2 million (US$1.3 million). He and his wife, Georgie, were optimistic of a speedy sale and a good price for their old home, which was valued by the local government at NZ$1.8 million.

All that changed in April when the RBNZ took aggressive action to tackle inflation, hiking the official rate by 50 basis points to 1.5 per cent — its biggest increase in 22 years. It quickly followed with another 50-basis-point jump in May and a projection for the rate to peak at close to 4 per cent next year.

Milne’s house was meant to be sold in May via auction, a popular method of home sales in New Zealand, but not a single bidder showed up for the event.

“What we didn’t anticipate was that it would be so hard to market and sell our house,” said Milne, the 47-year-old managing editor of a news website. “We knew that every week that passed would knock another NZ$100,000 off the price.”

At the end of last month, they accepted an offer that Milne described as “dramatically” below the government valuation.

Economists expect New Zealand house prices will fall about 10 per cent this year and may eventually drop as much as 20 per cent from their late 2021 peak. While for many homeowners that’s a small decline compared with the massive equity gains in recent years, there likely will be broader effects. ANZ Bank forecasts subdued consumer spending due to a mixture of people feeling poorer because of falling house prices, the impact of higher rates on cash flow, as well as higher food and energy prices, according to Sharon Zollner, the bank’s New Zealand chief economist.

“There are going to be house buyers who have just entered the market in the last year or so who started off with a mortgage rate of 2.5 per cent and all of a sudden they are rolling off on to a mortgage rate closer to 6 per cent,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. “There is going to be some pain for sure.” — Ainsley Thomson

 

CANADA

The housing market in Canada has turned so fast some buyers are losing money on their properties before the sales even close.

“People are actively trying to get out of deals,” said Mark Morris, a Toronto-based real estate lawyer who cited one example where a property’s assessed value came in $200,000 (US$155,000) less than the purchase price agreed to only a couple months before. That left the buyer willing to give up their $100,000 deposit to avoid closing, he said. “I’m called several times a day by various people who feel that they’ve paid too much.”

Such cases are cropping up after Canada posted its first national home-price decline in two years in April, followed by another drop in May. Though so far the pain has been concentrated around the markets which saw the biggest pandemic runups — Toronto and its surrounding regions — the strains are already starting to spread to formerly hot markets around Vancouver too.

Like in other countries, the turmoil in Canada’s housing market is being caused by an aggressive campaign to raise interest rates by the central bank. The benchmark has already gone from 0.25 per cent at the beginning of the year to 1.5 per cent today. With even higher rates expected, some economists say home prices could fall as much as 20 per cent in the hottest markets.

It’s a drastic change in a country that saw prices rise by more than 50 per cent over the two years since the pandemic started. With prices rapidly outpacing wage growth, some buyers’ hope of entering the market came from low rates that are now jumping.

“It’s the marginal buyer who’s supporting current valuations, so that could mean significant impact on the housing market,” said Matthieu Arseneau, deputy chief economist at National Bank of Canada, who says home prices nationally could fall as much as 10 per cent. “Will new buyers be able to afford those prices at these rates?” — Ari Altstedter 

 

U.S.

Mabel Melendi could tell the housing market in Cape Coral, Florida, was slowing after a week went by and she still hadn’t received any inquiries or offers on a newly constructed home she listed in mid-April. Just three months ago, she received a bid on a similar property within three days of putting it on the market. 

But after three price cuts — knocking the asking price down to US$425,000 from US$510,000 — and more than two months after the initial listing, she was still looking for buyers in mid-June. One offer that came in over Memorial Day weekend fell through after the buyer couldn’t qualify for a large enough mortgage.

“Most of the people don’t qualify for what they used to qualify for before,” Melendi said. 

Mortgage rates have increased this year at the fastest pace in records dating back a half century, according to Freddie Mac. The average rate for a 30-year loan reached 5.78 per cent last week, the highest since 2008. That’s led to price cuts for both builders and existing-home sellers as demand rapidly cools. 

Almost 20 per cent of US home sellers cut prices in the four-week period ended May 22, the most since October 2019, according to the brokerage Redfin Corp. The share was higher in some markets that became hot destinations during the pandemic for people seeking more affordably-priced homes. In Boise, Idaho, for example, 41 per cent of sellers dropped prices in April. In Cape Coral, it was about one in three.

Sellers are realizing that prices may not keep rising at the same pace they previously did as buyers are increasingly squeezed, said Daryl Fairweather, Redfin’s chief economist. “Prices are going to have to come down to match demand,” she said.

After rising by an estimated 18 per cent in 2021, US single-family home prices are forecast to grow by a more moderate pace of 10 per cent in 2022 and 5 per cent in 2023, according to Freddie Mac. “It’s a pretty significant slowdown, but coming from scorching-hot house-price growth,” said Len Kiefer, the company’s deputy chief economist. A shortage of homes for sale and pent-up demand from people seeking more space — along with millennial buyers getting older and starting families — means prices nationally should still trend higher, he said.

Still, the effects of slowing demand are reverberating through the real estate industry: Redfin and Compass Inc. said last week that they will lay off employees after the sudden cooldown in the market. — Jonnelle Marte

 

CZECH REPUBLIC AND HUNGARY

The Czech Republic stands out in Europe for its high homeownership rate, fast inflation and low unemployment, said Vit Hradil, a senior economist with Prague-based investment firm Cyrrus. Combined with a uniquely complex construction permit system and growing demand from expats seeking work in the capital, the country has faced staggering price increases that have far outpaced income growth.

A quarterly gauge of Czech house prices rose 26 per cent in the December from the previous year, according to London-based data analysis company CEIC Data. The difference between an average citizen’s income and real estate prices in the country is now one of the widest in the European Union, raising serious bubble fears. 

To tame inflation that reached 16 per cent in May, the Czech central bank has been on a monetary tightening campaign that lifted interest rates to the highest level since 1999, before another meeting this week. 

“You would expect these rates to cool demand but, with inflation rates that much higher, it’s not working,” said Hradil, who added that people in the country see housing as an inflation hedge and prefer investing in real estate rather than stocks.

In Prague, video-effects producer Meera Sankar gave up on buying a home. Initially aiming to find a one-bedroom apartment in the city center for 3 million koruna (US$130,000), the Ireland native eventually doubled her budget, but still couldn’t find an apartment that met her criteria. What she found either needed complete renovation or was in a remote or relatively unsafe area. 

“For this kind of money you can get a huge four-bedroom house near Cork, Ireland, or a 150-square-meter apartment in my dad’s hometown in India,” she said. “It just doesn’t add up.”

The Czech Republic ranks second on Bloomberg Economics’ bubble measure, followed by its regional neighbor, Hungary. There, Prime Minister Viktor Orban has pushed homeownership incentives in a bid to boost fertility rates.

Prices in the country increased almost 20 per cent in the last three months of 2021, compared with the same period a year earlier, according to the European Union’s data agency Eurostat. The situation has only been exacerbated by the war in Ukraine, which has pushed up energy costs and limited construction-worker availability. Last week, the central bank unexpectedly raised the key interest rate by 50 basis points. — Alice Kantor

 

U.K.

The UK housing market is starting to slow after two years of historic growth. As part of pandemic measures, homebuyers were exempt from a stamp tax duty on properties valued at up to £500,000 (US$614,000) between July 2020 and June of last year, sending prices escalating even further and making housing “seemingly detached from the rest of the economy,” said Tom Bill, head of UK residential research at Knight Frank.

Now, the Bank of England has increased rates five times in recent months, with more hikes expected to come. That may portend a cooldown in real estate for the rest of the year, with more supply becoming available as homeowners rush to beat declines in values, Bill said. 

Already, approvals for new home loans have dropped to the lowest in almost two years. Buyer inquiries fell in May after gaining for eight straight months, according to a survey from the Royal Institution of Chartered Surveyors.

“People are worried about the economy, about how the war in Ukraine will affect prices and the rising cost of living,” said Aneisha Beveridge, head of research at UK real estate company Hamptons International. “They’re more cautious.”

The Bank of England decided this week to scrap affordability tests, which gauge borrowers' ability to repay their mortgages, as of Aug. 1. That could increase the risk of first-time homebuyers making purchases they can't afford.

Still, areas such as prime London are faring well, Bill said, as foreign investors flock to the international destination and students return following the pandemic. Secondary cities like Birmingham, Liverpool and Manchester are seeing their prices grow even faster than in the capital. 

“As long as the UK is seen as a country with a rule of law, good schools, and the respect of private property, money will always flow in,” Bill said. — Alice Kantor

Nearly half of Canadian renters expect to stay tenants: Survey

Adena Ali, The Canadian Press

Almost half of Canadians who rent expect to continue doing indefinitely and aren't sure when they'll be able to get into the housing market, says a new survey.

Renters surveyed by insurance firm Canada Life cited a lack of cash, fear and uncertainty as reasons for staying on the sidelines, with almost 73 per cent saying it's a bad time to buy a house and 17 per cent saying they'll never buy one.

Ninety-one per cent of renters surveyed believe buying a home is getting harder every year, and 89 per cent expect the next generation to have an even harder time getting into the housing market.

While 79 per cent of respondents believe homeownership is a good investment, 64 per cent don't think they'll be able to buy a house unless they have financial support from others like family members.

The survey, conducted between May 5 and May 11, also found that Canadians between 25 and 29 are two times more likely to continue renting indefinitely compared with those aged 30 to 49.

The housing market is showing signs of cooling, however, with home sales dropping nearly 22 per cent in May compared with last year, and almost nine per cent between April and May, according to recent data from the Canadian Real Estate Association (CREA). The countrywide average, non-seasonally adjusted price of a home was $711,000 in May, down almost five per cent from April.

But that doesn't mean renters are feeling more confident in their ability to buy a home, as out-of-control inflation and rising interest rates impact the availability of funds, said Paul Orlander, executive vice-president of individual customer at Canada Life.

"These factors will likely have Canadians continuing to see homeownership as increasingly challenging," he said in an interview.

Current homeowners are also feeling the pressure, with 24 per cent of those surveyed saying they feel house poor.

As the Bank of Canada continues to hike interest rates, homeowners could face even more pain as mortgage payments climb higher.

The central bank, which is scheduled to make its next interest rate decision on July 13, has signalled that it is open to larger hikes if needed. Meanwhile, Canada's inflation rate skyrocketed to 7.7 per cent in May, according to Statistics Canada.

Regardless of the decision Canadians make around homeownership, wealth building and retirement plans will be affected.

While buying builds equity that could be valuable long-term, homeownership and the cost of maintaining a house can actually displace Canadians' ability to save for retirement, Orlander said.

Renting on the other hand can offer more flexibility and can preserve free cash flow for savings and investments each month that could go toward retirement, he added.

Alberta housing starts rebound to 2015 levels as oil prices surge

Amanda Stephenson, The Canadian Press

Alberta's cities are once again abuzz with the sound of hammers and saws as surging oil prices fuel a fresh building boom in the province.

According to Statistics Canada, housing starts in Alberta, seasonally adjusted at an annual rate, climbed by 15.2 per cent to a seven-year high of 46,456 units in May.

Taking rural areas out of the equation and looking only at urban centres with a population of 10,000 or more, housing starts in Alberta were up 34.6 per cent year-over-year. By comparison, housing starts in Canada as a whole increased 3.4 per cent over the same period.

“Calgary’s definitely been leading the way in amounts of activity," said Scott Fash, executive director of the Building Industry and Land Development Association Alberta (BILD Alberta). 

"Edmonton's a little behind, but they're also seeing the most starts since 2015. But Calgary is just going nuts and booming."

Economists have long viewed housing starts as an important economic indicator, both because new home purchases are an expression of consumer confidence but also because homebuilders are unlikely to start a project that will take several months to complete unless they believe they'll still be able to sell it at the end of that period.

In Alberta, the fact that housing starts are now the highest they've been since March of 2015 speaks volumes about the mood in a province that is emerging from years of economic downturn. New home construction in Alberta cities boomed from 2010 to 2014, a period when the province's commodity-driven economy was roaring. But the oil price crash that began in late 2014 plunged the province into recession and slowed construction.

Now, however, oil prices are surging, and many of Alberta's largest companies are posting record profits. The province is also once again starting to attract new residents from all over the country. Alberta led all other provinces in interprovincial migration in the fourth quarter of 2021 for the first time since 2015, according to Statistics Canada.

"I think homebuilders are betting on things looking up," said Rob Roach, deputy chief economist for ATB Financial. 

While he cautioned that rising interest rates are expected to take a bite out of new home construction in the back half of the year, Roach said that impact will likely be less severe than in other parts of the country thanks to the strength of the oil and gas sector.

“Overall, it does look like Alberta is going to have a good year, better than most other parts of the country,” he said. "It's not 2014 again, we're not getting that level of boom — but we are getting a nice, solid boost."

It may not be 2014 again, but Dhruv Gupta — president of the Akash Group of Companies, which builds homes in the Calgary, Edmonton and Fort McMurray regions — said the mood in the industry right now comes closer to mirroring that heyday than it has in nearly a decade. While he said rising interest rates will definitely have a negative impact on his company's ability to move houses, he expects Alberta to be better placed than other jurisdictions to weather the storm. 

Already this year, Gupta said, his company has seen a significant influx of Ontario buyers looking to move to Alberta because of its relatively affordable real estate prices. He said that trend could continue as interest rates and the cost of living rise.

"We (Alberta) have got the highest wages in the country with amongst the lowest house prices, and we have $120 oil," Gupta said. "So there’s a lot of positivity here that isn’t necessarily being felt in other parts of the country.”

But just as it did in the boom years, all of the construction right now is bringing with it challenges. A lack of available workers is straining builders and in some cases, delaying project completions, Fash said.

"It's actually worse than 2014, because the whole North American labour pool is taxed right now," he said. "You could have all your foundations poured for 20 homes, and then you might not be able to get access to framers for six weeks ... for most of the people I've talked to, it's like nothing they've ever seen before."

In addition, COVID-19 related supply chain issues continue to be a frustration, affecting the availability of everything from lumber to toilets to refrigerators.

"It’s just this rotating set of headaches, like, ‘oh, I can’t get any siding other than grey for the next six months,’ ” Fash said. “It’s basically a daily grind to try to find materials and order enough.”

While Fash also expects activity to ease somewhat as rising interest rates start to have an effect, he echoed Gupta's view that Alberta's relative affordability compared to other markets could keep those hammers and saws going for a while.

“If you have the ability to move, because of remote work or otherwise, what $500,000 gets you in Alberta relative to any other major centre or province is drastically different," he said. "Rising interest rates are only going to feed into that."

RENT INCREASES = INFLATION

CALGARY RENTS INCREASE 21% YOY

Distressed deals pile up in Canada's once-booming housing market

Ari Altstedter, Bloomberg News

Zohal Habibi hadn’t even moved into her new home in the suburbs of Toronto when she started regretting the purchase. “We took a very bad decision,” she says.

It’s not about the house itself. She and her husband are excited about the extra space it’ll give them and their two young kids. The problem is the price they agreed to pay for the three-bedroom home in March: $920,000 (US$711,000).

Not long after, prices started to slide, and quickly. By the time their lender got around to appraising the house in May, it marked the value down to $800,000. A second appraisal a few weeks later was even grimmer -- $740,000.

Legally bound to the deal but no longer able to obtain a big enough loan to go through with it, the couple pleaded with the seller to nudge down the price. On Thursday, they closed at $810,000. “We didn’t know that the market would crash,” Habibi says.

All across greater Toronto, until recently the epicenter of a national housing boom with few peers anywhere, similar tales are piling up. The specifics can vary: from someone who bought a new house before selling their old one and now can’t get as much money as they were counting on, to situations like Habibi’s, where the appraisals that determine the maximum mortgage size come in far below the agreed-to price, to simple cases of buyer’s remorse.

But they all amount to one thing: Sellers must agree to a lower price, fast. That’s contributed to home values in metropolitan Toronto declining at an unusually rapid clip — the average selling price is down nearly 9 per cent in three months. And with the pain now spreading to other parts of Canada, such distress threatens to both accelerate and deepen a housing market decline that’s already underway. On Wednesday, the national benchmark home price posted its second straight monthly decline, with many of the small cities and towns that saw the biggest gains on the way up now correcting fast.

An apartment building in the Parkdale neighborhood of Toronto. Longer-term mortgage rates have climbed swiftly as global bond markets respond to the spike in inflation. Photographer: Cole Burston/Bloomberg

“A lot of the sellers in the market today are effectively distressed sellers,” said John Pasalis, who runs Toronto-based brokerage Realosophy Realty Inc. “This is putting a lot of downward pressure on prices.”

The reason for the market’s sudden turn is the unusually rapid increase in rates. To cool inflation from a 30-year high, the Bank of Canada has raised the benchmark rate from 0.25 per cent to 1.5 per cent since March, and opened the door to lifting it to 2.25 per cent next month. Longer-term mortgage rates have also climbed swiftly. Because the inflation fight is global, similar processes are playing out around the world. In the US, 30-year mortgage rates have nearly doubled in a year, reaching levels not seen since 2008, while in New Zealand houses are failing to sell at auction since the central bank started raising rates.

In Canada, though, the market downturn is starting to develop a momentum of its own, and flashing a warning to policy makers elsewhere trying to use shock therapy to bring their own wild housing markets to heel.

Because the real estate market operates like a food chain — first-time buyers purchase a starter home from someone who uses that money to buy something bigger from another person, who may buy something else in turn — a break in any of those links can cause problems all the way up. When one party can’t close, it can mean their counterparty can’t follow through on another deal, and the ensuing cash crunches can result in either the seller offloading their property fast for whatever they can get, or the buyer, assuming they can't renegotiate like Habibi did, having to borrow money at high interest to cover the shortfall. That’s the scenario that appears to be playing out in some parts of Canada now.

“I’ve seen an influx in cases that are beyond anything anybody’s ever seen,” said Greg Weedon, a Toronto-based real estate lawyer who says 20 files related to buyers unable to fulfill their purchase contracts have hit his desk in just the last two weeks. “I’ve restructured my whole business at this point to exclusively take in files related to buyers in breach. That’s going to be my business model going forward for the foreseeable future.”

Much of the distress playing out in the market today is down to buyers and sellers caught by the rapid turn in prices. Until March, when bidding wars were common in many regions, it made sense to buy before you sold, or make offers that weren’t conditional on bank appraisals and financing coming through. Now that the market is falling, buyers and sellers will likely adjust their strategies, and that will mean fewer people getting into distress in the same ways going forward.

But with the Bank of Canada signaling it’s not done raising rates, the next question will be whether everyone who did manage to close their deals can hold on.

Workers at a condo building under construction in Lasalle, Quebec, Canada. Photographer: Christinne Muschi/Bloomberg

Through the pandemic, variable rate mortgages came to account for more than half of all new home loans as buyers sought the lowest rates they could get to afford the record high prices. Now, about 60 per cent of all the variable rate loans outstanding will see their monthly payments increase alongside the central bank rate, according to research from National Bank of Canada.

And real estate investors, who have come to account for about a fifth of the market, are also often highly leveraged through short-term or floating-rate debt. In its annual review of risks to Canada’s financial system this month, the central bank said such investors could be more likely to sell as their borrowing costs rise and house prices fall.

Susan  White Livermore, a professional housing investor based in Barrie, Ontario, about an hour’s drive north of Toronto, says she sold four of her 20 properties at the beginning of the year as she started to “feel the fear coming in the market.” Now, White Livermore says she’s waiting to see how this correction plays out before she starts buying again.

“Once people have had to deal with the interest rates for a little while, there might be more deals,” she said. “I want to know that we’ve hit the bottom and stabilized before I start looking.”

Canada's house price boom strongest in suburbs as gap with downtown shrinks: Study

The Canadian Press

New research shows house prices in Canada's suburbs grew faster than in downtown areas during the pandemic as remote work spurred a preference for bigger homes.

The Bank of Canada said in a study Monday that the closure of many downtown services coupled with a desire for more living space increased demand for homes in suburban areas.

This shift weakened the so-called proximity premium typically associated with homes in more urban areas, which tend to be more expensive due to scarcer land, shorter commutes and better access to services, the central bank said.

The research shows that while house prices increased strongly in most neighbourhoods during the pandemic, the growth was strongest in the suburbs.

As a result, the real estate price gap between Canada's suburbs and downtown areas -- already narrowing steadily pre-pandemic -- shrank considerably, the bank said.

In 2016, for example, suburban homes in Canada typically sold for 33 per cent less than those in the downtown core, according to the bank's study.

By 2019, they were selling for 26 per cent less as the gap narrowed.

If the same trend continued, by 2021 houses in the suburbs were expected to sell for about 21 per cent less than in downtown areas.

But instead, houses in the suburbs sold for about 10 per cent less than in downtown areas -- a significant reduction in the price gap between the suburbs and downtown areas, the bank said.

Meanwhile, as the economy reopens from pandemic shutdowns many workplaces have fully reopened or transitioned to a hybrid work environment, where workers are required to be in the office a few days a week.

In addition, services and amenities that were shut down during the pandemic -- such as salons, gyms and restaurants -- have reopened.

The shift in working conditions and reopening of downtown offices and businesses could once again influence the housing market.

The bank warned that if the change in preferences towards larger homes outside downtown areas is fleeting, housing prices in the suburbs could face downward pressure.

"If this preference shift is temporary, the proximity premium could return partly toward its pre-pandemic level," the bank said in the study.

"Such a shift in relative prices could be especially problematic if housing supply in more suburban areas were to respond strongly in anticipation of local demand continuing to increase."

GIG ECONOMY 4 UFCW TO ORGANIZE

Loblaw and DoorDash partner on rapid grocery delivery service

The Canadian Press

Loblaw Cos. Ltd. and food delivery company DoorDash Inc. today announced a collaboration that introduces a rapid grocery delivery service to customers in Canada.

Customers will be able to order items from Loblaw retail stores, including Loblaws, Real Canadian Superstore and Shoppers Drug Mart, for delivery from DoorDash in 30 minutes or less.

The collaboration will kick off in major Canadian cities, including Toronto, Vancouver and Calgary.

Loblaw already has a grocery delivery partnership with Instacart, but the 30-minute delivery window will be exclusive to DoorDash.

The agreement comes as DoorDash's share price on the New York Stock Exchange has tumbled more than 60 per cent from its November high.

Financial terms of the partnership were not disclosed. 

CRIMINAL CRYPTO CAPITALI$M

Ontario regulator hits two crypto trading platforms with fines

Hilary Punchard, BNN Bloomberg

The Ontario Securities Commission (OSC) said it approved financial settlements on Wednesday with two cryptocurrency firms – Bybit Fintech Limited and KuCoin -- for failing to comply with the province’s securities laws.

The regulator said both companies operated unregistered crypto asset trading platforms in the province and allowed Ontario investors to trade such assets without a prospectus.

The OSC announced on Wednesday that a panel of the Capital Markets Tribunal ordered a permanent ban on KuCoin from participating in the Ontario market. The company is also required to pay a penalty of $2,000,000 and an additional $96,550.35 towards the cost of the regulator’s investigation.

The panel also approved a settlement agreement with British Virgin Islands-based Bybit that will see the crypto firm disgorge nearly US$2,500,000 and pay an extra $10,000 for investigative costs.

In March 2021, the OSC told crypto platforms to contact the organization if they offered derivatives or securities in Ontario to begin the registration process or face penalties. The regulator said KuCoin and Bybit missed the deadline to contact the commission and continued operations.

The regulator said only Bybit responded to the enforcement action and is now taking steps to bring its platform into compliance.

“Foreign crypto asset trading platforms that want to operate in Ontario must play by the rules or face enforcement action,” said Jeff Kehoe, director of enforcement at the OSC, in a press release.

“The outcomes announced [Wednesday] should serve as a clear indication that we refuse to tolerate non-compliance with Ontario securities law.”

Brookfield props up a Canadian M&A market now beating the U.S.

Kevin Orland and Layan Odeh, Bloomberg News

Brookfield Asset Management Inc. is single-handedly propping up the Canadian market for mergers and acquisitions, accounting for almost a third of the country’s deals this year and providing all the growth that has led the nation to outperform the US.

Toronto-based Brookfield was either a buyer or seller in about US$52.9 billion of announced deals in 2022 through May, more than five times its US$9.1 billion tally a year earlier, according to data compiled by Bloomberg. This year’s total accounts for 31 per cent of the US$171.6 billion of all deals involving Canadian companies, up from involvement in about 5.7 per cent of activity by the same point in 2021.

The world’s largest alternative-investment firms have billions of dollars of committed funds that they’re looking to deploy, and even this year’s market selloff hasn’t been enough to deter them. Transactions by Brookfield, as well as pension funds including Canada Pension Plan Investment Board, helped increase the value of deals involving Canadian companies 7.8 per cent through May, compared with a 6.6 per cent decline in the US.

 “The amount of money that private equity is managing and the amount of private capital that also sits in the pension plans, relative to the size of the Canadian market, is a material factor,” David Rawlings, chief executive officer for Canada at JPMorgan Chase & Co., said in an interview. JPMorgan was the top adviser for Canadian mergers and acquisitions through May, working on 14 deals with a combined value of US$43.6 billion, according to the data.

Excluding Brookfield’s deals this year and last, Canada’s M&A market would have been down about US$31.4 billion, or 21 per cent. Over the past year, Toronto-based Brookfield has raised US$71 billion and invested US$70 billion. The firm has sold around half that amount, according to a presentation during its annual general assembly.

Brookfield’s high-profile deals this year include the US$6.4 billion acquisition of US software firm CDK Global Inc. and the US$5 billion takeover of UK emergency household repairs provider HomeServe Plc. Brookfield also is involved in a group that is taking Nielsen Holdings Plc private in a deal that values the television-ratings firm at US$16 billion including debt. Brookfield also has been a seller, divesting a 49 per cent stake in New York’s One Manhattan West office tower. 

The second half of the year may see more diversified merger-and-acquisition activity, Rawlings said, adding that JPMorgan’s deals pipeline is “strong across multiple industries.” Canada’s preponderance of mining and energy companies, which have had their balance sheets bolstered by strong commodity prices, may be active in dealmaking through the remainder of 2022, he said.

That trend may already be underway. Johannesburg-based Gold Fields Ltd. agreed to buy Toronto-based Yamana Gold Inc. for about US$7 billion in a deal that would make make the South African miner the world’s No. 4 gold producer.

“Investors have almost forced these companies to pull back on development spending,” Rawlings said. “They’re generating a lot of cash, but there still is a need for consolidation to drive efficiency, even in a strong commodity-price environment.”

Labour crunch spurs losses, cancelled projects in Canada

Randy Thanthong-Knight, Bloomberg News

Labor shortages are impacting investment plans and generating “tens of billions” in lost sales at a majority of companies in Canada, according to a report by one its largest business advocacy groups.

The Business Council of Canada released a poll of 80 of its members on Friday that found two-thirds claiming the labor crunch is forcing them to cancel or delay projects, while 60 per cent say it’s led to revenue losses. Nearly a third say they’ve been forced to relocate work outside of Canada or led to a loss of market share. In total, the survey found 80 per cent of these companies are reporting trouble filling positions.

The numbers underscore the extent to which lack of workers has become the primary concern for Canada’s business executives, and the biggest constraint on the nation’s economic expansion. They also illustrates the importance of maintaining high levels of immigration into the country, according to Goldy Hyder, chief executive of the business lobby group.

“Businesses are looking for whatever options they have to make sure they’re having full capacity,” Hyder said in a telephone interview. “It’s time we catch up to where we need to be in order to compete.”

Immigration has always been a driving force of labor supply in Canada, which competes for economic immigrants with destination countries like Australia, the UK and US. But now with record job vacancies of more than a million and an aging workforce, Canadian employers have become even more reliant on migrant workers. 

International migration has helped push Canada’s population growth to almost twice the pace of every other Group of Seven country, rising 5.2 per cent from 2016 to just under 37 million people in 2021. In the first three months of this year, the country’s population grew at the fastest rate for a first quarter since 1990. 

Half of the firms surveyed said Canada should increase its annual intake of permanent residents, while the rest support the government’s current plan to bring in more 1.3 million newcomers over the next three years.

The 80 companies surveyed employ nearly 1.7 million people in more than 20 industries. The shortages exist in every region, and are worst in three most populous provinces Ontario, Quebec and British Columbia. The poll was taken in the first quarter of 2022.

COMMODITY FETISH

Pink Floyd is seeking US$500M for music catalog including 'The Wall'

Lucas Shaw, Bloomberg News

Journalists film with their cameras an installation part of the Pink Floyd Exhibition: "Their Mortal Remains", in Rome, Tuesday, Jan. 16, 2018. , Gregorio Borgia/AP Photo

Members of the rock band Pink Floyd are seeking at least $500 million in a deal for their music catalog, according to people familiar with the talks, which would be one of the largest sales in music history.

The group known for hits such as “Money” and “Comfortably Numb” is selling its recording and songwriting catalog, as well as the power to create merchandise based on the band, said the people, who asked not to be identified because the talks are confidential. Patrick McKenna, who is representing the band in the process, didn’t respond to an email seeking comment.

McKenna has winnowed the list of potential buyers to four, said the people. The names include Warner Music Group Corp., Sony Music Entertainment and BMG. Sony and Warner already distribute some of Pink Floyd’s music.

The British rock band released some of the most popular records ever, including “Dark Side of the Moon” and “The Wall,” two albums that defined music in the 1970s. The group has sold 75 million records in the US, the 10th most of any artist, according to the Recording Industry Association of America.

Many famous musicians have cashed in on a frothy market for song catalogs in recent years, capitalizing on interest from both music companies and financial firms. Bob Dylan sold his recordings to Sony Music in a deal estimated to be worth more than $150 million, and his song catalog to Universal Music in a deal for between $200 million and $300 million.

Investors are starting to grow wary of shelling out for music portfolios due to rising interest rates and uncertainty about the economy. But demand has held steady at the very top of the market.

Getting all of the members of Pink Floyd to agree on anything has been a challenge for decades. The band formed in 1965 under the direction of then lead singer Syd Barrett, who left three years later. Singer and bassist Roger Waters left the band in 1985 and later sued his fellow band mates over their use of the name. Waters and the rest of the crew have squabbled over the years as the band, led by guitarist David Gilmour, continued to release records. 

That is a big reason they chose McKenna, who runs the UK-based advisory group Ingenious Media, to guide them through the process.