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Lower Mainland home sales up and prices rise as supply dips

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(Photo credit: The image is been taken from the Vancouver Sun article page. Photo by Peter J. Thompson)

This article was published in Vancouver Sun and authored by Canadian Press, Postmedia News

Buyers purchased 4,586 homes in the Lower Mainland last month, up both from June and from July 2019.

The Real Estate Board of Greater Vancouver said on Wednesday that sales in July were up 22.3 per cent from this time last year, to 3,128 homes, and up 28 per cent from June, as the economy has largely recovered from the COVID-19 pandemic and shutdown.

The numbers were up even more sharply for the Fraser Valley Real Estate Board, which covers Surrey and other Metro Vancouver communities south of the Fraser, plus Abbotsford. It reported 1,458 sales in July, up 22.2 per cent from June and up 44 per cent from July 2019. Indeed, July’s numbers were 25.5 per cent higher than the 10-year average for July and the month was only second to July 2015 for sales.

Colette Gerber, chair of the Greater Vancouver board, and Chris Shields, president of the Fraser board, attributed the increases to low interest rates and pent-up demand after a slow spring.

Home prices also rose in Vancouver, hitting a benchmark of $1,031,400, 4.5 per cent higher than a year ago. In the Fraser Valley, detached homes hit a record average of just over $1 million, up 5.3 per cent in the past year.

While more homes were on the market in Vancouver in July than in June, the total number of homes listed for sale, 12,083, is down compared to July 2019, when 14,240 homes were listed.

Gerber said that low interest rates and limited supply have increased competition in the Vancouver real estate market over the past month.


Michael GoodmanLower Mainland home sales up and prices rise as supply dips
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Canadian home sales, prices hit record high in July as low mortgage rates drive buyers into market

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(Photo credit: The image is been taken from the Globe and Mail article page. A ‘for sale’ sign in the LaSalle borough of Montreal)

This article was published in The Globe and Mail and authored by Rachelle Younglai

Canadian home sales and prices surged to a record high in July, as buyers flooded the market and took advantage of low mortgage rates after the coronavirus pandemic briefly slowed activity in the spring.

The number of homes sold jumped 26 per cent on a seasonally adjusted basis from June to July, according to the Canadian Real Estate Association, with Toronto, Montreal and Vancouver soaring along with surrounding regions such as Hamilton-Burlington in Ontario and Fraser Valley in British Columbia.

The seasonally adjusted home price index, an industry calculation of a typical home sold, reached a record high of $637,600 last month – up 2.3 per cent over June, the largest month-to-month increase since early 2017 when real estate markets were on a tear.

Before the pandemic struck in March, the real estate markets in Vancouver, most of Southern Ontario, Toronto, Ottawa and Montreal were showing signs of overheating, with a shortage of properties triggering bidding wars.

“What we saw in July is mainly activity delayed from the spring,” said Robert Hogue, senior economist with Royal Bank of Canada. “Lower mortgage rates also probably helped a number of first-time buyers enter the market last month and work-from-home arrangements caused some people to make a move,” he said.

With the popular five-year fixed mortgage currently less than 2 per cent, there is more demand today than before the COVID-19 pandemic.

“I am seeing more home buyers and more investors than pre-COVID,” said mortgage broker Bernadette Laxamana, president of Karista Mortgage in B.C. “With the rates being so low, it’s costing them less per month to buy and more of their payment is going to principal versus interest,” she said.

Realtors have described a spike in demand for larger properties and outdoor space, as the majority of office workers were forced to work from home. This has spurred “activity that otherwise would not have happened in a non-COVID-19 world,” said Shaun Cathcart, CREA’s senior economist.

Areas such as Niagara, London, Hamilton, Burlington and Guelph in Ontario are experiencing a spike in activity and prices. The home price index for Guelph rose 3 per cent month to month to $608,100. In Victoria, the index was up 1 per cent to $719,300.

In Montreal and region, the second-largest real estate market in the country, sales jumped 37 per cent to a record high, with robust demand in the areas surrounding the downtown core. The home price index also reached a record of $401,200 across all property types, according to CREA, 2.8 per cent higher than the previous month.

The quick recovery in the residential resale market has given developers confidence to launch new projects throughout the Greater Toronto Area, even though rental prices have softened partly because of the influx of new condos and a slump in immigration.

Although the number of new property listings is increasing across the country, it is not keeping pace with sales. Over all, the inventory of listed properties is at a 16-year low, according to CREA, driving up competition.

Economists and federal mortgage insurer Canada Mortgage and Housing Corp. have warned of numerous risks to the market. That includes banks’ mortgage deferrals, some of which are due to expire in the fall and could lead to loan delinquencies and foreclosures if homeowners are unable to resume payments.

As well, federal aid for businesses and underemployed Canadians is winding down, which could lead to more insolvencies and higher joblessness if the economy does not improve.

Toronto-Dominion Bank said the loan deferrals and federal support was helping insulate the economy from the worst effects from the pandemic and said it was “important not to extrapolate recent gains too far.”

When the support starts to wind down this fall, “this could bring significant headwinds to housing markets, particularly prices,” the bank’s senior economist, Brian DePratto, said in a note.

Michael GoodmanCanadian home sales, prices hit record high in July as low mortgage rates drive buyers into market
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TFSAs, RRSPs and the tax hikes to come

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This article was published in The Globe and Mail and authored by Rob Carrick

A bit of personal finance advice to see you through the decades ahead: Fill your TFSA. Fill it to the brim.

Tax-free savings accounts are the most universally loved franchise in the Canadian money universe, which suggests a certain redundancy in urging people to exploit them to the max. But as popular as they are, TFSAs are under-used. If governments raise taxes in the years ahead to help pay for their pandemic spending, your best defence is having a topped-up TFSA.

Speculation about higher taxes ahead has already begun, even though the economy is too fragile right now to support them. People must be encouraged to spend right now and higher taxes would discourage that.

But with Ottawa, the provinces and cities spending hundreds of billions more in total than they’re taking in, tax increases seem inevitable. The Globe and Mail has recently published three items on this topic that are mandatory reading:

  • An editorial that highlights how low interest rates make even megadebts affordable for the federal government, but improvements in health care, education and poverty reduction must be paid for.
  • An Andrew Coyne column

    advocating for taxation of capital gains on the sale of a family home.

  • An article about how financial advisers are planning for clients, especially big earners, to face higher taxes ahead.

Speculating about tax hikes makes a strong case for using TFSAs. You contribute to these accounts with after-tax dollars and then you’re done, tax-wise, as long as you follow the contribution rules. Investment gains in your TFSA are tax-free, and so are withdrawals.

Expect the TFSA versus RRSP debate to intensify in the years ahead. A registered retirement savings plan works well if you have a tax rate in retirement that is lower than when you were working. The thinking here is that the tax break you got for making the RRSP contribution would be larger than the tax hit on money withdrawn from your RRSP or, once you turn 71, registered retirement income fund.

TFSAs are a good choice if you expect a higher tax rate in retirement, possibly because you have yet to reach your peak earnings years. TFSAs also work well for people concerned that their retirement income will be high enough to trigger a clawback of Old Age Security benefits. RRSP or RRIF withdrawals count toward the clawback threshold, but TFSA withdrawals do not.

There’s a lot going on in the world today in all respects, but financially in particular. We’re still figuring out how badly the economic lockdown caused by the pandemic has hurt people in terms of lost jobs and income. In the background, stocks crashed and then soared, interest rates plunged, gold prices surged and inflation tanked, except for pockets where the cost of living is pushing noticeably higher.

If your reaction to all these financial storylines is to disengage or back away, consider that bit of advice we started out with. Fill your TFSA to the brim.

You won’t regret it, even if an RRSP might turn out to be the better choice in terms of reducing total taxes paid over a lifetime. Even when RRSPs function well, people freak out about the taxes they have to pay as retirees. Tax-wise, TFSAs are friction-free.

Sure, there’s a risk that the federal government could change the TFSA rules. But slapping a tax on withdrawals of money faithfully committed for years to a TFSA is the sort of breach of faith that gets governments punted out of office. It would be smarter to focus changes on future TFSA contributions – perhaps by introducing a lifetime limit.

As appealing as TFSAs are currently and in a future sense, they’re still widely under-used. Federal government numbers for 2017, the most recent year available, show that the average amount of unused contribution room was $30,947 and the average fair market value for TFSAs per person was $19,633.26. As of 2017, total TFSA contribution room stood at $52,000; for 2020, the cumulative limit is $69,500.

There were 14.1 million TFSA holders in 2017, but 5.9 million of them did not make a contribution and only 1.4 million made the maximum contribution.

Unused TFSA capacity is a symptom of income inequity as much as anything. But if you do have money to invest, filling your TFSA is a smart way to prepare for a future with higher taxes.

Michael GoodmanTFSAs, RRSPs and the tax hikes to come
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Mixed signals? A bank offers a record breaking low fixed mortgage rate just as CMHC tightens lending rules

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This article was published in The Globe and Mail and authored by Robert Mclister

Last week was puzzling if you’re a prospective home buyer with only 5 percent or 10 percent down.

You had Canada Mortgage and Housing Corp. (CMHC) telling you it’s so risky out there that they have to make it harder for people to get a default insured mortgage.

Meanwhile, you had a Canadian bank dropping its insured five-year fixed rate below 2 percent, for the first time in history.

Could it be the best time ever, or worst time, to get a default-insured mortgage? I’ll let you know in a couple of years.

In the meantime, here’s what’s staring insured borrowers in the face today.


On Friday, HSBC became the first Canadian bank to widely advertise 1.99 per cent on a five-year fixed mortgage. This deal applies to default-insured purchases and switches (when you moved a standard mortgage to a new lender) only. You’ll pay roughly 2.29 per cent or more if you need an uninsured five-year fixed.

Realtors are hoping sub-2-per-cent rates will get their phones ringing. At the very least, 1.99 per cent will entrench the five-year fixed as Canada’s most popular term. Already, no less than 96.6 per cent of CMHC-insured mortgages in the past quarter had a fixed rate.

From an interest cost standpoint, 1.99 per cent is spectacular. How good? Well just two months ago some banks were advertising 2.99 per cent and higher. Compared with 2.99 per cent, a 1.99 per cent rate saves $149 a month, $14,074 of interest over five years and $44,787 of interest over a 25-year amortization on a $300,000 mortgage.

In days gone by, a rate this smokin’ would have sparked a mini-cattle rush into real estate. Readers may recall that in 2013, then-finance minister Jim Flaherty warned banks not to ignite a mortgage war after Bank of Montreal dropped its price on the five-year fixed to 2.99 per cent.

These days, headline-making rates won’t bring buyers the same adrenaline rush they used to, for three reasons:


Home values face unquantifiable risk in the fall if: a) mortgage deferrals end as scheduled; b) government income assistance (for example, the Canada Emergency Response Benefit) terminate as planned; c) immigration takes longer than expected to ramp back up; and d) high unemployment and underemployment persists for hundreds of thousands of Canadians.

Supply is tight and that helped prices hold up last month in places such as Toronto and Ottawa. Nonetheless, you’re going to have people who refuse to risk a capital loss on their home to save interest on a mortgage.


When five-year rates broke below the last, nice round number (3 per cent) in 2013, Canada didn’t have a mortgage stress test based on arbitrarily high rates. Today we do. If you want that 1.99-per-cent steal of a rate, you must prove you can afford a payment based on the government chosen threshold: 4.94 per cent – a number almost three percentage points higher than your true rate.

On top of that, the government shelved its proposal to let the stress test adjust to market rates. So despite five-year fixed rates dropping 140 basis points since December, the stress test rate is only down a measly 25 basis points. (A basis point is one 100th of a percentage point.)

That means a smaller share of potential buyers can enjoy Canada’s lowest five-year fixed rates than virtually ever before.


CMHC spooked the market last week by tightening credit, something that typically makes recessions worse.

Starting July 1, if you want to get an insured mortgage from Canada’s housing agency, your:

  • Gross debt service ratio, or maximum ratio of housing costs to gross income, must now be four percentage points less (35 per cent);
  • Total debt service ratio, or maximum ratio of total monthly obligations to gross income, must now be two percentage points less (42 per cent);
  • Minimum credit score must be 80 points higher (at least one borrower on the application must now have a 680-plus score);
  • Down payment must not be from unsecured borrower sources (such as unsecured lines of credit, unsecured loans or, God forbid, a credit card).

These measures could shave up to 11 per cent off an insured borrower’s maximum possible purchase price.

CMHC’s move is more symbolic than game changing, however. That’s because private insurer Genworth Canada declined to follow CMHC’s stricter rules, suggesting CMHC is overstating the risk of those loans. This means borrowers with smaller down payments, higher debt loads and lower credit scores still have options. For now, only a small, single-digit percentage of insured borrowers will no longer qualify owing to CMHC’s tightening.


Despite that a temporary scarcity of listings are keeping home prices afloat, housing risk is the highest it’s been in years. But waiting for homes to go on sale hasn’t worked well in the past.

That said, would I dive in with just 5 per cent down right now? Nope.

But everyone’s needs are different. If you’ve got strong, stable work, fallback assets if you lose your job, a reasonable debt load and can handle the risk of lower home prices, home ownership might be right for you, despite the price risk.

For those well-qualified buyers who want a big-bank five-year fixed, 1.99 per cent is closer to free money than we’ve ever been. So, from solely an interest cost perspective, it’s one of the best times ever to get an insured mortgage.
Michael GoodmanMixed signals? A bank offers a record breaking low fixed mortgage rate just as CMHC tightens lending rules
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Vaughn Palmer: Bains spills beans on WorkSafeBC surplus taking huge hit due to virus

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This article was published in Vancouver Sun and authored by Vaughn Palmer

Image: Labour Minister Harry Bains had to backtrack a bit on his comments about WorkSafeBC losing its $3 billion surplus due to the novel coronavirus pandemic. POSTMEDIA NEWS FILES / PNG

VICTORIA — Labour Minister Harry Bains was nearing the end of a media briefing last week when he fielded a question that would cause him no end of trouble.

What did he think of the B.C. Liberal proposal that WorkSafeBC use its surplus to help businesses buy personal protective equipment for employees during the COVID-19 pandemic?

“Good question,” replied Bains. “Every business has their own suppliers, and they should work with them. And if they need support from WorkSafeBC, they should approach WorkSafeBC.”

The briefing moved on. But once it was over, Bains called Rob Shaw of The Vancouver Sun, who’d asked the question, to provide an important detail.

He disclosed that the WorkSafe surplus, the one referenced by the B.C. Liberals, had been pretty much vaporized by the novel coronavirus pandemic-driven downturn in the stock market.

“WorkSafeBC is not immune to COVID-19 either,” the labour minister told the reporter.

“Their investments have sunk to almost zero when it comes to the surplus money they are sitting on. Almost all of the surplus has been wiped out a couple weeks ago because of our stock market, and that’s where the money was invested.”

The WorkSafe surplus had been reported at about $2.9 billion in its last public report. Now, said Bains, it was “almost all gone.”

The news, when reported in The Vancouver Sun Saturday, caused a stir.

WorkSafe was the lead agency in overseeing the reopening of the provincial economy, providing guidelines and oversight to businesses on how to keep employees and customers safe.

Yet it was unable to help those same businesses help their employees because of the giant hole blasted in its own surplus accounts.

Never mind that the rules would likely have precluded the surplus being used for the purposes envisioned by the Liberals.

Or that the New Democrats wanted to tap the surplus to top up benefits for injured workers. The money was gone for those purposes as well.

The B.C. Liberals lost no time pouncing on what looked like a case of mismanagement.

“The people of B.C., and especially the people who paid premiums to WorkSafe, are entitled to know who lost $3 billion in a matter of weeks,” charged Opposition leader Andrew Wilkinson. “Where is the accountability? The NDP need to answer for this immediately.”

Though the news story made clear that the loss had been confined to WorkSafe’s surplus funds, the labour minister was forced to clarify that there was no effect on the reserves used to pay current and future claims.

“B.C. employers and workers should be absolutely confident that WorkSafeBC remains on firm financial footing, and are able to maintain operations, pay benefits, protect workers,” Bains said on Sunday. “I regret that my recent comments may have caused confusion about their financial position.”

Not content with the minister’s effort to clarify the waters he had muddied, WorkSafe put out a statement of its own.

“WorkSafeBC retains a reasonable level of assets over liabilities,” it read in part. “Prior to the pandemic, WorkSafeBC was in a very strong financial position, and we remain financially sound. Currently, WorkSafeBC continues to exceed its target funding level, despite the volatility.”

But having said that, the organization admitted the minister had not pulled his comment about the surplus out of thin air.

Rather, he’d seized on a worst-case scenario generated by WorkSafe actuaries in gauging the impact of “widely varying economic forecasts” on the surplus.

“Current year-to-date investment losses are estimated to be approximately five per cent or $1 billion on an asset base of approximately $20 billion,” the agency reported. But in the worst case, it could be three times as great.

“It is impossible to know at this point what the actual final results will be,” the statement continued. “We will not know the full impact of COVID-19 on our financial position for some time.”

But a decline of even $1 billion would constitute a significant hit on the surplus.

The multibillion-dollar gap between the labour minister and WorkSafe on the surplus prompted a follow-up letter from Opposition leader Wilkinson to Premier John Horgan.

“British Columbians urgently deserve a full and up-to-date financial accounting of the money they have entrusted to WorkSafeBC,” he wrote Tuesday. “Your government must engage the auditor general to promptly report on the financial position of WorkSafeBC and provide an explanation of the minister’s comments.”

Not likely. But it is worth noting that in neighbouring Alberta, the government-owned investment manager has enlisted outside experts to investigate a reported $2 billion loss attributed to pandemic-related fluctuations in financial markets.

Here in B.C., government-owned ICBC recently admitted the decline in its equity investments could “exceed $1 billion depending on the length and scope of the market downturn.”

All of which prompted reporter Shaw to request a status update from B.C. Investment Management Corporation, which manages public sector pension plans along with investments for ICBC and WorkSafe.

“BCI had been anticipating and prepared for a market downturn by defensively positioning and diversifying our clients’ portfolios,” said the statement in reply.

“Client portfolios entered 2020 in a solid financial position, and the (pension) plans remain well funded.”

As with WorkSafe and ICBC, BCI was only speaking of the situation up to the March 31 end of the financial year.

But thanks to labour minister Bains, the public has now been alerted to the possibility of more discouraging scenarios to come.

Michael GoodmanVaughn Palmer: Bains spills beans on WorkSafeBC surplus taking huge hit due to virus
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Ontario to take control of five long-term care homes after military report citing neglect, abuse

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The article was published in The Globe and Mail and authored by Karen Howlett, Laura Stone, Jill Mahoney and Tu Thanh Ha

The image is of a body is removed from Orchard Villa Care home in Pickering, Ont., on April 26, 2020.


The Ontario government is taking control of five long-term care homes, including four that the Canadian military says neglected and abused residents, while the Auditor-General launches a review into the province’s handling of the pandemic.

The government is facing mounting criticism for failing to discover deplorable conditions in seniors’ residences before the military stepped in. Premier Doug Ford announced on Wednesday that in addition to taking over the homes, his government is ramping up inspections and fast-tracking an independent commission to probe the sector.

“We need boots on the ground,” Mr. Ford said. “I want eyes and ears in the homes that we’re most worried about.”

A Canadian Armed Forces report released on Tuesday details horrific conditions in five of Ontario’s long-term care homes – including residents left in soiled diapers and crying out for help for hours.

The Ontario government is appointing temporary management at five private, for-profit homes where a total of 263 residents have died: Eatonville Care Centre in Etobicoke, Hawthorne Place Care Centre in North York, Altamont Care Community in Scarborough and Orchard Villa in Pickering, all named in the military report, as well as Camilla Care Community in Mississauga. The government is not taking over a fifth home cited in the report, Holland Christian, because the situation has stabilized.

A second report released on Wednesday contains the Armed Forces’ findings in Quebec homes. While devoid of the appalling examples in the first report, the military portrays a dysfunctional elder-care system in Quebec that buckled under when the pandemic struck.

The report describes orderlies in Quebec seniors’ homes disappearing during their shifts, boxes of surgical masks and narcotics that went missing, long-time employees quarrelling with newcomers and repeatedly ignoring safety instructions.

The coronavirus has killed 1,587 residents of long-term care homes in Ontario and 2,700 in Quebec, the two hardest-hit provinces. The virus has also caused thousands of workers sickened with the virus in these chronically understaffed homes to miss work, forcing the premiers of both provinces to ask for assistance from the Forces.

Mr. Ford said on Wednesday the military has agreed to stay on until at least June 12. Quebec Premier François Legault has requested that the army assistance be extended until Sept. 15.

Ontario will also expedite to July a previously announced independent commission to examine the pandemic’s impact on long-term care homes, which was set to start in September. Mr. Ford said the commission will include public hearings, witnesses and public reports. It will also have authority to investigate his office and he is willing to testify.

“We want this to happen,” he said, “100 per cent I’ll be a witness.”

The Premier also promised “expanded and rigorous” inspections of the five homes named in the military’s report, as well as a sixth home the province is taking over in Mississauga, west of Toronto. He said inspectors will monitor the facilities for two weeks, with at least one inspector remaining in the home for the entire time.

The plans to beef up scrutiny of the worst-hit homes raised questions as to why government inspectors did not flag problems earlier.

Jane Meadus, a lawyer at the Advocacy Centre for the Elderly, said the announcement is “too little, too late.”

“This is something they should have been absolutely on top of and now they’re having to scramble,” she said.

Ms. Meadus noted that in late March, the Ontario Ministry of Long-Term Care said it was “redeploying” inspectors to support nursing homes as they dealt with COVID-19, the respiratory disease caused by the virus. She called on the government to reinstate comprehensive annual inspections of long-term care facilities, noting that only nine of the province’s 626 homes received in-depth inspections known as resident quality inspections last year.

Minister of Long-Term Care Merrilee Fullerton said her ministry inspectors have been “in contact” with struggling homes to provide support during the pandemic but she did not answer a question asking when the five homes in the military report were last inspected by the government. She said the province’s inspections system is rigorous and is not to blame for poor conditions in nursing homes, noting that the previous Liberal government decreased the number of resident quality inspections after a report by the Auditor-General.

“What we do know is that the homes that get in COVID-positive situations can spiral out of control very quickly,” she said.

Mr. Ford added that COVID-19 has “changed the game.” The newly announced inspections will be “a lot more rigorous than in the past,” he said.

Ontario Auditor-General Bonnie Lysyk said in an interview on Wednesday that her office is taking a broader look at how prepared Ontario was to handle the coronavirus, and launched a special audit this month into, “the whole pandemic preparedness and management” in the health-care sector.

“The inspection role is key here, listening to residents, listening to families, going in checking,” Ms. Lysyk said. “We had some concerns on the way they did that.”

In her 2015 annual report, Ms. Lysyk found that while the government conducted comprehensive inspections of all long-term care homes that year, inspectors had fallen behind on responding to critical incidents, such as abuse or neglect, as well as to complaints.

Eatonville and Hawthorne are among 11 long-term care homes owned by Rykka Care Centres.

“We have worked tirelessly to ensure the homes that we manage have the resources and the tools they need to provide a safe and comfortable environment for the seniors who call our community their home,” said Linda Calabrese, a vice-president at Responsive Management Inc., Rykka’s operating partner. “Most of the homes that we manage have been successful at keeping COVID-19 at bay.”

Altamont and Camilla are both owned by Sienna Senior Living Inc. The company did not respond to a request for comment.

Orchard Villa, which is owned by Southbridge Care Homes, did not respond to requests for comment.

The Armed Force’s 60-page report on Quebec summarizes the observations of more than 1,000 military personnel deployed at 25 seniors’ homes.

At Montreal’s Grace Dart Extended Care Centre, where 61 patients have died, some employees arrived late or would go missing during work for 30 minutes to two hours, the document said.

At Vigi Mont-Royal, a private Montreal facility where 70 residents died, the home had trouble controlling the distribution of personal protective equipment and medications. For example, a shipment of 20 boxes of surgical masks and one of narcotics disappeared.

Prime Minister Justin Trudeau said he will speak with the premiers on Thursday about how to address concerns in long-term care facilities.

He said he would not “short circuit” that conversation by putting forward proposals for reforms.

“Of course, there will be many important discussions going forward on how we establish a better system in Canada,” Mr. Trudeau said.

Michael GoodmanOntario to take control of five long-term care homes after military report citing neglect, abuse
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After $2.1-billion trading loss, AIMCo board hires outside experts to audit fund manager

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The article was published on The Globe and Mail and authored by Andrew Willis

AIMCo announced that accounting firm KPMG LLP and former Ontario Teachers’ Pension Plan chief risk officer Barbara Zvan, pictured here on April 17, 2009, have been brought on board.


Alberta’s government-owned money manager is launching a formal investigation into a recent $2.1-billion loss and promising to fix what ails a fund plagued by poor performance.

The board of directors at Alberta Investment Management Corp., known as AIMCo, announced that accounting firm KPMG LLP and former Ontario Teachers’ Pension Plan chief risk officer Barbara Zvan were brought in to “to identify lessons learned and corresponding enhancements to AIMCo’s investment and risk management processes.”

In its first public comment on the loss, which came to light in early April, the board said a report is expected by the middle of June and will be shared with AIMCo’s clients and the provincial government.

Edmonton-based AIMCo oversees $119-billion on behalf of 31 clients, including pension plans for health care workers and police officers and the $18-billion Alberta Heritage Savings Trust Fund, the province’s war chest fund derived from oil royalties.

In late March, stock markets plummeted and then soared in reaction to the COVID-19 outbreak. AIMCo posted outsized losses when an investment strategy linked to volatility “performed particularly poorly,” the board said last Thursday in a press release. In the derivative-based strategy, now discontinued, AIMCo earned small returns when markets were calm, but suffered heavy losses when the economic collapse wrought by COVID-19 sent the S&P 500 and other stock benchmarks on a roller-coaster ride, putting it on the losing end of the trades.

In early April, AIMCo clients said the fund manager faced losses of up to $4-billion but AIMCo has subsequently revised the estimate.

After learning of the loss, many of AIMCo clients met with the fund’s executives and subsequently said they were frustrated with a lack of disclosure on who was responsible for the volatility-linked strategy and what, if anything, went wrong with risk management.

AIMCo’s board took ownership of the trading losses last week and committed to improving performance at the fund manager. “Oversight of AIMCo’s investment strategies and risk management is the responsibility of the board,” the directors said in a press release. “We deeply regret this result and are determined that the lessons from this experience will improve the corporation’s management processes and prevent any similar occurrences.”

AIMCo’s board is led by former Enbridge Inc. chief financial officer Richard Bird and includes retired executives from a number of financial institutions, including BlackRock Inc., Sun Life Financial Inc. and Manulife Financial Corp. The board said it hired senior partners from KMPG’s financial risk management team to conduct “an independent review,” in additional to an internal audit by the fund’s executives. Ms. Zvan, an actuary by training, volunteered to help the Alberta fund’s board after spending 24 years at the $201-billion Ontario teachers’ fund before leaving in January. She is known as one the country’s top risk management experts.

Last month, AIMCo executives also said the fund manager planned to change its approach. “Let me be clear, the performance of this investment is wholly unsatisfactory,” chief executive Kevin Uebelein said in an open letter to clients. “Please know I am fully focused on one thing: making any and all changes to ensure AIMCo is stronger and that we avoid a repeat of this outcome.”

AIMCo incurred its high-profile loss at a time when Alberta’s economy is reeling from the combined impact of the global pandemic and oil price war. The fund manager is a central player in the ruling United Conservative Party’s plans to revive the province.

Last year, Alberta Premier Jason Kenney announced the previously independent pension plan for the province’s teachers is moving into AIMCo next year, a plan the teachers’ union opposes. Mr. Kenney has also been considering moving the province’s contributions to the Canada Pension Plan into AIMCo.

Investment performance is a continuing issue at AIMCo. The firm’s biggest client is the $50-billion Local Authorities Pension Plan, known as LAPP, which oversees retirement savings for the province’s health care workers. Alberta regulations require LAPP to use AIMCo as its fund manager. The pension plan has flagged poor performance as a problem for many years, noting in its most recent annual report that “AIMCo has been short of LAPP’s value-added expectations for 46 consecutive quarters, or 11 years and six months.”

AIMCo is expected to release financial results for the first three months of the year by the end of May, and clients who have been briefed on performance say the fund manager lagged comparable funds across most sectors, in addition to taking a significant hit on the volatility-linked strategy.

The median pension plan return was a 7.1-per-cent loss in the quarter, according to data compiled by a division of Royal Bank of Canada. However, there was a wide range of results, with top fund managers down just 2.9 per cent and the poorest-performing pension plans off by 12.7 per cent, according to RBC Investor and Treasury Services.

“It has been an exceptionally difficult period for Canadian pension plans to navigate, as the markets have been experiencing an unprecedented amount of volatility across asset classes,” RBC executive David Linds said in a release. Canada’s stock benchmark, which is heavily weighted to energy companies, was one of the worst performing markets in the world, with the S&P/TSX Composite Index declining 21 per cent in the first three months of the year.

Michael GoodmanAfter $2.1-billion trading loss, AIMCo board hires outside experts to audit fund manager
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Bidding war erupts for Vancouver heritage home during the pandemic

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The article was published on Vancouver Sun and authored by John Mackie

Image: A 1906 house at 2120 East Pender in Vancouver was recently listed for $1.588 million and sold for $1.928 million. FRANCIS GEORGIAN / PNG


Real estate listings, and sales, have plunged during the COVID-19 crisis. But some properties are still selling.

Realtor David Richardson recently listed a handsome heritage home at 2120 East Pender for $1.588 million. Open houses have been nixed during the crisis, so his office set up private viewings by appointment on April 25 and 26.

So many people wanted to see it they had to extend the viewings for two days. They received 14 offers, and the buzz in the real estate industry is that the house sold for $1.928 million, $340,000 above the asking price.

Richardson wouldn’t confirm the price because the deal hasn’t closed yet. But he said there was a lot of action.

“We sent out 8,000 flyers (for the listing, noting it was) by appointment only,” said Richardson. “We lined them up every 20 minutes, and it took four days to show 75 people.”

The house was built in 1906, when its neighbourhood (Grandview) was vying to be one of Vancouver’s elite areas.

It’s big (four bedrooms, 2,500 square feet) and is brimming with character, with a turret on the outside, big open spaces on the main floor and lots of old growth wood and stained glass. It’s also on a large lot, 50 by 66 feet.

In short it’s the kind of home you might find in parts of Kitsilano or the West End. But you’d have to pay much more for a house like this on the west side, so Richardson said many of the people looking were west siders looking east.

“There’s a 20 per cent price difference (between the west and east sides),” said Richardson, who usually sells west side properties. “On a $2 million house, that’s $400,000.”

Richardson thinks one of the reasons the house attracted so much attention was a lack of listings during the pandemic.

“Normally a guy like me carries 12 to 15 listings at this time of year. I’m carrying one or two, and they’re being snapped up right away.

Realtor Les Twarog said things have been slow.

“The real estate board normally has 120 sales a day, and we’re doing about 40 or 50 sales a day,” he said.

But things are starting to pick up: Twarog has listed eight properties in the last couple of weeks.

“I listed a property on Kingsway and Boundary, $350,000, and I got eight calls in two days on it,” said Twarog. “I have another property I listed in Victoria yesterday at five o’clock, and I got 15 calls. The price is $500,000.”

Twarog said the two key factors in selling seem to be “a lack of inventory and the price point.”

“Things are happening, but most sales are under $1.2 million,” he said. “Five hundred, six hundred, seven hundred thousand, those are the hot price points.”

On Vancouver’s west side, there were 421 detached houses for sale in April, but only 37 sales, which is down from 699 listings and 64 sales in April, 2019. In east Vancouver, there were 349 detached house listings and 49 sales, down from 664 listings and 66 sales in April, 2019.

There were 647 condos and townhomes listed on the west side in April, and 78 sales, down from 977 listings and 137 sales a year ago. Fifty-seven of the 78 sales were for $1 million or less.

On the east side, there were 386 condos and townhomes listed and 67 sales, down from 583 listings and 141 sales last April. Thirty-three of the 67 sales were for condos $600,000 and under.

Selling a home is a bit different during the COVID crisis. Realtors have been using online tools like Zoom, Google Meet and Instagram to try and show listings.

To see 2120 East Pender, you had to book an appointment in advance, and not be late.

“Each appointment was individually booked at a time,” said Sarah Starling, who works with Richardson.

“So we had 11, 11:20, 11:40, 20 minute intervals. Everyone was required to wear a mask and gloves, and we provided booties. So everybody had to go with mask, gloves, booties, one group at a time.”

Michael GoodmanBidding war erupts for Vancouver heritage home during the pandemic
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Major lenders begin to cut fixed mortgage rates

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This article appeared in the Globe and Mail on April 16, 2020
Written by Mark Rendell, Rachelle Younglai & James Bradshaw
Image: Bruce Bennett (Getty Image)

Fixed mortgage rates are creeping lower this week, as the funding markets that banks and other mortgage lenders use to raise money for loans have begun to normalize after weeks of outsized volatility.

Toronto-Dominion Bank brought its five-year fixed rate down to 3.09 per cent from 3.24 per cent this week, and several other major lenders including Royal Bank of Canada and MCAP have also reduced their rates. Five-year fixed-rate mortgages ranged between 2.39 per cent and 3.19 per cent this week, according to mortgage brokers, which is lower than the beginning of April, although still up compared with early March.

Fixed rates are finally coming down in line with a decline in government bond yields, as the cost of raising money by mortgage lenders has begun to return to normal after significant interventions in credit markets by the Bank of Canada and an improvement in investor sentiment.

Over the past six weeks, fixed mortgage rates have moved in puzzling ways.

After the first Bank of Canada interest-rate cut on March 4, mortgage lenders reduced their rates on fixed-term loans. Mortgage lenders, however, raised their fixed-term rates after the Bank of Canada’s two subsequent rate cuts in March, despite a steep drop in government treasury yields that month.

The reason for the unusual divergence between the movement of government bond yields and fixed mortgage rates is that lenders price mortgages based on their own funding costs, which are driven by market forces. As COVID-19 crashed into the financial system in late February, their cost of borrowing money, in both short-term and long-term markets, went through the roof.

Institutional investors who typically buy bank debt flocked to more liquid instruments, such as government bonds. In turn, corporate issuers saw their cost of issuing debt balloon as investors demanded larger liquidity and risk premiums to invest in anything but the safest assets.

“Investors became so defensive in their portfolios that even though the Bank of Canada interest rates were going lower, and the Government of Canada interest rates were going sharply lower, people are actually demanding higher yields to hold investment-grade credit,” said Andrew Kelvin, chief Canada strategist with TD Securities.

In late February, Canada’s largest banks could sell five-year bonds – the bedrock of five-year fixed-rate mortgages – for around 75 basis points above Government of Canada five-year bonds. That spread widened to almost 300 basis points in mid-March, although it has since come down considerably. (A basis point is a hundredth of a percentage point.)

The spreads on mortgage-backed securities and Canada Mortgage Bonds, which lenders, especially non-bank lenders, use to raise money for new mortgage loans, also shot up, even though most mortgage-backed securities are guaranteed by the federal government.

Mortgage-backed securities compete for investor attention with investment-grade bonds, said Mark Chandler, head of Canadian rate strategy at RBC Dominion Securities. “So as corporate bond spreads widened out, spreads for those got pulled wider as well,” he said.

Short-term funding markets experienced a similar shock, which had an impact on the discounts being offered on variable-rate mortgages. Although variable-rate mortgages are typically offered close to a lender’s prime rate, the discounts to prime are based on prices in the short-term credit market.

The key gauge of liquidity in short-term credit markets – the spread between the rate at which banks lend to corporations on a short-term basis and their own overnight borrowing costs – shot up from around 30 basis points in February to more than 130 basis points in March.

This was driven by the fact that demand for short-term credit outstripped supply, said Charles St-Arnaud, chief economist with Alberta Central, which provides banking services to 16 credit unions in the province. “The problem we have had is that everyone has been on the same side of the trade,” he said.

Credit markets have improved in recent weeks, with spreads coming down on a range of fixed-income products, Mr. St-Arnaud said. “That has allowed banks to see their own cost of funding being lowered,” he said.

This has been driven in part by improving investor sentiment, but also by direct central-bank interventions in the market.

In mid-March, the Bank of Canada began buying a number of fixed-income instruments on the open market, including banker’s acceptances, which are used for short-term corporate borrowing, and Canada Mortgage Bonds. At the same time, Canada Mortgage and Housing Corp. began buying mortgage-backed securities directly from mortgage lenders.

These actions appear to be improving liquidity in several systemically important credit markets, which means the cost of issuing into these markets is coming down, Mr. Kelvin of TD said.

“By lowering the cost of raising funds … that ultimately makes it easier for them to offer mortgages at somewhat lower rates, which helps the Bank of Canada’s rate cut pass through to households,” he said.

Michael GoodmanMajor lenders begin to cut fixed mortgage rates
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Alberta pension manager loses $4-billion on investment bet gone wrong

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This article appeared in the Globe and Mail on April 21, 2020
Written by Andrew Willis & Jeffrey Jones

Alberta’s government-owned money manager has lost more than $4-billion on what clients are calling a wrong-way bet against sharp swings in stock prices, dealing a heavy financial blow to a province already reeling from falling oil prices and the COVID-19 pandemic.

Alberta Investment Management Corp., known as AIMCo, suffered far larger losses than comparable funds after investing in contracts that pay off only if stock markets remain stable. It lost billions of dollars when the economic collapse wrought by COVID-19 sent the S&P 500 and other stock benchmarks on a roller coaster ride, putting it on the losing end of the trades, according to several senior pension plan officials and other sources who are familiar with the situation.

The Globe and Mail is not naming the people because they aren’t authorized to speak publicly about AIMCo’s investing strategies.

The Edmonton-based Crown corporation manages about $119-billion on behalf of 375,000 members of provincial public retirement programs as well as public accounts such as the province’s $18-billion Heritage Savings Trust Fund. With investment decisions that affect pension beneficiaries as well as Alberta taxpayers, the loss raises questions about whether the strategy was too risky.

The sources said that AIMCo now acknowledges its executives were not fully aware of the risks they were taking.

A $4-billion loss would equate to more than a third of AIMCo’s 2019 net investment income of $11.5-billion.

AIMCo’s hit on volatility-based investment strategies came on top of a sharp drop in the value of its traditional equity, bond and real estate investments in March, when virtually every investor lost money. The average Canadian pension plan lost 8.7 per cent of its value in the first three months of this year, according to consulting firm Mercer. When it formally reports quarterly results to clients later this month, AIMCo is expected to be down far more than this.

AIMCo declined to discuss details of its investing strategies. However, its director of corporate communications, Denes Nemeth, said it has not breached any internal or external rules or regulations related to the risk it can take on as a fund manager acting on behalf of pensioners and government accounts.

“The level of volatility that markets experienced in March, 2020, the result of the COVID-19 pandemic, during which volatility rose faster, and on a more sustained basis than at any other time in history, is exceptional,” Mr. Nemeth said in an e-mail. “AIMCo acknowledges that it is not immune to the challenges, unique as they may be, that institutional investors around the world have experienced.”

AIMCo executives have kept clients apprised of the market conditions’ impact on investment performance, he said.

Markets were relatively placid in recent years, and clients said AIMCo made consistent 6-per-cent to 7-per-cent returns on the volatility strategy, which is meant to be a low-risk way of generating dependable results that are not linked to the performance of public market investments such as stocks or bonds.

AIMCo’s past returns on the strategy are now overshadowed by losses on the unprecedented moves in stock prices that played out in March, when volatility reached all-time highs, exceeding records set in the 1929 stock market crash.

AIMCo told clients in early April it is terminating the money-losing approach. However, it some of its contracts with institutions such as global investment banks will not expire until June.

The sources said AIMCo already booked about $2-billion in losses in March on this one strategy, and expects $2-billion or more in additional losses as the remainder of its contracts expire, although calmer markets could reduce that. AIMCo’s results are known in the industry because it reports to clients every three months, while most other plans disclose performance numbers once a year, or semi-annually.

Sheri Wright, vice-president of the Edmonton-based Local Authorities Pension Plan, known as LAPP, would not discuss specific investments, but said plan officials were briefed on the impact of the market meltdown in early April.

AIMCo invests $50-billion on behalf of LAPP’s 275,000 members, who include Alberta’s hospital workers and other current and retired government employees.

“We have heard from AIMCo, in a preliminary reporting, that the first-quarter report is likely to show significant losses as a result of the severe market volatility that characterized the first few months of 2020, in reaction to COVID-19,” Ms. Wright said.

“AIMCo is fully aware, and we communicate to them on a regular basis, that our risk tolerances are as much a reflection of our pension obligations as the need for positive investment gains,” she said.

Alberta regulations require LAPP to use AIMCo as its fund manager. The pension plan has flagged poor performance as a problem for many years, noting in its most recent report that “AIMCo has been short of LAPP’s value-added expectations for 46 consecutive quarters, or 11 years and 6 months.”

Other clients gave AIMCo qualified support. The fund manager oversees $150-million for the city of Medicine Hat, and city controller Dennis Egert said AIMCo provided a recent update on its performance. In an e-mail, Mr. Egert said: “We appreciate the unique COVID-19 impact on the financial markets, however, we also appreciate the nature and behaviours of the capital markets.”

Early this month, AIMCo reported a return of 10.6 per cent for its 30 pension-plan, endowment and government clients in 2019. It warned in its report that 2020 would be “unparalleled” because of the impact of COVID-19 and the oil-price crash on all asset values. AIMCo warned it was dealing with “a period of sudden and unprecedented volatility” in investment markets.

“Our team is responding decisively in an effort to protect our clients’ liquidity and assets in the near and medium term, while still identifying longer-term investment opportunities that will come out of these challenging market circumstances,” chief executive officer Kevin Uebelein said in a statement announcing the 2019 results.

Investment industry experts are warning pension plan members to brace for a shock when they see recent performance numbers, and focus on their long-term goals. Andrew Whale, a principal at Mercer, said in a recent report: “There is no doubt that funded positions are down and almost every defined-benefit plan will feel this economic and public health crisis, but we’re optimistic that plan sponsors can avoid a pension crisis with smart and strategic decision-making.”

AIMCo has been at the centre of controversy over the past year. Union leaders and Alberta’s opposition NDP opposed legislation passed by Premier Jason Kenney’s UCP government in late 2019 that brought teachers’ pensions under the AIMCo umbrella. The government said the move was aimed at saving taxpayer dollars.

The Alberta Teachers’ Association has argued that its members have been well served by the Alberta Teachers’ Retirement Fund, which has managed their pensions for decades and has modelled itself on the Ontario Teachers’ Pension Plan. The transition is not due to be completed until the end of 2021, so AIMCo’s loss does not affect Alberta’s teachers and retirees.

Michael GoodmanAlberta pension manager loses $4-billion on investment bet gone wrong
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