TD Financial Group's chief economist on New Low Mortgage Rates
Canada's big banks offered homebuyers a big fat incentive last week when, led by the Bank of Montreal, most dropped their five-year fixed mortgage rates to an unheard of 2.99 per cent. Like the failing Detroit auto industry of the early 2000s, with its zero per cent financing, no-money-down offers, Canada's banks appear willing to sacrifice some profit to keep the mortgage market booming. They're still making money—and certainly won't go bankrupt like two of the Big Three automakers did—but there is a similar whiff of desperation here at a time when the housing market appears to be cooling. Even in once hot markets like Calgary, prices have flattened.
These ultra low rates are bad news for Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney, who've been warning Canadians for years to stop taking on record debt loads in this era of easy money. BMO's rate does come with a few catches, like a maximum 25-year payment period. But that doesn't mean buyers won't find themselves in trouble five years from now if rates rise.
Maybe the bigger concern is what happens if the housing market really does head south, and what that means for the Canadian economy. Over the past decade, construction was the second-fastest growing industry, creating one million jobs. It now accounts for an incredible one-tenth of Canada's GDP. Rising house prices have also made Canadians feel richer and insulated from economic troubles. As the U.S. showed, when housing is stripped from the equation, things can quickly go from bad to worse. Record-low mortgage rates might help keep the economy chugging along, but let's just hope we're not now running on fumes.
The country's smallest rental suites are unveiled in Vancouver, but demonstrators disrupt the news conference, demanding access to housing.
A Vancouver developer has unveiled 30 "micro-lofts," which are under 300 square feet in size and are touted as the smallest self-contained furnished rental apartments in Canada.
They are in a newly renovated building at 18 West Hastings Street, across from Save-On Meats in Vancouver's Downtown Eastside and were displayed Monday. The suites, which range in size from 226 to 291 square feet, go for an average of $850 per month, including cable and internet. "I was looking for an affordable living space ... and the suite was perfect," said Lia Cosco, one of the building's tenants. "The unique allocation of space and the design concepts make the small space very inviting and comfortable to live in."
While the suites may seem microscopic to some, the developer says the units maximize the square footage by using built-in pull-down wall beds, folding tables and compact appliances. 'This is a homelessness strategy'
The city, along with developers Reliance Properties and ITC Construction Group, are billing the suites as "an affordable and much needed non-subsidized rental housing opportunity in downtown Vancouver."
However, that description doesn't sit well with a handful of protesters who stormed the unveiling on Monday.
"I don't understand how this is part of an affordable housing strategy," said demonstrator Ivan Drury. "This is not an affordable housing strategy. This is a homelessness strategy." The project is in a previously abandoned building, which had been operating as a single room occupancy (SRO) hotel. Protesters are calling on the city to stop converting former SROs into brand new apartments, which are being marketed at a significantly higher cost. However, Coun. Kerry Jang defended the project, maintaining it does fit in with the city's affordable housing strategy.
"Mixed neighborhoods work best," he said. "It's because some people bring in the money, they live in these places [and] they end up subsidizing, keeping the businesses open."
Balanced real estate market prevailed through much of 2011
REBGV Stats December 2011
The 2011 Greater Vancouver housing market began with heightened demand in regional hot spots and concluded with greater balance between seller supply and buyer demand.
The Real Estate Board of Greater Vancouver (REBGV) reports that total sales of detached, attached and apartment properties in 2011 reached 32,390, a 5.9 per cent increase from the 30,595 sales recorded in 2010, and a 9.2 per cent decrease from the 35,669 residential sales in 2009. Last year’s home sale total was 6.3 per cent below the ten-year average for annual Multiple Listing Service® (MLS®) sales in the region.
The number of residential properties listed for sale on the MLS® in Greater Vancouver increased 2.7 per cent in 2011 to 59,549 compared to the 58,009 properties listed in 2010. Looking back further, last year’s total represents a 12.8 per cent increase compared to the 52,869 residential properties listed in 2009. Last year’s listing total was 11.1 per cent above the ten-year average for annual Multiple Listing Service® (MLS®) property listings in the region.
“It was a relatively balanced year for the real estate market in Greater Vancouver with listing totals slightly above historical norms and sale numbers slightly below,” Rosario Setticasi, REBGV president said.
Residential property sales in Greater Vancouver totalled 1,658 in December 2011, a decrease of 12.7 per cent from the 1,899 sales recorded in December 2010 and a 29.7 per cent decline compared to November 2011 when 2,360 home sales occurred.
More broadly, last month’s residential sales represent a 34.1 per cent decrease over the 2,515 residential sales in December 2009, a 79.4 per cent increase compared to December 2008’s 924 sales, and a 12.6 per cent decrease compared to the 1,897 sales in December 2007.
The overall residential benchmark price, as calculated by the MLSLink Housing Price Index®, for Greater Vancouver increased 7.6 per cent to $621,674 between Decembers 2010 and 2011. However, prices have decreased 1.5 per cent since hitting a peak of $630,921 in June 2011.
“Our market remained in a balanced state for most of the year, although higher levels of demand for detached properties in the region’s largest communities caused prices in certain areas to rise higher than others,” Setticasi said. “For example, the benchmark price of a single-family detached home experienced double-digit increases in nine areas within the region over the last 12 months.”
New listings for detached, attached and apartment properties in Greater Vancouver totalled 1,629 in December 2011. This represents a 4.1 per cent decline compared to the 1,699 units listed in December 2010 and a 49.4 per cent decline compared to November 2011 when 3,222 properties were listed.
Sales of detached properties in December 2011 reached 630, a decrease of 18.1 per cent from the 769 detached sales recorded in December 2010, and a 30.2 per cent decrease from the 902 units sold in December 2009. The benchmark price for detached properties increased 11.2 per cent from December 2010 to $887,471.
Sales of apartment properties reached 774 in December 2011, a decline of 4.6 per cent compared to the 811 sales in December 2010, and a decrease of 32.9 per cent compared to the 1,154 sales in December 2009.The benchmark price of an apartment property increased 3.7 per cent from December 2010 to $401,396.
Attached property sales in December 2011 totalled 254, a decline of 20.4 per cent compared to the 319 sales in December 2010, and a 44.7 per cent decrease from the 459 attached properties sold in December 2009. The benchmark price of an attached unit increased 4.2 per cent between December 2010 and 2011 to $511,499.
B.C. Assessment released its data on the value of homes in the province on Tuesday. While some regions saw values skyrocket, others dropped. Take a look to see how your property's value (and your taxes) will jump this year.
List ranked in order from largest hike to biggest drop in values:
1. Vancouver - Up 16.42%
2. Richmond-Delta - Up 12.83%
3. North Fraser (Burnaby, Coquitlam, etc.) - Up 8.45%
4. Surrey-White Rock - Up 7.83%
5. Peace River - Up 7.44%
6. North Shore-Squamish Valley - Up 6.48%
7. Northwest B.C. (Prince Rupert, Terrace, Kitimat) - Up 4.74%
8. Prince George - Up 2.36%
9. Fraser Valley - Up 1.67%
10. Nelson/Trail - Up 1.08%
11. Cariboo - Up 0.32%
12. Central Vancouver Island (Nanaimo) - Down 0.06%
REGIONAL HOUSING MARKETS: A YEAR IN REVIEW AND A LOOK AHEAD
Gradual unwinding of the over-valuation in house prices across the country
Highlights
As the year draws to a close, we conclude that the Canadian housing market put forth a respectable showing. Annual price gains are estimated at 7.5% in 2011 and sales’ growth ought to come in positive as well, but at a much more modest pace of 2.2%.
Behind the headline figure, we have seen gains in prices and sales activity decelerate in recent months. Some of the underlying factors include tighter insured mortgage financing rules and weakened confidence related to the stability of the economic recovery. Helping cushion the impact of these negative forces has been the persistence of low mortgage rates.
We believe that the average Canadian home price is over-valued by roughly 10%. Metrics like price to income, price to rent, and affordability all support this conclusion. We expect that the price excess will gradually unwind over the next two years in light of a softening in employment conditions in 2012 followed by higher interest rates in 2013.
In contrast to the resale market, starts continue to come in well above expectations. The strength witnessed over the last few years has been driven exclusively by the multi-residential category. Consistent with weaker resale markets, we expect new starts to trend toward 170,000-180,000 units in the 2012-13 period.
In addition to our national perspective, we provide an in-depth forecast of twelve major markets. While no urban center will be immune to the macroeconomic and interest rate headwinds, Calgary and Edmonton are likely to do better than the rest. By contrast, a larger-than-average price and sales correction looks to be in store for both Toronto and Vancouver.
Homebuyers came out in the early part of 2011 to take advantage of record-low interest rates and to beat out changes to new insured mortgage financing rules. With Canadians bringing forward their purchases and national job gains tapering off since the autumn, the past few months have recorded more modest price and sales gains. In all, 2011 put forth a very respectable showing with price appreciation clocking in at an estimated 7.5% and sales growth also positive, but at a more modest 2.2%. At around 190,000 units, housing starts also continued to come in above long-run averages.
Looking ahead, we anticipate a tug-of-war action to take hold in the Canadian real estate market. At one of the rope is the magnetism of low interest rates; at the other end are subdued prospects for economic, income and employment growth. Ultimately, we expect the economic side of the equation to win out over the near-term. In particular, the first half of 2012 is likely to be characterized by ongoing confidence-sapping events in Europe, global financial turbulence and slowing world economic growth.
While housing activity is expected to do somewhat better in the second half of the year, as external clouds start to dissipate, rising Canadian interest rates in 2013 should erect the next road block in the way of housing markets. Overall, we expect sales to record annual average declines of 2.4% and 3.5% in 2012 and 2013, respectively. Prices are poised to suffer a similar fate – annual average declines of 1.9% in 2012 and 3.6% in 2013. Starts should dip to an average 170,000 to 180,000 units in 2012-13. Collectively, these adjustments will gradually erase the over-valuation in the marketplace.
While no urban center will be immune from economic volatility and higher prevailing interest rates, some regions are expected to do better than others over the next two years. Among the twelve major markets profiled in this report, Calgary and Edmonton ought to lead the pack. Solid economic fundamentals and the absence of a recent run-up in prices support our call. Toronto and Vancouver do not appear to be as lucky – we have them experiencing a greater-than-average correction in both sales and prices...
HST change likely to delay new-home sales in BC until its elimination
Plans to remove the HST and return to a provincial sales tax mixed with the Goods and Services Tax will probably cause some potential buyers of new homes in British Columbia to delay purchases until 2013, Central 1 Credit Union forecasts.
In a news release Thursday, Central 1 economist Bryan Yu said: "People looking at new homes priced over $525,000 may very well wait until the tax changes lower the 12 per cent hit they face."
The HST added provincial tax to new housing on top of GST and $525,000 was the upper limit for a rebate program intended to add no additional tax on homes.
Yu is forecasting that B.C.'s total home sales through the Multiple Listing Service will reach 88,200 units by the end of this year, which is down one per cent from 2010's sales mark.
However, while resale home transactions are forecast to end the year 4.7 per cent ahead of 2010, new home transactions will lag by 26 per cent.
While sales will remain soft, the median price will rise 6.8 per cent to $417,000, Yu said.
"The real estate market will remain stable for the next couple years, weighed down by global economic issues, moderate employment and population growth and changes to mortgage insurance rules," Yu said.
Central 1 forecasts that next year total home sales are expected to increase by about 3.4 per cent, driven by higher new home sales. The resale of existing homes will decline.
Meanwhile, the Canadian Real Estate Association released a report Thursday showing that the sale of existing homes across Canada declined 0.5 per cent in August.
On a seasonally adjusted basis, sales totalled to 37,177 units during the month, down from 37,378 in the previous month, the industry group said. However, sales were still up 15.8 per cent from August 2010, on a non-adjusted basis.
The national average home price of $349,916 in August, on a non-adjusted basis, was up 7.7 per cent from a year earlier.
"[Economic] headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved. In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market."
Active home sellers bring greater selection to the Greater Vancouver housing market.
While the balance between home buyer and seller activity remains in an equilibrium range in the Greater Vancouver housing market, last month’s home sale total was below the 10-year average for July.
The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales of detached, attached and apartment properties on the region’s Multiple Listing Service® (MLS®) reached 2,571 in July, a 14 per cent increase compared to the 2,255 sales in July 2010 and a 21.2 per cent decline compared to the 3,262 sales in June 2011.
“We’re seeing less multiple offer situations in the market today compared to the last few months, but our members tell us that homes priced competitively continue to sell at a relatively swift pace,” Rosario Setticasi, REBGV president said. “It’s taking, on average, 41 days to sell a property in the region, which is unchanged from June of this year.”
New listings for detached, attached and apartment properties in Greater Vancouver totalled 5,097 in July. This represents a 23.2 per cent increase compared to July 2010 when 4,138 properties were listed for sale on the MLS® and a 12 per cent decline compared to the 5,793 new listings reported in June 2011.
Last month’s new listing total was 8.6 per cent higher than the 10-year average for July, while residential sales were 17.3 per cent below the ten-year average for sales in July.
At 15,226, the total number of residential property listings on the MLS® increased 0.8 per cent in July compared to last month and declined 7.3 per cent from this time last year.
“The number of homes listed for sale in the region has increased each month since the start of the year, which is giving buyers more selection to choose from and more time to make decisions,” Rosario Setticasi, REBGV president said.
The MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver over the last 12 months has increased 9.2 per cent to $630,251 in July 2011 from $577,074 in July 2010.
Sales of detached properties on the MLS® in July 2011 reached 1,099, an increase of 21 per cent from the 908 detached sales recorded in July 2010, and an 31.9 per cent decrease from the 1,614 units sold in July 2009. The benchmark price for detached properties increased 13.3 per cent from July 2010 to $898,886.
Sales of apartment properties reached 1,040 in July 2011, a 6.2 per cent increase compared to the 979 sales in July 2010, and a decrease of 39.1 per cent compared to the 1,708 sales in July 2009. The benchmark price of an apartment property increased 4.5 per cent from July 2010 to $405,306.
Attached property sales in July 2011 totalled 432, a 17.4 per cent increase compared to the 368 sales in July 2010, and a 45.5 per cent decrease from the 792 attached properties sold in July 2009. The benchmark price of an attached unit increased 6.9 per cent between July 2010 and 2011 to $524,909.
First Fully Automated Parking in North America – Jameson House (838 W HASTINGS ST)
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Metro Vancouver builders have returned to building condominiums in a big enough way to push up the region’s overall housing starts this year while the number of single-family homes is declining, according to new numbers from Canada Mortgage and Housing Corp.
The pace of new-home construction in June declined from an unexpected frenzy of starts in May, according to Robyn Adamache, a Canada Mortgage and Housing analyst in Vancouver. However, the 8,472 total housing starts recorded in Metro Vancouver at the end of June represented a 23-per-cent increase from the same period of 2010.
Of those starts, 6,813 were multi-family homes — condominiums and townhouses — which was a 51-per-cent increase from starts during the same period of 2010. On the other hand, the 1,659 single-family-home starts for the same period represented a 30-per-cent decline.
Adamache said the post-recession recovery in housing construction began a year ago in single-family home building, but this year’s increase in multi-family construction reflects the confidence developers have that the economic recovery is on more solid ground.
“Builders are feeling more confident to start those larger projects now on the multi-family side,” Adamache said Monday. “They’re feeling like it’s not just a short-term change in the economy and things are really settling down.”
Overall, Adamache added that the factors that drive new-home construction — immigration, an improving job market and continuing low mortgage rates — are still strong enough to support the construction underway.
Adamache said Metro Vancouver saw a spike in the pace of housing construction in May that skewed provincial results, but that was likely due to the nature of stronger multi-family construction.
“[Multi-family] construction is very volatile,” she said. “It makes it look like things are swinging a lot from month to month when it really could be the difference of one or two projects [starting in a given month] if they are very large.”
As of the end of June, Adamache said builders around Metro Vancouver were on pace to start work on 15,700 new housing units by the end of 2011, which is close to Canada Mortgage and Housing’s forecast of 16,000.
The biggest increases in multi-family construction have come in Richmond and Surrey with some of the activity pushed along by same influence of immigrant and offshore purchasing that is affecting the overall real estate market.
Richmond recorded 1,185 multi-family housing starts in the first half of 2011 versus 458 for the first half of 2010, and total starts of 1,315 in 2011 compared with 595 in 2010.
Across B.C., the province’s urban centres saw 11,405 new-home starts in the first half of 2011, which was fractionally lower than the 11,475 in the same period of 2010.
Nationwide, home construction rose more than expected in June, led by a jump in single-unit activity, according to Canada Mortgage and Housing.
Nationally, the seasonally adjusted annual rate of housing starts was 197,400 units last month, up 1.7 per cent from a revised 194,100 units in May, CMHC said. The April figure was also revised to 194,100 units.
Economists had expected between 184,000 and 185,000 starts in June.
“Housing starts increased in June due to an increase in single and multiple starts in Ontario,” said Bob Dugan, chief economist at CMHC’s Market Analysis Centre.
“The revised numbers show that housing starts have been above their trend line since March,” according to Bob Dugan, Canada Mortgage and Housing’s chief economist. “However, we expect housing starts to move back toward levels consistent with demographic fundamentals in the near term.”
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