Vancouver home prices fall for fifth consecutive month
OTTAWA — Homes prices edged down 0.2 per cent in February from the month before but were still 6.1 per cent higher than a year ago, according to a well-watched housing index.
The month-over-month decline was the third such retreat in the past four months for the Teranet-National Bank National Composite House Price Index, released Wednesday, which measures price changes for repeat sales of single-family homes.
In January, prices rose 0.1 per cent.
Teranet's report showed prices falling from the previous month in six of the 11 metropolitan markets surveyed.
In Canada's two hottest real-estate markets, prices in Vancouver fell 0.3 per cent, the fifth consecutive decline, while prices in Toronto rose by just 0.1 per cent. On a yearly basis, however, Toronto prices were 10 per cent higher.
Nationally, prices were 6.1 per cent higher than a year ago. In January, prices were 6.5 per cent higher.
The data is likely to show up on the radar of Bank of Canada governor Mark Carney, who has repeatedly warned that Canadians are piling on too much debt as they buy homes whose prices keep rising.
At a House of Commons finance committee meeting Tuesday, Carney warned that house prices in relation to income levels are now running 35 per cent above historical norms.
Last week, the Canadian Real Estate Association reported that seasonally adjusted sales in March rose 1.6 per cent from year-earlier levels, although the national average home price declined 0.5 per cent to to $369,677.
"It is a fact that according to CREA (the Canadian Real Estate Association) data for March, five of the 11 markets covered were rather favourable to sellers (Toronto, Hamilton, Winnipeg, Halifax and Quebec City). Overall, the Canadian market is nevertheless balanced," said National Bank senior economist Marc Pinsonneault.
Metropolitan area % change m/m / % change y/y
Calgary / -0.6 % / +1.3 %
Edmonton / -1.0 % / +1.1 %
Halifax / +0.4 % / +2.3 %
Hamilton / -0.8 % / +7.5 %
Montreal / +0.2 % / +4.4 %
Ottawa / -0.4 % / +4.6 %
Quebec / +1.6 % / +5.6 %
Toronto / 0.1 % / +10.0 %
Vancouver / -0.3 % / +6.2 %
Victoria / -1.1 % / -1.7 %
Winnipeg / +0.2 % / +8.2 %
National Composite / -0.2 % / +6.1 %
Source: Teranet-National Bank National Composite House Price Index
Metro Vancouver housing market remains balanced despite sharp sales drop: report
Local homes sales are in a balanced state despite the lowest April sales numbers since 2001, according to a report by the Real Estate Board of Greater Vancouver.
“Although April sales were below what’s typical for the month, we continue to see, with a sales-to-active listing ratio of nearly 17 per cent, a balanced relationship between buyer demand and seller supply in our marketplace,” Eugen Klein, REBGV president said in a statement.
“Recent activity has had a stabilizing effect on home prices at the regional level, although pricing can vary depending on area and property type.”
According to the monthly report, homes sales and listings have maintained a consistent pace in recent months, contributing to the balanced conditions.
However, the report noted that Metro Vancouver sales totalled 2,799 in April 2012, a 13.2-per-cent decline compared to the 3,225 sales in April 2011 and a decline of 2.6 per cent compared to the 2,874 sales in March 2012.
April sales were the lowest total for the month in the region since 2001 and 16.9 per cent below the 10-year April sales average of 3,369, the board said in a release.
New listings for detached, attached and apartment properties totalled 6,056 in April, a 3.6-per-cent increase compared to both March 2012 when 5,843 homes were listed and April 2011 when 5,847 homes were listed for sale.
Last month’s new listing total was 6.7 per cent above the 10-year average for listings in Greater Vancouver for April, the release said.
At 16,538, the total number of homes listed for sale increased 8.5 per cent in April compared to last month and 16 per cent above this time last year.
The benchmark price for all residential properties stood at $683,800, up 3.7 per cent compared to April 2011 and an increase of 2.8 per cent over the last three months.
Sales of detached properties in April 2012 reached 1,126, a decline of 19.7 per cent from the 1,402 detached sales recorded in April 2011, although the benchmark price for detached properties increased 6.3 per cent from April 2011 to $1,064,800.
The highest benchmark price in April for a detached home was Vancouver West at $2.27 million, followed by West Vancouver at $1.98 million.
The benchmark price of an apartment increased 1.1 per cent from April 2011 to $375,900, while the price of a townhome increased 1.7 per cent between April 2011 and 2012 to $487,300.
Meanwhile, the Fraser Valley's housing market also showed a drop in sales year-over-year, although not as sharp as in Metro Vancouver.
According to the Fraser Valley Real Estate Board, there were 1,435 sales processed in April, down five per cent from April 2011, but up slightly from 1,412 sales in March.
In April, the board added seven per cent more new listings compared to one year ago, up to 3,134 from 2,918 last year. That pushed the number of properties for sale to 10,312, the highest level since July 2010.
“To put it in perspective, in the last decade, April 2012 ranked second lowest for sales during that month, while new listings came in at the third highest, meaning it’s a good time to be shopping for a home in the Fraser Valley because selection has only been this extensive twice,” said board president Scott Olson in a statement.
According to the report, the benchmark price for a detached home in the Fraser Valley rose 5.3 per cent in the year, from $547,800 in April 2011 to $576,600 last month.
In April, the price of a townhouse was $318,400, up 1.9 per cent year-over-year, while the price of an apartment increased 0.8 per cent over the same period to $205,800.
A strong international demand for bonds from Canada's biggest banks is trickling through the system and pushing mortgage rates to record lows at the consumer level. The Bank of Montreal moved its five-year fixed mortgage rate to 2.99 per cent late Thursday — the lowest posted rate from a major bank in Canadian history. BMO announced the rate cut late on Thursday and TD followed suit by lowering their four-year fixed rate to 2.99 per cent on Friday afternoon. BMO's offer, which ends Jan. 25, states that lump sum payments are limited to 10 per cent of the principal each year. The mortgage is also based on a 25-year amortization period. TD's offer is open until Feb. 29, 2012. It's also for a four-year term, much less common than the standard five-year. Other banks are expected to follow suit. On Wednesday, Toronto-Dominion Bank reduced its posted six-year rate 132 basis points to 3.79 per cent and lowered the posted seven-year fixed rate 91 basis points to 3.99 per cent.
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...
Metro Vancouver real estate prices up 7.5 per cent year over year: report
New listings are sharply higher than a year ago, but much lower than September
Benchmark home prices in Metro Vancouver have increased 7.5 per cent to $622,955 in October 2011 from $579,349 in October 2010, according to the latest monthly report from the Real Estate Board of Greater Vancouver.
However, since reaching a peak in June of $630,921, the benchmark price — that of a typical home — for all residential properties in the region has declined 1.3 per cent.
The report also said that sales of detached properties in October reached 974, about the same as October 2010.
As well, new listings for all properties totalled 4,374 in October, an 18.3-per-cent increase compared to October 2010, when 3,698 properties were listed for sale, and a 23-per-cent decrease compared to the 5,680 new listings in September 2011.
The total number of properties listed for sale now sits at 15,377, 9.3 per cent higher than the 14,075 properties listed for sale during the same period last year.
Meanwhile, the benchmark price of a single family detached home in the Fraser Valley in October was $530,335, an increase of 4.9 per cent compared to $505,759 in October 2010 and on par with the price in September, according to the Fraser Valley Real Estate Board.
In a report earlier this year, Royal Bank of Canada chief economist Craig Wright suggested home ownership for a growing number of Canadians has become an impossible dream. That’s certainly true in Vancouver, where the affordability index is at record highs, with the average home price at nearly 10 times the median income.
But perhaps ownership has been oversold as an aspirational goal. As thousands of Americans have discovered, sometimes the dream becomes a nightmare.
In the United States, home ownership wasn’t just a dream, it was held up as an inalienable right. Washington pressured financial institutions to lend money to almost anyone who asked, giving rise to the NINJA mortgage (no income, no job, no assets).
Because mortgage interest was (and still is) tax deductible, homeowners did not bear the full burden of borrowing. Financial institutions turned to the wizards of Wall Street to devise derivatives that might mitigate the heightened risk.
The U.S. government had already sanctioned mortgage-based securities, having set up the Government National Mortgage Association (Ginnie Mae) in 1968 and the Federal Home Loan Mortgage Corp. (Freddie Mac) in 1970 to expand the secondary market for mortgages.
Inevitably, homeowners without the means to repay their debts defaulted on their mortgages and the derivatives based on them, including mortgage-backed securities and collateralized debt obligations, became worthless. Not knowing the extent of exposure to toxic debt, financial institutions became reluctant to lend to each other.
The result was a credit crisis that plunged much of the world into recession.
The housing crash that crippled the U.S. didn’t happen in Canada for several reasons. For a start, more prudent lending practices prevented the emergence of a significant subprime mortgage market. Canada’s regulatory regime acted as a rudder that kept the financial services industry on an even keel. And besides the capital gains exemption on the sale of a principal residence, there is no particular tax advantage in owning a home in Canada.
Measures mistakenly introduced to loosen mortgage lending rules — such as interest-only loans and 40-year amortizations — were quickly reversed, forestalling a flood of overly leveraged households.
However, while Canada doesn’t idealize home ownership to the extent the U.S. does, it is still perceived as preferable to renting. Owning is seen as permanent, renting transient, the implication being that ownership contributes more to community stability.
Owners are thought to be more involved in community activities than renters, adding to social cohesion. The pride of ownership is viewed as a motivator for owners to maintain their properties, while renters supposedly lack this incentive. There is scant research to support any of these contentions.
In any case, Canadians have pursued the holy grail of home ownership with as much zeal as their American cousins and have achieved similar rates of both ownership and indebtedness.
Canadian households, on average, now carry nearly $1.50 of debt for every dollar of income. Most of that debt is mortgage debt. Historically low interest rates have enticed buyers to get into the real estate market or to upgrade to more expensive homes. That, along with increasing real estate investment from outside Canada, especially from mainland China, has driven home prices in B.C. to record levels.
Overpriced
Vancouver lays claim to the highest median house prices in Canada and Forbes magazine ranks the city’s real estate market as the sixth most overpriced in the world. (Forbes calculated an annualized rate of return on property based on cash flows from renting, then flipped the result to produce the equivalent of a price-to-earnings ratio. Vancouver’s was 26.8; Monaco was No. 1 at 74.1.)
Each quarter RBC publishes an affordability index that examines the cost...
Email