General price declines in B.C. make province 'nation's new weak spot,' according to report
Canada's housing market is not a bubble, it's a balloon. And unlike the catastrophic decline the U.S. housing market experienced in 2008, the market in Canada will deflate slowly rather than pop, according to a report by BMO Capital Markets.
The sole possible exception is Vancouver, where the number of unoccupied condominiums is high due to building the Olympic Village, economists Sherry Cooper and Sal Guatieri wrote in "Will Canada's Housing Boom Forge On, Fizzle Out, or Flame Out?"
But generally, the report says that despite rising household debt, low interest rates and rising home prices, it is unlikely that a sudden correction will take place.
"The main take-away is that the national housing market appears some-what pricey, but is far removed from bubble territory," the report stated.
It compares average resale prices with median family incomes and finds the ratio is 4.9 nationally, compared to 3.2 a decade ago.
In Vancouver, though, where house prices have gone up 159 per cent in the last 10 years - compared to 104 per cent nationally - the ratio of price to income is 10, nearly double what it was a decade ago, the report said. Victoria is also high, at 5.7, but not as high as Toronto, which has a price to income ratio of 6.7.
Montreal has also seen prices rise dramatically - by 153 per cent - and its price-to-income ratio double, but that ratio remains low at 4.5.
Despite rising home prices in most of Canada's major cities, the growth doesn't seem to be excessive, the report said. But elevated valuations could lead to trouble in the event of a shock.
For example, if interest rates were to spike by about four percentage points, the affordability of homes would quickly drop throughout the country. A severe recession would also affect affordability.
But the chance of either of those events happening is unlikely, the report authors stated. Also, except for a few markets, the national housing boom has already cooled.
And British Columbia is now "the nation's new weak spot, with prices generally declining," the report said.
Some of that decline reflects fewer sales of high-end homes.
"[But] some real underlying softness is at play, and will likely continue until valuations improve," the report stated.
Tsur Somerville, director for the Centre for Urban Economics and Real Estate at the Sauder School of Business at UBC, said BMO's report is one of many predicting slight drops or slight increases in the housing market rather than a major correction.
"The kinds of things you need to get major corrections, like oversupply or radical change in the financing environment, just aren't there," Somerville said.
And just because the overall market will be flat, it doesn't mean that certain portions of it - such as areas that have had higher run-ups in prices over the past few years - aren't in for a correction, he said.
Helmut Pastrick, chief economist with Central 1 Credit Union, believes that while there may be a soft landing at some point in the future, it won't be in 2012.
"The market is holding up generally well and it looks like 2012 is going to be fairly similar to 2011 in terms of overall unit sales," Pastrick said. "Housing prices will go up by some amount, sales will also increase by a small amount."
And while the economy isn't booming, it is growing, interest rates are low and there is job growth, he said.
"So the conditions to me aren't ripe for a correction."
Meanwhile, Bloomberg reported that Canada's banking regulator fears that Canadian lenders are loosening standards on mortgages that are similar to U.S. subprime loans, posing an "emerging risk" to financial institutions.
Banks and other lenders are becoming "increasingly liberal" with mort-gages and home-equity credit lines that don't require individuals to prove their...
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...
Historically normal activity keeps the Greater Vancouver housing market in a balanced state
The Greater Vancouver housing market saw relatively typical home sale and listing activity in November.
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 2,360 in November. This represents a 5.9 per cent decline compared to the 2,509 sales in November 2010 and a 1.9 per cent increase compared to the 2,317 sales recorded in October 2011.
Looking back further, last month’s residential sales total is 5.8 per cent below the ten-year average for sales in November.
“The pace of home listings entering the market eased slightly in November, compared to recent months, while sale levels remained fairly normal for this time of year,” Rosario Setticasi, REBGV president said. “November activity helped put our market firmly in balanced territory.”
New listings for detached, attached and apartment properties in Greater Vancouver totaled 3,222 in November. This represents a 26.3 per cent decline compared to the 4,374 new listings reported in October 2011, but a 6.3 per cent increase compared to November 2010 when 3,030 properties were listed for sale on the MLS®.
Looking back further, last month’s new listing total is 2.1 per cent above the ten-year average for November.
The total number of properties currently listed for sale on the Greater Vancouver MLS® sits at 14,090, a decline of 9 per cent compared to October 2011 but an increase of 13 per cent when compared to this time last year.
The MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver over the last 12 months has increased 7.2 per cent to $622,087 in November 2011 from $580,080 in November 2010.
Since reaching a peak in June of $630,921, the benchmark price for all residential properties in the region has declined 1.4 per cent.
Sales of detached properties on the MLS® in November 2011 reached 916, a decrease of 12.8 per cent from the 1,050 detached sales recorded in November 2010, and a 21.3 per cent decrease from the 1,164 units sold in November 2009. The benchmark price for detached properties increased 11.4 per cent from November 2010 to $890,204.
Sales of apartment properties reached 1,000 in November 2011, a 4.9 per cent decrease compared to the 1,052 sales in November 2010, and a decrease of 28.4 per cent compared to the 1,396 sales in November 2009. The benchmark price of an apartment property increased 2.7 per cent from November 2010 to $399,686.
Attached property sales in November 2011 totaled 444, a 9.1 per cent increase compared to the 407 sales in November 2010, and a 15.1 per cent decrease from the 523 attached properties sold in November 2009. The benchmark price of an attached unit increased 4.5 per cent between November 2010 and 2011 to $510,960.
Surrey is the hottest market for housing investment in British Columbia, according to a rating by Real Estate Investment Network.
REIN, a leading real estate research organization, ranked Maple Ridge/Pitt Meadows No. 2, with Kamloops holding the third spot.
Vancouver was ranked No. 11, after No. 10 Prince George.
REIN said its report, Top British Columbia Investment Towns 2011, looks at the prospects for real estate investment opportunities across the province, and identifies the top regions that will outperform in the coming decade.
REIN said in a news release that the report looks at such factors as:
Is the area's population growing faster than the provincial average?
Are new infrastructures being built to handle that growth?
Is the area creating new jobs and taking steps to maintain current employment levels?
Will the area benefit from an economic or real estate ripple effect?
Has political leadership created an economic growth atmosphere?
Are there major transportation improvements in the works?
Sales activity reported for the Whistler and Pemberton areas for the first three quarters of this year indicates a strong increase in the interest in real estate purchases as compared to the same period in the previous two years. All categories, other than single-family building lots, showed significant increases in unit sales volume as compared to the first three quarters of last year. Sales values continue to consolidate as the lack of buyer urgency and historically high number of properties offered continue to affect price negotiation.
However, as price normally follows volume in our marketplace, the increasing levels of transactions indicate that further market-wide decline in value is unlikely. The current average sales value of a single-family home (after adjusting for outliers) is $1,295,600. For condominium hotels the average sales value is $325,000; for townhomes $649,000 and for quarter-shares $129,730. Single-family lots continue to lack sufficient sales to present a reliable picture of value trends.
Buyers of Whistler properties continue to focus on family orientated properties that they can use immediately, are in good repair, have quality construction, and have low annual ownership costs.
As lifestyle considerations are the primary motivation for the purchase decision, it is just as important to sell the experience of Whistler as it is to sell the features of the home.
The Pemberton market activity continues to be affected by the large amount of employee-orientated housing provided in the last two years in Whistler, although more rural properties and acreages continue to attract interest from both Whistler and Vancouver residents. The average sales volume in the area of a single family home is $473,800; a condominiums is $220,000; and a townhouse is $305,000. Pemberton continues to offer the best prices for a homebuyer in the Sea to Sky corridor.
Whistler Market statistics are heavily influenced by 'outliers' in activity that occur either in the bottom five or top five per cent of represented values. For the purpose of this article, the outliers have been removed from the analysis to give a better description of the general market.
Submitted by Pat Kelly, Broker/President, The Whistler Real Estate Co Ltd.
The caliber of Metro Vancouver’s existing housing stock is a big reason average home prices soared 128 per cent from 2000 to 2010, from $296,000 to $676,000, according to a Re/Max report released Monday.
“While supply and demand, population growth and rising foreign investment, have been the main underpinnings behind exceptional gains, revitalization — amid an aging housing stock — and newer construction instruction are largely underestimated factors propping up housing values in Canada’s real estate hot spot,” the real estate company’s Housing Evolution Report concluded. “Just over one-quarter of Vancouver’s owned housing stock was constructed prior to 1970, while 44 per cent was built before 1980.
“With a significant proportion of older homes, renovation spending has been on the rise throughout the past decade — in tandem with home sales — as owners, vendors and purchasers breathe new life into Vancouver’s existing housing.”
Infill housing also boosted values as smaller homes on valuable lots were torn down to build large, upper-end homes.
The report cited the region’s building boom, with a strong focus on condo construction and small-lot subdivisions.
“The upswing is captured by the total value of residential building permits over the past decade — at $35 billion. Permit values climbed consistently from 2001 – 2007, cresting in 2007, before sliding back during the 2008/2009 recession. Yet, the subsequent rebound was quite impressive, as the value of building permits nearly doubled against year-ago levels in 2010, as builders got back to business.” Condos now represent one in every two sales, with an average price of $457,887.
“Condominiums are undeniably the biggest game changer for real estate over the past decade, especially in British Columbia and Alberta, where they comprise 25 to 50 per cent of residential sales,” noted Elton Ash, regional executive vice-president, Re/Max of Western Canada. Prices are continuing to rise and will continue doing so, the report added.
“Average price in Greater Vancouver currently hovers at $791,332 — up 18 per cent year-to-date — and is expected to continue its ascent in the months ahead.”
Over 26,000 homes have sold so far this year, an increase of nine per cent.
Three B.C. urban areas were addressed in the Re/Max report, which concluded that Kelowna saw the greatest average price increase over the decade, rising 156 per cent from $188,000 in 2010 to $481,000 in 2010, with new construction the biggest factor.
However, today’s average Kelowna price has dropped slightly to $475,250. “The market remains off peak levels, but confidence is slowly returning, and listings are starting to decline.”
For Victoria, the average price climbed 123.5 per cent from $225,731 to $504,561.
Nationally, the value of a Canadian home has risen 106 per cent since 2000, from $163,951 to $339,030 in 2010, with 10 of the 16 urban markets surveyed experiencing increases of more than 100 per cent. The highest was Regina (173 per cent) and the lowest, London-St. Thomas (68 per cent).
The report said that the value of residential building permits issued nationally in the 10 years was $340 billion, while $450 billion was spent on renovations.
A new report suggests that the average home value has doubled in most of Canada's big cities since the millennium.
Re/Max says it examined the value of homes in 16 major markets across Canada, calculating the changes that occurred from 2000 to 2010.
The real estate organization found that an average home in these markets was worth $339,030 as of last year, more than double the average price of $...163,951 in 2000.
Re/Max says that Canadians have spent an estimated $450 billion on renovations over the decade, while more than $340 billion in residential building permits were issued.
This heavy-duty investment has helped build value in individual properties while an increasing number of people looking for housing has helped spur demand.
"They key to Canada's housing evolution has been an increase in population," says Michael Polzler, the executive vice president of Re/Max Ontario-Atlantic Canada Inc.
With further sharp population growth expected in the years ahead, Polzler says that portends "continued investment and continued growth in Canadian housing values."
The hundreds of billions poured into rejuvenating homes and properties across the country have also created new trends in urban neighborhoods, Re/Max says in its report.
In cities where space is scarce, residents are increasingly seeing small properties snapped up and turned into new structures, whether personal residences, townhomes or high-rise apartment buildings.
Condominiums have also become more popular and more varied in terms of what they can offer. Re/Max says buyers can now choose from mixed-use residential, live-work studios, lofts, townhomes and condo bungalows in major markets.
The 16 markets that Re/Max studied were: Greater Vancouver; Victoria; Kelowna, B.C.; Edmonton; Calgary; Regina; Saskatoon; Winnipeg; Ottawa; Greater Toronto; Hamilton-Burlington; Kitchener-Waterloo in Ontario; London, Ont.; Saint John, N.B.; Halifax-Dartmouth and St. John's. No markets from Quebec or the Territories were included in the Re/Max analysis.
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...
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