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.
The B.C. government has raised the threshold for homeowner property grant to $1.285 million to accommodate rising property values.
The news comes as hundreds of thousands of annual property assessments are being prepared for B.C. property owners by the government. Last year, the threshold was $1.15 million. The grant effectively reduces the property tax paid by most B.C. homeowners by up to $1,045.
Every year the province adjusts the grant to ensure 95.5 per cent of homeowners receive the full amount of the grant. Those with homes above the threshold may still be eligible for part of the grant.
"The homeowner grant provides a maximum reduction in residential property taxes on principal residences of $570 in the Capital, Greater Vancouver and Fraser Valley regional districts and $770 elsewhere in the province," said a statement issued by the government on Tuesday.
"An additional grant of $275 is available to those who are age 65 or over, permanently disabled or a veteran of certain wars,."
"We continue to see challenging economic times around the world. By maintaining the homeowner grant, we continue to help families with the costs of owning their homes," said Finance Minister Kevin Falcon in the statement.
The grant is only available to Canadian citizens and to landed immigrants who normally reside in B.C.
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.
House values skyrocket in Vancouver's Cambie corridor
Six months after Vancouver City Council approved a plan to transform the Cambie Street corridor, homes in the area have nearly tripled in value and some residents fear development will ruin the neighborhood.
Last May the council passed a plan to bring 15,000 more people into the Cambie Street corridor through mid-rise development.
Then last month a block of 10 homes along Cambie Street near 41st Avenue sold for $3.4 million each — nearly three times their previously assessed value.
Neighbors say they're growing tired of being pressured to sell by developers and real estate agents. Janice Douglas says she expects a six-storey building will soon be overlooking her single family home.
"We've got people looking in our back yard, looking in our bedroom, and we will never see the trees again — nor will we have any more sunshine," Douglas told CBC News.
Many residents don't want to move and feel ignored by the city as developers move in, looking to tear down the single family homes, she says.
"People come here for the beauty. Well the beauty is rapidly disappearing," said Douglas.
Canada Line driving changes
City planner Brent Toderian says he appreciates the concerns and the city is trying to cool down land speculation in the neighborhood.
Toderian says the city has been meeting with developers and realtors to discuss land transactions after getting wind of some very high deals negotiated in the months after the Cambie corridor plan was approved.
Canada Line driving changes
City planner Brent Toderian says he appreciates the concerns and the city is trying to cool down land speculation in the neighborhood.
Toderian says the city has been meeting with developers and realtors to discuss land transactions after getting wind of some very high deals negotiated in the months after the Cambie corridor plan was approved.
Cambie Street He says the final prices didn't appear to have factored in community amenity contributions the city negotiates with developers in order to pay for infrastructure and services associated with increased density "People were overpaying for land — thus we sent messages out into the marketplace to say you're going to have to adhere to the expectation of the plan if you wish to succeed in development." But he says having a new rapid transit line running through the neighbourhood means changes are coming and the city's plan has the community's support.
"Canada Line is a change maker and so yes — there will be some folks, and to my ear they are the minority — but there are going to be some folks that are unhappy about that," he said.
"But most people recognize the logic and inevitability of transformation once you've put in a piece of infrastructure like Canada Line. The vast majority of people we heard from were very positive about the plan." Toderian expects construction along the corridor to begin in late 2012. The Cambie corridor plan allows buildings up to 12 storeys in height, and leaves room for them to go even higher around the Oakridge Mall near 41st Avenue and at the southern end of Cambie Street near Marine Drive.
Preliminary plans for the 825,000-square-foot Marine Gateway Project next to the Marine Drive Canada Line station have already received city approval. It will include two residential towers with more than 400 units as well as a cinema, food and drug stores.
Greater Vancouver home sales trend toward buyers’ market over summer
VANCOUVER, BC – August marked the third consecutive month that home sale activity in Greater Vancouver was below the 10-year average for the month. In contrast, home listing activity in the region has exceeded the 10-year norm every month since the beginning of the year.
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 2,378 in August. This total represents an eight per cent increase compared to the 2,202 sales in August 2010, but also ranks as the third lowest total for August in the last 10 years.
“MLS® statistics continue to indicate that we’re in a balanced market,” Rosario Setticasi, REBGV president said. “However, with a sales-to-actives listings ratio of 15 per cent, Greater Vancouver is in the lower end of a balanced market and has been trending toward a buyers’ market over the past three months.”
New listings for detached, attached and apartment properties in Greater Vancouver totalled 4,685 in August. This represents a 24.9 per cent increase compared to August 2010 when 3,750 properties were listed for sale on the MLS® and an eight per cent decline compared to the 5,097 new listings reported in July 2011. Last month’s new listing total was the highest volume recorded for August in 16 years.
At 15,437, the total number of residential property listings on the MLS® increased 1.4 per cent in August compared to July 2011 and rose 0.1 per cent 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 8.5 per cent to $625,578 in August 2011 from $576,597 in August 2010.
“Year over year, prices are up. However, in the detached home category, benchmark prices have come down slightly in each of the past two months,” Setticasi said. “It’s important for people entering the market to understand that activity can differ significantly depending on the area and property type.”
Sales of detached properties on the MLS® in August 2011 reached 1,020, an increase of 14.2 per cent from the 893 detached sales recorded in August 2010, and a 25.4 per cent decrease from the 1,367 units sold in August 2009. The benchmark price for detached properties increased 11.7 per cent from August 2010 to $888,243.
Sales of apartment properties reached 955 in August 2011, a 2.1 per cent increase compared to the 935 sales in August 2010, and a decrease of 34.8 per cent compared to the 1,464 sales in August 2009. The benchmark price of an apartment property increased 5.6 per cent from August 2010 to $407,457.
Attached property sales in August 2011 totalled 403, a 7.8 per cent increase compared to the 374 sales in August 2010, and a 33.9 per cent decrease from the 610 attached properties sold in August 2009. The benchmark price of an attached unit increased 4.5 per cent between August 2010 and 2011 to $511,433.
BC Real Estate Association (BCREA) Chief Economist Cameron Muir discusses the July 2011 statistics and an in depth look at the seasonal adjustment of housing statistics.
CREA revised Report on Resale Housing Forecast 2011-2012
National sales activity is forecast to reach 450,800 units in 2011, up less than one per cent from levels in 2010. Erosion in affordability due to higher prices has prompted a small downward revision to the outlook for sales in 2012.
The Canadian Real Estate Association has revised its forecast for home sales upward for 2011, citing stronger-than-expected sales and prices in the second quarter and ...good momentum entering the second half of the year.
But economists warn Canadians should expect a gradual slowdown in the housing market to begin next year, as sales in Toronto and Vancouver cool and interest rate hikes eventually kick in. The association also revised its estimate for 2012 sales to fall seven tenths of a percentage point to 447,000 housing units.
“Less favorable economic fundamentals, combined with new mortgage rules in place, are beginning to clip the wings of the Canadian housing market activity,” TD economist Sonya Gulati wrote in a note.
Average home prices are expected to moderate in the second half of the year following an unusually high surge of expensive Vancouver home sales.
Sales in July stayed flat in Toronto and fell slightly in Vancouver, according to CREA, and national housing prices were at their lowest level since January 2011 last month, at $361,181.
“Going forward, a correction is ripe for these cities in order to bring both markets in line with balanced territory. However, we expect such a retreat in prices and sales to be gradual in nature taking place over several quarters, with the brunt occurring in late 2012 into early 2013,” Ms. Gulati wrote.
CREA said Tuesday it expects activity will increase by less than one per cent this year compared with 2010, up slightly from its previous forecast of a one per cent decline in sales. National sales are expected to reach 450,800 homes in 2011, the association said, and average sales prices will be 7.2 per cent higher than the previous year.
“While there had been some talk of potential interest rate increases, that hasn’t happened,” Gary Morse, the association’s president, wrote in a statement. “In fact, rates have actually come down, and are now expected to remain low for the remainder of this year and into 2012. It’s a great opportunity to purchase a property with financing at very favourable rates.”
Vancouver pulls up national average home price in February to record $365,000
TORONTO - Sizzling sales and pumped up prices in the Vancouver real estate market drove up average home prices last month, but the increases will begin to recede as new mortgage rules further cool demand, according to the Canadian Real Estate Association.
Home sales in Vancouver skyrocketed 24.7 per cent over a year ago, but nationally, Canadians saw a decrease of 6.3 per cent year-over-year, CREA said in its February sales report released Tuesday.
A record number of multimillion-dollar home sales in Vancouver drove the national average home price up 8.8 per cent year-over-year to a record $365,192 in February, it said. But excluding Vancouver —where the average home price is $790,380—the year-over-year national average price actually dropped 3.4 per cent.
CREA said prices are still stronger than those seen in the past six months, but national average price gains will creep backward after new mortgage regulations that tighten borrowing limits take effect Friday.
"You're going to be looking at fewer sales of higher priced homes and that's going to skew the average lower, and for that reason we say average price increases on a year-over-year basis may soften," said CREA's chief economist Gregory Klump.
The rules cut the longest possible amortization period from 35 years to 30 years, and are designed to curb high-risk borrowing, which could force some potential buyers out of the market.
Doug Porter, deputy chief economist at BMO Capital Markets, said activity in the national housing market appears to be simmering down just as the tighter mortgage rules are set to take effect and stressed that Tuesday's figures would have been even softer if it had not been for strength in Vancouver.
He said he wouldn't call the Vancouver activity a bubble, but said the city is seeing a huge wave of buying activity.
"A bubble is in the eye of the beholder to a large extent, but there's no question that what's going on in the Vancouver market is special and it's not being repeated across the country," he said.
"While it's a very powerful force, it likely can't last forever and at some point we will see a pull back."
Klump said wealthy immigrants and Chinese investors who see Canada as a safe haven for their money are snapping up high-priced Vancouver real estate without taking out mortgages.
He said a bubble is caused when the value of homes have reached unsustainable levels relative to incomes and economic principles, but this isn't happening in the case of Vancouver where home buyers are paying cash.
Overall, CREA said national resale housing activity in February ran close to the five-year average for the month.
Seasonally adjusted home sales were down 1.6 per cent nationally over January, as sales eased off in about two-thirds of markets, offsetting increases in activity in Vancouver and Calgary.
About 41,283 homes were sold last month across the country on CREA's Multiple Listing Services, down 2.2 per cent from the 42,230 sold in January.
The number of new listings was up 1.5 per cent in February, as higher demand and stable prices lured sellers into listing their homes after reluctance amid the softer housing market last summer.
CREA said the housing market remained balanced —leaning towards neither buyer nor seller— in February as sales activity and supply remained stable. It said its national measure of market balance remained little changed from the previous four months.
However, the new mortgage rules may alter the market dynamic.
The rules will make the maximum payback period 30 years — resulting in somewhat higher regular payments than with the 35-year amortization that has been the choice of about 30 per cent of home buyers.
The rule changes will increase the monthly payment on a $300,000 mortgage at four per cent interest by $105 — but will also...
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