Anna Asi, M.A.

Vancouver Real Estate Market Update - April 2012

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.

Full Report:

Cat: Vancouver Real Estate

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

Cat: Vancouver Real Estate

No housing crash but a correction coming in Canada Housing Market

Cat: Vancouver Real Estate

Vancouver real estate at risk if Canadian lending not constrained: TD
Canada housing 10-15 pct over-valued

OTTAWA - Canadian housing is 10 to 15 percent over-valued, Canada’s second largest bank warned, as it called for more action to constrain lending growth.

Toronto-Dominion Bank chief economist Craig Alexander said last week in an analysis that if the overvaluation were unwound rapidly, the market correction would be three times the magnitude of the housing market correction of the early 1990s.

Alexander said it is more likely that there will be a gradual decline in sales and prices over the next several years unless there is a sharp rise in joblessness or interest rates. He warned against complacency, however.

“We need to acknowledge that a significant imbalance has developed and it poses a clear and present danger to Canada’s medium-term economic outlook,” he wrote. “It also suggests that further actions to constrain lending growth may be prudent.”

At greatest risk is Vancouver, a magnet for foreign buyers, along with the Toronto condo market, and the broad housing markets in Quebec City and Montreal, he said.

“Nevertheless, beyond selected cities, it is natural to assume that it will be a shock to all real estate markets when interest rates eventually rise from their prevailing exceedingly low levels,” he said.

Parallel with the real estate valuations is elevated household indebtedness. The ratio of debt to personal disposable income declined in the fourth quarter of 2011 to 150.6 percent from 151.9 percent in the third, but Alexander said this was due to a spike in unincorporated business and farm income that will probably prove to be temporary.

In fact, he forecast that by late 2013 the ratio will reach the 160 percent peak seen in the United States and Britain before their real estate corrections.

Alexander said the Bank of Canada, which has repeatedly voiced concern over housing prices and household debt, is in a bind because if it raises rates while the U.S. Federal Reserve holds rates steady, that would boost the Canadian dollar further and slow growth.

A majority of forecasters polled by Reuters last month predicted that the federal government would tighten mortgage rules this year.

Cat: Canada Real Estate 

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 income, according to documents obtained by Bloomberg under freedom of information law request from the Office of the Superintendent of Financial Institutions.

"Non-income qualified" lending has been added to a list of issues to be considered by OSFI's "emerging-risk committee," Bloomberg reported the documents showing.

Pastrick disputes this finding.

"We're not subprime, not by a long shot," he said.

Lenders in Canada have "credible lending criteria and standards." And while lenders will lower rates to grab market share "credit isn't easy like it was in the U.S.," he said.

Somerville believes the problem is with home equity lines of credit which have become more popular over the year and don't always require income verification.

Not only are lines of credit given out without the same level of super-vision or the same standard of care that is applied to mortgages, they are also junior in seniority to mortgages, Somerville said.

With a file from Bloomberg

© Copyright (c) Postmedia News

Picture by: All rights reserved by JOHN CORVERA

Banks lower 5-year mortgage rate to record low

Cat: Canada Mortgage Rates

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.

Cat: Canada Mortgage Rates

BMO has lowered the fixed rate to 2.99 per cent

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.

Cat: Canada Mortgage Rates

RBC Global Asset Management on lower 5-year mortgage rate to record low

Cat: Canada Mortgage Rates

Rock-bottom mortgage rates in Canada

Some fixed mortgage rates have dropped to their lowest rates in Canadian history.

Cat: Vancouver Mortgage Rates

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 over the next two years.

Canada’s housing market defies the odds in 2011

In 2011, the national housing market turned in a respectable performance despite some notable hurdles. In the spring, the federal government responded to growing signs of excessive household indebtedness by announcing a further tightening in the rules surrounding insured mortgages.

In order to beat this announced change, we suspect that many homebuyers brought forward their purchases earlier in the year. In the summer, a combination of concerns about European sovereign debt, a U.S. government credit rating downgrade and worries about the global recovery led to increased uncertainty. Businesses have responded by reducing hiring in Canada since the autumn. Yet, home sales are headed for their seventh gain in ten years; prices are on tap to see their ninth gain in ten years. Still, a closer look at the data shows that activity in most of Canada’s major markets has moved past its peak and has since landed softly.

Average residential prices have also been skewed by outsized strength in Vancouver and to a lesser extent, Toronto. If we were to exclude these two major markets, the price and resale activity gains would be much more muted than the headline number would suggest.

In the new home market, starts have fallen from their peak levels of 229,000 recorded in 2007. But at an estimated 192,000 new starts in 2011, readings continue to remain well above demographic fundamentals, which we calculate to be 180,000 units. Similar to the resale side of the story, the national numbers have been skewed disproportionately by strong performances in large urban markets, notably Toronto. If we were to exclude Toronto from the national tally, total starts would have declined significantly in 2011.

Metrics point to over-valuation embedded in home
prices today

As we recast our focus on where the housing market is headed, there has been considerable attention given to the extent of over-valuation in Canadian home prices. There is no definitive measure that one can point to quantify the degree of excess (with absolute certainty) imbedded in average residential prices in Canada today. Each measure carries with it some underlying concern about the conclusions that can be made. For example, if we use the average price-torrent ratio as a benchmark, it would tell us that homes are over-inflated by as much as 75% relative to the long-run average. However, the ratio inherently ignores the impact of changing mortgage rates, the presence of provincial rent control measures, and a potential divergence in quality between owned and rental accommodation.

Taking a look at just real home prices would lead to a conclusion that houses are priced more than 60% higher than the long-run average. Still, historical prices do not factor in key structural changes over time, such as lower trend mortgage rates, longer amortization periods, rising land values, transit development nearby, improved home quality and rising incomes. The price-to-income measure attempts to take income movements into consideration, but still does not capture some of the other factors previously presented. Based on this measure, prices are 44% over-valued. A more defensible measure assumes that total housing costs relative to income eventually revert back to a long term average. If we use this measure and assume a return to more normal levels of interest rates, the degree of overvaluation would be around 10-15%. Given the behavior of sales and price trends in recent years – one that does not share bubble-like characteristics such as those in the U.S. pre-2007 – we are comfortable with this estimate of national price over-valuation.

Less supportive factors on tap for housing

When we look ahead to our 2012-13 forecast period, we see that the headwinds facing both supply and demand will increase in intensity. In turn, we anticipate resale price froth to gradually evaporate leaving the market in a more balanced position relative to where it stands today. More specifically, we expect both sales and prices to record annual average declines in both 2012 and 2013, with the latter year expected to record the brunt of the hit. Several factors support our forecasts, which we briefly delve into next.

Modest economic, income and employment growth over
short-term

Real GDP growth in Canada is estimated at a solid 2.4% in 2011. However, storm clouds will increasingly hang over our small open economy during the first half of 2012. Much of the risk surrounds the European sovereign debt crisis and the failure of politicians to take decisive action so far to pour water over the flame. The base case scenario embedded in our forecast includes a recession within Europe, coming to a climax in early 2012 when borrowing pressures and requirements will be heightened. Financial market volatility and a global economic slowdown will likely play out as a result. In this context and given our export-based economy, real GDP growth is projected to slow to a minimal 1% on average during the first half of 2012. With these headline numbers, the national unemployment rate is expected to increase from 7.3% to 7.7% by the middle of next year.

National employment growth is also poised to be sub-1.0%, on a quarterly basis, during the first half of the year, while gains in after-tax incomes will be significantly restrained.

Prices and sales tend to be negatively correlated with financial market volatility and job and economic uncertainty – a house is too big an asset for most families to jump into when job security is in question and financial portfolios are vulnerable to sizeable swings in total value. As a consequence, resale prices and sales are expected to decline during the first half of 2012, before the turbulence eases in the months thereafter. In our forecast, we make the explicit assumption that – faced with a mounting crisis – leaders in Europe ultimately take bold action to address the situation, thus delivering benefits to financial markets and economies around the world. As such, Canada’s economy and job market is likely to regain traction in the second half of 2012 and into 2013, with real GDP growth rebounding to above 2.0%.

At the regional level, we believe the resource-based provinces of Alberta, Saskatchewan and Newfoundland and Labrador will continue to carry the best economic prospects over the 2012-13 period. The manufacturing-heavy regions of Ontario, Québec and Manitoba are expected to come in close to the national average. Last but not least, the Maritime provinces should see sub-par numbers over the next two years, with Nova Scotia being the as shipbuilding work gets underway.

Below is the full report:

Cat: Canada Real Estate

Bank of Canada inching closer to a rate increase

As expected, the Bank of Canada maintained the policy rate at 1.00% today; however, the Bank assumed a more aggressive tone with respect to the outlook saying that "some of the considerable monetary policy stimulus currently in place will be withdrawn." This is a step up from the May statement, which projected that stimulus would be "eventually withdrawn." On the outlook for the global economy, the Bank reiterated that the expansion is proceeding as it expected in the April forecast. On global inflation, the Bank maintained that global pressures have broadened as strong growth in the emerging markets keeps upward pressure on commodity prices. The Bank expects that commodity prices will remain at elevated levels. Importantly, the Bank's forecast assumes that the European sovereign-debt crisis will be contained.

Recent data and the prospect of stronger growth going forward suggest that domestic conditions warrant higher interest rates. This is especially true in light of the stronger than expected inflation and employment numbers lately. The Bank's decision, however, to maintain the policy rate at 1.0% reflects lingering concerns about the pass through of external developments on Canada's economy. Uncertainty about U.S. and Eurozone fiscal policy, and the likelihood that there will be significant steps made toward the resolution of their fiscal challenges to placate financial markets is keeping alive the potential for global risk premia to rise. Even with its superior economic and fiscal fundamentals, it is unlikely that Canadian financial markets will be able to avoid coming under pressure should this occur.

While these external risks bear watching, the Bank still expects Canada's economy to post stronger growth in the second half of 2011, supported by very stimulative financial conditions. Similar to the Bank, our base case forecast is that the global economy will avoid a replay of 2008's financial market crisis and ensuing economic recession. After growing at a projected 2% annualized pace in the second quarter of 2011, we forecast the economy will accelerate with real GDP rising at a 4% average annualized pace in the second half of the year. Backing out the Bank's second-half 2011 growth forecast based on its 2011 projection that the economy will grow by 2.8% in 2011 suggests that our forecast is for Canada's economy to grow at a stronger clip in the final six months of the year. More details of the Bank's quarterly projections will be in tomorrow's Monetary Policy Report.

The Bank acknowledged that inflation has been running hotter than expected. The core rate is likely to average 1.7% in the second quarter of 2011 and the headline rate at 3.5%, with the June data to be reported on Friday sealing the second quarter of 2011. The Bank expects that headline inflation rate will hold above 3% in the near term, with core inflation now expected to "remain around 2% over the projection horizon." Persistently higher than expected services prices were attributed with the firmer than expected core rate. The Bank maintained its assessment that the headline rate will converge to the 2% target in the middle of next year. To that end, the Bank indicated that with the expansion expected to continue and excess slack absorbed, some of the current policy stimulus "will be withdrawn." Looking ahead, some of the key international issues are coming to a head in the weeks ahead and will give the Bank a clearer view about the global outlook when it meets again in September. Our expectation that the global economy will avoid another crisis sets the stage for Canada's domestic economy to reaccelerate and for the Bank to make good on its promise to withdraw "some of the considerable monetary policy stimulus currently in place" with the case for a September hike supported by today's statement.

Cat: RBC Report

Canadian Mortgage rates on the rise

OTTAWA — CIBC and Bank of Montreal announced Tuesday that they will be raising their mortgage rates.

CIBC raised the rates on fixed-rate mortgages, following other major Canadian banks that did so Monday.

CIBC raised rates on closed mortgages by 0.10 to 0.15 percentage points, with the popular five-year closed option rising 0.15 per cent to 5.54 per cent, in line with the new rates announced by Royal Bank, TD Canada Trust and Laurentian Bank on Monday.

CIBC's new rates become effective Wednesday.

BMO Bank of Montreal also announced its changes in residential mortgage rates, effective Wednesday.

A five-year fixed rate closed is going up to 5.54%, a 0.15% increase.

VWY3H4YQ6X8V

Cat: Canada Real Estate

First-time buyers in major Canadian markets move to get in ahead of higher interest rates, says RE/MAX

BC (April 5, 2011) -- Driven by the threat of higher interest rates down the road, first-time buyers are contributing to strong upward momentum in residential housing markets across the country, according to a report released today by RE/MAX.

The RE/MAX First-Time Buyers Report, highlighting trends and developments in nineteen major Canadian centres, found that low interest rates and balanced market conditions have provided significant impetus in 2011, particularly at lower price points. Just over 30 per cent of markets are reporting sales in excess of 2010 levels as a result, while almost 70 per cent have experienced an upswing in average price. Leading the country in terms of percentage increases in the number of homes sold are Western Canadian markets, including Saskatoon (up close to 15 per cent), Greater Vancouver (up close to 12 per cent), and Winnipeg (up just over 11 per cent). With an average price hike of close to 20 per cent year-to-date (February), Greater Vancouver continues to show unprecedented strength, followed by Hamilton-Burlington (eight per cent), Quebec City (seven per cent), Winnipeg (close to seven per cent), Greater Toronto (five per cent), and Greater Montreal (five per cent). 

“With the Canadian economy on firmer footing overall, residential real estate is well-positioned moving into the traditionally busy spring market,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “Consumer confidence is climbing in conjunction with economic performance, and concerns over a secondary recession fade with each passing day. The mood is cautiously optimistic as first-time buyers enter the market.”

Inventory levels, while tight in several larger centres, are more balanced overall, giving first-time buyers a good selection of housing product from which to choose. Not surprisingly, condominium apartments and town homes have become the first step for many entry-level purchasers, especially in Greater Vancouver, Victoria, Kelowna, Edmonton, Calgary, London-St. Thomas, Hamilton-Burlington, Greater Toronto, the Island of Montreal, and Halifax-Dartmouth where average prices have risen unabated in recent years.

“Despite homeownership rates approaching 70 per cent, there is clearly room for growth as entry-level buyers make their moves from coast-to-coast, undeterred by higher housing values and changes to lending criteria” says Michael Polzler, Executive Vice President, RE/MAX Ontario-Atlantic Canada. “Many purchasers intent on realizing homeownership are scaling back on expectations or are willing to sacrifice location, quality and/or size to make their dream a reality – not unlike generations before them.”

Changes to recent financing criteria have not created the anticipated run up in activity in most markets. From a financial standpoint, most rookie home buyers remain quite prudent. Those making the leap are not doing it lightly, buying within their means. While this most recent round of policy tightening will likely have a negligible effect on demand, the message is getting across. 

Affordability remains a growing concern in most markets, and—aside from first-time purchasers—no one is more in tune with that than housing planners and developers. In fact, the growing demand for reasonably-priced product is creating a shift in the country’s housing mix. That trend is expected to gain traction in coming years, as builders look to create greater options for those seeking to realize homeownership.    In recent years, builders have helped ease the move to homeownership by concentrating on intensification—condominium buildings with smaller suites and small-lot subdivisions offering detached, compact homes at a fraction of the cost of a traditional single-family home.   On the flip side, the affordability factor is also breathing new life into tired older neighborhoods, and that, in turn, is contributing to rising values. 

As prices escalate, first-time buyers are indeed spending more—some out of necessity, but others are simply in a position to do so. Unlike in years past—a greater percentage of today’s first-time buyer pool is comprised of dual-income, college or university-educated couples with solid earnings. They’re spending close to average price or slightly more to secure—in most cases—a better location or a home that will grow with them.   Yet, the fact remains that those on a tighter budget can get in for considerably less, with reasonable choices in every major market across the country.   While some may feel discouraged by eroding affordability levels, the underlying confidence in the concept of homeownership is rising.

“While market conditions are one thing that influences first-time buyers, few things trump the fundamental belief in homeownership,” says Sylvain Dansereau, Executive Vice President, RE/MAX of Quebec. “Today’s entry-level buyers are steadfast in their mindset. They know they have to live somewhere, but they simply don’t want to pay someone else’s mortgage. Savvy or practical, they remain a driving force. The bottom line is that the demand for entry-level product will remain steady. The role of starter homes in the marketplace is becoming ever more vital.”

Cat: Vancouver Real Estate

Canadian Lenders Increase Mortgage Rates

As Government bond yields rise, some banks are again raising Canada Mortgage Rates. Indications are that this action relates to concerns regarding inflation and increasing confidence in a global economic recovery.

From Tuesday, the Toronto-Dominion Bank and the Canadian Imperial Bank of Commerce raised their mortgage rates by 0.35 of a percentage point. This followed a statement, indicating that the greatest increases would be for loans with period terms of five to ten years.

The Royal Bank of Canada also increased its Canada Mortgage Rates by 0.35 of a percentage point, on loans over five and ten year terms. The rate for its seven-year mortgage term rose by 0.15 of a percentage point.

Five year Canadian Government bond yields, have risen sharply recently, leaping 24 basis points during last week. It is usual practice for Canada Mortgage Rates to follow these bonds closely. One of the most popular loan types with Canadian homeowners is the five year closed mortgage. This will not escape the new Canada Mortgage Rates and will rise to 5.69%.

Increased rates will apply to loans with terms of one, three and four years, rising by 0.2 of a percentage point. However, a two-year loan term will increase by 0.3 of a percentage point.

Reported possible causes for the increase in Canada Mortgage Rates, include the following observation. When traders move their investment activity from the considered safety of bonds, to equities carrying a greater risk factor, then fixed mortgage rates, which are highly influenced by the bond market.

Cat: Vancouver Real Estate

TD, National join big Canadian banks lowering their fixed mortgage rates

TORONTO - Three more Canadian lenders say they will lower some of their fixed rate mortgages as nervous investors move to bonds, causing a drop in long-term interest rates.

TD Bank (TSX:TD), National Bank (TSX:NA) and Desjardins Group said Wednesday that their fixed five-year closed rates will drop 0.1 of a point to 5.34 per cent, effective Thursday.

The move follows similar announcements from Royal Bank of Canada (TSX:RY) and Bank of Montreal (TSX:BMO) on Tuesday.

Four-year rates will fall 0.15 percentage points to 4.99 per cent across the board.

Seven-year rates will move 0.2 percentage points lower to 6.14 at TD and to 6.4 per cent at Desjardins and the others, but will be unchanged at National, whose 10-year closed rate will fall 25 basis points to 6.4 per cent.

Fixed mortgage rates, which are closely tied to bond markets, tend to fall when traders shift investment activity from riskier equity assets toward bonds, which are considered safer.

Investors have been jittery over fears that a potential nuclear disaster in Japan could severely derail the global economic recovery.

In February, many of Canada's big banks moved to raise their fixed mortgage rates as investors grew more confident about investing in equity markets and the global economy appeared stronger.

By The Canadian Press

New Mortgage Rules In Canada From March 18, 2011

Big 6 (CIBC, BMO, National Bank, RBC, Scotia Bank & TD) See Rate Hike in May or July

With the Bank of Canada maintaining the status quo yesterday, many are wondering what’s next for mortgage rates.

If you put any stock in the Big Six banks’ predictions, here’s the latest commentary from their professional ball gazers…

CIBC: “We're sticking with our view that an upgraded economic outlook in April's policy report will pave the way for a rate hike in May, assuming the C$ settles down a bit before then.”

BMO: "We judge that the bank is waiting for evidence that U.S. economic performance is strong and steady enough to ensure that Canadian exports will contribute to Canadian economic growth regardless of the level of the loonie. We’ve pencilled in a July resumption of rate hikes.”

National Bank: “There is a compelling case to be made for higher interest rates in Canada since excess supply is closing faster than previously anticipated by the Bank…We remain of the opinion that the next rate hike will occur at the May 31 interest-rate setting meeting.”

RBC: “The Bank is unlikely to stay on the sidelines for long if the data continue to show that the economy is maintaining its upward momentum…We maintain our call for 100 basis points of rate increase in 2011 with the first hike coming in May 2011.”

Scotiabank: “…When it comes to forecasting the resumption of rate hikes by the BoC ... we think that doesn't occur until October of this year.”

TD: "In the wake of today’s statement, markets will pare back bets that a rate hike is in the pipeline in April or May…A next hike in July still appears the fairest bet."

These predictions apply to the overnight rate, which has a direct impact on prime rate. Prime rate, of course, is the basis for variable mortgage rates.

As always, it’s worth remembering that economist rate predictions are subject to change and error. That said, for fun we ran some quick numbers based on the banks' estimates.

For argument's sake, let’s suppose that:

• You want to compare a 5-year variable versus a 5-year fixed rate
• You’re willing to set the variable-rate mortgage payment so that it’s as big as the fixed-rate payment (Normally, variable-rate payments are less than fixed-rate payments.)
• Prime rate starts rising again at the July 17 BoC meeting and rises ¼ point each BoC meeting until the overnight rate climbs 2.25 percentage points
• This puts the overnight rate at 3.25% by year-end 2012 (Note: 3.25% happens to be a rough estimate for the “neutral” BoC policy rate…if not a tad low. A neutral policy rate is a BoC overnight rate that neither stimulates nor restrains economic growth.)
• Rates remain flat for years 3-5 (Rates may fluctuate further but we’ll assume they average out to no change over that three year span.)
• You have a $250,000 mortgage amortized over 30 years.

If these things hold true, which would perform better?

1. Today’s typical 3.94% 5-year fixed mortgage; or,
2. Today’s typical prime – 0.80% variable-rate mortgage?

Based on the numbers alone, the fixed rate has a $416 interest cost advantage over five years.

Does that mean you should go fixed instead of variable? Not necessarily.

There are several instances where someone might prefer to pay less interest up front, or have a three month interest penalty instead of an IRD penalty. In those and other cases, a variable may be the better fit.

The point here is just that 5-year fixed and variable mortgages are now neck and neck based on the big banks’ future rate assumptions (for what those are worth). Would it pay to roll the dice on a variable rate to save a bit of interest? You and your mortgage advisor should make that call.