Canadian housing: There’s an obvious oversupply problem in Vancouver, Toronto and Montreal

By Ben Rabidoux - Tuesday, September 11, 2012 at 1:39 PM - 0 Comments

Getty Images

August resale and housing starts figures are now out for all three of Canada’s biggest cities, and it’s not a pretty picture.

Vancouver

When the August resale data for Vancouver came out last week, the headline news was that sales had fallen to their second lowest level for the month since 1998. Sales were 30 per cent below what they were in August of last year and 40 per cent lower than the August average of the past 10 years.

But the numbers are even worse than the headline reveals. On paper, August 2008 holds the record as the weakest month of the past 15 years. However, it had two fewer week days than August 2012. If calendar differences are taken into account, last month represents the lowest sales volume of any August in 15 years.

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Report: Condo prices to rise in 2013 — except in Vancouver

By Sunny Freeman, The Canadian Press - Friday, August 31, 2012 at 10:23 AM - 0 Comments

Mark Blinch/Reuters

TORONTO – A new condo report suggests first-time buyers, retirees and population growth will continue to fuel demand and price growth for the compact living spaces over the next few years.

The study by Genworth Canada found that average condo resale prices are expected to rise next year in seven of the eight metropolitan centres studied.

Prices in Toronto are projected to jump 2.5 per cent to $312,352.

The highest increase however, is expected to be in Edmonton where prices could rise 3.2 per cent.

Vancouver is the only city where condo prices are expected to drop, by two per cent to $348,152.

The report stands in contrast to warnings from economists and officials that the condo market in some hot markets is reaching bubble territory that could soon burst.

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RBC: Homeownership costs are now 91 per cent of Vancouverites’ income

By Erica Alini - Monday, August 27, 2012 at 4:52 PM - 0 Comments

Nothing, of course, could persuade condo king Bob Rennie that the Vancouver housing market is in a bubble (or, worse yet, a bubble that’s starting to let the air out).

For everyone else, take a look at this chart RBC put out today with its latest survey of housing affordability in Canada (which is deteriorating in most provinces, by the way):

*As usual, clicking on the chart will open the full-size version

Canadian housing market continues to lose steam

By The Canadian Press - Wednesday, August 15, 2012 at 12:45 PM - 0 Comments

TORONTO – Home sales across the country declined marginally last month, continuing a recent trend toward a gradual cooling in what had been a red hot market, according to the Canadian Real Estate Association.

Overall, CREA said Wednesday resale housing numbers were down just 0.01 per cent in July compared with June, although non-seasonally adjusted sales were up 3.3 per cent last month compared with July 2011.

And, although prices were above year-ago levels in about seven of every 10 local markets, falling sales in Greater Vancouver drove the national average lower.

The Canadian average price for homes sold in July 2012 was $353,147, down two per cent from the same month last year. Excluding Greater Vancouver from the calculation, the average was up 1.1 per cent from a year ago.

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Most Canadians are unfamiliar with today’s new mortgage rules

By macleans.ca - Monday, July 9, 2012 at 2:15 PM - 0 Comments

Big changes in Canada’s mortgage market came into effect today, but the majority of Canadians are unaware of the new, stricter regulations. 

Desperate to cool down the country’s overheated mortgage market, finance minister Jim Flaherty announced a series of new rules to dissuade Canadians from getting into irrevocable debt on June 29th. CBC reports the updated regulations, which come into effect today, prohibit lenders from issuing home equity loans above 80 per cent of a property’s value (down from 85 per cent) and drops the maximum amortization period from 30 years to 25 years. 

According to the Globe and Mail, a survey by Bank of Montreal indicates that 49 per cent aren’t familiar with the new regulations, but that 14 per cent of potential home buyers says they are less likely to buy a new house in the next five years, while 41 per cent of those who still expect to purchase a property in that time period say it’s now more likely that they’ll spend less.

To those few Canadians who are aware of the new limits on the insured mortgage market, the new numbers may seem a  bit familiar. Flaherty has simply returned regulations to where they stood in 2006 before the Harper government extended the mortgage rules to allow more people to qualify.

Jim Flaherty vs. Mortgage amortization

By Aaron Wherry - Thursday, June 21, 2012 at 11:46 AM - 0 Comments

In October 2008, the Harper government reduced the maximum mortgage amortization from 40 years to 35 years. In January 2011, Jim Flaherty reduced it to 30 years. Today, the Finance Minister reduced it to 25 years.

Nearly four years ago, the Globe traced the introduction of 40-year mortgages to the Harper government’s 2006 budget.

Just yesterday, Finance Minister Jim Flaherty repeated the mantra that the government acted early to get rid of risky mortgages. What he and Prime Minister Stephen Harper do not explain, however, is that the expansion of zero-down, 40-year mortgages began with measures contained in the first Conservative budget in May of 2006. At the time, Mr. Flaherty announced that the government was opening up the market to more private insurers. ”These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership,” Mr. Flaherty said.

The new rules encouraged the entry of such U.S. players as American International Group – the world’s largest insurance company – and Triad Guarantee Inc. of Winston-Salem, N.C. Former Triad chief executive officer Mark Tonnesen, who spearheaded his company’s aborted push into Canada, said the proliferation of high-risk mortgages could have been mitigated if Ottawa had been more watchful. ”There was a lack of regulation around the expansion of increased risk,” he said.

‘Clear evidence of a bubble is lacking’—really?

By Erica Alini - Thursday, May 10, 2012 at 1:48 PM - 0 Comments

eric dickman/flickr

Earlier this week the Canadian Housing and Mortgage Corporation published its 2011 Annual Report–which reads like a 184-pages long effort to brush off concerns about Canada’s housing market. “Clear evidence of a bubble is lacking,” the document proclaims at one point, after liberally sprinkling the words “solid,” “sound,” “responsible” and “prudent” throughout the previous 30-some pages.

Well, signs of a bubble are rarely “clear.” As Finn Poschmann, of the C.D. Howe Institute, told Bloomberg on Tuesday, it’s always difficult to tell whether a bubble has formed until it goes “pop.” This is partly why bubbles, especially in real estate, continue to happen even though you’d think someone at some point would have learned the lesson.

But let’s take a closer look at the CMHC’s no-bubble-no-worry argument. The housing agency seems to argue that the housing boom of the last decade was largely warranted by the fundamentals, i.e. important and independent underlying demographic and economic factors. Specifically, among other things, the CMHC notes that:

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How the housing market is pumping up our GDP numbers

By Erica Alini - Tuesday, May 1, 2012 at 3:00 PM - 0 Comments

The latest GDP numbers, released yesterday by Statistics Canada, caught everyone off guard. The Canadian economy dipped 0.2 per cent in February, surprising most economists, who’d been predicting GDP would inch forward by roughly the same magnitude. Most surprised of all must have been Bank of Canada governor Mark Carney, who had projected 2.5-per-cent annual growth rate for the first quarter. “It looks like the Bank of Canada jumped the gun,” quipped CIBC in a note to clients, adding that “the report suggests that the Canadian economy isn’t out of the woods just yet.”

The disappointing numbers seemed to be tied in large part to sluggish performance in the mining and oil industry, which, as Maclean’s wrote last week, just can’t seem to be able to get their due from the commodities boom. Luckily, there were a couple of sectors that defied the general downward trend and softened the February drop. One of them was—you guessed it—housing. Take a look at this chart from the StatsCan release:

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Banking regulator to oversee Canadian Mortgage and Housing Corporation

By Gabriela Perdomo - Thursday, April 26, 2012 at 2:26 PM - 0 Comments

As Maclean’s predicted on Monday, the Conservative government has tabled a bill that would put the Canadian Mortgage and Housing Corporation under the supervision of the Office of the Superintendent of Financial Institutions.

This could be major news for Canada’s housing market, which some believe is overheating. According to the Wall Street Journal:

The Office of the Superintendent of Financial Institutions will be given authority to review and monitor the “safety and soundness” of CMHC’s commercial activities, and report to the CMHC board, the finance minister, and the federal human resources minister.

Under Canadian law, home buyers with a down payment of less than 20 per cent are obliged to purchase mortgage insurance.

The budget legislation also included new rules governing covered bonds, which are issued by banks using mortgages as collateral that are almost always insured by the CMHC.

For more, see articles in today’s CBC, the Globe and the Financial Post.

Why the federal budget said nothing about mortgages

By Erica Alini - Tuesday, April 3, 2012 at 2:06 PM - 0 Comments

Steve Helber/AP Photo

When it comes to the housing market, Jim Flaherty has made it clear that he would rather leave it all up to the proverbial invisible hand. A week before he introduced the federal budget last Thursday he poignantly told reporters he’d “quite frankly” like the market to “correct itself.”

No surprise, then, that the Harper government’s Economic Action Plan 2012 (yes, that’s what they like to call it) said precious little about mortgages–just a vague vow to increase oversight of the Canada Mortgage and Housing Corporation to promote “the stability of the financial system.” Hardly the tough clampdwon on ballooning mortgages that some in the housing industry initially feared the budget would contain.

Flaherty’s approach reinforces the impression that Canada’s housing market has become a hot potato no one wants to touch–and everyone would like someone else to cool off.

The big banks certainly don’t want to do anything about it–they say the government should. Most of them are offering record low 2.99-per-cent fixed-rate mortgages, and calling on Flaherty to cap government insurance on mortgages or shorten the maximum amortization rate from 30 years down to 25. Bank of Montreal chief Bill Downe and Toronto-Dominion Bank CEO Ed Clark have both been calling on the finance minister to–and I paraphrase here–”please stop us before we drive ourselves into the ground.” Their argument sounds somewhat like this: “We can’t help but continue to offer mind-boggling low rates to any Joe Blow who wants to buy a house he can’t really afford, or we’d lose out to the competition–unless the government steps in and tightens the rules of the game for everybody.”

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Canada’s housing market is still hot despite crash predictions

By Gabriela Perdomo - Friday, March 23, 2012 at 10:38 AM - 0 Comments

A new report by Re/Max shows Canada’s housing market is stronger this year compared to 2011, mitigating warnings about an impending market cool-down or crash—at least for now. The report speaks of “strong demand and diminished supply setting the stage for a heated spring 2012,” adding that “12 of 15 Canadian centres (80 per cent) were reporting year-to-date (January-February) sales activity ahead of last year’s levels, with more than half reporting double-digit increases.”

The following cities have seen the biggest growth: Halifax-Dartmouth (35 per cent), Saskatoon (21 per cent), Saint John (20 per cent), Regina (16 per cent), St. John’s (12.5 per cent) and Greater Toronto Area (12 per cent). Vancouver, Kitchener-Waterloo, and Winnipeg “have experienced softening in housing activity so far this year.”

Re/Max analysts credit the bump to a combination of low interest rates, strong consumer confidence, and mild winter weather across the country.

Weather this early winter activity is taking away steam from the spring—usually the prime-time home-buying season—is anyone’s guess, as explored in this Financial Post article.

In a cooling housing market should you wait to buy and hurry up to sell?

By Erica Alini - Friday, February 3, 2012 at 9:18 PM - 0 Comments

Danny Johnston/AP Photo

Last week, Econowatch looked at the latest dire warnings about Canada’s real estate market. Everyone from the big banks, through Bank of Canada’s Mark Carney to Finance Minister Jim Flaherty is sounding alarm bells about inflated property, especially in hot markets like Toronto and Vancouver. With Canada’s economy slowing down and households overburdened by debt, many predict house prices will start heading south in 2012. On the other hand, the current record-low interest rates don’t have much place to go but up.  What does this mean for homebuyers and sellers? We asked realtors and mortgage brokers to weigh in.

John Pasalis is a Toronto realtor and the owner of Realosophy Realty Inc. in Toronto, a residential real estate brokerage that focuses on researching the city’s neighbourhoods. Larry Yatkowsky is a Vancouver realtor at Yatter Matters. Realtor Manny Riebeling focuses on Vancouver West and downtown areas and specializes in luxury properties and condos. David Larock is a Toronto-based, independent full-time mortgage planner. Kerri-Lynn McAllister is the editor at RateHub.ca, a website that compares mortgage rates in Canada.

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A Toronto homebuyer takes his frustrations to the blogosphere

By Erica Alini - Monday, January 30, 2012 at 12:26 PM - 0 Comments

Last week, we wrote about whether Canada’s real estate market is on the cusp of a painful though not disastrous pop or an all-out meltdown like the ones that hit the U.S. and Ireland. Econowatch would like to kick off this week by drawing your attention to FML Listings, an anonymous blog launched by a self-described frustrated Toronto homebuyer. It’s based on a simple, brilliant idea: Pick a modest house or condo with an outrageous price tag, and rail against it in 50-100 words. Here’s today’s gem about a one-bedroom, one-bathroom going for $548,000: Continue…

Merrill Lynch warns of Canada housing bubble

By macleans.ca - Tuesday, December 20, 2011 at 2:20 PM - 0 Comments

Canada’s housing market is showing all the “classic signs” of a bubble, according to a report released Monday by Bank of America’s Merrill Lynch. “We estimate housing prices nationwide are about 10 per cent over valued,” the report says. Even so, the bank doesn’t expect Canada to go through a large-scale housing crash as the U.S. did during the recent recession. The report, however, does predict housing prices will dip five per cent in 2012. This drop will be spurred by increasing household debt in Canada, as well as potential jumps in joblessness as the global economy flirts with recession, according to the report. Much of the “over valuation, speculation and over supply” cited in the report relates to the condo industry, which has been booming in cities like Toronto. Once the investment surge in condos cools off, there will be an oversupply of units, and some people who purchased condos “will be left holding vacant units,” says the report. As a worst-case scenario, the report points to a housing price drop of 10 per cent nationwide in 2012 alongside soaring household debt and job losses.

The Globe and Mail

The real problem with Vancouver's outrageous house prices

By Jason Kirby - Wednesday, June 1, 2011 at 4:50 PM - 56 Comments

A Chesterman Beach home in Tofino, B.C., listed for $7.6 million, is shown on Thursday, June 9, 2005. High house prices in the Vancouver Island town are driving some residents out. One realtor said 12 Tofino residents have bought Ucluelet properties in the past two years, and five more are looking. (CP PHOTO/Keven Drews)

The international media have finally clued in to the wackiness on Canada’s west coast, otherwise known as the Vancouver real estate market. Last month Bloomberg noted that when compared to median household incomes Vancouver homes are more expensive than even New York. The story linked soaring prices to the influx of wealthy buyers from mainland China. Today the Wall Street Journal retraces the exact same material. The warning in both pieces is clear: Vancouver’s housing market has become disconnected from reality and is primed to crash.

This little 3 bedroom, 1 bathroom bungalow in Vancouver is priced at $1.5 million. The listing suggests buyers just tear it down and build a new home.

This is a well worn theme for many Canadian reporters. Here at Maclean’s we’ve reached the same conclusion several times going back to 2008, and, admittedly, we’ve been proven fully and completely wrong. I still think prices here in Vancouver are nuts, but each day as I walk to work past the high-end coffee shops and panhandlers I see more “For Sale” signs going up, along with plenty of “Sold” stickers, too.

But here’s the thing. The real threat to Vancouver isn’t that the housing market might crash. That’s happened here before. It undoubtedly will happen again. Such is the boom & bust nature of real estate in Lotusland.

Far more insidious is the impact housing unaffordability is having on employers and the broader economy. Continue…

Real estate porn: The 15 most expensive homes in Canada

By Jason Kirby - Thursday, May 19, 2011 at 2:40 PM - 4 Comments

According to a new report from Re/Max, sales of luxury homes in Canada—the land that the global housing correction, and gravity for that matter, forgot—are exploding. Here’s the breakdown from the release.

$2 million is nothing to sneeze at, but in Vancouver there are crack shacks worth nearly that much. If you really want to talk luxury, set your sights higher. So without further adieu, here’s a countdown of the 15 most expensive homes in Canada right now, as drawn from the real estate industry’s listing service, Realtor.ca, after the jump…

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Two charts you need to see about commodities and the housing market

By Jason Kirby - Thursday, March 10, 2011 at 4:33 PM - 29 Comments

Our latest issue should be hitting stands today or tomorrow with a story looking at the love-in that investors, both international and domestic, have for Canada at the moment. (Online-only readers will have to wait a week to read the piece at Macleans.ca. Better yet, go buy a copy of the mag.) You’ll have heard the “Buy Canada” thesis many times by now—our vast resources, supposedly prudent government finances, strong housing market and resilient job sector make us a stand-out in the global economy.

But there’s a weakness to that string of logic. All of those strengths we like to boast about are underpinned in one way or another by the phenomenal commodity bull market of the last decade, which has reshaped the Canadian economy. The thing to remember though is that commodities regularly go boom and bust. Always have. So is this time going to be any different? You be the judge. (click to enlarge.)

The above chart is from this week’s magazine story. It tracks the running 10 year annual returns in overall commodities. Through wars (both hot and cold), easy credit booms and even the U.S. industrial revolution, any time the commodity market has gone through a period like it just has, a nasty spill invariably followed. With the TSX down nearly 680 points or 4.7 per cent this week on softening commodity prices, there’s an argument to be made we’re cresting the peak once again.

Investors aren’t the only ones who should be hoping the commodity bull market keeps on a’runnin’. The real estate sector has benefited in a huge way from strengthening resource prices, thanks to low unemployment and higher incomes, not to mention the  overall sense of invulnerability that’s come to pervade the Canadian mindset. But to truly appreciate the stunning heights Canadian house prices have reached, history is helpful once again. For our story we spoke with Robert Shiller, the Yale professor famous for developing the Case-Shiller House Price Index in the U.S. which tracks prices going back to 1890. In the absence of solid historical Canadian data, Shiller suggested “an exercise” of fusing his index with the Canadian Teranet-National Bank House Price Index, on the assumption that house prices in the two countries behaved relatively similar prior to 1990. Here’s the result: (click to enlarge)

By the looks of that, we’re well into uncharted territory. As Shiller told me, “This is just to give an impression how unusual things are in Canada now. Canada is going through a major historic boom, at least in comparison with booms in the US before 1990.” For what it’s worth, you can see Shiller’s full U.S. chart, and how house prices fell back to earth after the bubble burst, here.

I should mention that before posting the Shiller chart, I ran it past Simon Côté at National Bank of Canada who devised the Teranet index. He cautioned that the price gains of the past decade should be taken in the context of Canada’s nominal GDP gains over the past half century. Here’s what he had to say:

“I think you may find that, yes house prices have increased a lot in the past 10-15 years, but the price increases since the 60s or 70s may be in line with the change in GDP, in other words houses prices might not have increased more than the overall wealth of Canadians.”

Decide for yourself how much to read into the above charts. I’d just say that we’d all be wise to remember one thing: both resources and real estate are commodities, and rule #1 in commodities is what goes up, eventually comes down.

Canada's worst spenders

By Erica Alini - Wednesday, February 23, 2011 at 11:57 AM - 7 Comments

There’s been plenty of speculation that Vancouver’s hot housing market is in bubble territory, and as interest rates rise, that view is going to be put to the test. A new Toronto-Dominion Bank report says that one in 10 British Columbia households could find themselves scrambling to pay their bills if the Bank of Canada ups rates, as TD predicts it will—up to three per cent by the end of 2012.

The province has been Canada’s real estate debt champion since at least 1999, and it is the only one where the average savings rate is negative, according to TD. Vancouver in particular seems to most resemble the housing run-up seen in the U.S. Two weeks ago, Robert Shiller, an economist at Yale University who correctly forecast the U.S. housing bust and helped develop the influential Standard and Poor’s Case-Shiller real estate index, likened Vancouver to San Francisco, one of the areas worst hit by the slump in the States. Compare that to Manitoba, where families have strengthened their balance sheets since 2006, and will be putting 40 per cent less of every dollar toward debt repayments than households in B.C., notes TD. Continue…

Avoiding the crash

By Jason Kirby - Saturday, September 4, 2010 at 10:20 AM - 0 Comments

PHOTOGRAPH BY SIMON HAYTER

As the housing market stalls, several people who bought pricey Vancouver condos before they were built are suing to get out of the deals. In Toronto, condo sales during the first half of the year fell for the first time since 1994. And at least one homeowner near Halifax just offered to give away his house for free, so long as whomever took it assumed the $395,000 mortgage. Everywhere, tales of real estate woe and miserable sales data have prompted predictions of a crash. James Grant, a prominent U.S. investment newsletter author well known for his bearish outlook on the American economy, has warned house prices here are primed to fall: “The median Canadian house is, in fact, certifiably unaffordable.” Even if prices tumble, though, as happened in 2008—when the economy was also teetering and house prices were at record levels—they could still make another surprising comeback.

No question Canadian prices are outrageously high. As Grant points out, compared to rental rates, home prices in Canada are more than 60 per cent above the historical average. And with home ownership rates and household debt levels higher than they’ve ever been, Scotiabank economist Derek Holt says there’s nowhere for prices to go but down. “This time when we come off the boil, prices are going to stay lower,” he says.

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Home sales are falling fast, but the problem isn’t with record high prices

By Jason Kirby - Thursday, August 19, 2010 at 3:00 PM - 0 Comments

AP Photo/Ted S. Warren

Across Canada the housing market took a beating in July, but the only thing more prevalent than the “for sale” signs gathering dust everywhere were excuses for why buyers have suddenly vanished.

In Toronto, July sales fell 34 per cent. They were down by 42 per cent in Calgary. And in Vancouver and the lower mainland sales plunged by around 45 per cent. If those watching the housing market thought sky-high prices were to blame, though, realtors were quick to correct them.

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Mortgage mayhem, take two

By Jason Kirby - Thursday, April 29, 2010 at 4:40 PM - 0 Comments

AP/ Getty Images

Has the “great vampire squid” finally been harpooned? Until last week, the Wall Street investment bank Goldman Sachs had taken plenty of lumps in the court of public opinion—such as Rolling Stone writer Matt Taibbi’s famous and unflattering aquatic analogy—but largely dodged any serious fallout from the financial crisis. Now with the U.S.

Securities and Exchange Commission’s lawsuit, accusing the bank of committing outright fraud in the way it packaged and sold mortgage investments to some clients, the firm faces a crisis of its own.

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The real estate gamble

By Jason Kirby - Thursday, December 17, 2009 at 9:33 AM - 17 Comments

It may be winter, but Vancouver’s love affair with real estate is in full bloom. After a brief pause to mark the recession, the hot topic over lattes is once again square footage and million-dollar views. Which is roughly the price tag Michael Lin kept coming across last week as he and a friend sat in a Granville Street café surfing MLS, the real estate listing website, on his laptop.

Lin, a computer programmer in his late 20s, has watched the ups and downs, and then ups again, of Vancouver’s housing market from his rented apartment. Now, with the economy in repair mode and mortgage rates still near record lows, he’s eager to take the plunge into the city’s condo market. He admits prices are higher than he’d like, but believes he can easily cover the mortgage payments even if interest rates start to rise. But when asked whether he will have enough left over at the end of the month to save for retirement, he chuckles. He wasn’t saving much before, either. “This way,” he says, “I’ll be forced to save.”

Lin has plenty of company. A growing number of Canadians have come to view their homes as the ticket to a secure retirement. There’s a lot to be said for that approach. Your house is the biggest investment you’ll ever make, and it compels you to watch your pennies. It’s also true that those Canadians who had all their money tied up in their homes instead of stock markets have come through the financial crisis with their household balance sheets largely intact.

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The shocking truth about the value of your home

By Duncan Hood - Monday, February 23, 2009 at 6:50 PM - 1,288 Comments

There are still people out there who don’t believe Canada is about to be hit by a devastating housing crisis, but Riaz Kassam isn’t one of them. For him, the crisis has already arrived.

Last July, he made an $80,000 pre-sale payment on a $1.5-million penthouse condominium in Vancouver’s tony H&H Yaletown building, just a few blocks away from where he lives. Kassam, a 42-year-old computer analyst, who’s married with no kids, expected to move in by the end of 2008. But when he put his current apartment on the market, he didn’t get a single offer. He thought maybe he had priced it a little high, so he knocked a bit off. Still, no offers. He lowered it again, and again, until eventually he was offering his apartment for a full $120,000 less than his initial asking price. That’s when he realized he was in trouble. “We reached the point where we couldn’t drop the price any more,” he says, “or we wouldn’t have enough for the down payment on the new property.”

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What kind of house can $500,000 buy you?

By macleans.ca - Thursday, February 19, 2009 at 3:53 PM - 72 Comments