The Knight Frank Prime Global Cities Index recorded its first quarterly fall since 2009, with the average value of prime property in the world’s key cities depreciating by 0.4% in Q1 2012. This represents the index’s first quarterly fall since the depths of the global recession.

Although a milestone, the index’s negative quarterly growth is not surprising. Quarterly price growth has been below 2% since Q1 2010 and it averaged only 0.6% in 2011.

The first three months of 2012 brought with it little new momentum. The Eurozone’s debt debacle remained at the forefront of the global economic agenda, several critical elections were on the horizon (Russia, France, Greece) and Asia’s highly-effective cooling measures showed no sign of being relaxed. Against this backdrop some luxury buyers took to the side-lines to observe their market’s trajectory.

Despite the overall index’s sluggish performance four prime markets achieved double-digit growth over a 12-month period; Nairobi, Jakarta, Miami and London. Perhaps most surprisingly is the fact that the top five performing cities were spread across four continents – North America to be the only continent to appear twice.

London and Singapore are proof that there is still a level of resilience in the prime markets with both cities shrugging off the introduction of new stamp duties in the first quarter of 2012. In London both prices and applicant numbers increased despite the stamp duty rise to 7% for individuals buying homes over £2m.

In Singapore the new 10% stamp duty for foreign buyers, which was introduced in December 2011, dented demand but not prices according to Nicholas Holt, Knight Frank’s Asia-Pacific research director.

Holt comments, “Prices not only held up but actually increased slightly at the very top end of the Singapore market in Q1 2012. This was not only due to fairly resilient domestic demand, but also due to wealthy Chinese, Indonesian and Indian buyers who continued to buy in this segment of the market undeterred by the surtax.”

In our view the overall index will remain subdued in 2012 fluctuating between marginal price falls and rises (with London, Moscow, Jakarta, Nairobi and Singapore expected to be the strongest performers) but it seems unlikely we are on the cusp of a new deflationary cycle in luxury global house prices.

The safe-haven argument still resonates. Capital flight will continue to focus on cities with low political risk, transparent legal systems, good security and ideally those with an HNWI-friendly (High Net Worth Individuals) tax regime.

The Prime Global Cities Index tracks the performance of luxury property across a selected number of global cities and is produced quarterly.

Source: International Estate Agent Today

My real estate column in the Vancouver Sun featured property sales in Burnaby, Downtown Vancouver and Coquitlam.

Vancouver Sun May 12th, 2012

201 – 9329 University Crescent, Burnaby

Type: Two-bedroom, Two-bathroom apartment
Size: 844 sq. ft.
B.C. Assessment, 2012: $312,000
Listed for: $338,800
Sold for: $333,500
Sold on: April 8
Days on market: 72
Listing agent: Robert Crowe at RE/ MAX Real Estate Services
Buyer’s agent: Robert Crowe and Terri Welch at RE/MAX Real Estate Services

The big sell: There are many benefits for residents living in SFU’s UniverCity community on Burnaby Mountain. Some of these include immediate proximity to lush, woodland trails – perfect for outdoor exercise – as well as the views, and access to the recreation facilities and amenities that SFU offers. This southeast facing condominium in Harmony was built by Polygon in 2005. It is a four-storey complex that consists of 190 units. The interior of this home contains an open-plan kitchen with eating bar and maple-coloured cabinets, a living/dining area with gas fireplace and sliding glass doors that open to the balcony, and a master bedroom with walk-in closet and ensuite bathroom. The unit is on the quieter side of the complex overlooking the courtyard. The building allows pets and – of particular interest to investors – it also allows rentals.

2609 – 939 Expo Boulevard, Vancouver

Type: One-bedroom, One-bathroom apartment
Size: 506 sq. ft.
B.C. Assessment, 2012: $385,000
Listed for: $385,000
Sold for: $384,500
Sold on: April 9
Days on market: 1
Listing agent: Ann Lok at Sutton Group – West Coast Realty
Buyer’s agent: Chris Tioseco at Sutton Group – West Coast Realty

The big sell: Buyer’s agent Chris Tioseco says there were many reasons why his clients were attracted to this one-bedroom, 26th-floor condominium in Concord Pacific’s Max II tower: 180-degree sweeping cityscape views, nine-foot ceilings, a central downtown location, an attractive Porte-cochere circular driveway, and the building’s comprehensive range of amenities, which include an indoor pool, sauna/ steam room, gym, a theatre that seats 20 people, a party room, and 24/7 concierge. This suite is on the quieter side of the building and includes engineered hardwood floors, a gas stove, a large flexible room that could be used either as an office or a walk-in closet, expansive windows to maximize the views, and a balcony for relaxation and barbecues. The unit comes with one parking stall. The building has been fully rainscreened and rentals and pets are allowed.

311 – 1185 Pacific Street, Coquitlam

Type: One-bedroom, One-bathroom apartment
Size: 903 sq. ft.
B.C. Assessment, 2012: $251,000
Listed for: $275,000
Sold for: $270,000
Sold on: April 7
Days on market: 73
Listing agent: Barb Steczko at Century 21 Showcase Plus
Buyer’s agent: Chris Sheppard at Royal LePage Coronation West

The big sell: The Centreville building lives up to its name, since residents have easy walking access to everything that Coquitlam town centre has to offer: T&T, Douglas College, the Aquatic Centre, the library, city hall and the eventual Evergreen Line which, when complete, will connect Coquitlam to the SkyTrain. At more than 900 square feet, this apartment with one bedroom and a den is larger than many two-bedroom Vancouver units. It has an open living area, a fireplace, laminate flooring, and a balcony. The unit has been repainted and contains a kitchen with plenty of cupboard space, tile backsplash, in-suite laundry, crown mouldings, and nine-foot ceilings. The bedroom has a walk-in closet. The building’s amenities include an exercise room, a clubhouse, a hot tub and a guest suite.

Source: Nicola Way, Vancouver Sun

The Bank of Canada may be thinking about raising interest rates but there’s apparently no need because Canadians are hunkering down to cool debt obligations on their own.

“The pace of growth in household credit is no longer a reason for the Bank of Canada to move from the sidelines any time soon,” says Benjamin Tal, deputy chief economist at CIBC World Markets.

He wrote a report released Wednesday that suggests central bank intervention is not needed, especially with consumers already seeing interest payments on debt eating into 7.3% of their disposable income as of the fourth quarter of 2011, even at today’s low rates.

“Why are you raising rates? To slow down credit growth — but it’s already slowing,” Mr. Tal says. “I say let the market slow naturally. We are so concerned about this but it’s moving in the right direction.”

Toronto-Dominion Bank economist Francis Fong also weighed in, suggesting Canadians have begun to get the message about having too much debt, based on the slowdown in consumer credit growth.

Even the chief executive of one of the big five banks joined the discussion, hoping to extinguish some of the panic about Canadian debt.

“When we look at the overall marketplace, there might be pockets of vulnerability but we remain quite comfortable,” said Gord Nixon, chief executive of Royal Bank of Canada “Frankly, I’d like to see the rhetoric come down a little bit.”

The CIBC report does note that as of March 2012, mortgage debt rose by 6.3% on a year-over-year basis, which is below the average rate of growth seen in the past two years of 7.3%.

Mr. Tal says there will be a gradual softening in the housing market with prices falling 10% in the coming year or two. He says tougher rules from regulators on loans will cool the market and notes the banks themselves are questioning values, citing “the increased use of full-scale appraisals as part of the adjudication process.”

Overall, Mr. Tal says that for the first time since 2002 consumer credit is rising more slowly than in the United States.

“Consumer credit [growth] is basically zero,” he says, adding Canadians have been optimizing their credit situation by taking high-interest credit card debt and transferring it to lines of credit.

TD’s Mr. Fong agrees that Canadians are starting to “hunker down” and pay off their debt, but at the same time he suggests a two-percentage-point increase in rates would leave many households at risk.

Source: Garry Marr, Financial Post

Helmut Pastrick has heard the growing talk from other financial analysts that a real estate bubble or “craze” in Vancouver has left the condo market ripe for a crash.

So far, he doesn’t see it.

The Central 1 Credit Union chief economist instead says prices aren’t soaring dramatically and he expects continued stability over the short term in the Lower Mainland.

“The Vancouver market is still obviously very expensive,” Pastrick said. “But it’s not skyrocketing away from us. Nor is it likely to fall into the tank either.”

Lower Mainland home sales were down in April, but most prices are up modestly from a year ago, although some categories have sagged in recent months.

Nor does he see signs that builders are flooding the market with new units.

The risk as Pastrick sees it is not from over-inflated prices, but from global events – a new financial crisis in Europe or a war that sends oil prices spiking.

He said that could spark a new recession that drags down both real estate and stock markets.

“If there’s a global event, Canada will also feel it and the housing market will as well,” he said, adding detached houses would fare better than condos.

Over the longer term, Pastrick doesn’t expect Metro Vancouver will suddenly become a more affordable place to own a home.

“When I look over the next 25 years, I expect prices will be higher,” he said.

“I expect it will be even more difficult for many to enter the housing market.”

The proportion of people who rent instead of own will rise over time, he predicted, and builders will continue the trend of offering smaller units.

He also foresees more intergenerational households than in the past with larger extended families living under the same roof.

The Real Estate Board of Greater Vancouver’s benchmark price for all residential homes was up 2.8 per cent in the last three months to $683,000 in April, and is up 3.7 per cent from a year ago.

Detached house prices have been the strongest, up 6.3 per cent from a year ago, while condos were up just 1.1 per cent.

Benchmark prices released by the Fraser Valley Real Estate Board were up 5.3 per cent year-over-year to $576,600 for detached houses in April, although that number was down two per cent from March.

Townhouses were up 1.9 per cent from a year ago to $318,400 and condos rose 0.8 per cent to $205,800.

The federal government, wary that low interest rates – important for economic recovery – are leading consumers to take on too much debt and inflate home prices, has tightened mortgage lending rules a number of times since the 2009 recession.

Metro Vancouver home starts held steady in April and are up 16 per cent from a year ago to nearly 6,000.

Total building permits issued in the Lower Mainland were up nine per cent in March from the same period a year ago. That includes industrial and office construction.

Source: Jeff Nagel, Surrey Leader

Realtors say the small boom of sky-high prices for Vancouver Westside houses – one that provoked media around the world to claim with scant proof that mainland Chinese investors were buying up the city – is fizzling out.

Both sales and prices are down at the top end even more markedly than in the rest of the region, which has also seen a general slowdown this spring.

A house on the 3000 block of West 24th Avenue, first listed at near $4.5-million six months ago, sold on April 15 for $3.35-million.

Fresh statistics from the Greater Vancouver Real Estate Board show the number of sales on the Westside is down by nearly 40 per cent for the first four months of the year. Only a third of the nearly 400 homes listed in April have sold – one of the lowest rates in the region.

Realtors say the slowdown appears to have resulted from a combination of tighter lending practices by local banks, which now want proof of income to service large mortgages, more restrictions on how much capital can be taken out of China, and fewer immigrants.

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said Westside realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.

He and other realtors are saying the Westside slowdown is a good thing because the short-lived boom, which prompted local owners to start listing at increasingly inflated prices, was unrealistic and unhealthy.

“I always thought that market was not sustainable. Every local person was juiced out of the market. The average household income on the Westside doesn’t support those prices,” said Andrew Hasman, who specializes in single-family homes on the Westside.

Prominent condo marketer Bob Rennie said the high-end house prices in Westside Vancouver were so out of line with the rest of the region and country that it was skewing people’s perceptions of real-estate increases, not just in Metro Vancouver, but in all of Canada.

“In 2010, reports were saying real estate went up 8.9 per cent in Canada. But if you took out Vancouver, it only went up 4.3 per cent,” he said.

The spike in Westside house prices over the past two years has provoked intense media coverage – with one Bloomberg News story in late May headlined, Chinese Spreading Wealth Make Vancouver Homes Pricier Than NYC – and debate among residents, politicians and commentators both here and abroad.

Much of it was attributed to “mainland Chinese” buyers, although no one had hard overall numbers to support that. Nor could anyone say whether that group might be 100 or 1,000 people, or whether they were truly offshore investors or immigrants.

But that didn’t stop arguments about the need to limit foreign ownership or to tax speculation to prevent the nebulous phenomenon.

A number of realtors said early signs started appearing six months ago that the market was slowing down, but the difference really appeared in early March. There is usually a surge of buying in Vancouver around Chinese New Year, as visitors from China come to see family or friends in the city and often make decisions to buy.

This year, the buying spree after Chinese New Year was much smaller, and house sales have slowed in March and April instead of the typical pattern of accelerating into spring.

Jean Zhang, with Sutton Group, said her clients, who tend to be immigrants looking to settle here permanently, are waiting longer to make offers.

“A few months ago, people were thinking, ‘I have to get in right away,’ ” she said. “Now, they see there are lots of choices. And they are giving lowball bids. They want to have good bargains in this market.”

Source: Frances Bula, Globe and Mail

Existing home sales in Canada’s most expensive city dropped in April, according to the Real Estate Board of Greater Vancouver.

The board described home sale and listing activity as maintaining a “consistent pace” leading to balanced market conditions but its April statistic shows total sales across the Multiple Listing Service in April were 2,799, a 12.3% decline from a year ago. It also represented a 2.6% decline from March 2012.

REBGV said April sales were the lowest for the month in the region since 2001 and 16.9% below the 10-year average for the month of 3.369.

“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%, a balanced relationship between buyer demand and seller supply in our marketplace,” said Eugen Klein, president of the board.

The board’s so-called benchmark price for all residential properties in Greater Vancouver was up 3.7% in April from a year ago to $683,800. Prices are up 2.8% over the last three months. In the Lower Mainland prices were up 3.4% in April from a year ago to $612,000.

“Recent activity has had a stabilizing effect on home prices at the regional level, although pricing can vary depending on area and property type,” said Mr. Klein said.

Supply has been increasing in the Greater Vancouver area with the total new listings in April up to 6,056, a 3.6% jump from just a month earlier. However, new listings are also only up 3.6% from a year earlier. April new listings were 6.7% above the 10-year average for Greater Vancouver in April.

Overall, the board had 16,538 homes listed for sale on the MLS which is up 8.5% compared to March, 2012 and 16% from a year ago.

Source: Garry Marr, Financial Post

When will the Bank of Canada raise rates? Bank of Canada governor Mark Carney surprised few with the announcement on April 17 that the overnight lending rate (from which prime rates are derived) would remain unchanged. His comments, however, has begun large changes in rate-hike predictions. BMO has already moved its prediction for the next rate hike from mid-2013 to end of 2012, and many are expected to change their outlook. Swap traders are pricing in a 90-per-cent chance of a rate hike by the end of 2012.

With all of the negative news circulating globally, why have things changed so much over the past few months? Here’s what we can take out of the Bank of Canada’s comments:

1. Growth will be watched more closely than inflation. Economic growth forecasts have increased from two per cent to 2.4 per cent over the past month, as 82,300 jobs were created in March (a reduction of 0.2 per cent unemployment). Because there is so much money sitting on the side-lines, growth is a good indicator of potential inflation. Inflation was just under the two-per-cent target at 1.9 per cent in March.

2. Carney is now forecasting that Canada’s economy will return to full capacity in the first half of 2013, three to six months earlier than originally forecast. Full capacity is the limit at which the economy can grow without excessive inflation.

3. Global economic factors are improving. Greece’s bailout helped calm down European markets (especially bond markets). Carney predicts a strong second half of 2012 for Europe.

The above factors, combined with a constant reminder that consumer debt in Canada is above the comfort zone, may see rates rise more quickly than anticipated. Five-year bond rates (which heavily influence fixed rates) shot up nearly 0.1 per cent after the Bank of Canada announcement, anticipating a quicker recovery than originally forecast.

Don’t hit the panic button just yet, though. We have all been through times of positive spring numbers only to be disappointed by the summer, so expect the Bank of Canada to be cautious when evaluating a rate hike. Last spring most banks and economists had predicted the prime rate would be at four per cent by fourth quarter 2011, only to drastically change their outlook by summer and into fall. If the economic momentum carries through the summer and into third quarter, it would be expected that we see a reasonable .25 per cent increase in third or fourth quarter this year.

Source: Kyle Green is a mortgage broker with Mortgage Alliance Meridian Mortgage Service Inc.

Our bubbly housing market raises questions not only about the wisdom of buying right now, but also about selling.

What if you bought a home many years ago and had the opportunity to lock in a great profit while the market is still buoyant? A Vancouver woman and her husband answered this question recently by selling the family home and signing a one-year lease on a rental.

“We bailed,” said the woman, who asked to be anonymous in this column. We’ll just call her Ms. Bold. She and her husband have been having annual talks about whether to sell since 2008, when the housing market briefly plunged. This year, they agreed it’s time.

“When you look at all the statistics, it just doesn’t make sense,” Ms. Bold said of the Vancouver market. “Who’s kidding who? The cost of living here is so outrageously expensive and incomes are not keeping pace.”

The average price of a home was up about 6.9 per cent a year over the past decade on a national basis, and there are cities like Vancouver and Toronto where gains have been even better. The average price in the greater Vancouver area was $775,693 in the first quarter of the year – a decade ago the average was in the $300,000 range.

After a long rally in housing prices, concern about a correction of some sort is growing. For a majority of people, the idea of selling now to preserve their gain in the housing market will seem crazy. They like their homes, they like the homeowner’s lifestyle and they abhor renting. Let the housing market rise and fall – they plan to own for the duration.

Still, there’s a case to be made for getting your money out of a house now if you’ve done very well over the years. That’s what Ms. Bold and her spouse have been thinking. They’re in their mid-40s, she a professional coach and her husband an entrepreneur. They have two kids, aged 12 and 7. They bought a $275,000 home in 2003 and sold three years later for $375,000. Purchased for $445,000, their most recent North Vancouver home sold in March for over $1-million after attracting three bids from interested buyers. Time on the market: Less than a week.

“Let me put this in perspective – this is a 100-year-old home, 2,400 square feet on a 50-foot lot,” Ms. Bold said of her just-sold home. “We do not even have a bathroom upstairs with our bedroom.”

More than a million for a non-monster home? “That’s nothing,” she said. “This same home on the west side of Vancouver would sell at $1.5-million.”

Then again, the Vancouver housing market looked a little shaky in March. While average prices moved higher, sales fell sharply. Ms. Bold’s sense is that some parts of the city are holding up, but her confidence level in the market is near zero right now.

At first, she and her husband thought about selling in the traditionally strong spring market, and then buying another home during the traditional summer slowdown. Now, they see no rush to buy back in. Instead, they will rent a four-bedroom house for a one-year period in which they’ll look at their options.

One option is to continue renting in Canada, at least for a few years, and buy a house in the United States. Annihilated in a slump that began five years ago, U.S. housing might in fact offer some opportunities for bargain hunters. Back in February, uber-investor Warren Buffett said he would buy “a couple hundred thousand” single family homes if he could find a practical way to do it.

For now, Ms. Bold and her husband are content to enjoy their debt-free status and the extra cash flow that comes from renting. In fact, their monthly rental costs are only a little less than their mortgage payments, which were set at a high level to speed up the repayment process. But they estimate they’ll save thousands by not paying property taxes and home maintenance costs.

It’s not an easy emotional transition to go from owning a home to renting, but there are compensations.

“The part I’m struggling with is the idea of living in a house that doesn’t look and feel the way I want it to,” Ms. Bold said. “My husband just keeps saying, wait until you see our bank account balance. We’re going to be debt-free with a big wad of cash.”

Source: Rob Carrick, Globe and Mail

When it comes down to it, many British Columbia home buyers just aren’t willing to battle for their dream home, according to a BMO Home Buying Report released today.

The report said Canadian respondents in the Prairies, Ontario and Alberta are more willing to enter into a bidding war than those in B.C., Quebec and Atlantic Canada.

In the survey, 22 per cent of Canadians said they were willing to enter into a bidding war when making an offer on a home.

“Of those prepared to fight, half would pay up to 110 per cent of the asking price, while a quarter would be willing to bid up to 120 per cent,” the report said.

Those surveyed in Manitoba/Saskatchewan ranked first in eagerness to enter into a mortgage bidding war (32 per cent). They were followed by respondents in: Ontario (28 per cent), Alberta (25 per cent), B.C. (23 per cent), Atlantic Canada (13 per cent) and Quebec (10 per cent).

The study also noted that 52 per cent of Canadians surveyed said they’re willing to pay between 100 and 110 per cent of the asking price, with Quebec ranking first at 62 per cent. It was followed by: Alberta and B.C. (53 per cent), Ontario (51 per cent), Manitoba/Saskatchewan (48 per cent) and Atlantic Canada (44 per cent).

Meanwhile, 27 per cent of Canadians said they would pay between 100 to 120 per cent, with the highest in Atlantic Canada (33 per cent), then Ontario and B.C. (30 per cent), Quebec (25 per cent), Manitoba/Saskatchewan (22 per cent) and Alberta (17 per cent).

John Pasalis, broker owner of Realosophy Realty Inc., a Toronto-area real estate brokerage, cautioned that the bidding wars may not be as lucrative as they seem.

“One thing to keep in mind is the houses that are getting pretty crazy bidding wars are underpriced anywhere from five to 10 per cent,” he said. “The list prices aren’t always an indication of what they’re actually worth.”

Pasalis said his company has seen “multiple offers almost non-stop for years now,” including as much as 10 or more buyers bidding on a house.

“You just get these spikes and valleys in the market where things get a little bit more heated and demand starts outstripping supply as things get faster,” he explained.

However, the mortgage wars may backfire on owners if the bank’s appraisal of the home is lower than what a buyer pays for the home, he said.

To avoid this, Pasalis cautioned that homeowners need to know the actual market value of the property they want to buy as opposed to its listing price.

Nationally, the average home sale price is $369,677, the report said. The average home prices across Canada are “rising modestly,” it said, except in Toronto ($504,117) and Vancouver ($761,742).

“Toronto prices have risen 11 per cent over the past year, while Vancouver’s have fallen 3 per cent,” said Doug Porter, deputy chief economist for BMO Capital Markets.

Source: Sheila Dabu Nonato, Postmedia News

Concrete condo sales are heating up in Metro Vancouver, but only for the right projects in the right location – near rapid transit.

That’s the word from Jeff Hancock, a senior manager with real estate market firm MPC Intelligence, who said presales of concrete condos in the right location and at the right price point continue to escalate with Asian investors largely driving the market.

“It’s not market-wide,” he said. “It’s more spotty. If you are 10 out of 10, you’ll do well. That means a great location, welldesigned, priced appropriately and definitely [served] by transit. Other projects are having to struggle a bit.”

Hancock said an MPC forecast earlier this year that 8,000 new units in concrete towers would be launched in the first six months of 2012 has been down-graded to about 7,800.

He said about 3,800 new concrete condominiums across 19 projects have started presales since Jan. 1 and that 60 to 65 per cent have been sold, “an impressive metric.”

Hancock cited last month’s sellout of 415 homes at Marine Gateway and the Telus Garden’s 428 condos as examples of strong sales in the sector. Two other condo towers in Burnaby – Silver by Intracorp and The Met by Concord Pacific – also sold extremely well in presales over the past two weeks, he added.

Hancock noted that the market has been driven by Asian investment segments, most for long-term investments but also for family use. “End user groups have also been active, specifically in North Vancouver, New Westminster, Burnaby North and downtown Vancouver.”

He said the resale market for concrete condos has not been as strong as the market for new units, possibly because investors buying a presale unit like the idea of having a year or two to complete the purchase.

Cameron Muir, chief economist for the B.C. Real Estate Association, characterized overall condo sales in Metro Vancouver as “moderate,” with no significant change in activity over last year and little pressure on prices.

He said some areas are under-supplied, while some areas, like Langley and Surrey, have a significant amount of inventory.

“In certain areas, particularly close to downtown, the inventory has been drawn down. And condo projects well located to transit are doing well to date.

“But that’s the exception rather than the rule. We’re still facing headwinds due to the overall economy.”

Source: Brian Morton, Vancouver Sun