Archive for October, 2012

See when interest rates could likely rise

Wednesday, October 31st, 2012

Bank of Canada governor Mark Carney is suggesting interest rates will likely rise before the end of 2014.

It’s one of the clearest indications Carney has given as to when he might raise the bank’s key benchmark, which has been held at one per cent for more than two years.

Responding to a question in the Commons finance committee Tuesday afternoon, the bank governor said the bank’s current thinking was that monetary policy will need to be tightened before 2015.

Last week, Carney inserted the phrase “over time” to give markets guidance on when the bank’s trendsetting rate might be increased. Tuesday’s response was somewhat more detailed, but still pointed to no immediate plans.

“We have in this projection … some modest withdrawal of monetary policy stimulus over the course of the projection, which runs until the end of 2014,” he said. “In other words in advance of 2015.”

Carney added that whenever he does move, it will be when global and domestic factors dictate. And he reiterated his recent guidance that he will also take into account household debt in his decision.

At the moment, he said the country still needs super-low interest rates to stimulate the economy and create jobs.

Canada may have recovered all the jobs it lost in the recession, and added an additional 380,000, he said, but the economy still has a way to go before returning to what would be considered full employment.

“We are in still in position where there are more Canadians who want to work than are working, and the level of involuntary part-time (workers) is still elevated,” he explained.

“They illustrate a degree of slack that still exist in the labour market, which is one reason our monetary policy continues to be and should be accommodative.”

Most private sector economists have pencilled in late 2013 or early 2014 for the first bank action.

The bank governor was appearing before the committee to explain his latest economic outlook released last week that projected growth of 2.2 per cent for this year, followed by a 2.3 per cent advance in 2013 and 2.4 in 2014.

That is slightly more optimistic than the economists’ consensus estimate handed to Finance Minister Jim Flaherty on Monday for the government’s fall update projections, which will be released in a few weeks.

Carney continued to blame global factors for most of the drag on the economy. But he said government restraint is also contributing to slower growth, although not as much as some have suggested.

He estimated the public sector will contribute about 0.3 percentage points to growth in 2013 and 2014. That’s about half the historic level and well down from when Ottawa and provincial governments were pumping billions into the economy during the 2008-09 recession and early stages of the recovery.

“So it’s positive but not as much as previously,” he said. Government restraint was a modest 0.2 percentage point constraint in 2012, however, the bank report shows.

Carney even ventured to assess the economic impact of the destruction caused by superstorm Sandy, which early estimates put at $20 billion.

While the economy will take a hit immediately, over the long term needed reconstruction in the eastern U.S. states will largely recoup the losses.

“There are activities that can never be redone, for instance a visit to a restaurant. Then there is restructuring (which creates economic activity). In general, it tends to be a relatively negligible impact over time,” he said.

Source: Julian Beltrame, Canadian Press

Homebuyers in Vancouver, Toronto, Calgary keen to purchase in next 5 years

Wednesday, October 24th, 2012

Homeowners in the Greater Toronto Area, Calgary and Vancouver are outpacing the national average when it comes to their intentions of buying a property within five years, according to the first BMO Housing Confidence Report released Tuesday.

Intentions to buy in the Greater Toronto Area (57 per cent), Calgary (62 per cent) and Vancouver (53 per cent) were above the national average (46 per cent).

Also, homeowners in Canada expect prices to rise by 2.0 per cent over the next year while those in Calgary expect an increase of 2.4 per cent.

“The fact that 46 per cent of Canadian homeowners intend to buy a property in the next five years implies that Canadians are feeling confident in the current real estate market environment,” said Martin Nel, vice-president of lending and investments with BMO Bank of Montreal. “However, that certainty is tempered, given the adverse effect moderate increases in home prices and mortgage costs would have on the average homeowner.”

“Rising debt and elevated house prices have increased the vulnerability of a meaningful number of households, and their financial situation will worsen if interest rates increase even moderately,” added Sal Guatieri, senior economist with BMO Capital Markets. “With rates likely to remain low for some time, the recent tightening in mortgage rules will help to cool credit growth and the housing market.”

The BMO report also revealed: 18 per cent plan to downsize to a smaller home and the same percentage intends to up-size to a larger home; 10 per cent plan to sell their home and move in to a rental property, retirement community, or move in with family in the same time period; 21 per cent plan to purchase an additional property for income, investment, or recreation; 57 per cent are familiar with the new mortgage regulations introduced earlier in 2012; 22 per cent say they are less likely to buy a new home in the next five years because of the changes; and 29 per cent planning to buy in the next five years say that they are likely to spend less on a new home as a result of the new rules.

Nationally, intentions to buy drop significantly from 46 per cent to 36 per cent in the event of a five per cent increase in home prices. In Alberta, a five per cent increase would change intent to buy by only one per cent; however, a 10 per cent increase would lower intent by nine per cent, moving from 51 per cent to 42 per cent.

Source: Mario Toneguzzi, Calgary Herald

Average home sale prices are down due to a decline in the sale of high-end Vancouver homes

Tuesday, October 16th, 2012

A slowdown in real estate sales numbers in Vancouver, particularly in single-family homes worth more than $1 million, dragged down the country’s average home price in September, the Canadian Real Estate Association said Monday.

In Metro Vancouver, the average home price was down 3.8 per cent in September from a year earlier, which CREA said skews the national average price, which was up 1.1 per cent. Excluding Vancouver, the national average price was up 3.4 per cent from a year ago.

Gregory Klump, CREA’s chief economist, said the drop in Vancouver was caused by fewer really expensive sales this year compared to last year.

“Last year, the average was pitched higher by a whole bunch of high-priced sales, while this year, those sales haven’t recurred so it’s lower. You’ve got one that was stretched last year, and one that’s been shrunk this year by a change in the composition that makes up the average” Klump said. “I like to use the following analogy: If you line the kids up in class from shortest to tallest and take the average height, and then you excuse the 10 tallest kids and recalculate the average, then the average height will have shrunk, but none of the kids have.”

For this reason, average house prices are not the most consistent information to use, Klump said.

“It’s like looking in a funhouse mirror,” Klump said. “It doesn’t really give you a true picture of what’s going on with regard to price, which is why you really want to look at the home price index, which keeps the quality of homes constant over time.”

The Multiple Listing Service home price index is down 0.8 per cent to $606,000 in Vancouver year-over-year in September, while it is up 3.9 per cent nationally.

“Stricter high-ratio mortgage regulation further exacerbated a moderating trend in consumer demand,” said Cameron Muir, BCREA chief economist. “Reducing the maximum amortization from 30 to 25 years had the equivalent impact to affordability as a 100 basis point increase in mortgage interest rates.”

In Metro Vancouver, the dollar volume of sales was down 35.7 per cent in September, year-over-year, figures released Monday by the B.C. Real Estate Association show.

Robyn Adamache, Canada Mortgage and Housing Corporation’s senior market analyst for Vancouver, said sales of single family homes are down 29 per cent for the first nine months of 2012 compared to the same period last year, while townhouse sales are down 20 per cent and apartment sales are down 16 per cent.

Although the overall average home price is down seven per cent, single-family home prices are down five per cent on average, while townhouse prices are down one per cent and apartment prices are down three per cent. Because more apartments and fewer houses are selling this year, the decline in average price is larger than the drop in price for any particular property.

Adamache also said there is a shift in sales volume away from very expensive single-family homes in areas such as the west side of Vancouver, West Vancouver and Richmond and toward more affordable homes in places such as Maple Ridge.

Adamache said sales numbers are expected to remain flat until the middle of 2013, when they are expected to increase, not to the lofty levels seen in 2011, but approaching those levels. She said prices are expected to decline overall this year, with a smaller decline next year.

Muir also said demand is expected to be on the rise.

“An expanding population, strong full-time employment growth and persistent low mortgage interest rates are expected to bolster housing demand in the months ahead,” Muir said.

Sales volume numbers are a lot more volatile than prices, Klump said.

“If you’re not forced to sell at a price you’re not willing to accept, you don’t sell,” Klump said. “If you’re getting offers below what you’re prepared to sell for, you take it off the market.”

Nationally, home sales in September fell 15.1 per cent from a year ago, CREA reported, adding that sales in September were up 2.5 per cent from August — the first month-to-month gain since March.

“While some first-time homebuyers may no longer qualify for mortgage financing under the new rules, it is likely that many others are stepping back and reassessing how much house they can realistically afford, which is one of the things new mortgage rules were designed to do,” Klump said.

While Vancouver’s home price index was down slightly, Calgary had a 6.5-per-cent increase in the index, the Toronto area was up 5.7 per cent, the Montreal area was up 2.2 per cent and the Fraser Valley was up 2.1 per cent.

Regina had the biggest increase among markets measured by the HPI, with a gain of 14.2 per cent from September 2011.

TD Bank economist Francis Fong said the month-over-month gain only partly offset August’s drop, with sales off their peaks in most markets across the country.

“The Canadian housing market has clearly lost some of its lustre,” Fong wrote in a note to clients.

“That being said, with interest rates remaining sufficiently accommodative, we do not anticipate any precipitous decline in housing activity in the near term. Rather, we expect a gradual unwinding of the imbalance in both sales and prices over the next few years.”

The sales report came as the Conference Board of Canada said that most Canadian cities are facing lower housing starts in the coming years as markets slow, with only 10 of the 28 cities showing positive long-term expectations.

Construction is going strong in Metro Vancouver, with housing starts on pace in September to reach 20,000 units by year’s end, mostly driven by multi-family developments, Canada Mortgage and Housing Corporation reported last week.

CREA said Monday there was still a balance between the number of homes for sale and the number of buyers in September, but conditions have eased.

The national sales-to-new listings ratio, a measure of market balance, stood at 49 per cent in September 2012, remaining near the midpoint of a balanced market.

Source: Tracy Sherlock, Vancouver Sun

Canada’s home sales rise for first time since March but still have a long way to go

Monday, October 15th, 2012

The Canadian Real Estate Association says there was a slight improvement in the resale housing market last month, although it’s still slower than a year ago — mainly due to a slowdown in Vancouver.

The association said Monday sales in September were up 2.5% from August — the first month-to-month gain since March.

Compared with September 2011, however, the number of deals across the country last month was down 15.1%.

The association said there was still a balance between the number of homes for sale and the number of buyers in September but conditions have eased.

CREA attributed the slowdown to new rules brought in by Ottawa that make it harder for first-time buyers to qualify for mortgages.

However, other observers have noted that reduced affordability after years of rapid price increases — particularly in some markets such as Vancouver and Toronto — and an uncertain world economy have also dissuaded buyers.

“National activity is likely to remain down from year-ago levels over the fourth quarter of 2012,” said Gregory Klump, CREA’s chief economist.

“While some first time home buyers may no longer qualify for mortgage financing under the new rules, it is likely that many others are stepping back and reassessing how much house they can realistically afford, which is one of the things new mortgage rules were designed to do.”

The national average home price was up 1.1% in September from a year earlier.

But the MLS HPI home price index, which also takes into account other factors, showed its smallest gain since May 2011, rising by 3.9% in September.

The association said Vancouver, the country’s most expensive residential real-estate market, skewed the national results.

Excluding that city, the national average price was up 3.4% from a year ago.

The MLS HPI in Vancouver posted a 0.8% decline year-over-year in September. In contrast, Calgary had a 6.5% increase in the index, the Toronto area was up 5.7%, the Montreal area was up 2.2% and the Fraser Valley in southern British Columbia was up 2.1%.

Regina had the biggest increase among markets measured by the HPI, with a gain of 14.2% from September 2011.

The national sales-to-new listings ratio, a measure of market balance, stood at 49% in September 2012, remaining near the midpoint of a balanced market.

Based on a sales-to-new listings ratio of between 40 to 60%, a little less than two thirds of all local markets were in balanced market territory in September.

Source: Canadian Press

Find out how to view an open house like a real estate pro

Friday, October 12th, 2012

Open Houses are more than just an opportunity to check out your neighbour’s interior decor, or to glean ideas to improve your own home. This recent article by Jill Krasny at Business Insider has some tips to help you find out so much more:

Open houses are a smart way to gauge whether a listing’s catching heat and if it’s worth seeing again in a private showing.

“If you’re just getting started with the process, an open house tour is like a get-out-of-jail-free card,” says real estate expert Brendon DeSimone. “It’s free, you can go because there aren’t restrictions and it’s a great way to learn the market.”

To his mind, the primary thing home shoppers overlook tends to be the most obvious: the crowd. Observing other shoppers is key, he says, as that’s the best way to gauge the market’s response to the home.

“If you like the house, watch the people. Is it packed? Are they hovering around the agent?,” he says. If so and if they’re asking pointed questions as well, you can bet that there’s serious interest and the listing is going to go fast.

Another strategy is to observe the agent, he adds.

“If you go to a house and you like it but no one’s there, maybe there are issues there,” says DeSimone. “You should watch the listing agent’s reactions because he wants to see the response to the house and how crowded it is.”

But don’t miss the opportunity to make small talk with the seller.

“You should ask why he’s selling, nothing rude, just what’s the story,” DeSimone says. “What’s their motivation to sell?” That should give you a feel for the pricing and whether the listing is gathering dust.

Questions like, how many days has the home been on the market?, or Have you lived here for a long time? should get the conversation going. Perhaps there’s a looming job transfer, or the seller is just moving down the street.

“If they’re not motivated you won’t want to waste your time,” says DeSimone. But at least you’ll know where they stand.

Why you shouldn’t panic (or get too excited) when real estate sales dip

Friday, October 5th, 2012

The article below by Scott Simpson appeared in yesterday’s Vancouver Sun regarding the reasons behind Metro Vancouver’s home sales drop.

Personally, I don’t agree with Andrey Pavlov, a professor of finance at SFU, who is quoted as saying that real estate prices in Metro Vancouver are comparable to New York City. According to StreetEasy, current median prices for condos in downtown New York, ie. Manhattan, are US $639,500 (Cdn $624,000) for studios, US $885,000 (Cdn $864,000) for 1 beds, and US 1.75-million (Cdn 1.708-million) for 2 beds.

That’s way more than the cost of similar sized apartments in Vancouver.

Every time there’s an increase or decrease in listings, sales, or prices, it makes news. Real estate has always been a cyclical game. Prices will never keep on increasing, there will be corrections along the way, but in Vancouver, barring any natural catastrophe, if you buy a home now, it should be worth more in 10, 20, 30 years time.

Vancouver is a city with limits. Ocean, mountains and the ALR limit the amount of available land. With increasing demand and a finite amount of land, real estate prices will naturally rise over time. It’s supply and demand 101, and real estate is a commodity in demand.

Anyway – here’s the article:

It’s down, but not out.

To one expert observer, last month’s 32-per-cent drop in year-over-year home sales in Metro Vancouver looks more like a cyclical trend than a harbinger of a bursting bubble in the Metro Vancouver housing market.

Data released this week by the Real Estate Board of Greater Vancouver indicated that sales volumes fell significantly in September compared to the same month in 2011 – 1,516 properties last month compared to 2,246 in September 2011.

Prices haven’t followed the sales volume trend. The real estate board reported that the composite benchmark price fell 0.8 per cent compared to September 2011, and is down 2.3 per cent in the last three months.

Tsur Somerville, who holds the Real Estate Foundation of BC Professorship in Real Estate Finance at the University of B.C., says the trends fall within the normal cycle.

The Metro market isn’t as popular as it was a year ago when the 2010 Winter Olympic spotlight was still warm.

“Sales started being lower year-on-year last November. I want to see whether that (trend) accelerates or not before I start saying that things are much worse than we were thinking about,” Somerville said in an interview.

“People aren’t standing in line overnight at every condo centre, and it’s not a sure thing. There are (housing construction) projects that are struggling and there are projects that are doing well. It doesn’t look exuberant but it looks pretty normal.”

Stats from the real estate board indicate that it’s taking a few days longer to sell a house, compared to last year.

Average time on the market for a house sold in September 2012 was 53 days, compared to 52 in September 2011.

Houses sold in August 2012 after an average 57 days compared to 48 days a year earlier.

Andrey Pavlov, a professor of finance at Simon Fraser University, has a different take on the sales trend.

He thinks Metro Vancouver single-family home sales prices are substantially lower than what the real estate board’s benchmark number indicates.

“The indices are down only slightly, but this is misleading,” Pavlov said in an email. “In an up market everything sells, good and bad. In a down market, only the best properties sell. So it takes a while for transaction-based indices to reflect the true decline in prices.

“My casual observation of single-family homes (land value only) in Kits(ilano) suggests 10 to 15 per cent declines already, with a lot more likely to come.

“New mortgage rules and troubles in China certainly play their role. But more importantly, the Vancouver market has been substantially over-valued relative to other North American markets for a while now.”

Pavlov said real estate prices in Metro Vancouver are now higher than San Francisco — the most robust regional economy in the world thanks to Silicon Valley — and are “just about comparable to New York City.”

In spite of that, rents are half as high, and incomes for the same occupation are only a half to two-thirds as high. On top of that, the ability of U.S. taxpayers to deduct mortgage interest expense means its “far more expensive to own property in Canada relative to the U.S.”

“So there is no long-term reason for price-to-rent ratio in Vancouver to be higher than that of other highly desirable markets,” Pavlov wrote.

He also pointed to “competition among cities for people and investments” as an adverse factor for Vancouver.

Real estate marketer Cam Good noted that Metro has fewer offshore investors and immigrants looking to get into the market compared to a year ago — and he believes that’s having an overall effect on sales and prices.

“The fact is that the shine has gone off Canada a little bit since we closed our investor immigration program,” Good said. “We are seeing through our business in Hong Kong and the U.S. more demand for the U.S.

He said the U.S. investor immigration program, called EB-5, is considered a better option for wealthy immigrants.

“The easiest way for Chinese to immigrate into Canada was by depositing $800,000 with our governments for five-and-a-half years. They can’t do that any more.

“We’re still, luckily, experiencing the follow-through on prior commitments — kids coming to school, other family members already here. But in terms of the new people coming over, there is definitely less.”

Nonetheless, he said some Metro markets are still strong. He pointed to Coquitlam, along the Evergreen Line light-rail transit corridor, as an area that’s attracting interest.

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