Consumers are addicted to low mortgage rates, but so are the banks.

Once again, Bank of Montreal is set to lower the rate on its five-year mortgage to 2.99 percent, a reduction of 50 basis points and one of the lowest rates ever offered in this country.

Canada’s fourth-biggest lender is also unveiling a 10-year mortgage at 3.99 percent. Both products are fixed and carry 25-year amortizations.

“We believe these products will allow our customers to borrow smartly,” Frank Techar, head of BMO’s domestic retail bank said in an interview. “They are consistent with the debate around the need to reduce consumer debt levels.”

Only two months ago BMO shocked the industry and the home buying public, unveiling a 2.99 percent five-year home loan. Most of the other banks followed suit within days. The rate on BMO’s product jumped back up at the end of January and the other banks raised rates shortly after.

Residential mortgages are the biggest single asset on bank balance sheets and players have been competing aggressively for marketshare, especially now that profits from their other businesses such as capital markets and insurance are coming under pressure.

Mr. Techar said this is also the first time BMO has offered a 10-year fixed mortgage at such a low interest rate.

The move is aimed at encouraging borrowers to lock into longer-term low rate loans with a 25-year amortization, shorter than the 30-year product that is the industry standard.

So while the headline interest rates on the two mortgages are low, the customer is protected from interest rate fluctuations because they’re fixed — meaning the rate doesn’t change — and the five and 10 year terms are relatively long compared to other popular mortgages.

Mortgage rates are largely dependent on the banks’ funding costs, and with long term interest rates expected to stay close to zero for the next three years, lenders have plenty of flexibility.

Analysts say that such offers and the rate wars they spark draw significant business for lenders, including many new borrowers.

The risk for the banks in longer-term products is that rates rise faster than expected, leaving them exposed.

Both BMO offers are available until March 28. The five-year mortgage is available starting today, while the 10-year offer begins March 11.

Source: John Greenwood, National Post

B.C. home prices are headed south this year before rising slightly in 2013, according to a quarterly forecast by the Canadian Real Estate Association.

The forecast average drop of four per cent – the biggest decline in the country and far steeper than the 1.1-per-cent forecast drop nationally – will bring the average price of a residential B.C. property down to $539,100 from $561,300 in 2011.

However, the average price is expected to rise 0.5 per cent to $541,800 in 2013.

Gregory Klump, CREA’s chief economist, said the main reason for B.C.’s forecast price decline is because multi-million-dollar sales activity in West Vancouver, Vancouver’s westside and Richmond in early 2011 caused both the provincial and national average prices to temporarily spike, a phenomenon that’s not expected to repeat itself this year.

“It reflects what happened by way of the average price increase in Vancouver,” he said. “There was a spike in high-end activity [and] it skewed the average price higher temporarily.

“We don’t expect it to happen this year.”

As a result, the report said, while prices will likely hold steady near current levels, the national average price is forecast to dip by 1.1 per cent in 2012 to $359,100. Prices are expected to rise modestly in 2013, with the national average inching upward 0.9 per cent to $362,300 at the national level.

According to the report, home resales are expected to rise by 0.3 per cent this year in Canada, with low interest rates continuing to support the market.

For B.C., home resales are expected to drop by 1.9 per cent, before rising slightly in 2013.

National sales are forecast to reach 458,800 units in 2012, while in B.C. sales are expected to total 75,300.

“Rising demand in Alberta, Saskatchewan and Nova Scotia is expected to offset softer activity in British Columbia, Ontario, and New Brunswick,” CREA said.

In 2013, CREA said, sales are expected to ease back to 457,200 units, with modest gains in all provinces except Ontario “as economic and job growth picks up later this year and builds into 2013.”

“Risks to the Canadian economic outlook remain elevated owing to the European sovereign debt quagmire, but the continuation of low interest rates is the silver lining,” added Klump.

“So long as the European debt crisis is contained and a global economic recession avoided, low interest rates will support Canadian home sales and prices. Recent trends are reassuring, but interest rates remaining low for longer will doubtless keep the Canadian housing market under scrutiny for signs of overheating.”

Source: Brian Morton, Vancouver Sun

Home resales are expected to rise by 0.3% this year in Canada, with low interest rates continuing to support the market, the Canadian Real Estate Association said today.

National sales are forecast to reach 458,800 units in 2012, up from 457,305 in the previous year. “Rising demand in Alberta, Saskatchewan, and Nova Scotia, is expected to offset softer activity in British Columbia, Ontario, and New Brunswick,” CREA said.

In 2013, sales are expected ease back to 457,200 units, with modest gains in all provinces except Ontario “as economic and job growth picks up later this year and builds into 2013,” it said.

Meanwhile, the national average price is likely to decline by 1.1% this year to $359,100, followed by a slight increase of 0.9% to $362,300 in 2013.

“Risks to the Canadian economic outlook remain elevated owing to the European sovereign debt quagmire, but the continuation of low interest rates is the silver lining,” said Gregory Klump, CREA’s chief economist.

“So long as the European debt crisis is contained and a global economic recession avoided, low interest rates will support Canadian home sales and prices. Recent trends are reassuring, but interest rates remaining low for longer will doubtless keep the Canadian housing market under scrutiny for signs of overheating.”

Source: Financial Post

A new tax break for first-time buyers of new homes will help stimulate the construction industry and create plenty of new jobs, an industry executive said of Tuesday’s 2012 provincial budget.

“This is welcome,” Greater Vancouver Home Builders’ Association president and chief executive officer Peter Simpson said of a temporary bonus for first-time homebuyers that will be effective until March 31, 2013, and is worth up to $10,000.

“They have a difficult time getting into the market and typically get assistance from the bank of Mom and Dad. So this helps property virgins get on the first rung of home ownership and helps stimulate construction.

“For every home start, there are approximately three full-time jobs each year.”

The bonus, a one-time refundable personal tax credit, is equal to five per cent of the purchase price of the home to a maximum of $10,000.

The bonus will be reduced based on a buyer’s or couple’s net income. For single people, the bonus is reduced by 20 cents for every dollar in net income over $150,000 (it’s reduced to zero at $200,000 net income). For couples, the bonus is reduced by 10 cents for every dollar in family net income over $150,000 (it’s zero at $250,000 family net income).

The bonus, which includes detached houses, duplexes, townhouses, condos, mobile homes, floating homes and cooperative housing units, is based on homes where the HST is now payable.

In a budget briefing, Finance Minister Kevin Falcon said the incentive will help people get into the market.

“We hear from people that talk about the challenge their children or their grandchildren are having getting into their first home,” Falcon said.

“And the biggest hurdle is usually the down payment you’re required to come up with. We believe a $10,000 contribution towards those first-time purchasers of new homes is a great contribution, a great way we can help your children or your grandchildren get into their first home and at the same time receive the dual benefit of supporting the new home construction industry over the next 12 months when it’s forecast across the country to be slowing.”

Urban Development Institute executive-director Maureen Enser agreed, saying the homebuyer bonus was an added bit of good news for the home construction industry on top of the government’s announcement last week raising the HST-rebate threshold to $850,000.

“In the Lower Mainland in particular, where housing is very expensive, both measures together make it easier for people to consider a new home [purchase] for a family,” Enser said.

She added that the maximum $10,000 bonus for first-time buyers with net income under $150,000 should stimulate some potential buyers to move off the sidelines and look for homes, particularly in the Lower Mainland.

“[About] 13 per cent of new housing is priced below $525,000, and 50 per cent is between the $525,000 and $850,000 range,” Enser said, so the measures combined help bring down the cost of new housing at both ends.

However, Simpson was less happy about the budget’s lack of any significant tax relief for the home renovation industry, noting that B.C. homeowners will spend more than $7.6 billion in home renovation, improvement and repair this year.

“We’re still left with the issue of the underground economy, with people delaying their decision to renovate their home by waiting for the HST to disappear [on April 1, 2013],” said Simpson, who added that the home renovation tax credit of up to $1,000 a year for seniors to help them remain in their homes longer will not have a big impact on renovators.

Vancouver-based home renovator Todd Senft agreed with Simpson, saying he’d hoped for new relief but now believes the lack of tax breaks in Tuesday’s budget will force many people to put off renovations and go to the underground economy — where renovators with less credentials undercut legitimate contractors.

“That’s disappointing,” Senft, owner of reVISION Custom Home Renovations Inc., said.

“I’m glad they paid attention to new-home builders, but that doesn’t help us. People will wait a few months and save a few thousand dollars.

“It [the home renovation industry] is steady right now and the year has started moderately. But it will be a tough grind this year. I’m hoping more [homeowners] don’t head to the underground economy to save money. The savings by doing it under the table are massive.”

Source: Brian Morton, Vancouver Sun

An interesting and informative video from BNN about the state of Canada’s condo and housing market and how much taxpayers could be on the hook if the market starts to cool faster than expected.

video: The state of Canada's condo market

The transitional tax rules for new homes in B.C. announced on Friday by Finance Minister Kevin Falcon are significantly more generous than the old ones.

The rule changes are intended to keep the tax burden on most newly-constructed homes at the same level that they were under the old PST regime, that they are under the current HST and that they will be when the PST is reinstated on April Fool’s Day next year. But three provisions make this a sweeter deal for builders and buyers:

. The threshold for a substantial tax rebate has been raised from $525,000 – a ludicrously low amount in the Lower Mainland, which is Canada’s most expensive housing market – to $825,000.

. Buyers of higher-priced homes will also benefit because they’ll pay tax only on the amount over and above the exemption.

. Recreational homes in most of B.C. will be eligible for the tax break for the first time.

The increased exemption goes a long way to address one of the most serious criticisms of the well-structured but badly implemented HST that has caused the governing Liberals so much grief. The exemption was so low and homes are subjected to so many taxes that the HST became yet another driver of sky-high urban house prices.

Would British Columbians’ reaction to the HST have been less visceral and less powerful if measures like these had been adopted from the start?

We’ll never know.

But maybe, just maybe, this more realistic approach indicates the government at least learned a lesson from the voter rage that drove former premier Gordon Campbell from office.

Since houses take a long time to build, the policy recognizes that many will be started under one tax regime and finished and sold under another. Falcon said the objective is to keep the tax burden the same, regardless of the timing.

In the old PST era, there was no provincial tax on the selling price of a new home, but builders paid PST on materials they used. The PST added, on average, two per cent to the total cost of the home.

When the HST was implemented, the seven-per-cent provincial tax applied to the selling price of the house, but the government said it wanted to keep the tax burden at the same level as under the PST. So it implemented a rebate of up to $26,250 (now raised to $42,500) to bring the effective provincial tax rate down to two per cent on the first $525,000.

When the PST resumes next year, the assumption is that the PST will, once again, add about two per cent to the cost of each new home.

Those prices should all work out to be equal.

The problem Falcon had to address was what to do about houses started under one tax regime and finished under another.

Depending on the timing and the policy, it’s easy to come up with scenarios where buyers might be able to duck both taxes, or where they might be dinged with both.

Falcon’s solution is a two-per-cent transitional tax on homes built with tax-free materials and sold with no HST applied. It’s a bit more complex than that, because it has a provision to consider what portion of the materials are bought and what portion of the home is completed under each tax regime.

Complex tax policies always create opportunities for unfairness. But Janice Roper, a specialist on indirect taxes at the Vancouver office of Deloitte, tells me the rules appear to be comprehensive, fair and hard to manipulate.

Peter Simpson, president and CEO of the Greater Vancouver Home Builders’ Association, said they provide the certainty his builders want, and they were announced sooner and with better terms than expected.

So – thus far, at least – Falcon seems to be finding his way through the HST minefield he inherited with his new job.

Source: Don Cayo, The Vancouver Sun

While home sales in Greater Vancouver and the Fraser Valley dipped at the start of 2012, other regions throughout the province faced increased market activity, according to the British Columbia Real Estate Association (BCREA).

The number of houses sold in the Vancouver region through Multiple Listing Service was down 13.4 per cent in January from the same month last year, the industry group said Wednesday.

In addition, the average price of a Vancouver home declined slightly, from $762,562 in January 2011 to $752,380 this year – a difference of 1.3 per cent.

In the Fraser Valley, sales dipped by 3.1 per cent during the same time period. However, prices rose 6.4 per cent from an average of $441,544 last year to $469,635 in 2012.

Meanwhile, B.C.’s northwest and northeast regions, Kamloops and Victoria saw sales gains of more than 10 per cent.

The biggest jump occurred in B.C.’s northwest region, where the average house price increased 14.2 per cent – from $214,357 to $244,872 – in the 12 months from January 2011.

Powell River, with an average price of $209,636, recorded the least expensive homes in the province – a figure down 1.2 per cent ($212,078) over January 2011.

Cameron Muir, chief economist with the BCREA, said consumer demand driven by low mortgage interest rates saw modest improvements in January from a year ago, despite a decline in provincial sales activity.

Across Canada, home sales were down 4.5 per cent in January from the same month one year earlier, while the number of newly listed homes edged down 1.4 per cent.

“This marks the first monthly decline in national activity since August 2011 and the biggest monthly decline since July 2010,” the Canadian Real Estate Association stated.

“The monthly decline reversed a string of monthly increases over the closing months of last year, and returned national activity to where it stood at the end of the third quarter of 2011.

January’s sales declines were led by Greater Toronto and Montreal, as well as a softening in other major centres such as Greater Vancouver, the Fraser Valley, Calgary, Edmonton, Winnipeg and Ottawa.

Still, unadjusted sales last month were up four per cent from January 2011 and were even with the five-and 10-year averages for January sales, it said.

“The national housing market is stabilizing and remains well balanced,” said CREA president Gary Morse.

“That said, forecasts for economic and job growth going forward vary widely for different parts of the country, suggesting a possible continuation of a softening trend in some markets, as well as the potential that demand will pick up based on strong fundamentals in others.”

Source: The Vancouver Sun

Residential property sales in Canada fell 4.5% from December last year to January 2012, the biggest monthly fall since July 2010, the latest figures from the Canadian Real Estate Association (CREA) show.

It was also the first monthly fall since August 2011. The monthly decline reversed a string of monthly increases over the closing months of last year, and returned national activity to where it stood at the end of the third quarter of 2011.

Last year was also muted in terms of price increases, with the national average home price up less than 2% year on year in January, one of the smallest increases of the last 12 months.

The actual (not seasonally adjusted) national average price for homes sold in January 2012 was $348,178, representing an increase of 1.2% from its year ago level. This ranks among the smallest increases since late 2010.

On a seasonally adjusted basis, the national average home price rose 1.6% on a month on month basis, marking a rebound from a decline of similar magnitude in December.

“The national housing market is stabilizing and remains well balanced. That said, forecasts for economic and job growth going forward vary widely for different parts of the country, suggesting a possible continuation of a softening trend in some markets, as well as the potential that demand will pick up based on strong fundamentals in others,” said Gary Morse, CREA’s president.

Activity was down in over half of all local markets in January from the previous month. Led by declines in Greater Toronto and Montreal, demand also softened in a number of other major urban centres including the Fraser Valley, Calgary, Edmonton, Winnipeg, Ottawa, and the Greater Vancouver housing market.

Actual (not seasonally adjusted) national sales activity was up 4% from year ago levels in January, the smallest year on year increase since last May. As was the case in a number of months last year, actual sales in January 2012 stood close to the five and 10 year average for the month.

The number of newly listed homes edged down 1.4% on a month on month basis in January following a 2.9% increase in December. The monthly decline in new supply reflects a drop in new listings in a number of Canada’s largest urban centres, which offset a jump in new listings in Vancouver, CREA said.

Sales fell in January shifting the national market back towards the mid point of balanced territory and reversing the recent trend which had seen the market becoming tighter over the final four months of 2011. The national sales-to-new listings ratio, a measure of market balance, stood at 53.8% in January, down from 55.5% in December and 55.4% in November.

Based on a sales-to-new listings ratio of between 40 to 60%, some 60% of local markets were balanced in January. Compared to December, there were fewer buyers’ and sellers’ markets, and a greater number of balanced markets.

The number of months of inventory stood at six months at the end of January on a national basis, up from 5.7 months in December 2011 and returning it to where it stood in October 2011. The number of months of inventory represents the number of months it would take to sell current inventories at the current rate of sales activity, and is another measure of the balance between housing supply and demand.

“Year on year comparisons in the national average price are expected to become volatile and may turn negative, reflecting average price developments in the first half of 2011 in Vancouver,” said Gregory Klump, CREA’s chief economist.

“At that time, high-end home sales in Vancouver’s priciest neighbourhoods surged to all-time record levels, which skewed the national average price upward considerably. A replay of this phenomenon is not expected this year,” he explained.

“As a result, comparisons for national average price to year ago levels over the coming months will reflect an upwardly skewed base effect. For this reason, year-on-year comparisons should be kept in perspective. Developments in the MLS® HPI will provide important guidance on price trends, since it is not affected by the problem of compositional shifts in the mix of sales activity,” he added.

Source: PropertyWire

Vancouver Sun February 13th, 2012

6629 Laurel St., Vancouver

Type: 4-bedroom, 2-bathroom detached
Size: 2,700 sq. ft.
B.C. Assessment, 2012: $2,083,700
Listed for: $2,200,000
Sold for: $2,100,000
Sold on: Jan. 5
Days on market: 0
Listing agent: Daphne McFarland at Hugh & McKinnon Realty
Buyer’s agent: Charan Kamal Pannu at SRS Westside Realty

The big sell: The seller of this two-level rancher bought it in 1953 — the year it was built – and resided in it for the next 59 years. It is not uncommon to have original-owner homes of this age in Vancouver, but in these real-estate obsessed times, it is becoming less so. As the description on the MLS listing sheet states, this is a solid home, but the main value is in the large level lot. That land measures 54 by 144 feet and if redeveloped, could hold a property larger than the current residence. Adding to the attraction was the light-filled west-facing fenced back yard, the Oakridge neighbourhood, and the convenience of a location that’s near Oakridge shopping centre, Langara College, Churchill secondary and Jamieson elementary schools, and the Canada Line. All of this produced an accepted offer the day the property went on the market.

89 -9229 University Cres., Burnaby

Type: 3-bedroom, 2-bathroom townhouse
Size: 1,163 sq. ft.
B.C. Assessment, 2012: $392,000
Listed for: $449,000
Sold for: $438,000
Sold on: Jan. 12
Days on market: 58
Listing agent: Robert Crowe at RE/MAX Real Estate Services
Buyer’s agent: Robert Crowe and Ali Nimji at RE/MAX Real Estate Services

The big sell: SFU’s UniverCity development is a sustainable community that has evolved into a family-friendly complex high up on the campus grounds on Burnaby Mountain. Serenity was built by Polygon in 2006 and consists of 132 townhomes surrounded by forest walks, hiking and bike trails. One block away is the new University Highlands elementary school, and a new child care centre will be opening soon. This three-bedroom, two-level corner unit home enjoys an abundance of natural light and a large patio and garden area surrounded by thick conifers. The interior features a mix of flooring with wall-to-wall carpet, laminate hardwood and tiling. The kitchen has plenty of cupboard and counter space, birch-coloured cabinetry, a double sink, stainless-steel appliances, and a subway-tiled backsplash. An electric fireplace warms the living room and an oversized shower adds a spa-like quality to the ensuite bathroom. The home has designer colours throughout.

106-1040 West 8th Ave., Vancouver

Type: 1-bedroom, 1-bathroom apartment
Size: 692 sq. ft.
B.C. Assessment, 2012: $340,000
Listed for: $369,900
Sold for: $362,500
Sold on: Jan. 12
Days on market: 85
Listing agent: Paul Bale at Sutton Group – West Coast Realty
Buyer’s agent: George Winkler at Amex Broadway West Realty

The big sell: This home is just north of Broadway on the Fairview slopes, with Granville Island, the seawall, parks, shopping, and transportation minutes away. The ground-floor unit has a well-designed floor plan and a front door that opens to a 16-by-16-foot living room. That room has bright, arched windows that provide plenty of views of a partly covered garden patio. The home has a gas fireplace, in-suite laundry and storage areas, a 16-by-9-foot bedroom, and a secure underground parking stall. This is one of 28 units in the four-storey development, which was built in 1986 with the homes positioned around a central courtyard. The apartments have been rainscreened and are pet- and rental-friendly.

© Copyright (c) The Vancouver Sun

In few corners of the world would a car park squeezed between two arms of an elevated highway be seen as prime real estate. In Toronto, however, a 75-storey condominium is planned for such an awkward site, near the waterfront. The car park next door will become a pair of 70-storey towers too. In total, 173 sky-scrapers are being built in Toronto, the most in North America. New York is second with 96.

When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets. During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America. They hit new record highs by 2010. “Canada was not a part of the problem,” Stephen Harper, the prime minister, boasted in 2010.

Today the consensus is growing on Bay Street, Toronto’s answer to Wall Street, that Mr Harper may have to eat his words. In response to America’s slow economic recovery and uncertainty in Europe, the Bank of Canada has kept interest rates at record lows. Five-year fixed-rate mortgages now charge interest of just 2.99%. In response, Canadians have sought ever-bigger loans for ever-costlier homes. The country’s house prices have doubled since 2002.

Speculators are pouring into the property markets in Toronto and Vancouver. “We have foreign investors who are purchasing two, three, four, five properties,” says Michael Thompson, who heads Toronto’s economic-development committee. Last month a modest Toronto home put on the market for C$380,000 ($381,500) sold for C$570,000, following a bidding war among 31 prospective buyers. According to Demographia, a consultancy, Vancouver’s ratio of home prices to incomes is the highest in the English-speaking world.

Bankers are becoming alarmed. Mark Carney, the governor of the central bank, has been warning for years that Canadians are consuming beyond their means. The bosses of banks with big mortgage businesses, including CIBC, Royal Bank of Canada and the Bank of Montreal, have all said the housing market is at or near its peak. Canada’s ratio of household debt to disposable income has risen by 40% in the past decade, recently surpassing America’s (see chart). And its ratio of house prices to income is now 30% above its historical average—less than, say, Ireland’s excesses (which reached 70%), but high enough to expect a drop. A recent report from Bank of America said Canada was “showing many of the signs of a classic bubble”.

The consequences of such a bubble bursting are hard to predict. On the one hand, high demand for Canada’s commodity exports could cushion the blow from a housing bust. And since banks have recourse to all of a borrower’s assets, and Canadian lending standards are stricter than America’s were, a decline in house prices would probably not wreck the banks as it did in the United States.

However, the Canadian economy is still dependent on the consumer. Fears about the global economy have slowed business investment, and all levels of government are bent on austerity. The Conservative government’s next budget is expected to put forward a plan to close the federal deficit, now 2% of GDP, by 2015—modest austerity compared to Europe’s, but still a drag on the economy. Few new jobs are being created. Assuming there is no setback in Europe’s debt crunch, slowdown in America or drop in commodity prices, GDP is forecast to grow by a meagre 2% this year. If consumers start feeling less well off, Canada could slip back into recession.

The inevitable landing will probably be soft. Increases in house prices and sales volumes are slowing, and the 2015 Pan American Games in Toronto should prop up builders. “The national housing market is more like a balloon than a bubble,” says a report by the Bank of Montreal. “While bubbles always burst, a balloon often deflates slowly in the absence of a ‘pin’.”

Moreover, the government is trying to cool the market. The banking regulator is increasing its scrutiny of housing in response to concerns about speculators. The Canada Mortgage and Housing Corporation, a government mortgage-insurance agency, says it will have to start reducing its new coverage because of legal limits. And the finance ministry has cut the maximum term of publicly insured mortgages from 35 years to 30. Some bank managers are calling for it to be reduced to 25, the historical norm. Canada’s reputation for financial sobriety is not entirely unwarranted.

However, the state has refused to use its most powerful tool. To protect business investment, the central bank has made clear that it plans to keep interest rates low. As long as money stays cheap, the balloon could get bigger—perhaps big enough to become a fully fledged bubble after all.

Source: The Economist