Metro Vancouver new home prices remained flat in September, while edging up slightly year-over-year, Statistics Canada said Wednesday.

The federal agency said prices of new homes in Metro Vancouver remained the same compared to August, but rose 0.1 per cent from September 2010 to September 2011.

In Victoria, new home prices were also flat in September compared to August, but dropped 1.6 per cent year-over-year.

Nationally, new home prices edged up 0.2 per cent from August to September and 2.3 per cent from September 2010 to September 2011.

Nationally, the price increase followed a 0.1-per-cent gain in August and was the sixth straight monthly increase in the new housing index.

Economists had expected prices to rise by between 0.1 and 0.2 per cent in September.

The Toronto and Oshawa, Ont. region — accounting for 27 per cent of the index — recorded a gain of 0.3 per cent from August to September. The smaller Winnipeg region had the largest percentage increase at 1.4, and Halifax gained 0.7 per cent.

“In Winnipeg, price increases were primarily the result of higher material and labour costs as well as higher land values,” Statistics Canada said. “Builders in Halifax cited higher material and labour costs as the main reason for their price increases.”

Prices were higher in eight of the 21 metropolitan regions surveyed, while five declined and eight were flat.

Among the regions posting declines, the biggest drop from August to September was in the New Brunswick area encompassing Saint John, Fredericton and Moncton, where the index declined 0.3 per cent. The Edmonton area was also down 0.3 per cent.

“Some builders in Saint John, Fredericton and Moncton cited slower market conditions as the primary reason for their price decreases, while a few builders in Edmonton moved to new development areas with lower priced lots,” the agency said.

On a year-over-year basis, prices were up 2.3 per cent in September, in line with 12-month increases in July and August.

The biggest 12-month gains in September were in Winnipeg, up 5.5 per cent, and the Toronto and Oshawa region, up 5.4 per cent.

On Tuesday, Canada Mortgage and Housing Corp. reported housing starts were down 1.1 per cent to an annualized rate of 207,600 units. That compared to 208,800 the month before, revised up from the previously reported 205,900.

Meanwhile, data last week showed construction intention weakened in September, as the value of building permits declined for the third straight month.

StatsCan said permit values fell 4.9 per cent to $5.6 billion during the month.

Source: Brian Morton, Vancouver Sun

The condominium sector continues to be the power behind the national housing market which is now seeing a steady decline in single family home construction, according to new data from Canada Mortgage and Housing Corp.

October statistics reveal a tale of two markets — a condo sector where new construction of urban multiples was up 1.7% from a month earlier and a single family home picture where starts dropped 9% from a month earlier.

Take a longer-term look and single-family home construction is now at its lowest level in two years and off more than 29% since the end of 2009. Multiple-unit starts, which are mostly made up of condominium construction, have climbed 70% during the same period and the sector is at its highest level October 2008.

Overall, new home construction was 207,600 in October on a seasonally adjusted annualized basis. That’s down from 208,800 in September but starts are in line with the 2002-2008 housing boom when they checked in at more than 200,000 a year.

Robert Kavcic, economist with BMO Capital Markets, sounded some alarm bells for the condominium market which he maintains is seeing unoccupied units — also classified as unsold — at their highest number since 1992 which is the earliest year data was available.

“On the supply side, there’s a clear divide between singles and condos, with the latter looking more vulnerable if a correction does come,” Mr. Kavcic said in a note. “Suffice it to say that while starts are again running slightly ahead of the estimated rate of household formation (about 175,000 a year), the supply situation is looking a lot tighter for single detached homes than for condos.”

Brian Johnston, the president of Monarch Construction, said the condominium market has been driven by affordability issues which includes the cost of land for single family homes.

“House prices have been going up faster than inflation for the past 10 years,” he says, noting people must travel further and further into the suburbs to buy homes that compare in price to urban condominiums. “People are saying it’s just not worth it. I’d rather sacrifice to reduce my commute times.”

Mr. Johnston also said in Toronto, which is considered the largest condominium market in North America, the provincial government has made it policy to have more intensification and discouraged low rise construction.

Despite the pace of construction, he doesn’t see condominium sales slowing anytime soon with one caveat. “I don’t see any increase in unsold condominiums. We are at like 98% sold by the time we get to occupancy,” Mr. Johnston says . “The only issue in my mind is the day interest rates start to go up, then we may have a problem. If that happens, the economics start to fall apart.”

Urbanation Inc., which tracks the Toronto condominium market, said the number of unoccupied units may be up but cautioned against comparisons with 1992 because the overall market is so much larger.

“There are 29 buildings in the category of occupying now, there are 5,627 units and 5,194 have been sold or 92%,” says Ben Myers, vice-president of Urbanation. “I mean how many projects were there in 1992? You have to expect the numbers to be skewed.”

While urban single new home construction may have seen better days, a strong market for existing homes could ultimately lead to a rebound.

In Toronto, single family detached sales have been rising since May compared to a year earlier, said Gregory Klump, chief economist with the Canadian Real Estate Association “You have to have a tight market in the resale market before new home construction picks up,” he said. “You have to have a shortage of supply and then they start building.”

Kirsten Cornelson, an economist with Royal Bank of Canada, said the volatility of the multiple-unit sector leads her to put more faith in urban singles for an overall understanding of the market.

That said, she doesn’t seem worried about the market. “We think multiples will fall back to a more normal pace,” said Ms. Cornelson. “We don’t see any reason to be alarmed. We think the Canadian housing market is in for a pretty steady period. The strength over the last couple of months is not sustainable but we don’t expect any sort of collapse.”

Source: Christine Dobby & Garry Marr, Financial Post

Vancouver Sun November 5th, 2011

1263 Fulton Avenue, West Vancouver

Type: 3-bedroom, 4-bathroom detached
Size: 3,827 sq. ft.
B.C. Assessment, 2011: $1.755 million
Listed for: $2.95 million
Sold for: $2.65 million
Sold on: Sept. 15
Days on market: 59
Listing agent: Paul Rickman at RE/MAX Masters Realty
Buyers agent: Eric Christiansen at Angell Hasman & Associates Realty

The big sell: According to listing agent Paul Rickman, the appeal of this Ambleside home was multi-faceted. First was the fact that the home is made of concrete; that’s relatively unique, and despite the additional cost, it offers a longevity and strength not always found with a wood-framed house. Other attractions highlight the extensive use of West Coast materials, including cedar in the vaulted ceilings and soffits, the custom millwork, and the floor-to-ceiling windows and expansive skylights that allow natural light into the home. And the view? Vistas of the water, Stanley Park and downtown Vancouver are showcased from the upper floor, where the kitchen, reception rooms and two offices are located. Double-entry doors open to the ground level, where a spacious foyer leads to the bedrooms, each with its own patio and access to the garden and hot tub.

115 — 13468 King George Blvd., Surrey

Type: 1-bedroom, 1-bathroom apartment
Size: 591 sq. ft.
B.C. Assessment, 2011: $N/A
Listed for: $174,900
Sold for: $174,900
Sold on: Aug. 22
Days on market: 15
Listing agent: Michael Sikich at The Agency Real Estate Marketing, TRG Downtown Realty
Buyers agent: Stanley Ng at Sutton Centre Realty

The big sell: The Brookland is a new condo development in Surrey that is set to complete toward the end of November. The four-level project will feature 91 one- and two-bedroom homes ranging from 441 to 914 square feet. This ground-floor unit has fully optimized the space available and includes a master bedroom with a walk-in closet and an ensuite bathroom that can be accessed from the main living space. As well, the home has a kitchen with double sinks, stainless-steel appliances, polished granite countertops, natural maple shaker-style cabinetry, a breakfast bar, in-suite washer and dryer facilities, and a balcony off the living room. The complex, which has a fully equipped fitness centre and lounge area housed in a separate building, is within proximity to Central City Mall, SFU’s campus, the Gateway SkyTrain station, numerous parks and the Surrey Arts Centre.

15552 Columbia Avenue, White Rock

Type: 5-bedroom, 4-bathroom, detached
Size: 4,610 sq. ft.
B.C. Assessment, 2011: $1.023 million
Listed for: $1.299 million
Sold for: $1.27 million
Sold on: Aug. 25
Days on market: 86
Listing agent: Kelly Wood at Hugh & McKinnon Realty
Buyers agent: Jeanette Leith at HomeLife Benchmark Realty

The big sell: This four-level residence sounds like it would be more at home in a California setting, thanks to 180-degree ocean views and an East Beach address in the South Surrey/White Rock neighbourhood. The contemporary-style home was built into the hillside in 1991 and features large decks on every floor to capitalize on the views. The upper two levels combine to create a spacious 2,610 square feet that accommodate the bedrooms and open-concept reception rooms. Below, there is a 1,300-square-foot, two-bedroom suite with 10-foot-high ceilings, a five-car garage, a workshop and a cold storage room. The property has a high-efficiency natural gas hot water boiler with in-floor heating on all levels, two gas fireplaces, and an HRV air-circulation system. The lively shops and restaurants of White Rock’s Marine Drive are just down the road.

© Copyright (c) The Vancouver Sun

From 2000 to 2010, the average value of a Canadian home doubled, rising to $339,030 from $163,951. The money involved is huge, with the value of residential building permits issued across Canada in the past decade pegged at $340-billion. But even that huge figure is eclipsed by the cash pushed into home renovations in the same time period — estimated to be $450-billion.

PRAIRIE GOLD

Regina topped the list of surging housing prices. The average price of a home rose 173%, climbing to more than $258,000 from $94,518 in 10 years. Much of the increase comes from new construction, with building permit values exceeding $1.6-billion, triple the amount in the preceding decade, according to the report. And it is not abating. The first half of this year saw $172-million in building permit value being issued. The rise has hit renters hard, with the city’s tenants shelling out rents approaching those in much bigger cities. Edmonton saw the second highest price appreciation (165%), followed by Saskatoon (163%) and Winnipeg (158%).

FUTURE HOT SPOT

Winnipeg is seen as having the biggest potential for future growth, as it leads the nation with having the largest stock of older homes. More than half of the city’s owned housing was built before 1970. The report points to increasing building permit values in recent years, the city’s 25-year strategic plan and the rejuvenation from the return of the NHL as boosting future new construction and renovation — and expected rising prices.

FILLING IN

In Vancouver, small bungalows on large lots have been snapped up only to be torn down. A trend to maximize a home’s footprint means large, custom-built homes are going up in their place, providing more square footage of living space but considerably less lawn and garden. The change, the report says, is transforming what were once working-class subdivisions into trendy enclaves of large, upper-end homes, the report says. At the same time, one in every two homes sold in Greater Vancouver are condos, with an average condo price of $457,887.

CONDO CAPITAL

Toronto’s skyline has been transformed by high-rise condo development in recent years, flooding the downtown with high density housing. There was a 212% increase in the number of units sold between 2000 and 2010. The condo craze ranges from modest pads for young, first-home buyers to the most expensive sale in the city, the $28-million penthouse of the Four Seasons Residences. “Toronto has become the largest condominium market in North America,” said Michael Polzler, executive vice-president of RE/MAX Ontario-Atlantic Canada. With so much condo development, it has increased demand for single-family detached homes in core neighbourhoods, led by Leaside, where house price rose by 111%.

RENEWAL

Hamilton is an “ongoing project in renewal,” says the report, making the area an “underestimated up-and-comer.” The total value of residential building permits nearly doubled in the decade, exceeding $6.5-billion. The attraction to Hamilton has been fuelled by plenty of large, solidly built detached homes that are increasingly unattainable in Toronto, less than an hour away. The city has also been pushing the redevelopment of its brownfields for residential and mixed use projects and condos have been enthusiastically embraced, representing 24% of housing sales.

Source: Adrian Humphreys, National Post

The housing market may be a boring place for the next year, according to CMHC, as the number of starts remains near current levels and resale prices hold steady.

In its Q4 market update, Canada Mortgage and Housing Corp. said mortgage rates would likely remain at historically low levels at least until the last half of 2012. The housing market’s fate is largely tied to rates, the agency said.

Economists and market watchers have predicted a variety of scenarios for house prices in the next year, with some suggesting prices could drop as much as 10 per cent by the end of 2012. Capital Economics goes a step further, having predicted a drop of 25 per cent in the next several years as demand weakens amid higher mortgage rates.

“Should rates move lower than projected, housing starts and MLS sales could be higher than expected and house prices could grow at a faster pace than forecast,” the report stated. “Alternatively, should financial market expectations improve and interest rates move higher than projected, housing starts and MLS sales could be lower than expected and house prices could grow at a slower pace than forecast.”

CMHC said there could be as many as 470,100 resales in Canada this year, and expects that number to rise to 485,500 in 2012.

“We expect balanced market conditions to prevail and the average MLS price to remain fairly flat to the end of 2012,” the report stated.

CMHC said 186,750 new homes would be built in 2012, compared to 191,000 for 2011. Analysts generally agree that at least 175,000 new homes are needed each year to meet demand from new families and immigration.

“Ontario, Saskatchewan and Nova Scotia’s growth will be the strongest, while Prince Edward Island and British Columbia are forecast to see modest growth,” CMHC said. “The other provinces, on the other hand, are expected to see decreases. In 2012, housing starts are forecast to increase in British Columbia, Alberta and Manitoba.”

Other highlights from the report:

* Posted mortgage rates will remain relatively flat until late 2012. For 2012, the one-year posted mortgage rate is expected to be in the 3.4 to 3.8 per cent range, while the five-year posted mortgage rate is forecast to be within 5.2 to 5.7 per cent.

* Single starts have rebounded coming out of the recession. After an increase in the third quarter of this year, they are expected to moderate before rising later in 2012.

* Since the beginning of 2011, new listings steadily outpaced existing home sales. As a consequence, the resale market has moved from sellers’ to balanced market conditions.

The agency said the economic outlook for the country was uncertain, making it difficult to forecast growth in the housing market.

“Sustained financial market uncertainty has heightened risks but, there are both upside and downside risks to the outlook,” the agency stated.

The positive: “Some upsides include the potential that the U.S. could recover stronger than is forecast, thus increasing U.S. employment and economic growth. This could, in turn, boost employment growth in Canada and lead to stronger than anticipated housing demand.”

The negative: “Some downsides include a slower than expected recovery for the U.S., reduced economic growth in emerging economies and a downturn in parts of Europe. Such events could result in slower employment growth in Canada, which could lead to lower demand for housing.”

Source: Steve Ladurantaye, Globe and Mail

Vancouver Sun October 29th, 2011

3337 164A St., Surrey

Type: 5-bedroom, 5-bathroom detached
Size: 5,052 sq. ft.
B.C. Assessment, 2011: $1.289 million
Listed for: $1.549 million
Sold for: $1.455 million
Sold on: Aug. 21
Days on market: 32
Listing agent: Monica Lee and Tracey Muter at Royal LePage — Coronation Park
Buyer’s agent: Summer Lin at Sutton Group — West Coast Realty

The big sell: One of the finest features of this custom-designed Morgan Creek house is the craftsmanship that gives the home a natural elegance. Wainscotting and heavy mouldings in each of the principal rooms combine with rich, dark-stained walnut hardwood and natural slate stone flooring, creating a seamless flow throughout the home. There are floor-to-ceiling built-in cabinets surrounding the fireplace in the family room, an arched doorway that leads to the living room, and a bespoke kitchen that showcases antique finished cabinetry, an entertainment-sized island and a separate butler’s pantry with plenty of storage. The basement has two bedrooms, two full bathrooms, and a 21-by-26-foot recreation room that has space for a billiards table and a wet bar. There are plenty of entertaining options outside of the dwelling as well, with a large covered patio containing a seating area and gas fireplace, and an in-ground swimming pool and hot tub.

3813 McKay Place, Richmond

Type: 6-bedroom, 4-bathroom detached
Size: 2,916 sq. ft.
B.C. Assessment, 2011: $778,000
Listed for: $928,000
Sold for: $912,000
Sold on: Sept. 12
Days on market: 28
Listing agent: Beth Tioseco at Coldwell Banker Premier Realty
Buyer’s agent: Amal Chebaya at Macdonald Realty

The big sell: According to listing agent Beth Tioseco, the buyers were looking in the Oaks subdivision of Richmond because of its larger homes and proximity to Vancouver. This home in a private, quiet cul-de-sac met their criteria. With almost 3,000 square feet of living space, it is ideal for a large or growing family with a bedroom and three-piece bathroom on the main floor, which could accommodate older occupants. The house was built in 1990 and is brightly accented with skylights and a contemporary décor. The kitchen has ample counter space and is connected to an eating area and a recently-renovated family room. The rest of the bedrooms are upstairs, including a 19-by-15-foot master bedroom with a walk-in closet and an ensuite bathroom with a Jacuzzi. The front and back yards have manicured lawns and flower beds.

3323 Windsor St., Vancouver

Type: 3-bedroom, 3-bathroom townhouse
Size: 1,151 sq. ft.
B.C. Assessment, 2011: $N/A
Listed for: $683,900
Sold for: $700,000
Sold on: Aug. 27
Days on market: 67
Listing agent: Mario Felicella at Sutton Group — West Coast Realty
Buyer’s agent: Liana Yap at Sutton Group — West Coast Realty

The big sell: The Nine is a new townhouse development that has been built opposite Charles Dickens elementary school and Sunnyside Park in Vancouver’s Cedar Cottage neighbourhood. The three-level homes have private entryways with marble flooring and vaulted ceilings, gourmet kitchens with stainless-steel appliances (including gas cooktops), European white cabinets and quartz stone countertops. The living and dining rooms have an open-concept design that is enhanced by dark oak hardwood floors, limestone-framed fireplaces, recessed lighting, and built-in wiring for surround sound. The second level features two bedrooms with closet areas, while the master bedroom suite occupies the top floor. The latter has a walk-in closet with organizers, an ensuite bathroom, skylights, and a deck. All three bathrooms have underfloor heating, and all homes have attached garages.

© Copyright (c) The Vancouver Sun

Six months after Vancouver City Council approved a plan to transform the Cambie Street corridor, homes in the area have nearly tripled in value and some residents fear development will ruin the neighbourhood.

Last May the council passed a plan to bring 15,000 more people into the Cambie Street corridor through mid-rise development.

Then last month a block of 10 homes along Cambie Street near 41st Avenue sold for $3.4 million each — nearly three times their previously assessed value.

Neighbours say they’re growing tired of being pressured to sell by developers and real estate agents.

Janice Douglas says she expects a six-storey building will soon be overlooking her single family home.

“We’ve got people looking in our back yard, looking in our bedroom, and we will never see the trees again — nor will we have any more sunshine,” Douglas told CBC News.

Many residents don’t want to move and feel ignored by the city as developers move in, looking to tear down the single family homes, she says.

“People come here for the beauty. Well the beauty is rapidly disappearing,” said Douglas.
Canada Line driving changes

City planner Brent Toderian says he appreciates the concerns and the city is trying to cool down land speculation in the neighbourhood.

Toderian says the city has been meeting with developers and realtors to discuss land transactions after getting wind of some very high deals negotiated in the months after the Cambie corridor plan was approved.

He says the final prices didn’t appear to have factored in community amenity contributions the city negotiates with developers in order to pay for infrastructure and services associated with increased density

“People were overpaying for land — thus we sent messages out into the marketplace to say you’re going to have to adhere to the expectation of the plan if you wish to succeed in development.”

But he says having a new rapid transit line running through the neighbourhood means changes are coming and the city’s plan has the community’s support.

“Canada Line is a change maker and so yes — there will be some folks, and to my ear they are the minority — but there are going to be some folks that are unhappy about that,” he said.

“But most people recognize the logic and inevitability of transformation once you’ve put in a piece of infrastructure like Canada Line. The vast majority of people we heard from were very positive about the plan.”

Toderian expects construction along the corridor to begin in late 2012.

The Cambie corridor plan allows buildings up to 12 storeys in height, and leaves room for them to go even higher around the Oakridge Mall near 41st Avenue and at the southern end of Cambie Street near Marine Drive.

Preliminary plans for the 825,000-square-foot Marine Gateway Project next to the Marine Drive Canada Line station have already received city approval. It will include two residential towers with more than 400 units as well as a cinema, food and drug stores.

Source: Vancouver Sun

Vancouver Sun October 22nd, 2011

843 Union Street, Vancouver

Type: 4-bedroom, 3-bathroom detached
Size: 2,535 sq. ft.
B.C. Assessment, 2011: $815,000
Listed for: $1.075 million
Sold for: $1.05 million
Sold on: Aug. 22
Days on market: 7
Listing agent: Stephen Burke at Sutton Group – West Coast Realty
Buyer’s agent: Geoff Jarman at Sutton Group – West Coast Realty

The big sell: This heritage home in the heart of Vancouver’s Strathcona neighbourhood was purchased in 1999 for $335,000 and recently fetched more than $1 million.According to listing agent Stephen Burke, the house – it dates to 1908 — is in need of some work, but the character of the property and the location on the tree-lined Adanac bike path and opposite the Union Market were a winning combination. The three-level home sits on a high 25-by-122-foot lot and features wood floors, a large front parlour with a gas fireplace, an office/library, a country-style kitchen with eating area and gas stove, skylights and nine-foot, six-inch ceilings on the main floor. As well, it has a renovated bathroom with a two-person bathtub, a two-bedroom in-law or guest suite in the basement and a private mature garden that is overlooked by a rear deck.There are many single-family homes in the area, which is a five-minute drive to downtown.

1206 – 138 East Esplanade, North Vancouver

Type: 1-bedroom, 1-bathroom apartment
Size: 626 sq. ft.
B.C. Assessment, 2011: $388,000
Listed for: $429,000
Sold for: $410,000
Sold on: Aug. 16
Days on market: 27
Listing agent: Tyler MacDonald at Century 21 In Town Realty
Buyer’s agent: Jay McInnes at Macdonald Realty

The big sell: Buying a home that is affiliated to a hotel can pay dividends, especially when residents have access to the hotel’s amenities — as is the case with this condo in the Premiere at the Pier building. The hotel in question is the Pinnacle, which features a five-lane indoor swimming pool, a Jacuzzi, steam room, sauna, and fully equipped exercise room. This unit takes in panoramic southwesterly views of the water, city and the North Shore mountains. It has an open floor plan with white oak hardwood floors, central air conditioning, an electric fireplace, stainless-steel appliances, granite countertops and a balcony. The revitalization of this area four years ago transformed the neighbourhood from a shipyard site into a bustling community, and provided access to this portion of the city’s waterfront for the first time in 100 years. The location is close to the SeaBus, shopping, and eateries in what is now known as Lolo – the Lower Lonsdale area.

19341 0 Ave., Surrey

Type: 4-bedroom, 4-bathroom detached
Size: 3,205 sq. ft.
B.C. Assessment, 2011: $1,213,700
Listed for: $1,849,900
Sold for: $1.6 million
Sold on: Aug. 18
Days on market: 98
Listing agent: Bruce Copp at Sutton Group – West Coast Realty
Buyer’s agent: Brent Silzer at Sutton Group – West Coast Realty

The big sell: You cannot get much closer to the U.S. than this property on 0 Avenue in Surrey. Although neighbours to the south would be impressed if they could see this home, it is hidden from view via a winding driveway that is lined with tall cedar trees. It was built in 1971 in a traditional West Coast style that comprises split cedar, glass and vaulted ceilings. The interior is modern with tiled floors, a floor-to-ceiling stone fireplace, a 24-by-12-foot chef’s kitchen, media room, solarium, wine room, library and a 1,200-square-foot deck. With five acres to enjoy, there is plenty of room for a horse barn, pastures, and a guest cottage with a fireplace and view of the mountains. One of the most enticing features of the property is the lush vegetation that surrounds the home. It includes mature flower gardens, a pond and waterfall, and a variety of birds attracted by the flora.

© Copyright (c) The Vancouver Sun

While Canada doesn’t idealize home ownership to the extent the U.S. does, it is still perceived as preferable to renting. Owning is seen as permanent, renting transient, the implication being that ownership contributes more to community stability.

Owners are thought to be more involved in community activities than renters, adding to social cohesion. The pride of ownership is viewed as a motivator for owners to maintain their properties, while renters supposedly lack this incentive. There is scant research to support any of these contentions.

In any case, Canadians have pursued the holy grail of home ownership with as much zeal as their American cousins and have achieved similar rates of both ownership and indebtedness.

Canadian households, on average, now carry nearly $1.50 of debt for every dollar of income. Most of that debt is mortgage debt. Historically low interest rates have enticed buyers to get into the real estate market or to upgrade to more expensive homes. That, along with increasing real estate investment from outside Canada, especially from mainland China, has driven home prices in B.C. to record levels.

Is the market overpriced?

Vancouver lays claim to the highest median house prices in Canada and Forbes magazine ranks the city’s real estate market as the sixth most overpriced in the world. (Forbes calculated an annualized rate of return on property based on cash flows from renting, then flipped the result to produce the equivalent of a price-to-earnings ratio. Vancouver’s was 26.8; Monaco was No. 1 at 74.1.)

Each quarter RBC publishes an affordability index that examines the cost of ownership relative to household income. Most recently, it found the cost of mortgage payments, utilities and property taxes for a detached bungalow in Vancouver amounted to 92.5 per cent of a typical household’s monthly income.

“Vancouver’s housing market is without a doubt the most stressed in Canada and is facing the highest risk of a downturn,” Wright said in the affordability report.

That real estate in Vancouver is expensive is not news.

A 2008 study by Tsur Somerville, professor of real estate finance at the Sauder School of Business at the University of British Columbia, and his research assistant, Kitson Swann, determined that house prices in Vancouver would have to fall by 11 per cent to be in balance with rents; in other words, for the price-to-rent ratio to be in equilibrium.

The study assumes that the housing market is in equilibrium when the ratio of house rents to prices equals the sum of mortgage rates and cost of holding a house minus the expected long-run rate of price appreciation. House prices above their equilibrium level doesn’t guarantee they will fall, the study says. But the potential for decline is greatest in cities that have built more units than can be absorbed by the growth in households.

“Recent data,” it adds, “suggests that Vancouver is most at risk in this regard.”

A two-bedroom-plus-den, two-bathroom, 1,500-square-foot townhouse in North Vancouver was recently listed for rent at $2,200 a month. Another townhouse of similar size in the same complex was offered for sale at $649,900. The price to rent ratio of 24.6 suggests that either the property is overvalued or the rent is too low. Trulia.com, a U.S. real estate website, says a ratio of 21 or more means it’s better to rent than to buy.

Analyze this data as an investor would by dividing the annual rent by the capital cost of the property and the return — or rental yield — is 4.1 per cent. With Government of Canada benchmark bond yields trending below three per cent, an investor might consider this an adequate ROI. But mortgage payments with 25 per cent down, a 25-year amortization and a variable interest rate of three per cent would amount to roughly $2,300, which turns this into a losing proposition, even before taxes and maintenance expenses.

According to Forbes magazine, “the relationship between rental yields and housing costs matters because a low rental yield is a good indication of a stretched market — one that has a bubble — since these markets are more likely to face downward price pressures or grow at a slower rate.”

Based on the numbers then, one might draw the conclusion that Vancouver is a real estate bubble. But bubbles don’t always burst; sometimes they slowly deflate. A few analysts believe that fate awaits Vancouver.

TD Bank, for instance, forecast this summer that average house prices in Metro Vancouver will decline by 14.8 per cent by the end of 2013, but will still be worth more than they were in 2010.

A place to call home

Would-be buyers and renters can while away hours by Googling the term “buy or rent calculator” and working through various scenarios.

However, the majority of home buyers aren’t thinking about the return on investment on an asset, they’re looking for a place to raise a family, close to schools and shopping, maybe with a yard, a deck for the barbecue and a basketball hoop on the garage: a place to call home.

These misty-eyed buyers might do better than you imagine.

Consider that North Vancouver listing with the high price-to-rent ratio and low yield. If they were to rent at $2,200 a month with annual rent increases of two per cent, they’d pay $289,072 over 10 years.

If they could come up with $162,500 (for 25 per cent down) and borrow $480,000 at today’s historically low rate of three per cent (and pay $900 a year on upkeep), they’d pay $281,589.

If the house appreciated by seven per cent a year and the cost of selling it was seven per cent, the appreciation value would be $1,278,451. They’d come out ahead by $867,080.

It would take a savvy investor to beat that under current stock, bond, currency or commodity market conditions. At the same time, it is risky to have so much capital tied up in a single immovable and relatively illiquid asset.

In the final analysis, whether it is better to buy or to rent depends not so much on interest rates and ratios but rather on an individual’s goals in life. For some, home ownership is a ball and chain; for others, it is fulfilment of a dream.

Odds are that if you’re asking the question, you’ve already made up your mind.

Source: Harvey Enchin, Vancouver Sun

In a report earlier this year, Royal Bank of Canada chief economist Craig Wright suggested home ownership for a growing number of Canadians has become an impossible dream. That’s certainly true in Vancouver, where the affordability index is at record highs, with the average home price at nearly 10 times the median income.

But perhaps ownership has been oversold as an aspirational goal. As thousands of Americans have discovered, sometimes the dream becomes a nightmare.

In the United States, home ownership wasn’t just a dream, it was held up as an inalienable right. Washington pressured financial institutions to lend money to almost anyone who asked, giving rise to the NINJA mortgage (no income, no job, no assets).

Because mortgage interest was (and still is) tax deductible, homeowners did not bear the full burden of borrowing. Financial institutions turned to the wizards of Wall Street to devise derivatives that might mitigate the heightened risk.

The U.S. government had already sanctioned mortgage-based securities, having set up the Government National Mortgage Association (Ginnie Mae) in 1968 and the Federal Home Loan Mortgage Corp. (Freddie Mac) in 1970 to expand the secondary market for mortgages.

Inevitably, homeowners without the means to repay their debts defaulted on their mortgages and the derivatives based on them, including mortgage-backed securities and collateralized debt obligations, became worthless. Not knowing the extent of exposure to toxic debt, financial institutions became reluctant to lend to each other.

The result was a credit crisis that plunged much of the world into recession.

The housing crash that crippled the U.S. didn’t happen in Canada for several reasons. For a start, more prudent lending practices prevented the emergence of a significant subprime mortgage market. Canada’s regulatory regime acted as a rudder that kept the financial services industry on an even keel. And besides the capital gains exemption on the sale of a principal residence, there is no particular tax advantage in owning a home in Canada.

Measures mistakenly introduced to loosen mortgage lending rules — such as interest-only loans and 40-year amortizations — were quickly reversed, forestalling a flood of overly leveraged households.

Source: Harvey Enchin, Vancouver Sun