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

Foreign ownership in American real estate sits at about eight per cent – but that percentage is worth $82 billion US, says the National Association of Realtors.

Homes in many parts of the United States are now worth what they were nearly 10 years ago in 2002, says a report from the association – and it’s this decline that is attracting foreigners, mostly Canadian homebuyers, to snap up a seasonal home at dirt-cheap prices.

From a seller standpoint, the market is “pretty bleak,” says Tom Burk, an associate broker with Sotheby’s Realty International who has a long career of selling real estate on both sides of the 49th parallel. “Given all the bad economic news in Europe and the near political paralysis in the U.S., markets there are struggling to show any kind of consumer confidence.”

In cities where investor interest is high “like Phoenix, Palm Springs or Las Vegas, there is optimism – but in most cities, it’s pretty bleak,” says Burk.

A survey by U.S.-based Credit Sesame of where foreigners are buying, what they are purchasing and how much they are paying shows that the largest group comes from Canada, with Asians and Europeans second and third.

Arizona is the fourth most popular destination for these buyers, trailing Florida, Texas and California.

The largest percentage are buying detached single-family homes for use as a primary residence – and they are paying less than $100,000 each.

Recent reports have claimed that Canadians are the top-ranked outof-state buyers of homes in Arizona, which is still under siege by the flagging economy.

The average Arizona home now sells for about half of what it would have five years ago, says the Federal Housing Finance Agency in the U.S.

The price dropped another 4.6 per cent from the first to second quarter of this year – driving the decline to nearly 15 per cent compared to the same period last year.

The housing market likely won’t turn around until the fundamentals improve, said Marshall Vest, an economist at the Eller College of Management at the University of Arizona in an interview with the Arizona Republic.

But that won’t start until the excess of available homes is absorbed, he said.

“We have enough vacant houses in Arizona to accommodate an entire decade worth of population growth – and that’s if the population were growing,” said Vest.

The recession has changed the way people look at real estate, says Burk.

“It has affected people’s ideas about timing, but it has not affected the basic belief that buying a home and raising a family in that home is fundamental to American values, in many cases,” he says.

Burk’s views are shared by Frank Anton, CEO of the national research firm of Hanley Wood in the U.S.

“We thought people would be soured after watching home values fall, but instead we found the typical American still places high value on home ownership,” says Anton. “We found this holds across all demographic groups and across the country, even in hard-hit places like Arizona and Nevada.”

Credit Suisse Group surveys real estate professionals in several cities in the United States on a monthly basis.

The global financial services company uses 50 as the benchmark for each of nine questions. Above 50 indicates a positive trend, while below 50 means a negative one.

For Phoenix, the report says home prices held steady for October (50 points versus 40 in September), listings remained high (76 points), and buyer traffic inched up to 40 points.

Down the road in Tucson, buyer traffic jumped to 43 points from 27, while prices totalled 43 points (an improvement from 27).

“The economy is poor and unemployment is too high. Nobody wants to buy in this type of environment,” says one realtor.

Las Vegas is also being hit hard by the continuing economic chaos.

“Traffic remains steady on interest from deal-seeking buyers,” says the Credit Suisse report.

But prices remained under pressure with an index of 44, down from a previous 48, while listings were high at an index of 59.

“Low prices and interest rates continue to spur inquiries and activity,” says a Vegas realtor in the survey. “Cash buyers are really driving sales.”

In San Diego, buyer traffic remained very weak with an index of 15, while house prices sat at 25.

“The constant negative news is affecting buyers’ confidence and there is a lot of uncertainty about a potential double-dip (a return of inflation),” says a realtor.

Meanwhile, traffic levels in the San Antonio, Texas, market left a lot to be desired – falling to an index of 14 – while the price index sat at 36.

“Many sellers would like to take advantage of the low interest rates, but we need the buyers to feel confident to keep the ball rolling,” says one real estate professional.

In Miami, Fla., things were looking up, with traffic improving to an index of 39 while priced edged up to 48.

“Cash buyers, both domestic and foreign, are controlling the market,” says a realtor in the Miami area.

Meanwhile, Portland, Ore., which sees buyers from B.C., has seen a strong jump in traffic – almost doubling to an index rating of 25, while prices held steady at 19 points.

Traffic is on the increase, says Debbie Tebbs, broker/ owner of Cascade Sotheby’s International Realty.

“They are doing so because they believe we are at the bottom,” she says.

“There has been a price correction of up to 60 per cent in some areas.”

Source: Marty Hope, Calgary Herald

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

Canada is seen as a “rebound” economy but overall prospects for the global real estate sector are looking “dismal,” with a downturn that could last eight years, the International Monetary Fund warned recently.

The IMF sees problems both in the “bust” countries, such as the United States, Spain and Ireland, and the “rebound” economies, such as the Asia-Pacific region, most Scandinavian countries and Canada.

In the US, residential investment remains severely depressed compared with past cycles, which the report said could be partly explained by the pattern in house prices and outstanding household debt. Making matters worse, the U.S. states where the house price bust was more pronounced are also where unemployment has increased the most.

“This relationship likely reflects the importance of the construction sector in these states’ economies as well as lower labour mobility resulting from problems in the housing sector,” the IMF said. Tax incentives in both the U.S. and the U.K. only temporarily increased activity.

“Especially in the United States, given the limited success of mortgage modification programs and the shadow inventory from foreclosures and delinquencies, this has renewed fears of a double dip in real estate markets. A lot will depend on the path of economic recovery: if employment creation remains low, risks of a double dip in housing naturally increase,” the IMF said.

There are other threats too, like record high delinquency rates on commercial mortgage-backed securities, and the $566 billion in commercial real estate debt due this year and next, according to data the IMF cited from Foresight Analytics.

Resets on adjustable-rate loans are looming, with limited refinance options because many of the loans are underwater.

Renewed strains on credit conditions may materialize from loan losses due to delinquencies and tougher capital rules, the IMF added.

In Asia, the IMF frets that even though fundamentals appear to provide support for price increases, the econometric estimates are less reliable given their short track record, and anecdotal evidence of speculative activity, rising vacancy rates in commercial property, sizable mortgage credit growth, and massive capital inflows could be signs of overheating – particularly in Beijing, Nanjing, Shanghai and Shenzhen in China.

For more on this topic, please see global house prices.

Slightly encouraging news from our neighbours south of the border. May showed that the number of foreclosures filed had decreased by 3 per cent compared to April’s figures.

Topping the list for the 41st month in a row is Nevada where one in every 79 houses received a foreclosure filing, followed by Arizona (one in every 169 households), Florida (one/174), California (one/186), Michigan, Georgia, Idaho, Illinois, Utah and Maryland.

According to the U.S. Foreclosure Market Report released by California-based RealtyTrac, a total of 322,920 houses received filing in May, meaning that one in every 400 houses received an auction notice. Compared to April, where a total of 333,837 households received auction notice.

Though the filings have exceeded 300,000 for the 15th straight month, the foreclosure rate has receded over the past few months.

“The numbers in May continued and confirmed the trends we noticed in April: overall foreclosure activity is leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months,” stated James J. Saccacio, chief executive officer of RealtyTrac.

Despite the overall unemployment rate declining, from 9.9 per cent in April to 9.7 per cent in May, the fall was mainly through so-called “discouraged workers” leaving the job market. And while the headline figure of a net 431,000 jobs created during May looks like solid growth, the vast bulk of those jobs came from temporary hiring related to the US census, which alone added 411,000 jobs.

We are yet to see a longterm US employment recovery which will have the obvious positive repercussions on the US housing market. At the moment, it’s still very weak but oak trees do grow from acorns.

Interesting stats as ad revenue rockets.

7.5% Year-Over-Year Increase a Bright Spot in Marketing & Advertising Media

Internet advertising revenues in the U.S. hit $5.9 billion for the first quarter of 2010, representing a 7.5 per cent increase over the same period in 2009, according to the numbers released on May 14th by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC). This marks the highest first-quarter revenue level ever for the industry.

“The year-over-year growth we are seeing reflects marketers’ confidence in the value and effectiveness of interactive advertising,” said Randall Rothenberg, President and CEO of the IAB. “The Internet, together with explosive technological innovation in devices and platforms, has transformed consumers’ lives, giving them access to entertainment and information however, whenever, and wherever they want it. That’s why the vibrant interactive advertising and marketing industry lends major fuel to the U.S. economy.”

“We are seeing continued signs of an improved economy and interactive advertising market,” said David Silverman, PwC Assurance partner. “The media industry – like the economy as a whole – saw tremendous challenges this past year, and uncertainty about the recovery remains. However, entering 2010 with such strong Q1 revenues is a sign of the health and vitality of online media, and of marketers’ continuing investment in interactive as a cornerstone of their advertising campaigns.”

Source: IAB/USA, 13 May 2010

Written by Toby Barlow last year for the New York Times – an interesting observation of the state of the real estate market in Detroit and how people are snapping up derelict homes for $100. Remember though, that you get what you pay for, and before you charter a flight to Wayne County Airport, perhaps a little research into Detriot’s inner city neighbourhoods wouldn’t go amiss. For some though, one man’s trash is another man’s treasure.