Recent news that Toronto has caught up to Vancouver with single detached homes averaging more than $1 million raises an interesting question as to why these two cities have such high housing prices relative to the rest of Canada.

High housing prices are surely affected by low mortgage rates, but this is true for all housing markets in Canada. Yet, the most expensive housing markets experience price acceleration that is faster than other cities. According to the Canadian Real Estate Association, for the period March 2013 to March 2014, average house prices have risen 7.3 and 5.6 per cent respectively in Toronto and Vancouver, which is more than the 4.9 and 1.5 per cent in Calgary and Edmonton respectively.

It is all about demand and supply. If demand rises faster than supply, housing prices increase, as in many western provinces and Ontario metropolitan cities. If demand is less than supply, housing prices will fall, as in the case of Quebec City and Halifax.

Demand for housing depends on population growth, demographics and investors looking for property investments in Canada.

Calgary (4.3 per cent) and Edmonton (3.8 per cent) have one of the fastest population growth rates among metropolitan areas in the country. Toronto and Vancouver are less at 1.5 and 1.4 per cent respectively, which is more typical for Canada as a whole.

Those cities, with younger populations becoming homeowners for the first time, will also push up demand — Calgary and Edmonton have the youngest populations in Canada. Marriage breakdowns also increase the demand for housing. So will investors who buy houses to rent out, hoping to cash in on higher prices in the future. Rental vacancy rates in 2013 are least in Calgary at one per cent. Vacancy rates are below two per cent in Toronto, Vancouver and Edmonton.

Yet, Toronto and Vancouver prices continue to rise faster than Edmonton and Calgary. Why is that so, since demand factors suggest that prices should be booming most in Calgary? To answer this question, one needs to look at supply conditions for home building.

The cost of new homes will drive up housing prices since new supply will not be forthcoming unless prices are sufficient to cover costs. The 2009-12 Canada Mortgage and Housing Corp. new housing price index has risen fastest in Toronto, while Vancouver’s, Calgary’s and Edmonton’s has been more muted, although Calgary’s new housing prices have risen sharply recently at 4.9 per cent.

An important factor influencing the cost of new homes are land prices, since building costs per square metre don’t differ as much across cities. Toronto and Vancouver have quite high land prices, which is why detached homes are so expensive there.

Land prices are heavily influenced by zoning and urban growth policies. A recently released paper by Calgary’s School of Public Policy provides a comparison of policies adopted in Calgary and Edmonton with those of Vancouver and Toronto. While the authors, Zack Taylor, Marcia Burchfield and Anna Kramer, do not examine the impact of urban growth policies on housing affordability, their analysis provides some important food for thought for urban planning in the future.

In the past two decades, Vancouver has followed intensification strategies, requiring new housing to be built on an existing area of land and greater transit use. Toronto has also pursued intensification in recent years, although some suburban expansion has continued. In contrast, Edmonton has followed an expansionist strategy, although with some densification in the past decade. Calgary’s urban growth has been expansionist, similar to Edmonton, although it has adopted an intensification strategy since 2009.

An intensification strategy provides a number of benefits to communities by making more efficient use of land. The inner city is less hollowed out since the population cannot move further from the centre. Density increases to accommodate new demand and growing cities develop new business centres, not just those at the core. Greater use of transit helps reduce environmental costs related to pollution.

As desirable as it is for urban planning to prevent urban sprawl, intensification has consequences that should not be ignored. Calgary’s younger and migrant families prefer houses with land that are typically more affordable in the suburbs. Without expansion, housing which is desired by new owners will become less accessible, driving up prices for detached homes, like has happened in Toronto and Vancouver in the past decade.

After all, if more people are added to the same available land, it is bound to push up land costs for housing. Only if the city releases existing land in its boundaries for housing development will it be possible to bring on enough supply to keep housing prices sufficiently low. Otherwise, higher housing prices per square metre will force people to live in smaller houses to maintain affordability, or move to surrounding areas beyond the urban border where housing is cheaper.

While accelerating housing prices have not yet occurred in Calgary, which faced an economic recession in 2009, housing affordability may become an issue if insufficient new housing is being built. This could lead to increased demand for low cost housing, which could be partly relieved by relaxing regulations such as those with respect to secondary suites.

Calgary’s policy regime is not built in stone since it is so different from the past. If housing becomes much less affordable in the future, the voters may demand from its mayor and council a new approach that provides better balance between intensification and expansion.

Source: Jack Mintz, Calgary Herald

There are two main options when buying a home: Either you buy new – a completely new build – or you buy used.

If you’re buying a new home, make sure you check out the builder, their track record and speak to people who have bought their home from the same builder.

Were they happy with their new home? Did they have any problems within the first year? Second year? What types of problems were they? Did they require major fixes, like a leaking basement, a problem with the HVAC or electrical issues? How helpful was the builder when it came to fixing the problem?

Just because a house is new doesn’t mean it won’t have issues. I’ve seen brand new homes, not even five years old, with major fixes that nearly bankrupt the homeowner. A new home shouldn’t have major problems, but too many times it does.

If you’re looking at used homes, be careful with ones that were flipped. These homes are especially a problem because they are deliberately made to look good, but aren’t necessarily built or renovated to be good. They take advantage of homebuyers’ lack of knowledge when it comes to picking out shoddy workmanship.

Looks are deceiving. A home that’s been flipped banks on it.

I don’t like flips because most of them are done with one purpose: To make a profit. In most cases, the homeowners don’t care about quality because they won’t be living there. Their top priority is to sell fast to save on mortgage payments. And once it’s sold, any problems in the home become the responsibility of the new owners.

How do you know if it’s a flip? There are some warning signs, but again, it comes down to doing your homework. Most people think you need to be a pro to pick out the warning signs, but a lot of it is just common sense.

For example, if the homeowner tells you that they just finished renovating the kitchen and bathroom, how much do you want to bet that they had enough money to do both renovations right?

A standard kitchen renovation done properly will cost at least $30,000. A bathroom reno can cost close to $20,000. If the only reason for renovating was to sell, I would be cautious on how the work was done. Good work takes time, and it isn’t cheap. Ask the homeowner details about the reno, such as how long it took to find the right contractor, set up the job, choose materials and for the work to be done. If all it took was a few weeks, I would be cautious.

If a home looks like it’s been renovated, do a search for any permits on work completed. If changes were made to the plumbing, electrical or structure, permits needed to be pulled.

Also look for cheap materials, such as MDF for cabinetry or laminate flooring. Keep an eye out for bad trim and sloppy paint jobs — these are red flags for quick and cheap renos. When the trim is off or doesn’t line up, you can bet that the workmanship isn’t top quality. If they fumbled on the finishes, they probably cut corners on the stuff they know most buyers will not see — the stuff behind walls and below flooring.

If windows were replaced, check to make sure that they are at least Energy Star rated. If the home has bad windows, you will pay for them for years in extra energy costs. And the cost of replacing them will run you at least $10,000. So if they need replacing, as a buyer, you need to know.

One last thing home buyers can look into is getting a home-history report on a property. Some home inspectors even include this service as part of their basic home inspection. A home-history report uses municipal, provincial and federal data to gather the most up-to-date property information. It’s an extra tool that helps protect a home buyer, so you know exactly what you’re walking into.

A home-history report can tell you the home’s previous sales price, sale dates, building permit information, information on structure or any previous insurance claims related to the property. You should know if a home you’re looking at had major water damage, flooding, a fire or damage from a natural disaster. Some home-history reports can even tell you if a house was ever used for illicit purposes, like a grow-op or meth lab.

The more information you have on a property, the better. You will know if the electrical or plumbing needs to be looked at by a professional to make sure it’s safe, or if the structure of the home has been modified or undermined. It puts you in a better position to buy the right home and buy it smart.

Source: Mike Holmes, Postmedia News

Signs of weakness are lurking below the surface in Vancouver’s surging housing market, as new home prices dropped by the most in Canada over the past year.

According to data released yesterday by Statistics Canada, new home prices dropped 1.1 per cent year-over-year in Vancouver.

That was the biggest drop among major Canadian cities. Across the country prices were up 1.6 per cent, with Calgary leading the way with a 7.5 per cent year-over-year gain.

For Vancouver, it was the third straight year of decline in the New Housing Price Index. In the same time period, Toronto has shown strong gains, slowly catching up to Vancouver in the million-dollar-home benchmark club.

Meanwhile though, for those buying and selling in Vancouver’s existing home market, it’s still a story of rocketing real estate. The single-family home index was up 6.6 per cent year-over-year in April for Vancouver’s west side, at a stunning $2.2 million. Vancouver’s east side was up 8.8 per cent for the same benchmark year-over-year, to $901,000 for a single-family detached home.

Regardless, in the big picture the number of Canadians able to buy into a Vancouver housing market that has basically skyrocketed for 15 years, is steadily shrinking.

Since the global credit crisis of 2008, the Canada Mortgage and Housing Corp. has taken baby steps to reduce its massive mortgage insurance balance sheet. The CMHC continues to tighten its mortgage rules, in line with concerns of former Canadian Finance Minister Jim Flaherty. However, for those who qualify for mortgages financing remains cheap, with interest rates at historic lows.

Source: Sam Cooper, The Province

A measurement closely watched by the real estate industry, known as the sales-to-active-listings ratio, hit 19.7 per cent in Greater Vancouver last month – the highest since June, 2011. The ratio was 15.7 per cent in April, 2013.

B.C. real estate agents consider it a balanced market when the ratio ranges from 15 per cent to 20 per cent. It is deemed a buyer’s market below 15 per cent and a seller’s market above 20 per cent in the Vancouver area.

The Real Estate Board of Greater Vancouver reported Friday that residential housing sales climbed to 3,050 in April, up 16.1 per cent from 2,627 resale properties that changed hands a year earlier.

The benchmark home index price rose 3.6 per cent year-over-year to $619,000 in April for single family-detached homes, condos and townhouses that sold on the Multiple Listing Service.

There were a total of 15,515 active listings last month, down 7.3 per cent from a year earlier.

For existing single-family detached homes that sold on the MLS in April, the index price jumped 6.6 per cent year-over-year to $2,201,600 on Vancouver’s West Side, while rising 8.8 per cent to $901,200 on the East Side.

While activity has been picking up, sales in April were 5.2 per cent below the 10-year average for the month, board president Ray Harris said.

Developers are watching the property data closely.

Will Lin, president of Rize Alliance Properties Ltd., said the buzz about offshore buyers engaging in speculation has subsided for good reason.

“Contrary to what some developers like to believe, it is difficult to get offshore buyers to purchase Vancouver real estate when there is no real linkage for these buyers to Vancouver. They are buying for a good reason, occupying it for themselves or use it as a vacation home or have relatives that are going to come here and using it,” Mr. Lin said in a recent interview.

He added that given the high prices in the region, it is difficult for speculators to make fast money.

“This market is not conducive to that kind of quick flipping. Every real estate transaction has certain costs like legal fees,” Mr. Lin said. Then there is British Columbia’s property transfer tax. Using the home index price for Vancouver’s West Side of $2,201,600, a purchaser who pays that amount for the house would have to fork over $42,032 alone in the property transfer tax. If that purchaser later sells, there is the real estate commission to pay, not to mention various fees related to selling.

“A quick flip within a year or two is not going to let you make too much money,” Mr. Lin said.

In the Fraser Valley, there were 1,470 sales in April, up 7.6 per cent from 1,366 in the same month of 2013.

The overall April benchmark index price in the Fraser Valley, which includes the sprawling and less-expensive Vancouver suburb of Surrey, climbed 1.5 per cent to $433,100 for residential properties.

Source: Brent Jang, Globe and Mail