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

China’s home prices slumped by the largest amount for nearly two years as the government pledged to maintain curbs on property, according to the country’s biggest real-estate website owner, SouFun Holdings.

Home prices dropped 0.3 percent last month from January, according to SouFun. The month-on-month decline in February was the sixth straight drop, the longest losing streak since SouFun started tracking the data.

Residential prices slid in 72 of 100 cities tracked by the company last month, 12 more than in January, it said in an e-mailed statement today.

Home prices in the western city of Chengdu fell 1.1 percent from January, the biggest decline among China’s 10 biggest cities. Beijing dropped 0.6 percent. According to property consultant Shanghai UWin Real Estate Information Services, Shanghai new home prices plummeted 12 percent month-on-month.

Average home prices nationwide in February were only up by 0.93 percent to 8,767 yuan ($1,391) per square metre compared to the same period last year, the slowest pace of growth since August.

Zhao Zhenyi, a Shanghai-based property analyst at Yuanta Securities said: “Home prices will continue to fall in the coming months because it’s pretty clear that the central government won’t ease the tightening soon”.

The property market will remain challenging this year, though there won’t be a “collapse” as leading cities prove more resilient, according to a Citigroup Inc. report today, led by analyst Oscar Choi.

Source: Overseas Property Professional

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

Metro Vancouver’s real estate market remains in stable territory with a pre-spring hike in sales, according to reports released Friday.

“With a sales-to-active-listings ratio of over 18 per cent, we see fairly balanced conditions in our marketplace as we move into the traditionally busier spring season,” Real Estate Board of Greater Vancouver (REBGV) president Rosario Setticasi said in a statement.

The REBGV monthly report said that sales reached 2,545 in February, a 61.4-per-cent increase over the 1,577 sales in January and a decline of 17.8-per-cent drop from the 3,097 sales in February 2011.

February sales in Metro Vancouver were the third lowest February total in the region since 2002, although just 151 sales below the 10-year average.

New listings totalled 5,552 in February, a 2.5-per-cent decline compared to February 2011, and a 3.5-per-cent decline compared to January 2012.

The report concluded that the benchmark price for all residential properties was $670,900 in February, up six per cent compared to February 2011 and up 0.9 per cent compared to January 2012.

The benchmark price for detached properties increased 10.5 per cent from February 2011 to $1.04 million, while the price of apartments increased 2.8 per cent from February 2011 to $373,000. The price of a townhome unit increased 0.7 per cent over the same period to $473,000.

Meanwhile, the Fraser Valley Real Estate Board recorded 1,269 sales in February, an increase of 59 per cent compared to January and a one-per-cent decrease from the 1,279 sales in February of 2011.

The board also received 2,846 new listings in February, a three-per-cent increase from January and a six-per-cent drop from last February’s 3,038.

The new listings take the total number of active listings to 9,037, an increase of four per cent over February 2011.

“Although our market has picked up, it’s still favouring buyers,” board president Scott Olson said in a statement, adding that the seasonal increase in sales was not as robust as in previous years. “In terms of our clients, we’re seeing more caution and deliberation when house hunting.”

The benchmark price of a detached home in the Fraser Valley in February was about $569,000, an increase of 8.3 per cent compared to $525,000 last year. Townhouse prices increased two per cent in the year, to $312,000 in February 2012, while the benchmark price of apartments increased 0.6 per cent to $202,000.

Source: Brian Morton, Vancouver Sun

If you thought Chinese investors were starting to lose interest in Canadian real estate, think again.

According to a new report, both Vancouver and Toronto are forecast to be this year’s most popular destinations for Chinese overseas property investment.

“Buying sentiment for overseas properties among Chinese mainland investors has been gaining strong momentum over the past few years,” said Derek Lai, director of international properties for Colliers International real estate services and the author of the report. “To date, about 20% to 40% of the foreign property investors in these destinations are from the Chinese mainland.”

The report goes on to cite Vancouver’s Chinese population – what it pegs as 30% of city residents – as one of the driving factors for that investment choice.

Mainland Chinese investors are also lured by the Lower Mainland’s educational opportunities and proximity to home, according to Colliers.

Still, Canada’s two largest cities are facing some competition for Chinese investment, with London and Singapore rounding out the top four real estate destinations.

In the UK, rising property values and a very limited supply have accelerated the push into London, with Chinese investors now buying as much as 20% of all new builds.

Singapore’s low mortgage rates of 1.2% to 2%, relatively high and stable rental yields of around 5% and a transparent transaction system are responsible for attracting its share of mainland Chinese interest, according to the Colliers report relying on both interviews and investment declaration states.

In Canada, Vancouver’s appeal helped to drive up price gains in large parts of the Lower Mainland last year, with domestic investors concerned another year of strong transaction growth could present a real challenge to their own acquisition plans if sellers continue to hold out for well-heeled foriegn buyers. Many have only begun to lower their asking prices to meet the current market realities; ie, more supply than demand.

That said, there has been some movement.

The dollar value B.C. properties sold in January dipped 7.6% to $2.1 billion, compared to the same month last year. The average MLS residential price was 3.8% lower at $527,219 compared to January 2011.

Source: Vernon Clement Jones, Canadian Real Estate Wealth

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