Already ranked as one of the most unaffordable cities in the world, Vancouver’s heated real estate market could get a further push, after the Bank of Canada cut the overnight lending interest rate to 0.75 per cent.

The rate had been at one per cent since September 2010 and the cut shocked markets on Wednesday. It will likely result in lower interest rates for variable rate mortgages, lines of credit and other loans that float with prime rates.

“That should provide a nice little potential boost for the housing market, not just in Vancouver but the rest of British Columbia as well,” said Bryan Yu, senior economist with Central 1 Credit Union.

But it depends how lenders respond to the Bank of Canada’s surprise interest rate drop with changes to mortgage rates, said Yu.

He expects the rate cut will put “mild downward pressure” on fixed and variable mortgage rates, but not make big waves on the housing market.

“This doesn’t change our outlook for Vancouver’s housing market significantly,” said Yu.

The credit union’s recent B.C. housing outlook forecast the median detached house price would climb by four per cent in greater Vancouver — continuing to outpace growth in condo prices.

Vancouver mortgage broker Michelle Byman said if lenders cut their rates, a quarter point change won’t make a big difference.

“It will help people that are buying,” said Byman. “But I don’t think that’s going to fuel anything more than what’s already going on in the market.”

On a $100,000, 25-year mortgage, lowering the rate from 3 per cent to 2.75 per cent would only cut someone’s $473.23 monthly payment by $13, said Byman.

Even on a $500,000 mortgage, a quarter point drop would only mean paying $63 less per month, she said.

Byman said 2010 federal policy changes intended to turn down the heat on Canada’s housing market affect the buyers she deals with.

In particular, the government requirement that borrowers qualify for the posted rate for a fixed five-year mortgage — even if that’s higher than the rate they’ll pay — limits how far buyers can extend themselves, said Byman.

Source: Lisa Johnson, CBC News

First-time home buyers are spending more to get into homeownership while some are putting off the buying decision based on financial considerations, says a new report from BMO.

The average spent in Canada by first-time buyers is $316,100, up from $300,000 in 2013, according to the BMO 2014 First-Time Home Buyers Report, with only one of the country’s top four markets coming in under the national average.

In Montreal, first-timers spend an average of $237,900, in Toronto $408,300, in Calgary $363,400, with Vancouver having the highest average first-timer spend of $506,500.

Despite the increases in spend, the average downpayment remains unchanged from last year at $50,576 (16% of the average national spend).

BMO also reports 30% of first timers expect parents or family to assist in their purchase, a percentage that rises to 40% in Montreal and Vancouver.

The majority (61%) have made cutbacks to their lifestyle in order to save for their first home.

Six in 10 say their home-buying timeline has been delayed, with 39% citing rising real estate prices as the main reason.

“Among the many considerations for those trying to get a foot in the door of the real estate market for the first time, the most important of all is building a substantial downpayment,” says Laura Parsons, a mortgage expert with BMO Bank of Montreal. “Buying a home is one of the most important financial decisions one can make, and typically represents the largest form of savings for Canadian households. It’s crucial those planning to buy are well-prepared and have considered all options available to them.”

The rising prices in the major markets are forcing first-timers to reconsider their first choice of housing.

“High prices in a few major cities, and the fact that prices are outrunning incomes in Toronto, are turning off some first-time buyers, while forcing others to go deeper into debt, tap their parents for hefty down payments and opt for a condo rather than a detached house,” says Sal Guatieri, senior economist, BMO Capital Markets.

While 60% of first-time buyers say they will set a budget and stick with it, 30% are prepared to go higher for the right home.

Parsons recommends first timers should set price boundaries before setting out on the home-buying journey.

“To help ensure first-time buyers don’t spend beyond their means, they need to be fully prepared to purchase the right house, at the right price. Getting pre-approved gives buyers the opportunity to consider multiple options, during a time-sensitive decision period,” she says.

Source: Myke Thomas, Calgary Sun

Buy a house. Don’t buy a house. Soft landing. Crash landing. As we start the new year, the question on everyone’s mind is: What can we expect from Canada’s housing market?

Once again, experts agree that housing affordability is stretched, historically low interest rates will rise, and housing prices will drop. Rewind 365 days and you could be reading a forecast for 2014. But this time the experts agree: prices really will fall and it’s got everything to do with the recovery of the global economy.

Now, if the global economy were a ballgame we wouldn’t be in the World Series. Oil prices are depressed and Europe is still struggling with its credit crunch. But things are slowly improving in the U.S. and within Canada, and the important teams are still in the game: our employment rate is stable, oil prices are not (yet) low enough to cause real concern, and exports have picked up as the value of our dollar has dropped. All this leads most economists to believe we’ll see slightly higher bond and mortgage rates and a nation-wide cooling of the housing market over the next couple of years.

Robert Hogue, senior economist with RBC Bank, says he believes the coming year will be “a moderating phase for the market with a soft landing in 2016.” Hogue predicts national home prices will actually rise 1% or maybe 1.5% in 2015, as buyers race to get in the market before mortgage rates increase, after which prices will fall later in the year. “It’s one of the reasons why 2014 was such a strong year.”

But he cautions home owners: “Canada’s real estate market really is a multi-headed beast. It’s essentially very strong in Toronto, Vancouver and Calgary, but it’s balanced or soft in the majority of other markets.” As such, he predicts we’ll see a cooling of the three biggest markets by the end of the year in response to small mortgage rate hikes starting mid-year.

Now, if the prime rate were to climb from its current 3% level to 5% or 6% over the next year or two, many Canadians could find themselves in deep trouble, says Hogue. But he isn’t sure we’ll see rates shooting up that fast any time soon. Until recently, analysts and policy makers considered 5% to be the neutral or natural interest rate. It was the rate that allowed full employment, a stable inflation rate, and a sustainable growing economy. But Hogue, along with economists from Morgan Stanley and analysts from the C.D. Howe Institute, believe that the “new neutral rate” has actually dropped.

The primary reason is the impact baby boomers continue to have on the national economy. As boomers continue to age and leave the workforce, Canada can expect a slowing of the labour market, which will depress productivity growth, limit the economy, and suppress potential inflation, explains Hogue. “If the new normal is markedly below what we’re used to, then we won’t see as much downward pressure on housing prices,” he says.

The impact of demographics doesn’t stop there. According to a new report by Benjamin Tal, deputy chief economist with CIBC, analysts have been seriously underestimating the number of new immigrants in Canada. New immigrants account for 70% of the country’s population growth and about half are between the ages of 25 and 44—the key demographic that leads to household formations. According to Tal the under-estimated increase in the number of home-buying immigrants in Canada will help to offset a slowing economy, created by the boomer generation. “Immigration, itself, won’t be able to change this trajectory, but it will help to offset it,” explains Tal.

But David Madani from Capital Economics isn’t convinced. “Every good economist knows that immigration always fluctuates and it’s never prevented a housing cycle in the past.” He’s also not convinced that builders are out of the weeds when it comes to supply and demand. While he agrees that absorption rates are close to historical long-term averages, he’s confident that the market will suffer. “There are too many one-bedroom condo units being built when demand shows a need for family accommodation.”

So what’s a regular home buyer to do? The best advice is prepare for the worst, but if you’re ready to jump in and you can afford it, waiting for prices to fall might not be the best idea. Ted Rechtshaffen, president and CEO at TriDelta Financial, advises against trying to time the market in general. “It’s not about prices or the mortgage rate, it’s whether you can truly afford to own the home.” This means calculating whether or not you could still afford your monthly payments even if mortgage rates increased to 4% or 5% a few years from now. It also means deciding whether or not you can stomach a housing price drop. While many economists are predicting a 10% drop, the correction could be as great as 30% in some Canadian markets.

Of course, your home is more then equity and capital. It’s the place you spend time with friends and family, and the place you build memories. “Life and lifestyle is just as important,” says Rechtshaffen, so as long as you can afford your payments, “don’t be too concerned about the correction.”

Source: Romana King, MoneySense

Housing prices in the Lower Mainland are predicted to rise a modest three per cent in 2015, while Canada’s highest prices, in Vancouver, will be sustained by demand from Mainland Chinese buyers.

That’s the view from RE/MAX’s 2015 national housing outlook, in a relatively optimistic report that suggests Greater Vancouver real estate is well supported by a variety of supply and demand factors.

RE/MAX’s report diverges strongly from a new Bank of Canada report that warns parts of Canada’s housing market are overvalued by 30 per cent.

RE/MAX’s report says average residential prices in Greater Vancouver increased from $781,517 in 2013 to $838,400, and are projected to rise to $863,600 in 2015.
Price gains in Vancouver will continue to be driven by hot demand and limited supply for detached homes in west-side neighbourhoods, RE/MAX predicts, while buyers who hoped to break into Vancouver’s market on the east side and lost multiple bid battles may drop out of the market in 2015.

Frustrated buyers won’t limit the market, though, because “the pipeline of demand for the region will continue to grow,” according to RE/MAX.

“Offshore buyer demand from Mainland China continued throughout the year,” the report says. “Demand for westside homes will continue to be driven by offshore buyers who can afford to pay the two million dollar-plus price tag.”

Cory Raven, managing broker at RE/MAX Select Realty in Vancouver, say agents report that “the mindset” of Mainland Chinese buyers focuses on “parking wealth” in Vancouver, rather than seeking price appreciation. That means a significant group of buyers in Vancouver is content to buy higher and higher, agents believe.

“Assuming that tap stays open, the higher end of the market will (continue to see aggressive gains),” Raven says.

There has been speculation that the flood of cash pouring from China into Vancouver real estate will be limited with the ending this year of a federal immigrant investor program. The South China Morning Post has reported a replacement program will be much smaller in scope, and will subject applicants to rigorous audits. But Raven says the perception among realtors is “the tap” will stay open.

“Many realtors have told me that the way business is done (in China) is very different, and the wealthy can always find a way to get their money out.”

Meanwhile, in a new report, the Bank of Canada studied worrying debt loads carried by homeowners across Canada, and calculated that some markets are at risk of correction, with homes overvalued by up to 30 per cent.

But Helmut Pastrick, chief economist of Central 1 credit union, says he believes the Bank of Canada’s data and study method is “constrained” and does not account for unique supply and demand factors in Vancouver’s housing market.

Pastrick says limited land supply in Vancouver is the main factor justifying high housing prices, and demand from Chinese buyers impacts Vancouver’s west side, and West Vancouver. But even if the flow of investment from offshore were to end, according to Pastrick, there would not be a significant drop in Greater Vancouver home prices.

Pastrick says he sees RE/MAX’s prediction of a three-per-cent rise in home prices across the region as reasonable.

“This market is not booming, but it is pretty solid,” he said. “It certainly is not a bubble.”

Pastrick says while U.S. officials appear ready to raise historically low interest rates within half a year, the Bank of Canada probably will not raise rates until late 2015 or longer.

While the Bank of Canada warns that high home prices and heavily indebted households raise risks of a housing correction, Pastrick believes the only real risk is an economic recession.

A drastic fall in oil prices that caught almost all economists by surprise will impact Alberta and other areas of Canada, but actually could support provincial economies such as B.C. that are net importers of oil, Pastrick believes. At this point, he sees no recession risk for B.C. on the horizon.

Source: Sam Cooper, The Province

After 18 months on the job, Bank of Canada governor Stephen Poloz has yet to wield the primary tool at his disposal: the key interest rate.

When Poloz took the bank’s reins in June 2013, he inherited an overnight rate set nearly three years earlier by his predecessor Mark Carney. That rate has yet to budge from one per cent, idling for one of the longest stretches in Bank of Canada history.

Bill Robson, the president of the C.D. Howe Institute think-tank, believes it will happen sometime in 2015 thanks to an increasingly positive economic outlook, including an improving U.S. economy and a pickup in Canadian exports.

Once the bank’s overnight rate starts to creep up, Canadian businesses will see their borrowing rates rise as will consumers who take out car loans and mortgages.

Ian Lee, a professor at the Sprott School of Business at Ottawa’s Carleton University, predicts businesses will feel the sting of higher rates right away, but he expects the effect on households to be much more muted.

Many consumers, he added, will avoid a sudden jolt because of fixed-rate loans and mortgages.

On top of that, Lee said the rate would likely inch up a quarter-percentage point at a time, making the coming increases easier to manage than the towering Canadian levels of the early 1980s.

Lee said the rate hikes in the early 80s killed the real-estate market, but didn’t create a housing meltdown and the number of foreclosures barely increased.

On the flip side, higher rates would help pension funds reap a bigger return on their investments, Lee added.

McGill University economics professor Christopher Ragan said, fundamentally, rising rates are a good thing.

“It is signalling a stronger economy,” he said.

The Bank of Canada said last week the country had showed signs of a “broadening recovery” and the output gap appeared to be smaller than it had projected just six weeks earlier. The output gap represents the divide between where the economy stands at a given time and where it would be when performing at its full potential.

However, the bank’s statement offset the positives by pointing to potential threats: weakening oil prices that drive down inflation and the significant risks of high household debt accumulated during years of low borrowing rates.

The basic logic behind low rates is to encourage people to gather debt when the economy is weak, said Ragan, who has worked at the Bank of Canada.

Robson belongs to the camp that expects Canada’s strengthening economy to force Poloz to move the rate in the middle of 2015, while Lee predicts the rapidly shrinking output gap will spur an increase as early as this spring.

The Organization for Economic Co-operation and Development recently predicted the Bank of Canada would start pushing the rate up in late May due to advancing inflation, a key driver of interest rates.

At the other end of the spectrum, economists like David Madani of Capital Economics expect Poloz to stand pat for a while, even after the U.S. Federal Reserve starts hiking its own key rate.

He predicts the forces pushing Canadian inflation upwards to remain fairly subdued in 2015, which he says will keep the central bank in a “holding pattern” for the whole year.

Robson said it would even be OK if Poloz raised rates and then edged them back down, if necessary.

“Everybody knows that the central bank has trouble reading the economy just as everyone else does,” he said.

Source: Andy Blatchford, The Canadian Press

The benchmark price for a typical detached home – a gauge that omits the most expensive properties – is approaching $1-million in Greater Vancouver.

The Real Estate Board of Greater Vancouver uses the resale home price index (HPI), which strips out the priciest properties, because it asserts that calculation serves as a better barometer of trends than average prices.

On Tuesday, the board reported that the HPI for single-family detached houses reached a record-high $997,800 last month, up 7.9 per cent from November, 2013.

The HPI for detached homes on Vancouver’s west side hit $2,323,300 last month, up 10.9 per cent from November, 2013, while the index for Vancouver’s east side reached $957,300, up 11.9 per cent from a year earlier. Both of those prices also set records.

The average price for detached homes sold in the region has risen 1.2 per cent over the past year to $1,274,904.

Over all, the HPI for detached houses, townhouses and condos rose to $637,300 last month in Greater Vancouver, up 5.7 per cent from a year earlier.

Greater Vancouver had 2,516 housing sales last month, up 8.4 per cent from November, 2013, and 6.9 per cent higher than the 10-year average for that month. “It’s been a more active fall than we typically see,” board president Ray Harris said in a statement.

In the Fraser Valley, which includes the sprawling and less expensive Vancouver suburb of Surrey, there were 1,136 residential sales on the Multiple Listing Service in November, up 15.2 per cent from 986 properties sold in the same month last year.

November’s HPI for Fraser Valley detached homes climbed to $575,400, up 4.6 per cent year-over-year.

Source: Brent Jang, The Globe and Mail

One measure which suggests that housing demand is relatively strong heading into 2015 is the number-of-months’ supply of homes for sale in Canada, which declined from 5.9 to 5.8 in October, its lowest level since April of 2012.

Also, year-over-year house prices in the Teranet/National Bank House Price Index (+5.4% Oct) and the Canadian Real Estate Assn House Price Index (+5.5% Oct) have trended gradually higher since the beginning of 2014. However, the rates of increase in both indexes early in the final quarter of 2014 are nowhere near the levels they reached in 2006 of 14.1%, and 13.0% respectively and early in 2010 (12.7% and 12.5%).

Turning to the supply of dwellings, housing starts in Canada have remained quite stable. Indeed, over the past two years, starts have averaged 190,000 units seasonally adjusted at annual rates (SAAR) which is at or very close to the estimated rate of household formation. Further, despite the steady uptrend in existing home sales and the above noted gradual increase in house prices, housing starts trended lower since mid year.

Another indicator of housing market health is the percentage of mortgages that are more than ninety days in arrears. In line with the very gradual decline in the number of regular Employment Insurance beneficiaries and the unemployment rate since the beginning of the year, the percentage of mortgages more than ninety days in arrears has trended down from 0.32% in January to 0.29% in August, its lowest value since September of 2007.

Further according to the most recent Annual State of the Residential Mortgage Market in Canada published by the Canadian Assn of Accredited Mortgage Professionals, approximately 77% of the 1.35 million homeowners who renewed their mortgates in 2014 saw a 0.8% drop in their mortgage rate. This decline in mortage rates over the past year suggests that the majority of mortgage holders renewing over the next twelve months will also see a reduction in rates.

Looking forward, the fundamental drivers of housing demand in Canada appear more positive now than they have been for several quarters. First, over the past two months, Canada has added 117,000 jobs, the vast majority of which (96,000) are full time. Second, according to a recent study by CIBC, immigration has made a much stronger contribution to growth of Canada’s prime 25-44 age group than was previously estimated. Indeed, over the past five years, growth of this age group, the major driver of employment and household formation, has accelerated from -0.8% y/y in 2009 to +1.1% in 2014.

This rate is well above the average growth of the OECD and 75% faster than in the United States. Third, in addition to giving a boost to consumer spending, lower energy prices should, by increasing discretionary income, make home ownership more affordable. Finally, interest rates are likely to remain low well into the middle of the year and while they may edge higher in the second half of 2015, they are unlikely to chill housing demand significantly. Given these positive fundamentals, we expect housing starts to total in the range of 185,000 to 195,000 in 2015 compared to an estimated 190,000 in 2014.

Source: John Clinkard, Daily Commercial News

Even though real estate prices have been rising faster than inflation and are going through the roof in some parts of Canada, home ownership actually became more affordable in the third quarter, according to a quarterly survey by RBC Economics.

The bank credits rising household incomes, low interest rates and lower utility costs in some markets for making it a bit easier to own a home.

During the July-to-September period, RBC’s housing affordability measure at the national level fell 0.2 percentage points to 47.8 per cent for two-storey homes. It also fell for condos – down 0.3 percentage points to 27.1 per cent.

“A trend that jumped out in the latest data was a further broad improvement in affordability of condos where a strong majority of markets across Canada saw the measure for the segment fall,” said RBC chief economist Craig Wright in a release.

“Condos no doubt continue to be the more affordable ownership option in every market.”

The affordability measure for detached bungalows was the outlier; it rose a tenth of a percentage point to 42.6 per cent.

An affordability reading of 50 means that ownership costs, which include mortgage costs, property taxes and utility costs, would require 50 per cent of a household’s monthly gross income.

The latest data from the Canadian Real Estate Association shows that the national average home resale price rose 7.1 per cent on a year-over-year basis in October.

The MLS home price index, which many observers consider a better indicator of home price trends, rose 5.5 per cent over the same period.

Some markets, notably Vancouver, Toronto and Calgary, have seen real estate prices rise much faster than the national average. The bank notes that it is the robust activity in these three markets that has been largely responsible for eight monthly increases in resales in the last nine months.

Affordability remains a big stretch in Vancouver and Toronto. The cost of a benchmark detached bungalow in Vancouver, for instance, requires 83.6 per cent of a typical household’s pretax income to carry. In Toronto, it takes 56.3 per cent.

RBC says a drop in fixed mortgage rates earlier this year helped to drive the current strength in the housing market. But it doesn’t expect that situation to last.

“A combination of gradually increasing interest rates and higher prices will likely reverse the improvement in housing affordability that took place in the past year and weigh more and more heavily on homebuyer demand in Canada,” said Wright.

“We expect the next stage of the housing cycle to be a transition toward lower resales and slower price increases.”

RBC said it expects the Bank of Canada to raise its key overnight lending rates in the middle of next year, but says longer-term rates will rise “well before that.”

Source: CBC News

The total number of home sales in Greater Vancouver is expected to hit 33,800 units by the end of 2014, the British Columbia Real Estate Association announced November 18 in its housing forecast.

This is 16.6% higher than the number of units sold in 2013 (28,985).

The association anticipates that unit sales will see a modest increase of 0.6% in 2015, bringing total sales to 34,000 in that year.

The average home price in Greater Vancouver is forecast to be $814,000 in 2014 – up 5.2% compared with $767,765 in 2013. The BCREA anticipates a slight increase of 0.1% in 2015 to $815,000.

Across B.C., home sales will reach 83,940 units by the end of this year. This is more than 15% higher than the number of units sold in 2013. It is also almost 5% higher than the number of 2014 sales forecast by the association in July, which, at 80,100 units, would be the first time since 2009 that sales were expected to exceed 80,000 units.

In 2015, strengthening economic conditions will push sales upward, but this will be offset in part by increasing interest rates, forecasts the BCREA.

“Consumer demand has ratcheted up this year and is expected to remain at a more elevated level through 2015,” said Cameron Muir, BCREA Chief Economist.

“While historically low mortgage rates support demand, the housing market is also being underpinned by a more robust economy and associated job growth, strong net migration and consumer confidence.”

The average home sale price across the province will be 568,800 in 2014, forecasts the association. This is 6% higher than the average of $537,414 in 2013. Prices in 2015 are expected to grow a further 0.8% to an average of $574,300.

The average number of units sold provincially over the past 15 years was 80,400. In 2005, sales hit a record 106,300 units.

Source: Emma Crawford Hampel, Business in Vancouver

The average price of a home sold through the Multiple Listing Service last month was $419,699 – up 7.1 per cent from $391,931 in October 2013. That’s according to new numbers from the Canadian Real Estate Association (CREA), which reports on the market each month.

Such high costs have many wondering whether it’s a good idea to buy and what they should watch out for.

While everyone’s decision-making process will be different, here are a few things worth considering when shopping for a home.

The market could fall

Many people who bought homes in Canada in the past decade have profited from rising house prices.

But home prices sometimes fall, says Paul Anglin, a real estate professor from the University of Guelph.

“Most people get excited about the rising part,” he says. “They forget about the falling part.”

Fresh in the minds of many is the 2008 U.S. housing market crash, which left millions of Americans with homes worth less than they had paid. Prices have mostly recovered, but many lost money in the meantime.

Markets have crashed in Canada, too. For example, from 1990 to 1996, prices dropped every year in Toronto.

Both The Bank of Canada and Moody’s have warned recently that a crash could happen again in Canada, especially if the economy slows down.

Local markets differ

Housing markets tracked by CREA vary widely by city. Prices are up 9.5 per cent year-over-year in Calgary, 8.3 per cent in the Greater Toronto Area and six per cent in Greater Vancouver.

However, they were flat in Saskatoon, Ottawa, Greater Montreal and Greater Moncton – and down 3.4 per cent in Regina.

The eye-popping increases in Toronto and Vancouver are likely because “lots of people want to move there and there’s limited space,” says Anglin.

Calgary is a different story, however, because it’s highly dependent on the success of the local oil extraction economy, which is tied to the global price of oil.

Although Calgary has been booming for years, global oil prices have recently started to fall. “If the price of oil stays low, then [a crash in Calgary] is exactly what you would expect,” says Anglin.

Transit lines can boost value

Living close to good rapid transit options can boost the value of a property for obvious reasons – people want the shortest possible commutes.

“You want to be in a place that is convenient – or that will be convenient,” says Anglin. In other words, don’t just consider existing transit lines, but also where proposed transit could be built.

Think about SmartTrack in Toronto or the Broadway Subway proposal in Vancouver.

“But you also need to figure out how much inconvenience there will be during construction phase,” says Anglin. Buyers who end up too close to a new train station might have to put up with years of dust and noise.

Buying an unbuilt home can be risky

Buying pre-construction can be appealing, because everything will be new once the home is done.

It can also be risky.

“If you’re buying from a plan, you don’t know what will actually be there,” says Anglin.

For example, those who buy a condo from a plan, do not know who else will be in the building, he says.

Some buildings have a large proportion of renters, who may be noisier or dirtier than owners who live in their homes.

It’s also worth keeping in mind that condo fees are more predictable after a building has been up and running for a few years, says Anglin.

And while buyers used to get a discount in exchange for the unpredictability, as TD Bank pointed out earlier this year, resale condos may now be a better deal.

How long do you plan to stay?

Potential buyers need to ask themselves how long they plan to stay, because the longer they are willing to stay, the lower the risk of being forced to sell when prices are low.

“If you plan to be in some place for a year, maybe you should be renting,” says Anglin.

“If you plan to be there for 10 years,” he says, “the monthly wiggles on the average price probably don’t matter, because 10 years from now, economic conditions will be very different.”

Source: Josh Dehaas, CTVNews.ca