The CREA says a cool-down in the national housing market is happening in advance of new mortgage rules set to come into effect April 19th. Here in BC there was a heavy drop in activity, partly offset by a Toronto market that’s still hopping. It will be interesting to see if this is a trend, or a blip caused by the winter games.
Meanwhile, the number of new listings — an indication that homeowners are looking to capitalize on demand — climbed 2.4 per cent, marking the fifth straight month that housing supply grew. The amount of housing inventory in February stood at 5.2 months, well below where it was a year ago, at 8.8 months, but on par with 2008 levels.
“Headline price increases are drawing new supply to the market, and so that’s taking some steam out of the market,” said Gregory Klump, CREA’s chief economist.
The average price of all homes sold in February through the MLS system was $335,655, CREA said, up a robust 18.2 per cent from a year ago.
However, CREA said the gain was smaller than in the past four months — down from the January increase of 19.6 per cent — and future increases are expected to become “further subdued” in the months ahead.
“Time will tell how normal the market becomes, but I think there are pretty clear signs that some self-correcting mechanisms are starting to take over and lead to a calmer market, compared to what we saw in late 2009,” said Douglas Porter, deputy chief economist at BMO Capital Markets.
Joycer points out that RBC has also released their affordability report, you can read the PDF here. They make some comments specifically about the BC market:
While still below their recent cyclical peaks, all RBC measures stand well above long-term averages. Such poor affordability levels represent an element of risk that could weigh heavily on markets when interest rates start rising.
Plans to build a 20 story tower in the west end met some resistance yesterday, as local residents held a protest against the proposal.
The rezoning would allow developers to build a 20-storey tower on the site and take advantage of the city’s Short Term Incentives for Rental Housing (STIR) program, which includes incentives such as faster permitting process, parking requirement reductions and increased density of the rental apartments.
“It’s completely out of sync with what works in the neighbourhood,” said Godfrey Tait, a spokesman for the concerned residents. “You could maybe have some mixed-market, family-oriented housing, maybe something that wouldn’t exceed six levels, but certainly not another tower.”
The full article is in the Vancouver Sun.
Those heretics over at Canadian Business magazine have a cover article this month called Why Buying a House is a Bad Investment.
The euphoria around home ownership crowds out some of the unpleasant truths about real estate: mainly, that long-term returns are often modest at best. Some studies have found that stock indexes actually outperform housing. More worrying is that real estate prices can and do fall — and they can take a long time to recover. Canada has not been immune to severe price corrections in the past, and we could be on the verge of another one now. With interest rates set to rise and curb affordability, and with economists speculating about a bubble, staking one’s entire financial future on a home is not necessarily a wise bet. In fact, a house just might be one of the most overrated investments around.
..and it goes on and on.
“There’s a unique confluence of factors that has driven house valuations up this sharply,” says Derek Holt, vice-president of economics at Scotia Capital. “They’re all temporary, and that’s a house price bubble that could be pricked as we go off into the next year.” The rate of growth in home prices for the past 10 years has in fact been out of line with prior decades, pointing to lofty valuations today, according to Holt. Prominent Canadians such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge have also sounded the alarm recently on today’s unusually rich home prices.
You can read the full article at the Canadian Business website, but these people clearly don’t know what they’re talking about. After all, real estate prices never go down, everybody knows that.
Discussion seems to be getting heated around here, and people seem to want to talk about a number of different topics, so I’ve rebuilt the forums. If you have a VCI user account, you’ll be able to post topics and take part in the discussion there. There’s a link to the forum at the top of the blog pages, and recent forum posts will show up in the upper right hand corner of the blog.
As always feedback is welcome.
This fixer-upper is conveniently located near the center of Vancouver BC host city of the 2010 Olympic and Paralympic games. Just minutes from downtown, it can be yours for only $579,900. You may be slightly put off by the pictures, but remember, many investors won’t be able to recognize a diamond in the rough, so you might not have to bid too much over asking price to put this baby in your portfolio of investment properties.
First time buyers, Investors, Builders. Corner lot with lane. Nice residential street. Close to everything. Central location. Handy man special. Needs TLC. Mainly Land Value. 21st Avenue and Prince Albert St. 10 mins to Downtown Vancover.
Thanks to crash and tincup for finding this gem!
When Flaherty announced new rules for CMHC insured mortgages in Canada a few weeks ago, there were a lot of questions that remained unanswered. One of the big ones was about the new rule requiring approval based on the 5 year interest rate. The question was which 5 year rate would that be, the posted rate or the discount rate?
Canadian Mortgage Trends is reporting that it will be the 5 year posted rate, which makes sense since the discounted rate is infinitely variable, whereas the posted rate is consistent across all lenders. The posted rate can be found on the Bank of Canada’s website. That rate is posted weekly on Mondays, and as of Sunday night it is 5.39%. The current rule, set to expire April 19th allows lenders to approve insured mortgages based on a discounted 3 year rate, which is currently 3.29%.
This means that as of April 19th, buyers who don’t have at least 20% down and require a CMHC insured mortgage will be approved based on a rate that is more than 2% higher than it currently is to ensure that they can weather rising interest rates.
Just to illustrate what that 2.1% represents in real money, I used the ING mortgage calculator and plugged in some round numbers:
Household income: $100,000
down payment $30,000
Monthly loan credit card payments: Zero
Term: 25 years Property taxes: $2000 Condo fees: Zero
3 year discount rate: 3.29% – you can borrow $491,551
5 year posted rate: 5.39% – you can borrow $397,349
As always, corrections to my math or reasoning is welcome in the comments section below!
The latest issue of Business BC is all about the property market rebound and they focus on 5 ‘hot pockets‘ to watch for and invest in for 2010.
What goes down in B.C. real estate must, apparently, come up. And quickly: by the end of 2009, the average home price in the province had risen to $463,000, back to where it was in 2007. Interest rates are, at least for now, at record lows, and increasing consumer confidence has spurred the market’s recovery beyond expectations. Barring the usual unforeseeable mayhem, things are looking good.
Just for fun, let’s see if we can predict which of those five markets will do best by January 2011. Below are the BC markets they focus on, vote for the one you think will have the best percentage return by the end of 2010. In the event of a housing market crash, best performance would be the market that lost the least amount of value.
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The REBGV benchmark house price reached $800,796 in February. The rise in listings puts us into a ‘balanced’ market condition according to the Real Estate board. Will we be able to maintain this ‘balance’? I suppose it depends on how much our market is driven by CMHC support and how new rules and higher interest rates affect those margins. Here’s some interesting math courtesy of reader bestplaceonmeth:
Based on $58,000 median household income in Vancouver using ING’s “how much can I borrow?” for 35 years (yes, 35 years – it’s what all the cool kids are doing nowadays). Also assuming no other debts (ha ha) and a conservative $250 a month for property taxes or condo fees or both.
Prior to April 19, qualifying at 1.95% variable rate:
YOU QUALIFY FOR A MORTGAGE OF $415,270 WITH 5% DOWN!
After April 19, now having to qualify at 3.89% fixed rate:
YOU QUALIFY FOR A MORTGAGE OF $313,880 WITH 5% DOWN!
Holy foreclosure, Batman! That’s a 25% haircut off current prices!
Now let’s fast forward to the end of 2010, 4 successive 1/2 point interest rate hikes and you now need to qualify at a rate of 5.89%.
YOU QUALIFY FOR A MORTGAGE OF $244,287 WITH 5% DOWN!
That’s 41% less than 10 months ago, and we’re just getting started.
See, I told you math was fun.
Now, who wants to go out and get into a bidding war?
UPDATE: It’s been pointed out that CMHC currently requires the 3 year rate to be used, so the difference is not as extreme as the above example. DoDo1975 clarifies with this math:
A quick calculation shows that a family with absolutely zero debt making $90k a year could borrow $533,721.32 over 35 years today. All else being equal, after April that number will be $456,311.49 or approximately 14.5% less. This 14.5% is constant across all income levels.
If interest rates on the 5 year prevailing rate also go up 1.5% in the future, this translates into a 28% decrease in the amount someone can borrow compared to today.
