Vancouver Condo Info

Well, well.. what a year it was.  Canadian house prices took a leap from a shallow recessionary dip fueled by dirt cheap interest rates, financial stimulus and speculation.  Now instead of ‘bubble talk’ about the Vancouver market, we hear the federal government making some fuss about the potential of a national housing bubble – even in places where house prices aren’t 10x the local income.  Here’s the last open topic posting for 2009, but the first for 2010.  Hope you all have a great year!

-Time for Canada to take away the housing punchbowl
-How big a mortgage can you carry?
-Its different in Seattle
-Nice home, wheres the rest of it?
-From Boom to Bust, how Ireland did the noughties
-USA: 10 years, no gain in house prices
-Renters win as vacancy rates rise
-Chinese RE bubble may lead to US style slump
-Five bubbles set to burst in 2010

So what are you seeing out there? Any predictions for the new year? Resolutions? Post your thoughts, news links and anecdotes here and have a great weekend and an excellent new year!

Don sent in this link to Helmut Pastrick of Central One Credit Union expressing concern about Flaherty’s recent talk of clamping down on the easy mortgage money.  Concern over a Canadian housing bubble has Flaherty, Harper and Carney musing about ways to dampen the market: rising interest rates, cutting terms down from 35 years and requiring a larger down payment.  It’s this last one that has Pastrick concerned.

A senior B.C. economist is warning the Lower Mainland’s recovering real estate market and construction industry will both take a hit if Ottawa makes it harder for first-time home buyers to get mortgages.

Helmut Pastrick of Central 1 Credit Union was responding to federal finance minister Jim Flaherty, who said the government will “likely” boost the minimum down payment from the current five per cent and cut the maximum mortgage term down from 35 years to ward off a potential housing bubble in Canada.

“It would have quite a negative impact,” Pastrick said. “It would certainly soften the real estate market. There would also be less new construction over time.”

A higher down payment threshold would force many first-time buyers with insufficient cash to delay buying.

As Don points out, is that really a bad thing?

Did you get your special edition 2009 rock-bottom interest rate loan yet?  Better get it quick, because you’re running out of time.  We’ve heard from the Bank of Canada, and Harper says the same thing: expect rising rates.

Down south Freddie Mac sees mortgage rate rising to 6% in 2010, while Morgan Stanley is betting on 30 year rates of 7.5 to 8%.  These are still historically very low, but changes like this can have a dramatic effect on high debt levels.

Any more rabbits in that hat?

I hope that whatever you’re doing, you’re enjoying it. Normally on Friday I post a list of recent stories, but hey – it’s a holiday! If I get to it, they’ll be posted below, but feel free to add your own links and thoughts in the comments, and have an excellent weekend!

A few interesting articles: The first from homes2012 is an editorial in the Vancouver Sun about Jim Flaherty as the bomb disposal expert that has to diffuse the Canadian housing bubble before it explodes.

Flaherty is moving slowly — oh, so slowly — to snip a wire here and there in an attempt to defuse the mess. Problem is, the ticking is getting louder by the minute.

If the bomb explodes, home prices could plunge. In the worst case, plunging prices could bring on an economic downfall such as the United States, Ireland and Spain suffered after their real-estate markets collapsed.

But to make Flaherty’s challenge even more difficult, he still has to convince most people the bomb even exists. At the moment, he’s being cautious in how he describes the problem. He’s being even more cautious in how he deals with it. Perhaps too cautious.

The second article was posted by Domus and relates the way that stimulus measures, bailouts and government support of housing market effectively turns ‘homeowners’ into renters.

“The problem with affordability-only modification is that it essentially makes homeowners renters for the foreseeable future and locks them into their homes so they can’t move elsewhere for better jobs.” [said] Paul Leonard, director of the California office at the Center for Responsible Lending in Oakland.

Of course there’s one group that thinks cracking down on Canadian lending standards is a bad idea.  nonymous points out this article in the Vancouver Sun, where Mortgage Brokers are lobbying Flaherty to NOT go through with any changes that raise standards for home lending.

Steps to raise down payment requirements and shorten mortgage amortization periods could do more damage than the problem Flaherty is trying to stem, according to the Mortgage Brokers Association of British Columbia.

“First-time buyers drive the housing market,” association president Joe Santos said in a news release.

“Raising interest rates and reducing amortization periods will severely impact affordability for this important demographic group.”

There’s one sure way to improve affordability: Introduce 100 year term mortgages and allow zero amortization no-income-no-job-or-asset (NINJA) loans like they did in the US a couple of years ago.  This had delightful short term benefits: lower monthly payments AND rising house prices.  What could possibly be wrong with that?

Canadian Mortgage Trends has an interesting interview with Pierre Serre, the Vice President of Insurance Products and Business Development at CMHC.  The upshot of the interview is that the CMHC has plenty of dough in reserve and poses no threat to the Canadian taxpayer in the event of a housing market crash.  There are some other interesting figures in that interview: currently 9% of Canadian mortgage holders have less than 10% equity in their home.  They also remark on default rates during previous rate increase periods, which seems topical since Carney is planning on raising the benchmark rate by 500% in 2010 (from a rock bottom .25% to a still low 1.5%)

CMT: Can you tell us, what were default rates in past periods of large rate increases (like 1980-81 or 88-89)?

Pierre: According to the Canadian Bankers Association, the highest rate of mortgage arrears—which is, greater than 90 days–occurred in 1982 and in 1983. The rates were 0.96% and 1.02% respectively, compared to today’s rate of 0.43%.

CMT: Mortgage arrears are currently around 0.4% in Canada—exceptionally low, especially for a recession. I assume CMHC’s risk analysts have calculated what would happen in a worst-case scenario of mass defaults?

Pierre: CMHC internal analysis supports CMHC being able to cope with a variety of economic scenarios, including some rather severe ones.

By ‘rather severe ones’ I assume he means a US-style cliff diving real estate market.  Speaking of cliff-diving and on a whole different topic, check out this graph of US commercial real estate.

Thanks to Don for the links!

Feels like it’s getting close to Holiday time!  Let’s do our end of the week news roundup and open topic discussion for the weekend.  Here are a few recent stories to kick off the discussion:

-Debt laden BC homeowners warned of interest rate squeeze
-Unemployment falls in canada, rises in BC
-Global crisis? What crisis?
-Housing set to juice economy in the spring
-National vacancy rates increase
-The real estate gamble
-Canadas inflation rate rises
-TIME Person of the year: Ben Bernanke
-US taxpayers at risk with mortgage giants

So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

Notice how there’s been all sorts of bubble-talk in the national newspapers lately?  Even the Americans have noticed our hyperactive market. Well you don’t have to worry about it anymore.  In November the Canadian housing market saw prices fall and listings rise, signaling a return to normalcy.

While Peter Aceto welcomes a moderation in prices, the chief executive officer of ING Direct worries buyers are purchasing homes they won’t be able to afford when interest rates move higher. He has advised his employees to run clients through different scenarios to make sure they realize how much more their payments would be under historically average circumstances.

For example, a five-year variable rate mortgage at 2.25 per cent on $300,000 would carry a monthly payment of about $1,300, assuming a 25-year amortization period. A move to 5 per cent would boost the payment to $1,750. It’s a 34-per-cent increase, something many family budgets wouldn’t be able to accommodate.

“I understand how people get caught up in a hot market, but they are doing some odd things that really worry me,” he said. “You see multiple offers, and houses going for 20 per cent above asking. Those aren’t normal things, and the high level of confidence out there really does make me scratch my head a little.”

Mr. Aceto isn’t the only one scratching his head.  Mark Carney is wondering if Canadian debtors will be able to handle rising interest rates.  Carney is also telling Mr. Aceto and his banker buddies that they must be responsible when handing out taxpayer backed mortgage debt:

Similarly, lenders have responsibilities. Financial institutions should actively monitor risk stemming from households and not take false comfort derived from mortgage insurance and past performance of household credit. As our simulations suggest, the overall credit profile of Canadian households could well shift if debt continues to grow at current rates. The Bank expects that Canada’s financial institutions will continue to apply their high standards of risk management, for which they are being justly lauded the world over.

So there you have it, everyone is aware of the risks and making sure all buyers are ready for interest rates to rise.  So don’t worry you silly bears, everything is going to be all right alright.  Mr. Carney hasn’t said when rates will rise or by how much, but here’s the BMO forecast:

A tip o’ the hat to Don for the links!

Don sent in this link to yet another housing bubble warning in the mainstream media – there seems to be more and more of these lately.  They compare the two arguments for and against the case that we’re in a housing bubble.  The no bubble side seems to rely on a “magic armour” defense:

Arguing for the armour case in a new report for the Federal Reserve Bank of Cleveland, University of Western Ontario economist James MacGee says the main reason Canada’s housing market hasn’t gone bust is because of much sounder lending practices. An explosion of subprime and high-risk mortgages, rather than merely low interest rates, was the primary reason that U.S. prices boomed and then collapsed, according to Prof. MacGee.

The result is that Americans took on too much debt, relative to the both the value of their homes and their incomes. That left them highly vulnerable. They bought homes they couldn’t afford, leading to an inevitable spike in delinquencies and tumbling prices.

So Americans bought homes they couldn’t afford by taking on too much debt.  Are Canadians taking on too much debt?  Carney seems concerned lately about the high levels of Canadian household debt, which recently hit 145% – higher than the American level.

The counterpoint argument is covered by economist David Rosenberg:

..in a recent Globe and Mail column, economist David Rosenberg, chief strategist at Toronto-based Gluskin Sheff + Associates Inc., raised the spectre of a Canadian housing bubble that is on the verge of collapse. He figures prices are 15 to 35 per cent overvalued, based on relative rental rates and incomes.

Canadians should pay attention. Mr. Rosenberg, a former Merrill Lynch economist, was among the first on Wall Street to warn of a housing-led recession in the United States. He knows what a housing correction looks like.

Homes are now less affordable in Canada than they’ve even been, relative to income.

That’s less affordable across Canada as a national market, the Vancouver market is leading the pack when it comes to being ‘out of sync’ with rent and incomes.  Whether the root cause is risky lending or low interest rates, it seems the situation in Canada is similar to where the US was just a couple years ago.  If I drive a mile to run head first into a wall, does it really matter which route I take?

UPDATE: On a similar note I see that Merrill Lynch has just issued a bubble warning as well:

This post is all about contacting your representatives in government – getting clarification on where they stand regarding housing economics, and letting them know where you stand as a voter.  Many readers on this site have mentioned the importance of writing to your MP, so I figure it’s high time we do a story thread where we can share ideas and contact information.

First off a list of Vancouver area members of Parliament including email links and mailing addresses. (thanks Drachen for the link)

Now a few questions / opinions I have for my MP.  I should clarify these are just points for discussion and not intended to be copy and pasted into an email.  Writing a letter in your own words will likely be more effective than a form letter.

The Canadian Mortgage and Housing Corporation
I believe that the CMHC is flooding too much cheap credit into the housing market temporarily driving up prices.  Where do you stand on the CMHC and how effective do you feel they are addressing their mandate of making housing affordable to Canadians?  Is ‘affordability’ measured best as temporarily low monthly payments or as total debt load?

OSFI Conversion to International Financial Reporting Standards
The Office of the Superintendent of Financial Institutions Canada (OSFI) has a draft advisory (pdf) that is set to be put into effect at the end of this year.  There has been some opposition to implementing these changes at this time.  Where do you stand on the OSFI advisory, specifically on taxpayer funded securitization of mortgage debt?
* You may wish to contact the Honorable James M. Flaherty on this topic

Bailouts for speculators and negative equity homeowners
As housing prices fell in the US, there were a number of government bailouts and stimulus measures that tried to prop up the market.  These measures have so far failed to keep house prices from falling more than %50 in cities like Las Vegas and Miami.  Where do you stand on bailouts or other measures that attempt to prop up housing markets?  If foreclosure rates rise further in Vancouver, what sort of action would you take if any?  Would you support or oppose bailouts?

So what do you think? What do you want your MP to know and what issues do you want them to clarify their stand on?  Are there other Government entities that you think would be worth contacting?  Post your thoughts, letter excerpts and ideas in the comment section below.