Vancouver Condo Info

Hey! It’s the end of another winter work-week.  That means it’s time to do our regular end of the week economic news round-up and open topic discussion.  Here are a few links to kick off the conversation:

-Bureaucrats to ration homebuying in 2010?
-BOC rates prompt housing boom bubble talk
-Carney cautions borrowers to be ‘prudent’
-BOC: rising debt threatens market stability
-Vancouverites camp out to buy a condo
-Portrait of a Vancouver Realtor
-Floating high on a delicate housing bubble
-Property tax may take a leap
-BOC warns of debt peril
-Why didn’t Canada’s market pop?
-Japan compared to USA and Canada
-US Homeowners lost $5.9 Trillion since 2006
-Bubble concerns over low rates? Here’s an idea

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

Higher interest rates are coming.  You don’t even need to hear government spokespeople or bank economists say that to know it’s true.  With mortgage rates at record lows there’s really only one direction for them to go.  The question is how much longer they can be held down, and how quickly they will rise.

The C.D. Howe institute is the latest to raise alarms about the housing bubble risk created by record low interest rates:

The Ottawa-based public policy think-tank says many economists, including its own, are predicting rate hikes as much as a full percentage point or more later next year.

“Does the simple experience of short-term interest rates being so low, for so long, encourage people … to mortgage themselves more than they otherwise would, and buy a bigger house than they otherwise would … and get themselves into trouble longer term?” said C.D. Howe president and CEO William Robson.

On Tuesday, the Bank of Canada announced it would keep its key overnight rate at the historic low of 0.25 per cent. The C.D. Howe Institute says that is helping to create a false sense of security among borrowers who have taken on debts larger than they could normally afford.

Robson said a rapid rise in interest rates could prove devastating for homeowners who have not evaluated their ability to carry their mortgages at a higher interest rate.

Information on how many recent buyers could handle higher rates has been hard to come by, but when rates start to rise from their current record lows it will quickly become apparent if the recent mini-boom was driven by cheap credit.  Rising mortgage rates squeeze both ends: supply and demand.  Those that haven’t planned on payments at normal rates may find they need to sell just when there are fewer buyers due to increased carrying costs.

Don sent in this link to a story in the Wall Street Journal about a Google ‘property portal’ that would allow real estate agents AND private sellers to put property for sale as a map search overlay.  Some predict that if a system like this became widespread and popular enough it would remove the monopoly that real estate sales systems like the MLS currently enjoy.

“While Google’s new property portal will be open to estate agents to exploit ,as well as private sellers, if it becomes incredibly popular, (and there’s every reason why it will), and the average private seller becomes more technologically savvy, estate agents as we know them, will cease to provide any real value to sellers and offer no value as part of the supply chain.”

Could this mean a future of competition that drives down real estate sales commissions?  We already have sites like Craigslist that allows private sellers to try to sell their homes without an agent, but that certainly hasn’t replaced the MLS.  So what would it take for an open net based system to be truly successful?

RP posted a link to this story in the Globe and Mail about the collapse of the Canadian subprime market.  Borrowers with bad credit or no income who were unable to obtain a CMHC insured mortgage over the last half decade had another option: lenders like Xceed Mortgage Corp used money from the securitization market to lend bubble-buyers money at very high interest rates with extra fees.  The problem now is that when the credit bubble burst it killed demand for these kind of risky investments.  Now even buyers who have paid all their mortgage bills on time are finding that their mortgages will not be renewed, and the terms of their agreement means they often now owe the lender more money than their house is worth and more than they originally borrowed:

Far away from the push and pull in Ottawa, Ms. Matthews has put her house up for sale. A handful of prospective buyers has wandered through, but she has received no offers. A few weeks ago, she received a letter from Xceed’s lawyers, explaining that she owes the company nearly $128,000. This means that, despite paying Xceed about $40,000 over the past three years, she now owes $1,000 more than she originally borrowed.

A ‘lobby group’ for these buyers is now petitioning the Canadian Government for a special $1 billion bail out fund for these buyers, but the lenders will not provide any specific information or statistics to the Finance Department.

“We’re not talking about a scoundrel that brought it upon himself. … These are people that didn’t do anything wrong,” said Joel Katz, a Windsor mortgage broker. Mr. Katz said he believes the issue isn’t on the government’s radar because this type of lending accounted for such a small segment of the market compared with the United States. “The problem wasn’t as big here, and there are people who are getting stepped on and overlooked.”

But exactly how many people are being “stepped on?” Public records in Canada are so scarce, it’s impossible – even for lawmakers – to know for sure. Ottawa relies on Canada Mortgage and Housing Corp. for data, but because none of these subprime players insured their mortgages through CMHC, the public agency knows very little about their state of their books. One source close to the Finance Department said officials at the Crown corporation figure that stranded borrowers account for only “a tiny sliver” of the country’s homeowners.

Paul McGill, president of mortgage provider N-Brook and spokesman for the mortgage lenders lobby, argues Ottawa is understating the problem. He said he has supplied federal officials with data showing that $1.7-billion of healthy mortgages could be stranded and that these borrowers lack high enough credit scores to qualify for loans from more conservative lenders.

The end of the work-week has arrived and that means it’s time to do our weekend news roundup and open topic economic discussion.  Here are a few articles and comments I’ve noticed lately:

-Vancouver: The California of the North?
-Re/Max: Housing market to remain strong in 2010
-Buy! Sell! Hold! Huh?
-Canadian Real Estate goes wacky
-Greater Vancouver real estate prices end year on high note
-Young and jobless: The recessions toll
-Canada savings bonds ‘a bit of a joke’
-Time to pay for the stimulus, here come the cuts
-Bernanke defends his record
-Orlando condo market falls 56% in one year
-Las Vegas home prices fall 34% on foreclosures
-Wealthy investors like US real estate
-Zandi: US housing market meltdown not over yet

Thanks to everyone that contributed story links.  So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!

There has been a surprising number of comments from lenders and bank economist lately about the idea of an overpriced Canadian real estate market and the risk to irrational buyers.  I thought it might be interesting to round up some of the comments Canadian Bankers and Economists have made in the media recently regarding the housing market and the possibility that some Canadian markets are in a housing bubble.

TD Bank Financial Group economist Pascal Gauthier

..the current momentum is not expected to last beyond the next six to 10 months.  Were it to continue into 2011, there would be more credence to the view that a bubble has formed. But the brakes are currently being applied in the background, which should prevent a bubble from forming between now and then.

BMO Capital Markets deputy chief economist Doug Porter

“Housing has definitely been at the forefront of any kind of a recovery we’ve seen … I don’t think you can find a single segment of the economy, other than maybe bankruptcy lawyers, who’ve thrived more in the last six months or staged a more impressive turnaround.”

“The rapid-fire rebound in Canadian housing is showing no signs of letting up,” Mr. Porter said in a note to clients. “While that may be causing some sweaty palms among bubble-phobes, the quick turn is a vivid illustration that monetary policy still works in this country.”

CIBC senior economist Benjamin Tal

“I challenge the [mortgage lending] industry to come up with research to make sure we know what types of mortgages are in the pipeline. We need to know how many people taking variable rate mortgages at 2.5%, who cannot afford financing a mortgage at 4.0 or 4.5%. If it’s a marginal number, then we’re not creating a bubble — we’re basically seeing monetary policy that is working.

We have to make sure if you take a mortgage now, you have to be able to finance it 200 basis points higher after 2010. If you can’t, then you should probably buy a smaller house or don’t buy a house at all — that the prudent thing to do.”

ING Canada President and CEO Peter Aceto

“You have situations in some markets such as Toronto where people are making multiple offers for homes, they are paying thousands more and waiving conditions. It gives me concern they may not be thinking rationally, and this could lead to problems.  Canadians are also paying their homes off slower and slower, and the concern for me is that they are buying more house than they can really afford.”

“Canadians have been proud internally that we’re very different than the Americans in the way we behave in terms of our spending habits and the way we deal with credit. But over time we have become a lot closer than we think.”

Scotia Capital economists Derek Holt and Karen Cordes

“Is Canada in a housing bubble? Probably, but low rates, mortgage innovation and a relative shortage of new supply are likely too keep it going for a while yet.”

“The Canadian Real Estate Association has reported October sales and prices. The results are a bright spot in the Canadian economy, but with prices up 20 per cent over year-ago levels and at all-time highs by virtually every measure, this is becoming an over-valued asset class in our opinion.”

HSBC Securities Economist Stewart Hall

“… it certainly bears watching. The real estate market is definitely showing very, very robust levels of activity, particularly at this stage of the business cycle, where we have an economy that really hasn’t launched into recovery mode yet. Beyond 2009 and getting into 2010, if we are continuing to throw off these heightened levels of activity, then I will become quite concerned that we are on the cusp of an asset bubble here…”

“And when they pop, it’s rather painful to all and sundry.”

Have I missed any?  If you spot any interesting quotes from lenders or economists share them in the comments section.

TD  is the latest bank to ask “is a bubble brewing in Canadian real estate?”  TD Bank Financial Group released a report today on the Canadian housing market, and their conclusion should not surprise any readers here:

Call this housing cycle a blip if you like. But we feel that is misleading, especially because of what this suggests for the future. While the market looks remarkably unperturbed from start to end of this sharp cycle, existing home sales and prices cannot sustainably stay on their current path.  Markets are currently very tight and favour sellers, as evidenced by multiple competing offers and bidding wars, but we expect them to rebalance over the course of 2010. As the central bank begins to hint at a tightening monetary policy cycle in the second half of next year, sales could well see a last gasp of strenght. Moreover, by that time, the availability of units on the supply side should provide a relief valve helping to cool price growth. And, by 2011, while the overall economy will have improved significantly, housing markets will be losing momentum.

They also mention the concept of borrowing demand from the future:

A more difficult issue relates to how much of the current demand is simply being brought forward, i.e purchases in recent months that advanced sales to take advantage of low rates, which raises the risk of a dip in ensuing quarters. Because the pool of potential buyers is not fixed and itself depends on affordability, it is not possible to satisfactorily address this issue in a precise quantitative fashion with the current data available. There is little doubt as to the direction of this effect, however. The prevailing ‘now or never’ mentality will weigh on future demand.

The full PDF of the report can be found on the TD site here.

Hat-tip to Donald for the link!

Yessir, the good old days are back in the Vancouver condo presales market and the Province has the news.  This weekend buyers lined up in the rain, some reportedly sleeping on the street over night to get a chance to buy a presales contract.  The development located at Pacific and Seymour is set to be completed in 2013, and is called ‘The Mark‘.

I am NOT making that up.

Mayur Arora, who told The Province he hoped to land a top-floor unit, and his realtor K.D. Dhaliwal, said location and scarcity make the site an attractive investment.

“I’m here because they are selling Yaletown at today’s prices, but the speculation is [that] prices will go up after the Olympics,” Arora said.

Here’s an open challenge: can anyone tell me how many host cities saw real estate prices rise after the Winter Olympics vs. those that saw prices rise before hosting and fall afterward?

Steve Dhana was amazed by speculator interest as he watched investors rushing to place bids on units.

“The prices went up $50,000 last night,” Dhana said. He hoped to buy a unit in the $500,000 price-range, and also expected prices to surge in February 2010.

Well now, with prices going up at a rate of $50k a night how can you lose?

Hat-tip to Donald for the link.

What’s that up ahead?  Could it be.. Yes, I think it is.. The weekend!  Let’s do our regular end of the week news round-up and open topic economic discussion.  Here are a few stories I’ve noticed lately:

-Dubai debt trouble hits Canadian markets
-BC Home affordability takes a hit as prices rise
-Will Vancouver experience the post-game blahs?
-Housing Bubble: Is the market overpriced?
-Border braced for thousands on Black Friday
-Call for sponsors to save conservatory & farmyard
-GM Canada dealers sue to stay open
-Hope is not a debt reduction plan

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

Donald sent in a couple of bank reports on the Canadian housing market that were just published.  Yesterday saw the release of Scotia Capitals report “Is There a Canadian Housing Bubble?‘, while this morning RBC released their Housing Trends and Affordability report.  The Scotia report is remarkable for putting the question right out there in the title, but their conclusion seems to be “yes, maybe there is a Canadian housing bubble, but thanks to mortgage innovation, it probably wont bust for another year or so”.

There is no question that Canada is perhaps curiously off-cycle compared to other countries by way of pursuing mortgage innovation while other countries have curtailed such activities. Stronger bank capitalization, more prudent regulatory and managerial oversight, a century’s worth of sounder policies relative to countries like the US in carving out a structurally sounder banking market, work since the mid-1990s to craft a relatively much sounder fiscal environment, and among the more pro-active central banks have all set decent backdrop within with such innovation can occur. Thus far, most of the innovation has been classically Canadian in a conservative sense, but there’s no objectively doubting that the market is changing.

Canadian innovation really only began, however, after the current federal government liberalized the mortgage insurance market in the Spring of 2006. Material innovation has only been characteristic of the Canadian market for 2-3 years, but it is already having a significant impact.

And their note on how amortization terms are changing:

In terms of amortization periods, it was 25 or bust until three years ago when 30, 35, and 40 year amortizations became available. Now, after just three years, 18% of outstandings are over 25 yrs. 10% are 35-40 years. As a share of new mortgage originations, 47% of mortgages originated for new purchases in the past year have had amortizations longer than 25 years, and over 60% of that share has been in 35 and 40 year mortgages. One can no longer get an insured 40 year mortgage in Canada, but uninsured 40 year amortizations are still available.

Remember, this is for all of Canada, we’ve heard anecdotal evidence from banks that greater than 50% of new buyers in Vancouver are opting for longer amortization.

The Royal Bank report remarks less on market forces and steers clear of any ‘bubble’ predictions.  They do note that their ‘affordability’ trends are declining again, particularly in Toronto and Vancouver.

This near-frenzied tone to the market is occurring despite still historically poor, and now deteriorating, levels of affordability.  In the third quarter, RBC’s affordability measures for Vancouver worsened for the first time since early 2008, rising between 1.7 and 4.3 percentage points.  These increases were, in fact, the biggest among major cities in Canada.  Even though the affordability measures fell substantially during 2008 and early 2009, they remain well above long-term averages.

I’m not sure to make of all the cautionary notes coming from banks about housing lately – From INGs CEO warning about a Canadian housing bubble to these recent reports.  It would appear that this attention to the issue should avert some of the ‘nobody saw this coming’ comments that we saw out of US banks and lenders when their market crashed.  One thing is for sure, as long as the CMHC is picking up the risk there’s no way these banks are going to stop handing out big home loans.