CREA cuts forecasts for 2012 and 2013

There’s less than half a month left in the year, so that’s a good time to revise forecasts. The CREA has revised their 2012 national sales forecast from an increase of 1.9% to a drop of 0.5%. I’m guessing they’ve also revised their forecast for 2008, 2009, 2010 and 2011.

Looking ahead they expect 2013 to see a sales drop of 2%, but here in BC they forecast both sales and prices to drop just by 0.3 percent.

“Annual sales in 2012 reflect a stronger profile before recent mortgage rule changes followed by weaker activity following their implementation,” said Gregory Klump, CREA’s chief economist.

“By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted before the most recent changes to mortgage regulations.”

Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.

FFffffff! Is anybody else getting sick of the miopic talk of ‘tougher’ mortgage rules? Here’s a great point from Ben Rabidoux about how to put these mortgage rule ‘changes’ and Flahertys ‘tightening’ into historical perspective:

Before looking more at the implications of a mortgage rule change like the one being proposed, it may be helpful to provide a brief overview of the mortgage changes that have occured over the past few years:

  • In 1999, the National Housing Act and the Canada Mortgage and Housing Corporation Act were modified allowing for the introduction of a 5% down payment….a far cry from the minimum 25% of a few years earlier.
  • In 2003 CMHC decided to remove the price ceilings limitations. That is, it would insure any mortgage regardless of the cost of the home.
  • In 2005 and 2006, CMHC began insuring 30, then 35 year amortization mortgages.
  • In 2007, CMHC allowed people to purchase a home with no down payment and ammortize it over 40 years. This was changed back to a 5% down payment requirement and a maximum amortization length of 35 years in 2008 once the idiocy of this policy was blatantly obvious.

Here’s the point: CMHC has been in existence for almost 65 years. For the first 60 of those years, they never insured mortgages with amortizations greater than 25 years. Only in the past 5 years has this experiment been started. The 35 year ams that are now on the chopping block have been around only since 2006. So let’s understand that any move to shorten amortization lengths is NOT some new, revolutionary move, but rather a move back towards norms that are both long-standing and fiscally prudent.

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Ralph Cramdown
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Ralph Cramdown
3 years 4 months ago

Oh the horror. Wanting to release this news at the last possible second before the holidays when nobody’s watching, but knowing that you have to be in the office for at least a few hours after it goes out to field questions from the odd reporter who might call.

patriotz
Member
3 years 4 months ago

Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.

No he didn’t. The principal part is not an expense. That’s not a nitpick, but an example of the financial illiteracy found in RE reporting.

Actually since prices have now gone down in almost every market since then, payments have become less expensive.

news junky
Guest
news junky
3 years 4 months ago
The new $2.43 billion Port Mann Bridge can’t handle the first snow. Yesterday was the first major snowfall in Metro Vancouver since the new bridge opened up last week and big chunks of ice were falling from the cables, badly damaging two cars and injuring two people. The bridge had to be closed for hours during the afternoon rush hour. Engineers say the old Port Mann (which never had issues with falling ice) has another 30 years of life left but it is going to be demolished anyways because the it is part of the P3 agreement with the private… Read more »
Bo Xilai
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Bo Xilai
3 years 4 months ago

Yes, there is much gnashing of teeth at CREA over these “draconian” actions by CMHC, which in a historical context are still more lax than what we had in 1999.

CREA never met a housing bubble it didn’t like…

Keeping An Eye On The Pimps
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Keeping An Eye On The Pimps
3 years 4 months ago
“Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.” I don’t think this was a flip flop, but a well thought out plan from the beginning. The maximum amortization was increased not so that it would make housing more affordable; everyone knew it would eventually inflate prices, but rather to create the wealth effect. The idea is to stimulate the economy… Read more »
Anonymous
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Anonymous
3 years 4 months ago

@#3 News junkie

No, you’re right, that bridge is an epic failure. It has to be shut down like 5 times a year, meanwhile, it only saves hundreds of thousands of potentially productive time for workers each year.

Regardless of whether the bridge has issues it still contributes significantly to the economy. You can’t see the forest for the trees if you think the bridge is a failure.

news junky
Guest
news junky
3 years 4 months ago
@Anonymous #6 “Regardless of whether the bridge has issues it still contributes significantly to the economy.” Yeah, the new Port Mann Bridge contributes to the economy with all the lawsuits and ICBC claims that are going to result from this. I don’t know how you can’t see this as a failure–and you’re accusing me of not being able to see clearly!!! There is NO excuse for what happened yesterday on the Port Mann. The CEO of the private operator blamed it on “extreme weather”. Does anybody on this forum think yesterday’s weather was extreme? Can’t we expect a few centimetres… Read more »
news junky
Guest
news junky
3 years 4 months ago
And it looks like Christy Clark has gone back into hiding again. Yesterday morning it was widely reported that Clark and the Minister of Transport were going to make an announcement concerning the Evergreen Line yesterday. There were even some federal politicians in town for the announcement. Then the announcement didn’t happen. The Port Mann bridge is closed and the Minister of Transport all of a sudden is not available for comment? Weren’t they all just getting ready for a press conference on the Evergreen Line? Oh I guess today is not a good day for the Liberals to talk… Read more »
news junky
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news junky
3 years 4 months ago
Sorry, it’s off topic, but it bears repeating: Taxpayers of BC are being denied 30 years of utility out of the old Port Mann bridge because of some stupid P3 agreement! The old bridge still had another 30 years of life left but it is being demolished because the private partner doesn’t want to be liable for maintenance (and be denied toll revenue on new bridge). This is an example of the misuse of resources. A perfectly good bridge demolished because of a P3 agreement! These bridges are very expensive to build. Getting people over the Fraser River is a… Read more »
Many Franks
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Many Franks
3 years 4 months ago

@Anonymous: Right, we’ll just route that traffic over the Pattullo 5 times a year. Easy peasy, smooth as glass.

space889
Member
space889
3 years 4 months ago
@news junkie, I’m frankly shocked that people still believe P3 are anything other for shirking government responsibility for services and generating profits to private sectors friends and campaign donors. Is there a single P3 deal that was ever positive for taxpayers in general? Yes, yes, I know that P3 “can” save money because they don’t have to pay government union wage rates and can build faster. However, that can also be achieve by simply contracting out the construction with a fixed priced ceiling, just like how regular private sector projects are done. No need for all these guaranteed obscene profit… Read more »
patriotz
Member
3 years 4 months ago

” However, that can also be achieve by simply contracting out the construction with a fixed priced ceiling, just like how regular private sector projects are done.”

That is also just how regular public sector projects have always been done. Tenders go out, the low bidder wins, if if costs them less they make a profit, if it costs them more they lose money.

However it seems that this approach (which used to called “business”) is too tough for the big guys.

RealityCheck
Guest
RealityCheck
3 years 4 months ago

The moves by CMHC in 1999 and 2003 is what set this whole thing in motion. The later extensions to 30..35..40 year Amortizations and LOW interest rates just added fuel to the fire. Add to this the propaganda perpetrated by the Gov/Banks/Developers/RE complex + Naive sheep who believe MSM media to be true + Immigrants settling in concentrated areas like never before…—–> and you got our present situation:

Gov afraid to raise interest rates, Carney jumping ship, and a storm brewing. There will be winners and Big losers after this is over.

Simple
Guest
Simple
3 years 4 months ago

Why is anyone still listening to the forecasts of the real estate industry? These guys haven’t had a clue for decades. Lets look at a previous bubble in Vancouver.

January 1981

“…property values are not expected to slide back and [the chairman of the Real Estate Council of BC] believes they will increase about 10 to 12 percent a year…”

In reality, prices were down by 30% within 18 months. Oops.

Give the old article a read. There are some scary parallels to today.

http://news.google.com/newspapers?id=QXVkAAAAIBAJ&sjid=cn4NAAAAIBAJ&dq=vancouver%20real%20estate&pg=4041%2C4096181

RealityCheck
Guest
RealityCheck
3 years 4 months ago

newsjunky:

You think people like you (honest, tell it like it is)run the show. Give your head a shake.

C.Junta
Guest
C.Junta
3 years 4 months ago
OT: meanwhile in the UK… “Analysis – Next BOE chief Carney is more bark than bite” http://reut.rs/UTFX28 “It’s more of an academic approach where he is simply reviewing all the opportunities just to give a fuller understanding of the literature as opposed to advocating one approach over another,” “To his credit, Carney has put some creative ideas into practice. He is best known for preceding the U.S. Federal Reserve in making an explicit commitment to keeping interest rates low for an extended period.” They got a classic corporate ladder climber for their team, the motto is: be more popish than… Read more »
news junky
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news junky
3 years 4 months ago

I just learned that the Port Mann is in fact NOT a P3. So my argument must be revised. It still does not make sense to demolish the old Port Mann if it has 30 years of life left.

Many Franks
Guest
Many Franks
3 years 4 months ago

@Simple: Great find! Pretty much the whole thing is gold. I’d quote it here, but I’ll just end up reproducing the whole article. Submit that for headlining.

Makaya
Member
Makaya
3 years 4 months ago

@News Junky

“don’t you just love P3s!” To be fair, the issue with falling ice will not cost a single penny to the taxpayer to be fixed. In a P3 contract, all those risks are transferred to the private contractor and it has to fix the problem at his own cost. Also, the province will be compensated for the loss of traffic during the closure.

I’m not trying to convince anybody that P3 contracts are a good thing here, but I’m not convinced myself even though I work in that area (and worked on that project)…

Groundhog
Guest
Groundhog
3 years 4 months ago

@news junky

I think the annual maintenance costs are quite substantial and may be one reason for tearing it down.

I also think it might be a good idea to keep the old one, and that always seemed to be the way it was presented by either the government of media when they said they would be “twinning” the Port Mann. Was a bit surprised when I found out as couple years ago they were tearing the old one down. But if our leaders say it must be done, I’m sure it must be done:)

Yalie
Guest
Yalie
3 years 4 months ago

Wow, you could republish that article today almost word-for-word, and with a couple minor changes (dates, etc), nobody would notice a thing. Shows you how the real estate “experts”, media bias, bubble dynamics, and everything else really hasn’t changed at all.

Keep in mind we already know “what happens next” 30 years ago. Nonetheless, I see no reason to think that could possibly happen again. It’s different this time.

jesse
Member
3 years 4 months ago
Anonymous
Guest
Anonymous
3 years 4 months ago
INews Junky: “just learned that the Port Mann is in fact NOT a P3. So my argument must be revised. It still does not make sense to demolish the old Port Mann if it has 30 years of life left.” LOL. Yup it was a good old fashioned government project. If it was a P3 the private company would be responsible for the ice problem. Now it is the governments (and tax payers) resposibility to pay for what ever is required to fix it. If it was a P3 the ice problem may have been mitigated without government dictating what… Read more »
Ben Rabidoux
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Ben Rabidoux
3 years 4 months ago

Probably the best overview of the mortgage rule changes and why they were necessary from Alan Walks at the U of T:

http://neighbourhoodchange.ca/wp-content/uploads/2012/12/Walks-2012-New-Mortgage-Regulations-Canada-CC-RB-461.pdf

Ray
Member
Ray
3 years 4 months ago

Wait, why is the bridge builder only picking up the insurance deductible for the damaged cars? Doesn’t that mean they “stick it” to the rest of the taxpayers for covering the remainder of the costs for these repairs? Really?

gokou3
Guest
gokou3
3 years 4 months ago

Re #25:

I think ICBC should have a talk with the bridge builders.

southseacompany
Member
southseacompany
3 years 4 months ago
@ #14 Simple: Wow, look at some of those comments in that January, 1981 article. The more things change, the more they stay the same. “But others say… continued western migration, lack of serviced building land, and speculation will keep the housing market bubbling.” “”There’s no one solution to Vancouver’s housing crisis,” (Senator Pat Carney) said. “We have to look at a lot of different options. People have to start thinking about something other than condominiums or single family homes on large lots. That means mews housing (homes built on the rear of lots on lanes, thin houses and high… Read more »
VMD
Member
3 years 4 months ago
OOT anecdote. Was in a dinner with 2 dental technicians (the people who makes crowns, veneers etc) few days ago. One owns a dental lab, the other works in another large lab in Vancouver. Both were complaining how bad business had been this year. The lab owners were all getting nervous about the “record low” orders. They think the reasons include people no longer having benefits (or jobs), and that people are less willing to spend on luxury items (veneers, etc). Business has picked up in December, but only because people are rushing to get dental work done before benefits… Read more »
Anonymous
Guest
Anonymous
3 years 4 months ago

wow, that google news archive linked to in #14 is a great resource. Search for CMHC and enjoy.

How about this March 1980 headline: “Cmhc Faces Severe Losses: Secret Report”. Apparently CMHC became the country’s largest landlord due to defaults on “high-rise” loans.

UnagiDon
Guest
UnagiDon
3 years 4 months ago
Port Mann is rather off-topic, but here’s the explanation from a friend who is an expert. —– The problem stemmed from insufficient right-of-way availability for a multi-pylon ten-lane deck. In project planning, twinning of the original bridge was envisaged. This posed an unnecessary constraint on the design. Another bidder dealt with it by designing a double-deck superstructure with cable planes at each side. This would have reduced but not eliminated the risk from falling ice. The double-deck superstructure was more costly to create (the transition structures at each end are expensive) and introduces other risks and operational problems. The design-build… Read more »
patriotz
Member
3 years 4 months ago

“It still does not make sense to demolish the old Port Mann if it has 30 years of life left.”

The reason for tearing down the old Port Mann is obvious – if left open it would take traffic away from the new Port Mann and reduce the toll revenue.

The old Port Mann can’t be tolled because it was built under the Trans-Canada Highway agreement back in the 60’s which forbids tolling.

If in fact this isn’t a P3 and the government has no commitment to tear it down, this is going to be a HUGE issue in the upcoming election.

patriotz
Member
3 years 4 months ago

”There’s no one solution to Vancouver’s housing crisis,” (Senator Pat Carney) said.

And of course there turned out to be exactly one solution – lower prices.

Bag it and tag it
Guest
Bag it and tag it
3 years 4 months ago

Why don’t they wrap the Port Mann cables with an electric heat sheath that they could turn on when it snows?

HAM Solo
Guest
HAM Solo
3 years 4 months ago

I agree that the 80’s archive is great.

I’m always interested in the start date of data series. In any type of instrument, price histories typically begin some period after a historic wash-out. “We haven’t seen a correction of more than x% in the modern era,” is usually supported by a price history that misses the previous crash. For some reason most residential home price data series in Canada don’t go back much before 2000.

To think that they were already running out of land back in 1980! Lo and behold, I guess they found some.

Anonymous
Guest
Anonymous
3 years 4 months ago

“Why don’t they wrap the Port Mann cables with an electric heat sheath that they could turn on when it snows?”

This is Vancouver; the bridge wasn’t designed to operate when warm.

Anonymous
Guest
Anonymous
3 years 4 months ago

How about this CMHC related article from 1985. They were running a billion dollar accumulated deficit and received a $307 million bailout from Parliament in ’84. Insurance in force was only 38.8 billion.

http://news.google.com/newspapers?id=1nZkAAAAIBAJ&sjid=9n4NAAAAIBAJ&dq=cmhc&pg=1088%2C391137 (or search for “Housing Plans Play Havoc With Cmhc Insurance Fund”)

“Ideally, mortgage insurance would be a self-financing operation … All those aims haven’t been met since defaults on mortgages began soaring in 1978”

Anonymous
Guest
Anonymous
3 years 4 months ago

Re. #33

Why are you asking a bunch of RE bears such a question?

patriotz
Member
3 years 4 months ago

Genworth Benefits From Implementation of Government Guarantee Legislative Framework In Canada

I don’t know what all this is supposed to mean, but I do know that the share price of MIC took a jump today.

paulb
Member
3 years 4 months ago

New Listings 47
Price Changes 28
Sold Listings 59
TI:14749

http://www.paulboenisch.com

Academic
Guest
Academic
3 years 4 months ago

Haven’t heard Tsur Sommerville lately? What are his thoughts on latest CREA news releases?

UnagiDon
Guest
UnagiDon
3 years 4 months ago

#33:
A Swedish bridge has a cable heating system but it consumes gigawatts of power. Likely not cost-effective.

#37:
As it happens, some RE bears are also bridge experts.

Vote Down The Facts
Guest
Vote Down The Facts
3 years 4 months ago

Interesting how none of these bridge experts voiced their concerns before the first snowfall.

VHB
Member
VHB
3 years 4 months ago
Total days	19
Days elapsed so far	14
Weekends / holidays	6
Days missing	0
Days remaining	5
7 Calendar Day Moving Average: Sales	58
7 Calendar Day Moving Average: Listings	63
SALES	
Sales so far	900
Projection for rest of month (using 7day MA)	291
Projected month end total	1191
NEW LISTINGS	
Listings so far	1151
Projection for rest of month (using 7day MA)	317
Projected month end total	1468
Sell-list so far	78.2%
Projected month-end sell-list	81.1%
MONTHS OF INVENTORY	
Inventory as of December 20, 2012	14749
Current MoI at this sales pace	12.38
Bag it and tag it
Guest
Bag it and tag it
3 years 4 months ago

#41 UnagiDon
considering they’d only have to turn the heat on at times when the alternative is closing the bridge, I really don’t think the cost of the electricity would be of concern. Thanks for the Swedish bridge reference.

Bag it and tag it
Guest
Bag it and tag it
3 years 4 months ago

#42
STFU

jesse
Member
3 years 4 months ago
Anon36, CMHC was bailed out in a few ways: – There were some funds set aside to handle distressed underwater homeowners, most notably in Alberta – CMHC increased its premiums for insurance to recoup some of the losses – It got through it in the end If Canadian housing turns out to be uncontrollable CMHC is going to be in a similar situation. The biggest issue for them is procuring bridge loans to handle a hypothetical wave of foreclosures and payouts. A harsher stress test requires a bailout of some tens of billions of dollars from the government. Milder cursory… Read more »
Vote Down The Facts
Guest
Vote Down The Facts
3 years 4 months ago

jesse, I assume you’re referring to mortgages which weren’t high LTV at the point of origination but now require CMHC insurance at renewal time due to reduced equity?

jesse
Member
3 years 4 months ago

vdtf47, yes that’s correct. The way CMHC got out of the last SNAFU was by raising premiums, the same any insurer would do when faced with large-scale and correlated defaults (think flood or hurricane insurance). I expect CMHC to behave no different.

HAM Solo
Guest
HAM Solo
3 years 4 months ago
@ Patriotz The Genworth news just relates to being able to book some funds earmarked as a reserve to equity. However, the equity requirement on Genworth increased, so they can’t pay the money out. Technically speaking it is a “profit.” I think in the end, it won’t really matter to Genworth. Whether they have $2.5B or $2.6B of equity is kind of inconsequential compared to what their ultimate losses will be on their $260B of dodgy insurance in force. What the market ought to look at is the number of homes that Genworth MIC has insured which are below water… Read more »
Yalie
Guest
Yalie
3 years 4 months ago
Also, if prices are to drop, it will likely mean higher premiums for homeowners with deteriorating equity. Insurers have a funny way of getting their money back The thing that bothers me is that they haven’t increased premiums as prices increased (as far as I know, at least). Why wait until prices start to fall? Theoretically, premiums ought to reflect the risk inherent in the insurance. Since higher price/rent and price/income ratios mean higher default risk, I would assume premiums would have increased to reflect that risk. Any sane actuarial analysis would likely have concluded the same thing, especially in… Read more »
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