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

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

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
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news junky
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 operator of the new bridge (don’t you just love P3s!). This is going to turn out to be an epic boondoggle for BC taxpayers. You see, other cable-suspension bridges in BC have cables over the sides of the brdige but… Read more »
Bo Xilai
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Bo Xilai

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
“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 buy getting consumers to go into debt, rather than the government .The consumers took the bait. The politicians got the stimulus they needed, the consumer has the debt. Whoever bought that leaky box at extremely inflated prices, or that shack… Read more »
Anonymous
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Anonymous

@#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
@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 of slushy wet snow every single winter! That’s normal weather for us! It shouldn’t be too much to ask that a brand spanking new bridge can remain operational during a minor snow event! The CEO is basically admitting that the… Read more »
news junky
Guest
news junky

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 to the media about transportation infrastructure in the Lower Mainland with their new multi-billion dollar Port Mann out of commission with the first MINOR snowfall–extreme weather, my a$$!

news junky
Guest
news junky
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 huge challenge in Metro Vancouver–which is why we have so many bridges. Taxpayers should be demanding that all bridges paid for by taxpayers are used for as long as they can be used safely. Taxpayers should be outrages that a… Read more »
Many Franks
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Active Member
Many Franks

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

space889
Member
space889

@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 rates, while taxpayers are still saddled with all the major maintenance / refit costs and risks.

patriotz
Member

” 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
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RealityCheck

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

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

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

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 the Pope, let others make real decisions.

news junky
Guest
news junky

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
Active Member
Many Franks

@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

@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

@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

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
Anonymous
Guest
Anonymous

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 happens. This example shows why a P3 can be a good thing.

Ben Rabidoux
Guest
Ben Rabidoux

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

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?

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