Vancouver Condo Info

VHB pointed out this site on Thursday: Canequity provides actual data for their mortgages across Canada including here in Vancouver.  One of the frustrations of anyone trying to study the housing market in Canada is the dearth of publicly available data compared to the United States, so it’s nice to find a source of some data when it comes to Canadian mortgages.  Here’s their chart of product inquiries as one example:

Take a look through all the data they make available – here’s Toronto and here’s Alberta.  Locally there’s info for BC and Vancouver.  If anyone wants to do a breakdown of anything interesting that they find, we’ll be happy to publish that here.

realpaul pointed out this Vancouver Sun article. The day after we got the news that house prices are falling in Vancouver, Royal LePage has released a market survey predicting house prices and sales will ‘decline towards the end of the year’.

However, he pointed out, “This should not be interpreted as a severe correction but rather a natural reaction to the market having peaked quite early this year.”

This outlook is at odds with the BCREA and CREA market surveys released a few weeks ago that predict flat or rising prices for 2010 and then falling prices in 2011.

Household debt levels in Canada are at record levels, higher than Greece. The Canadian reaction to recession has been to take on more debt, which has some worried about the impact that will have on our economy going forward.

Household debt has more than doubled from 1989 levels and now stands at a record $1-trillion – or $1.47 for every dollar of disposable income. With the Bank of Canada expected to raise interest rates, perhaps as early as next week, vulnerable Canadians could soon find themselves emptying their pockets to cover higher interest payments.

“The high rate of household indebtedness is a source of risk” to the Canadian economy, the Organization for Economic Co-operation and Development cautioned in a report Wednesday. It noted that household debt has swelled further in recent months – an unusual development. People usually save during recessions.

Read the full article in the Globe and Mail.

Observer pointed out this blog article over at the Vancouver Sun, which does an excellent job of rounding up some of the issues we’ve gone over about the CMHC and the Canadian Banking system:

Not only has the Harper government felt it necessary to prop up Canadian banks it was this same government which created financial system risk in the first place. In 2007 the Harper government allowed US competition into Canada which prompted the CMHC to dramatically change its rules in order to compete: it dropped the down payment requirement to zero per cent and extended the amortization period to 40 years. In August 2008 Flaherty moderated those rules in response to the US mortgage meltdown. CMHC then “securitized” an increasing number of its loans into bond-like investments (if you have a typical Canadian mutual fund, you’ve got some.)

At the end of 2007 there were $138 billion in securitized pools outstanding and guaranteed by CMHC –17.8 per cent of all outstanding mortgages. By June 30, 2009, that figure was $290 billion and by the end of 2010 it was $500 billion.

Read the full article, it’s full of interesting facts and figures.

The CBC is reporting that the Bank of Montreal is suing hundreds of people in Alberta over alleged mortgage fraud that falsely inflated the value of many properties. They’re suing lawyers, mortgage brokers and four of their own employees and claiming a loss of up to 30 million dollars.

Other banks don’t appear to be as aggressive in their approach, even though documents indicate they may have been targeted too. Bank of Montreal investigators found documents that showed one Calgary management company had 150 suspect mortgages from 16 different financial institutions.

Rosen said this alleged fraud illustrates how weak and ineffective the controls are in our banking system.

“To me the most exasperating part of our business is we are not doing what we are supposed to be doing,” he said. “We are kidding ourselves that we have good systems, because we don’t.”

A number of these fraud cases showed up in the US as prices declined, funny how they didn’t seem to show up as prices were rising.  Read the full article over at the CBC.

Vibe posted an interesting comparison of the 2006 US bubble peak to the present day Canadian situation in the forums this weekend.  The local Vancouver market is bubblicious, but is there a national Canadian housing bubble?

Everyone pretty much agrees about Vancouver, but here are a couple of points that were made about the national scene:

1.It is reasonable to claim that there is not a housing bubble in Canada because only certain areas are over inflated.

2.Vancouver’s very high prices skew the national average and cause Canada to look worse than it really is.

One thing I think we can all agree on is that the US did have a housing bubble. Well I put together a spreadsheet that I feel shows that affordability is about as bad across Canada as it was in the US at their peak. It also shows that Vancouver is not skewing our national data any more than the most overpriced cities in the US were skewing their data.

In order to measure affordability I used house price to personal income ratios. I compared the 20 cities used in the Case Shiller Housing Index to the 6 cities used in the Teranet Housing Index. The US data is from 2006 while the Canadian data is from 2009.

I think the following graph most clearly illustrates my point:

Vancouver is the only Canadian city with a ratio over 9, while the US had 3: LA, San Fran and San Diego. Toronto is the only Canadian city with a ratio between 5 and 9, the US had 9 in this range. The under 5 range looks bigger for Canada but we have more population covered by our index than they do by theirs. The important thing is that the percentage of each nations population living in cities with elevated ratios is similar.

The distribution and average ratios for both countries are almost identical. I did a population weighted average of the ratios and this gave a higher value for the US than Canada, 6.3 versus 5.6. Keeping in mind that the Canadian data comes from 3rd quarter 2009, during our recent price dip, I don’t think this is a huge difference.

Now I don’t know what the future holds, but to me this data suggest we are in a very similar situation to the US at their peak. We might not take the same path down (we already had a double top) but I don’t see why our eventual bottom should be much, if any, higher than theirs. And any price drops should be distributed across the nation in a similar fashion as well.

Here is a link to the data for anyone interested.

The Canadian Real Estate Association is set to vote today on proposed changes to the rules governing use of the MLS after pressure from the Competition Bureau.

The rule change could remove the requirement that a realtor act as agent for the seller “throughout the entire time” of a listing contract, making it possible for agents to post property information through the MLS without providing more service.

..meaning that a realtor would be able to charge a flat rate for simply listing a property and not be involved in the rest of the sale.

UPDATE: The CREA has voted for the new changes and the Competition Bureau has said it’s not enough:

“There is nothing in these proposals that we haven’t seen before and they do not solve the problem,” said Melanie Aitken, Commissioner of Competition. “They are a step in the wrong direction. These amendments amount to a blank cheque allowing CREA and its members to create rules that could have even greater anti-competitive consequences.”

The two sides have been battling over access to the Multiple Listing Service system, which is owned in Canada by CREA and responsible for about 90 per cent of residential property sales.

The watchdog says the association’s new measures, which ultimately give consumers some ability to decide how much they use a Realtor on a deal and allow consumers to conduct parts of a transaction without using a Realtor, do not go far enough.

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.

I think Domus was the first to point out this article in the Wall Street Journal - it looks like the Canadian Housing Bubble is getting some attention in the US media.

But some economists who are concerned point out that home prices are rising far faster than other measures of economic health. The 2009 price increase of more than 20% came as personal income in Canada fell nearly 1% and total employment was 1.4% lower than the year earlier. In a December report, the Bank of Canada warned that household debt—largely mortgages—was 1.42 times disposable income during the second quarter of 2009, a record high.

Another possible danger: Because Canadian banks typically reset adjustable-rate mortgages every few years, those who are buying now at low rates will likely see increases soon. Toronto-Dominion Bank forecasts suggest that the rate to which many Canadian mortgages are pegged, the prime rate, could nearly double by the end of 2011. The Bank of Canada warned in its December report that if interest rates increase as expected, by mid-2012 about 9% of Canadian households could have so much debt that they’d be “financially vulnerable.”

“This is exactly what happened in the U.S., when affordability had moved way out of whack with prices,” says David Rosenberg, an economist who witnessed America’s housing bubble at Merrill Lynch in New York, and now sees similar trends up north from his post at Toronto-based wealth-management firm Gluskin Sheff.

Reading the article it quickly becomes apparent that Canada = Toronto (with a dash of Red Deer).  So we finally get some mainstream media coverage and there isn’t a single mention of the Vancouver market in there.  What are we, chopped liver?

Don sent in a link to this interesting editorial on Canadian housing bubbles and the CMHC in the Winnipeg Free Press.  The author does a good job of touching on the background of bubble mentality, including the classic Dutch tulip bubble.  They then talk about the US housing bubble and compare it to the Canadian market.

Millions in the United States are homeless as a result of the subprime mortgage debacle, which had the effect of vastly inflating both the seeming buying power of consumers and seeming value of houses.

In short, Americans were getting credit at rates so low that they could buy way more house than they could afford if credit charges increased, which they did.

We don’t have a subprime problem here, so we won’t have a real-estate bubble, we are told.

In fact, just this week, Bank of Canada officials were assuring everyone that steep increases in house prices are the “natural” consequence of pent up demand during the recent trough, which also had the effect of suppressing prices so that surging prices now appear to be surging faster than they are.

Now, I’m no expert and I’m inclined to believe what the experts tell me.

But I also hear opinions of people in the property racket who aren’t so sure. And their concern is not so much that Winnipeg house prices have climbed 78 per cent in the past four years, as the new reassessment reveals. Or that there are stories about house hunters sleeping in the streets of Vancouver in hopes of snapping up a $1-million house that we would pay no more than $350,000 for.

No, their concern is that low interest rates and long-term amortization periods are making it easy to get into the market — maybe too easy. But more concerning is that all this demand is being insured by the Canadian Mortgage and Housing Corp.

ahh, yes, the good old CMHC.  So what could be the problem of the CMHC insuring demand for Canadian houses?

As the financial crisis started to hit in 2008, the federal government increased the ceiling of mortgage insurance CMHC can have outstanding — from $350 billion to $450 billion, and then $600 billion.

The move is widely regarded as a key measure that helped prevent the kind of credit crunch that so hurt the United States. And just about everyone who has commented on the changes, including Liberal finance critic and former bank president John McCallum, are cool with that.

But my sources wonder if CMHC, which insured 920,000 housing units in 2008, 350,000 more than it intended, according to the Globe and Mail, was in a position to ramp up its due diligence as fast as it ramped up its underwriting.

It’s a good question because, if there is a bubble, Canadian taxpayers will be on the hook for all the paper.

The full article can be found here and is a good read.