Vancouver Condo Info

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.

Ottawa is looking into mortgage brokerages, not to make sure they’re lending responsibly, but to make sure they’re protecting personal information.

The audit, which industry sources say began this month, is looking into the potential misuse of consumers’ information to carry out fraud such as identity theft. It’s an issue that carries added significance in the wake of the U.S. subprime mortgage crisis, because mortgage brokers and lenders are now being pushed to request even more information and documentation from borrowers.

“The reason that we are doing this is we have been concerned that personal financial information of Canadians might have been falling into the wrong hands,” said Anne-Marie Hayden, a spokeswoman for the privacy commissioner’s office.

“There have been numerous breaches reported to our office over the course of the last year or so.”

Ms. Hayden stressed that the audit is still in the preliminary stages, and it is too early to say what practices within the industry it might uncover.

Have you applied for a mortgage recently?  Are you aware of the privacy policy for the mortgage brokerage you applied with and do you feel comfortable giving them your personal info?  Apparently there’s no law that brokerages have to disclose when a breach has occured.

“There is tremendous fraud going on in the broker industry,” said Alex Haditaghi, chief executive of Mortgagebrokers.com, a Toronto-area mortgage broker. The privacy commissioner’s probe is “much needed,” he added.

Mr. Haditaghi said his firm carries out credit checks and criminal record checks on brokers before they join the company, and has put a privacy policy in place.

The Financial Services Commission of Ontario, which is responsible for the oversight of mortgage brokers in that province, recently issued a warning to the industry that it has “received a number of complaints from mortgage brokerages regarding fraudulent activities by their mortgage agents, who were fraudulently accessing clients’ credit information without proper authorization.

“The mortgage brokering industry’s reliance on personal information to complete mortgage transactions makes it a target for individuals who wish to gain access to personal information for the purpose of engaging in criminal activities.” Brokers are required to obtain the borrower’s consent to check their credit history.

An official at one mortgage brokerage said in an interview that a broker signed up with their firm and proceeded to carry out hundreds of credit checks in the span of 24 hours.

Residential real estate isn’t the only over-valued market, at least according to PriceWaterhouse Cooper who issued a report Monday for the Canadian commercial real estate market:

“We’re very pessimistic, and we think there are going to be big issues in the Canadian real estate market,” Holly Allen, managing director for PwC’s real estate practice in Canada said in an interview.

“We think there are going to be foreclosures and default situations on some of the buildings.”

Allen said Alberta is particularly vulnerable, due to an oversupply of product and weak demand driven by tumbling prices for natural gas, which represents a significant portion of the province’s energy industry.

The report blames scarce money — and therefore limited buyers — for the sector’s woes. As well, it said, investors’ appetite for commercial mortgage-backed securities has dried up.

“The credit crisis and ensuing recession have dragged commercial real estate markets into very trying times, marked by value losses, rising foreclosures, and reduced property revenues,” Frank Magliocco, leader of PwC’s real estate practice in Canada, said in the report.

We seem to be facing a pessimistic outlook in many sectors, yet residential real estate here in Vancouver has defied expectation and had a mini-bounce lately.  Will the commercial sector likewise defy expectation?

Full article in the Vancouver Province.

We’ve now seen nine consecutive months of falling new home prices, mostly driven by the drop out here in the west.  Despite predictions the drop was over, prices fell nationally in June by .2 percent on the month for a year over year drop of 3.3 percent.  This is the sharpest national decline in new home prices since the early nineties.

The biggest drop in one month was right here in Vancouver where June saw a .9 percent drop in prices as builders tried to clear out inventory.  Right now Saskatchewan, Alberta and British Columbia are driving prices down, while the east coast is pulling them up.  St. Johns saw the largest yearly gains of 10.3 percent, while Vancouver is showing losses of 9.1 percent.

If you’re looking to buy a new condo, it’s probably a good time to haggle.

According to a study released by Environics Analytics, Our fair city surpassed Calgary in 2008 when it comes to net worth.  This is due to a number of factors, including increased household debt and rapidly dropping houseprices in Calgary compared to a slower drop in house prices here.

Net worth, which measures someone’s assets minus debts, dropped 6.2 per cent for Canadians as a whole last year. But Calgary residents saw their wealth plunge 12.3 per cent, while Vancouver’s residents were able to hang on to much of their riches. There, net worth fell just 3.1 per cent between December, 2007, and December, 2008.

Though house prices in both cities continue to drop, they are dropping faster in Calgary which makes the Vancouver numbers look better by comparison.  The report draws no connection between an economy based primarily on a real estate and it’s risk for a downturn in net worth, though it does mention the local obsession:

Vancouverite Sebastian Albrecht rode that Pacific wave. He has a lot of his money tied up in real estate. And it’s these investments – with prices down less than 10 per cent from their peak last year – that has made the city surrounded by mountains and ocean the richest in Canada, supplanting the country’s energy capital Calgary.

Mr. Albrecht bought his first condo a decade ago, after university. He stretched himself – and slept in a sleeping bag on the floor for a couple months in the unfurnished home.

A decade later, he lives in a $600,000 home that he bought two years ago for $500,000 and also owns – and rents out – a $350,000 town home and a $300,000 condo. He has some money in stocks, but only about 10 per cent of his net worth.

The three leading provinces for net worth also lead for household debt levels: BC, Alberta and Ontario.  Each province has it’s own particular challenges.  Alberta has a boom and bust economy based on energy prices, Ontario has been hit hard by a manufacturing downturn and locally we’ve seen job losses in resources, tourism and the entertainment industries.

As the recession and real estate market correction grinds on it will be interesting to see where the stats put us in a year as the report points out that it’s only current up until the end of 2008:

The survey doesn’t cover 2009. In the first six months of this year, prices for existing homes were down 8.6 per cent in Vancouver from the same period of last year, and 9.8 per cent in Calgary, resale statistics show.

Mish Shedlock has an interesting post comparing the alarming jump in Canadian credit delinquency to the situation in the US.  More than 500,000 Canadians are now at least 90 days behind on credit payments, hitting a delinquency rate of 1.52% (compared to a US rate of 1.32%).

The Federal Reserve Bank of New York has Dynamic Maps of Bank Card and Mortgage Delinquencies in the United States that some may wish to consider.

In regards to mortgages, Canada has some “catching down” to do, and it will. All the bubble areas such as Vancouver, Calgary, Toronto, etc are going to get hit hard.

Hat-tip to Adrian for the link.

Regular readers will recognize the name Paul Boenisch as the North Vancouver realtor who provided daily market stats on his blog.  As many of you know, Paul and his family moved to to the other coast recently, and he now has a new blog focusing on the Prince Edward Island real estate market.

It’s an interesting contrast to our market- check out the average sales price chart he’s posted that covers the last four years.  They started 2006 with an average residential sales price of $120k, and peaked just above $160k.

Here’s a fascinating bit of info for those of you that have been surprised by the spring bounce in the Vancouver real estate market.  The Province is reporting that house prices in Vancouver have jumped an astounding 16% since last May!

..Or at least their headline is.  Those that read the article may be dissapointed by the actual number:

The average house price for the city and surrounding area was $583,674, down 6.6 per cent from a year earlier.

Nationally, the housing market continued to rebound in May with a fourth consecutive increase in monthly sales, the association said. The Ottawa-based group said the average sale price of a home sold through the multiple listing service reached a record of $319,757.

That’s up 0.4 per cent from May 2008, when the previous record was set. The association said the market is now returning to what it called “pre-recession levels” of activity.

It’s a very bouncy spring bounce indeed.

Hat-tip to Beau for finding this gem.

Here’s an odd jumble of news from today’s Vancouver Sun.  It looks like housing starts did a suprise rebound in May with more than expected increases in single family and multiple dwelling sectors.  The biggest jump was a 22% increase in Ontario, the smallest was actually the opposite of an increase.. A whaddyacallit? Oh yeah, a decrease.  BC housing starts dropped 5% and are now near record lows.  Are developers seeing tough times ahead, or have they over-reacted and are we going to run out of condos?

Meanwhile Vancouver has been named ‘the most livable city‘ by the Economist Intelligence Unit when it comes to the combination of health care, stability, culture and environment, education and infrastructure.  According to the poll, the main problem Vancouver faces is “petty crime and the availability of good-quality housing.”

Here’s someone who might disagree with that assesment and add ‘taxes’ to the list.  A BC realtor has been extradited from Mexico and charged with tax evasion after he filed claims of ‘no income’ for 2001 to 2004.  His argument to the court?  He claims his activities as a real estate agent were not taxable since they were conducted in his own capacity as a “natural person”.

Meanwhile, you better enjoy those stories of celebrity foreclosures while you can, because the OECD has just declared that the downturn has hit bottom in Canada.  Guess it’s a good thing we’ve got that big jump in National housing starts huh?