Vancouver Condo Info

From the Globe and Mail:

Canadian banks cut interest rates dramatically yesterday after the Bank of Canada slashed its main rate by half a percentage point and warned that a serious economic slowdown was only just beginning.

All major banks cut their prime lending rate by 50 basis points, amid a central bank warning that Canada faces a tough two years. A troubled U.S. economy has hit exports hard, and undermined business and consumer confidence, the bank said.

Marking the most serious cuts since the post-9/11 downturn, the bank has now cut rates twice in six weeks. Its key rate now stands at 3 per cent, 150 basis points lower than where it stood last fall. (A basis point is one one-hundredth of a percentage point.)

“The bank is now projecting a deeper and more protracted slowdown in the U.S. economy,” it said in a release. “This has direct consequences for the Canadian economic outlook, with declining exports projected to exert a significant drag on growth in 2008.”

Will these recent rate cuts boost our market further or prevent a downturn?  Certainly dropping rates is a way to discourage saving and encourage taking on more debt, but is the central bank in danger of kicking up inflation?  So far rate cuts and fiscal stimulus plans in the US have done little to stem dropping house prices and a sputtering economy.

According to this article in the Globe and Mail the Canadian housing boom is now ‘officially over‘.

It’s time for Canadians to bid the housing boom farewell as data for the first quarter of the year, released Thursday by the Canadian Real Estate Association (CREA), showed a 13 per cent tumble in existing home sales year-to-date.

“Canada’s six-year housing market boom is officially over. Aside from a few choice Prairie locales, sales are melting faster than this year’s snow pack,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., said in a research note.

Double-digit declines in sales activity in “more markets than you can shake a stick at,” suggest the weakness has spread across Canada rather than being centred in any specific market, Mr. Porter said in an interview.

Home sales waned and new listings surged in the first quarter of 2008 as activity in Toronto cooled and a glut of sellers hit the markets in Western Canada, according to CREA’s data.

So we’re not the only city in Canada showing this trend change. Spring is traditionally a strong selling season but it hasn’t kicked in yet this year in Vancouver, it’ll be interesting to watch the growing number of listing into the start of the summer to see how strong this trend is.

I received a press release from Deryk Norton of the Vancouver Island Strata Owners Association (VISOA) claiming that BC lags behind the rest of Canada when it comes to legal protections for strata owners - below is the text of that release:

STRATA OWNERSHIP NEEDS BETTER LEGISLATION

According to strata owners on Vancouver Island there are major deficiencies in BC’s strata legislation. Over 458,000 condominiums and other strata properties, or one in four taxable properties in BC are affected by strata legislation. 67,000 of these properties are located on Vancouver Island.

A series of public meetings hosted by the Vancouver Island Strata Owners Association (VISOA) was completed on March 30. At these meetings, participants reacted to a discussion paper based on numerous complaints VISOA had received about inadequate legal protection for strata owners. Based on the public meetings, written submissions from owners and consultation with homeowner associations on the mainland, VISOA is now developing a report on issues and alternatives for improving BC’s strata legislation. The report will be available later this spring.

Most concerns expressed by strata owners focused on transparency and accountability deficiencies, including:

• Lack of an accessible and authoritative source of legislation interpretation to support the operation of strata corporations according to law,
• Lack of a requirement for a depreciation report or reserve fund study to inform owners and purchasers of the financial implications of the condition of common property,
• Lack of a requirement for an audit of strata finances even where the strata corporation has hundreds of thousands of dollars in a reserve fund, and
• Lack of prosecution of developers operating contrary to strata legislation.

“Furthermore, VISOA research has found that BC lags behind other jurisdictions in requiring transparency and accountability for key areas of strata or condominium operations”, said Felicia Oliver, VISOA President.

 

VISOA is a non-profit organization that has provided information and education services to strata owners and strata councils on Vancouver Island since 1973.

BC’s strata legislation includes the Strata Property Act, the Real Estate Development Marketing Act and the Real Estate Services Act.

The VISOA website can be found at http://visoa.bc.ca/whatsnew

MP Garth Turner has a new book out called “Greater Fool - the troubled future of real estate“.   He argues that the Canadian real estate market is due for a collapse similar to the one currently happening in the US.

He recently started a blog at greaterfool.ca that looks like yet another source of negative news about real estate markets in North America.

The following is an excerpt from his book blurb:

The timing couldn’t be better for Garth Turner’s newest book on real estate and its impact on personal finances. At a time when the US is clearly heading for recession, stock markets roil, a global credit crunch overwhelms banks and a climate crisis lurks, can the Canadian real estate market withstand the threat? Do we really think we’re immune?

More than 400,000 US families lost their homes last year and more than a million more are threatened. House prices have collapsed as much as 30% in some markets, amid predictions of another 25% slide. New home sales are down over 40%. There are 20,000 new, empty houses for sale in Phoenix, streets of foreclosures in California and desperation in Florida. What happened? Will it hit here?

This is an easy one, I’ll just link to the top 4 headline stories on MSNBC:

Record drop in house price index

U.S. home prices dropped 8.9 percent in the final quarter of 2007 compared with a year ago, Standard & Poor’s said Tuesday, the steepest decline in the 20-year history of its housing index.

Foreclosures up 57 percent in 2007

The worsening situation came despite ongoing efforts by lenders to help borrowers manage their payments by modifying loan terms, working out long-term repayment plans and other actions

Wholesale inflation rate jumps up in January

The January inflation surge left wholesale prices rising by 7.5 percent over the past 12 months, the fastest pace in more than 26 years.

Consumer Confidence weakens significantly

The index measures how consumers feel about the economy. It has been weakening since July, suggesting that wary consumers may retrench financially, which could fatigue the economy further.

Does any of this matter to us in Canada? The IMF seems to think so.

More vital than Canada’s massive trade ties, financial markets have become the primary conduit for the faltering U.S. economy to infect its northern neighbour. And that’s why Canada can’t easily escape the economic headwinds now buffeting the United States, the report concluded.

Canada-U.S. trade represents 49 per cent of GDP, up from 37 per cent in 1988. But the value of cross-border financial holdings, meanwhile has shot up to 90 per cent of GDP from 53 per cent before the trade pact.

Meanwhile Bank of Canada Senior Deputy Governor Paul Jenkins has come out as skeptical about ‘decoupling’ - the theory that our economy can detach itself from the US economy, our largest trading partner.

“Decoupling doesn’t really do it for me,” Jenkins told the House of Commons’ Industry Committee today in Ottawa while taking questions about the strength of the Canadian dollar. The word “suggests that there’s only one force out there or two and we really need to look at all of those,” he said.

If all this gloom and doom has you feeling down just remember: its always darkest before the dawn, every cloud has a silver lining and you can re-arrange the letters in ‘Stagflation’ to spell ‘A Tango Lifts’!

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I got this suggestion from were1non, who writes in with the following note:

I was just looking at the webtraffic statistics for mls.ca, and realtor.com to see if there was any correlation between the housing collapse and traffic to these two sites (mls.ca being the biggest listing site in Canada, and realtor.com for the US). I think this is an interesting time because this is the first time we can use web statistics to gauge interest in the housing market.

If we look at the alexa graph for realtor.com we see traffic start a steady drop in 2006, almost mirroring the US housing market slump:

Oddly enough, when you look at the traffic graph for mls.ca it does almost exactly the same thing, and as we all know there was no Canadian housing market crash in 2006:

So is it a coincidence that traffic drops off at realtor.com in 2006? Or perhaps there are competition factors at work here - my initial thought was that sites like zillow in the US and individual realtor VOW sites in Canada may have siphoned off traffic from these two main sites, but looking at a graph for zillow.com we see the same drop:

So whats happening here? Are we seeing interest in real estate fade in North America as a whole, is the traffic more evenly distributed, or are there other factors at work? One thing seems likely to me: it really is different this time - this is the first real estate boom that has played out online and no matter what happens the sheer amount of data, analysis and opinions that are out there and easily accessible is unprecedented.

update: David G from Zillow left a comment about the unreliability of Alexa data, Zillow traffic is actually up 30% over the year despite the condition of the US market.  These graphs track daily percentage reach and not absolute numbers but I still view them as an interesting proxy in the absence of more reliable web traffic data.

I’m submitting the title of this post for the understatement of the year award. The United States of America is the worlds largest economy and Canada’s largest trading partner. With recent US job data not looking so hot, problems in the credit market and a housing slump that has left vacant eyesore properties in the hands of banks, 2008 is not looking like a really great year for the US economy.

Bank of Canada governer David Dodge commented earlier today on the potential fallout for the Canadian economy:

“The downside risks to Canada from slower U.S. growth in the first half of 2008 are probably greater than we estimated in October,” he told reporters on the sidelines of a meeting of the Bank for International Settlements in Basel, Switzerland.

The big question is how bad those downside risks turn out to be. If the US enters a recession (or is already in one) will Canada be able to avoid the same fate? What sectors of the economy are likely to thrive, where will we hurt and what happens to our super-hot housing market? It’s shaping up to be an interesting year.

This article from the November 2007 issue of MoneySense Magazine looks at prices across Canada and asks the question Are home prices peaking?

Even banks are admitting that after a decade of unthrottled expansion, Canada’s real estate boom may finally be losing steam.

The average price of a home in Canada recently topped $310,000, a gain of 60% in real terms in just nine years. Canadians haven’t witnessed a boom like this since just after World War II—and it’s clearly not sustainable. If prices continued to rise at their current rate, the average house would fetch $10 million by 2037. Since that doesn’t seem plausible, the big question is not whether the current boom will stop, but when.

Marco sent in this link to a Globe and Mail story about the Alberta housing market where a flood of new listings from owners trying to cash in on high prices is shifting the dynamics of the market in Calgary and Edmonton.

In Calgary, 5,330 residences hit the market last month, an 11 per cent increase from the year before. But sales for the month fell by 11 per cent year-over-year to 1,935 units.

“Momentum is fading fast in the Alberta housing market,” said Robert Kavcic, economic analyst at BMO Capital Markets, in a research note. In September, sales in Edmonton had their sharpest decline since the early 1980s, Mr. Kavcic said.

While soaring prices are drawing sellers in droves, it also means potential buyers in Alberta are waiting or being priced out of the market.

Breaking news from the Globe and Mail: in all Canadian markets (with the exception of St. John’s) current inflation-adjusted price levels are well above their long-term trend. This news from a report issued by the Bank of Novascotia.

The current Canadian housing boom, which began nine years ago, has been the longest of the post-war era, with cumulative price gains of more than 60 per cent, the Scotiabank report said. And although the housing fundamentals are solid in Canada because of low unemployment, high immigration and tight apartment vacancies, years of relentless house price increases mean affordability is waning just as risks to the economy mount.

“There is little doubt that current trends are unsustainable,” Ms. Warren said. “Affordability is becoming increasingly stretched for many would-be buyers after almost a decade of rising home prices. More recently, economic risks have increased in the wake of the intensifying financial market turmoil stemming from the U.S. subprime mortgage problems.”

Now before anyone panics here’s the positive spin:

To be clear, Ms. Warren is not predicting a Canadian housing collapse, but rather a cooling in price gains. Nationally, she expects prices will rise 10 per cent this year, slow to the “high single digits” next year, and eventually fall back in line with the rate of inflation, which would put them between 2 and 2.5 per cent.