Category Archives: Canada

Housing market keeps on cooling

The Globe and Mail has an article about the drop off in real estate sales across the nation.

It’s got some gems in it for predictions from bankers and real estate associations, but it’s also got the standard partial information about ‘government interference’.

As evidence mounted that rock-bottom interest rates were fuelling house prices and consumer debt loads, Mr. Flaherty has changed mortgage insurance rules four times, each time making it more difficult for consumers to take on housing-related debt.

While the three previous rounds crimped both housing activity and the demand for credit, economists and real estate industry experts say this latest round, which took effect July 9, looks as if it is having a bigger impact.

And off course what’s missing is any mention of the government previous moves to make it easier for consumers to take on housing-related debt: moving amortization from 25 to 30 to 35 years, dropping down payment requirements all the way to zero down and shoveling money into mortgage buybacks via the CMHC.

So anyways, it’s getting harder to buy than it was when you could get a zero down mortgage with a longer amortization schedule.  And what sort of horrors has this wrought?

A number of economists, real estate agents, and industry observers say that many prospective first-time buyers have found themselves unable to secure a mortgage, especially in Toronto and Vancouver, and are therefore remaining renters.

Paula Roberts, a mortgage broker based in Markham, Ont., said one of her clients, a young teacher, was preapproved under the old rules, but now that she has found a home she likes, is having trouble securing the mortgage. She will likely have to get someone to co-sign the loan, or come up with a larger down payment, Ms. Roberts said.

“It’s really hindering people,” she said. “Her rent is basically the same as her mortgage payments.” In Ms. Roberts’ opinion, “it’s always better to try to buy something instead of rent.”

Of course, it’s always better to try to buy ..Says the mortgage broker.  Business slowing down Paula?

But this article ends on a bit of a down note for those hoping for a ‘plateau’

David Madani, a bearish economist at Capital Economics, reiterated his forecast Monday that house prices will fall 25 per cent in the next year or two. “The first sign of trouble at the peak of the U.S. housing bubble was that home sales began to drop in 2005, well before house prices began to fall in 2006,” he wrote in a research note.

Read the full article at the Globe and Mail.

What sets house prices?

Jesse put together a nice clear presentation on our housing market.

Check it out.

His argument is that the factors that set house prices are different for the long term than they are for the short term.

If short term factors drive up supply and pull demand forward, what happens in the future to balance this out?

With housing affordability in Vancouver hitting an all time low and sales scrapping along under 100 a day It sure looks like Months of Inventory is starting to flash a big warning sign for current buyers.

Housing Affordability deteriorates to new low

Thank goodness we don’t have a housing bubble in Vancouver!

Otherwise one might start to worry about these latest numbers on housing affordability.

The housing affordability index takes local family income and then looks at what percent of it would would be required to service the debt on an average benchmark bungalow.

The entire province of BC is at 69.7% and blows away the rest of Canada for overpriced houses. Only Ontario starts to come close with an affordability index of 43.9%. Even Toronto can’t compete in the overvalued housing arena, coming in at 54.5%.


According to RBC Vancouver is the champion of overpriced houses. To buy the benchmark bungalow here it would take 91% of a local families pre-tax income to service the debt.

From Macleans magazine:

Nothing, of course, could persuade condo king Bob Rennie that the Vancouver housing market is in a bubble (or, worse yet, a bubble that’s starting to let the air out).

For everyone else, take a look at this chart RBC put out today with its latest survey of housing affordability in Canada (which is deteriorating in most provinces, by the way)

No problem, just arbitrarily knock 20% off those Vancouver numbers and we’re not much worse than Toronto.

If you look around the world, you may be able to find a few markets that have an even worse affordability index than Vancouver, with lower incomes or higher house prices. But for some reason, most of those places seem to be able to pull in higher rents than Vancouver.

Team Ben! Ben is wrong!

Real estate markets move slowly.

Really slowly.

So let’s entertain ourselves with some bear fights.

A couple of days ago Garth Turner came to town with his traveling bear show from Greater Fool.  In that presentation some are saying he used charts from The Economic Analyst Ben Rabidoux without any attribution.

This kicked off a twitter snark-fest as seen below:

Now I didn’t see the presentation, so I don’t know if there were charts used without attribution, but in any case: BEN IS WRONG!

No, not wrong in this twitter war – Ben is correct to ask for attribution for his work and Turner is a jerk for neither clarifying nor denying the charge.

The reason I say Ben is wrong is because of what he says in this article about new record debt levels for Canadians:

“You can not have everyone in Canada pay off their debts at the same time because that will drag on the economy,” he said. “It is a strange dynamic. How do you pay off the debt when paying off the debt itself becomes an economic headwind?”

OK, maybe wrong is not the right word, more like incomplete.  As Patriotz points out:

I think Ben’s scenario is slightly off the mark. Crunch time will happen not when people decide to start paying off their debts, but when they simply can’t borrow any more.

And as Fixieguy points out it should read something more like this:

“… it shows the extent to which our economic growth is based on debt instead of fundamentals, a scenario which can’t be sustained for long before the jobs created evaporate…”

So mark your calendars, for here is one thing that Ben is wrong about and that is remarkable because Ben is never wrong.

Mortgage rates rise at RBC, more to follow?

Looks like RBC just upped two of it’s mortgage rates by one fifth of a point.

What will we do without our record low mortgage rates?

It’s probably just a minor fluctuation, but other banks are expected to follow as bond yields have edged up in the last month.

So if you want to do a rate lock in now might be the time.

Helmut Pastrick of Central One Credit Union explains:

“Sentiment has improved with respect to Europe and the economic outlook,” Pastrick said. “The economic news was quite negative for a period of weeks and now it is somewhat less negative.”

RBC’s posted rate for a three-year, fixed-rate mortgage will go up 0.2 percentage points to 4.05 per cent. Meanwhile, an RBC special-offer rate for five-year closed mortgages rises to 3.69 per cent.

The rise in the cost of funds for banks will mean other lenders will probably also raise their rates, or absorb some of the cost increase to hold onto or gain market share,” Pastrick said.

Read the full article over at the Vancouver Sun.