Vancouver Condo Info

Mark Carney is making new remarks about some Canadian real estate markets being “probably overvalued“.

It was the second time in recent days that Bank of Canada Governor Mark Carney voiced concern about property prices, which surged after the financial crisis as borrowing costs tumbled.
“We see that in a number of real estate markets in Canada, valuations are at a minimum, firm; in others, they’re probably overvalued. So there are risks there. We’re watching it closely. We’re working with our partners, the federal government, the superintendent of financial institutions,” he said in an interview on “Question Period” on CTV.

“Measures have been taken. They’ve been effective. We’ll keep up that vigilance. If more needs to be done, I’m sure the appropriate authorities will take those measures.”
The federal government has tightened mortgage regulations several times in a bid to prevent a property bubble from forming. Finance Minister Jim Flaherty said on January 17 that the government is watching the housing market closely and is ready to intervene if needed, but is not about to do so now.

Yes, the federal government has tightened mortgage regulations “several times”.. Here’s a timeline of those changes courtesy of Burbs Boy:

Jan 2006 – Minority Conservative Government elected
Feb 2006 – 25 year increase to 30 year on test basis
Jul 2006 – 30 year test affirmed and also increased to 35 year
Jul 2007 – 35 year increase to 40 year
Oct 2008 – 40 year decrease to 35 year
Mar 2010 – 35 year decrease to current 30 year

This post was submitted by wreckonomics.

There are a few banks out there making noise about the Canadian housing market. Let’s see, what are their names again? Oh, here they are.. Some place called CIBC and Royal Bank and then one called Toronto Dominion. They seem particularly concerned about the market in Vancouver and Toronto.

CIBC chief executive officer Gerry McCaughey told analysts and investors in Toronto that the housing market is “leaning heavily into an area that might be peaking,” and instead will begin to soften.

His comments came as the heads of Royal Bank of Canada and Bank of Montreal also expressed concern over cooling housing prices, particularly in the condo markets in Toronto and Vancouver, where capacity is significantly overbuilt.

And from the second link:

British Columbia is forecast to have it worse, said senior economist Jacques Marcil, and will likely see “a signifcant correction” this year. Indeed, he said in a report today, the Vancouver market likely peaked last year.

The report, which examined the country’s provincial economies, projects home resales in British Columbia will sink 3.7 per cent this year, while prices decline 3.5 per cent.

This post was submitted by Eddie.

Over at the Financial Post there’s an editorial that’s pessimistic about the Canadian real estate market:

The arithmetic is simple, and some of the warning signals look uncomfortably like those of the days before the market implosion that brought the 1980s to a thumping, crashing close.

Start with resale home prices. A “matched sales” approach to measuring prices tracks, over time, multiple sales of the same properties — this reduces the likelihood of measurements getting skewed by cyclical or regional shifts in the price mixes of homes that happen to be selling. Over the past ten years, prices so measured, in Canada’s major markets, have doubled, increasing at more than 7% per year, at a time when consumer price inflation generally had been running at about 2%.

So why is that a problem? Because average wages have not been running much ahead of inflation, and that means that house prices have steadily been bubbling out of reach of workers’ abilities to afford them. The house price-to-income ratio last peaked and then plummeted from 1989 to 1991, and the ratio regained its prior peak in 2004-05. Since then? It has climbed steadily higher yet, the ratio now far outstripping anything seen in the past 20 years.

Eventually that makes housing affordability a problem, and quickly so when interest rates start to rise. Housing looks affordable now, given that mortgages remain on the market at rates near their all-time lows. However, carrying costs relative to income would rocket upward, were rates one or two percentage points higher. Such rate increases are not in the cards in Canada today — but they will arrive all the same, and sooner rather than later if inflation continues to test the upper bound of its target range, as it did through 2011.

Read the full article here.

This post was submitted by Karl Marx Carney.

Here’s David Chilton on using home equity as a substitute for retirement savings:

There are too many risks associated with real estate — even in pricey markets like Vancouver — to justify making it the sole element of a retirement plan, the author and personal finance expert says.

“I don’t like it as a strategy at all because what happens is that anytime you have that kind of exponential rise in real estate it almost always ends up going the other way,” says Chilton. His latest book, The Wealthy Barber Returns, was released in September.

“It may not happen here because there’s so much foreign money coming in. But the potential for a significant pullback is still there.”

House price increases even in super-heated markets are likely to become more muted as the tailwind generated by rock-bottom interest rates eases, he says.

Did I just enter Bizzaro World? Aren’t ‘super heated’ markets often at a greater risk of a pullback?

This post was submitted by Scott.

The controlled collapse of the Chinese housing bubble seems to be proceeding right on schedule. If HAM is a factor in BC what affect will this have here?

Home prices nationwide declined in November for the third straight month, according to an index of values in 100 major cities compiled by the China Index Academy, an independent real estate firm. Average prices in the Shanghai area are down about 40% from their peak in mid-2009, to about $176,000 for a 1,000-square-foot home.

Sales have plummeted. In Beijing, nearly two years’ worth of inventory is clogging the market, and more than 1,000 real estate agencies have closed this year. Developers who once pre-sold housing projects within hours are growing desperate. A real estate company in the eastern city of Wenzhou is offering to throw in a new BMW with a home purchase.

The swift turnaround has stunned buyers such as Shanghai resident Mark Li, who thought prices had nowhere to go but up. The software engineer closed on a $250,000, three-bedroom apartment in August, only to watch weeks later as the developer slashed prices 25% on identical units to attract buyers in a slowing market.

Outraged, Li and hundreds of others who paid full price trashed the sales office, scuffled with employees and protested for three days before police broke up the demonstration. Walking away now would mean losing the $75,000 down payment that he borrowed from his working-class parents.

“I still haven’t told them,” Li, 29, said of his home’s plummeting value. “It will just make them worry, and it’s already too late.”

Full article in the LA Times.

This post was submitted by xct.

The CEO of TD bank has said in an interview that he thinks the government should make mortgage rules stricter.

Mr. Clark believes cutting the maximum length on federally insured mortgages to 25 years, from 30 years, would be a good step to slow rising household debt, which hit a new record this week, surpassing that of the United States and Britain.

“If you thought the Canadian economy was strong enough to take another adjustment, then we would say take the 30 [year amortization limit] down to 25 and get this back to where it originally was,” Mr. Clark told The Globe and Mail.

“It’s hard to know whether the economy can take another crank like that,” he said, referring to Ottawa’s last round of changes. “But my own gut would tell me that it may turn out that we do have the absorption capacity.”

Now why would a bank that spends tonnes of money on advertising mortgages and essentially makes risk-free income on insured mortgages want the government to tighten up the rules? Could they be seeing consumer debt levels starting to pose a risk to uninsured loans?

This post was submitted by Eddie.

It keeps going and going.. Canadian household debt has risen yet again to a new record level of 152.98 per cent of annual disposable income.

Debt continues to rise, per capita net worth is falling and incomes are flat.

How’s this going to end?

For those that missed it, there’s an interesting article over at Canadian Mortgage Trends – the major banks have done away with their variable rate discount mortgages and are now charging a premium over prime.

Prime + 0.10% (i.e., 3.10%) is an interesting number. A few months ago consumers thought that fat variable-rate discounts were here to stay. Variables above prime will now come as a shock to some people.

The banks are well aware of that. They know that pricing above prime impacts consumer psychology.

They could have priced at prime. Spreads are not that horrendous. But pricing above prime makes more of an impact. It makes higher-profit fixed rates more appealing and it mentally prepares consumers for potentially higher VRM premiums down the road.

That said, banks are not just arbitrarily sticking it to borrowers. The main reason variable rates are worsening is that banks’ costs are rising, and they want to recoup those costs.

Read the full article for more on the factors at play in this move.

This post was submitted by Karl Marx Carney.

FishyRE points out that the latest housing market numbers out of Victoria look bad. Really bad.

House prices are down YOY for two years now. Condos are down YOY and flat over two. Attached is down 15% over two years. Yikes.

This post was submitted by teekay.

Interesting article over at the National Post on the ‘different here‘ argument.

If the Canadian housing market were to collapse, Canadian taxpayers would be hit hard. The federal government is fully liable for any losses incurred by the CMHC, which currently backs somewhere in the order of $600-billion worth of mortgages. It has been bailed-out by the government twice in the past.

The government needs to act quickly to remove the factors that are causing the market to expand so rapidly, as well as to disperse the risk across the financial system. The CMHC should be privatized, much like the Australians successfully did in 1997. Banks and insurance companies should be allowed to do what they do best — assess risk, without standards being forced upon them by government bureaucrats. Doing so would not only spread the risk throughout the financial system and protect taxpayers, it would also reduce the likelihood of Canada experiencing a U.S.-style housing crisis.