Vancouver Condo Info

The Federal Government has just announced their anticipated changes to insured mortgage rules to prevent a Canadian housing bubble (which they see no evidence of yet).

The key changes are:

- borrowers must qualify for the 5 year rate even if they opt for a shorter term.

- on refinancing, the maximum amount of equity withdrawal is reduced from 95% to 90%.

- non owner occupied residences bought for speculation now require a 20% down payment.

More info in this Reuters article. There’s still time to buy (or sell) under the old rules, but you better hurry!

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?

Some more winter-game accommodation stories in the news:  There appears to be a problem with the plan to house some visitors in a cruise ship.

A plan to berth an 1,100-room cruise ship in North Vancouver for use as a floating hotel during the Olympic Games appears to be in serious danger of sinking.

Edmonton-based Newwest Special Projects – which has marketed the Norwegian Star to Games visitors for the past nine months – said in a statement over the weekend that sales have been disappointing while expenses have increased beyond expectations. It said it is negotiating with its partners to try to lower costs and keep the project alive.

They initial priced rooms at $1,300 a night, dropping that to $500 per night in October and recently lowering starting prices to $275 per night including free meals.  They appear to have removed their booking gateways from the internet as they work out their current problems.

The Conference Board of Canada is predicting perfect stability in the local real estate market for the year ahead.  They see the Metro Vancouver real estate market as currently hot, but not overheating and predict that it ‘likely won’t overheat as 2010 progresses’.

While Metro Vancouver home sales in December tracked a pace that was nearly three times higher than sales last January, board senior economist Robin Wiebe said new listings also rose keeping the overall market in balance.

“Though [the market] is closing on the top of the balanced range, buyers are provided with a reasonable choice as the go out searching for homes,” Wiebe said in an interview.

However, Wiebe added that “it wouldn’t take much to tip [the market] over into seller’s territory.”

That is one factor that has the Conference Board putting Metro Vancouver on the list of cities it expects will see property prices rise between five and just under seven per cent along with Victoria, the Fraser Valley, Calgary, Regina, Ottawa and Halifax.

Edmonton, Saskatoon and Montreal are among the cities that the Conference Board expects will see price increases over seven per cent, with Winnipeg Toronto and Hamilton among cities that should see price increases between three and five per cent.

The Conference Board is estimating that no Canadian cities will see price decreases in 2010.

The full article can be read in the Vancouver Sun.

According to this article on househunting.ca, the Canadian desire to own a home was the key to the quick recovery in the real estate market.

“While low interest rates were a principal factor driving home-buying activity, no one can discount the value that Canadians place in owning a home,” says Polzler.

Because of the increase in first-timer interest, the real estate industry was able to shrug off initial forecasts of a totally bleak year.

By the time the year-end national tally is complete — something that should come in the next week or so — 465,000 homes will likely have changed hands in 2009 in Canada, a seven-per-cent increase over 2008, predicts a Re/Max report.

“Some of the greatest percentage gains were reported in Western Canadian markets in 2009, demonstrating the higher the peak, the lower the valley,” says Elton Ash, executive vice-president of Re/Max of Western Canada.

“That said, the recession barely registered on year-over-year activity in most major centres — and the economic fundamentals in place going forward ideally positions the 10 provinces and the sector overall for further growth.”

“While low interest rates were a principal factor driving home-buying activity, no one can discount the value that Canadians place in owning a home,” says Polzler.

Because of the increase in first-timer interest, the real estate industry was able to shrug off initial forecasts of a totally bleak year.

By the time the year-end national tally is complete — something that should come in the next week or so — 465,000 homes will likely have changed hands in 2009 in Canada, a seven-per-cent increase over 2008, predicts a Re/Max report.

“Some of the greatest percentage gains were reported in Western Canadian markets in 2009, demonstrating the higher the peak, the lower the valley,” says Elton Ash, executive vice-president of Re/Max of Western Canada.

“That said, the recession barely registered on year-over-year activity in most major centres — and the economic fundamentals in place going forward ideally positions the 10 provinces and the sector overall for further growth.”

The higher the peak, the lower the valley?

This article is a few days old, but still interesting and worth discussing.  It seems that if you haven’t rented out your home or condo yet for the winter games, you may be facing a lot of competition and have to ramp down your expectations of getting rich off the games.

Metro Vancouver homeowners desperate to rent their properties to Olympic Games visitors have scaled back their golden expectations.

An abundance of Games-time accommodation rental options has forced asking prices down and increased the likelihood that many properties won’t attract any Olympic renters.

“Don’t base your food budget on the prospect of renting your home,” said Mark Szekely, site administrator for listing service rent2010.net. “It’s still a realistic possibility but if you’re outside downtown Vancouver or Whistler, you might not find a renter. It’s an oversupplied market.”

Anyone out there subletting their owned or rented house or apartment for the games (or trying to)?

The REBGV December 2009 stats are out and the average Vancouver House price has reached a mind-boggling $952,927 despite less than peak population growth rates.

Don sent in the information above – this chart shows Vancouver average house prices from 1977 to 2009 superimposed on a graph of the BC population growth in percent from BC Stats.  The $300k price point correlates to 3% population growth.

One thing to keep in mind is that some divergence is only natural: one percent population growth in 2009 represents more people than 1% in 1977 because we’re starting with a larger base population.  It’s still interesting to see the correlation between population growth and house prices.  There was actually very high population growth in the late 70s and early 90s that relates to those housing booms.  By the middle of the 90s this growth had real house prices nearly back up to what they were in 1981,

You can see the correlation between the housing market decline in the mid nineties and the drop in population growth.  We’ve never recovered that high rate of population growth (as high as 3% in the mid nineties).  We seem to have peaked at 1.7% in 2008.  It will be interesting to see what BC and Vancouver population growth does going forward – will ‘everyone want to live here’ or will we see a a decline in population growth with fewer infrastructure project jobs and less construction?

Don sent in this link to Helmut Pastrick of Central One Credit Union expressing concern about Flaherty’s recent talk of clamping down on the easy mortgage money.  Concern over a Canadian housing bubble has Flaherty, Harper and Carney musing about ways to dampen the market: rising interest rates, cutting terms down from 35 years and requiring a larger down payment.  It’s this last one that has Pastrick concerned.

A senior B.C. economist is warning the Lower Mainland’s recovering real estate market and construction industry will both take a hit if Ottawa makes it harder for first-time home buyers to get mortgages.

Helmut Pastrick of Central 1 Credit Union was responding to federal finance minister Jim Flaherty, who said the government will “likely” boost the minimum down payment from the current five per cent and cut the maximum mortgage term down from 35 years to ward off a potential housing bubble in Canada.

“It would have quite a negative impact,” Pastrick said. “It would certainly soften the real estate market. There would also be less new construction over time.”

A higher down payment threshold would force many first-time buyers with insufficient cash to delay buying.

As Don points out, is that really a bad thing?

Notice how there’s been all sorts of bubble-talk in the national newspapers lately?  Even the Americans have noticed our hyperactive market. Well you don’t have to worry about it anymore.  In November the Canadian housing market saw prices fall and listings rise, signaling a return to normalcy.

While Peter Aceto welcomes a moderation in prices, the chief executive officer of ING Direct worries buyers are purchasing homes they won’t be able to afford when interest rates move higher. He has advised his employees to run clients through different scenarios to make sure they realize how much more their payments would be under historically average circumstances.

For example, a five-year variable rate mortgage at 2.25 per cent on $300,000 would carry a monthly payment of about $1,300, assuming a 25-year amortization period. A move to 5 per cent would boost the payment to $1,750. It’s a 34-per-cent increase, something many family budgets wouldn’t be able to accommodate.

“I understand how people get caught up in a hot market, but they are doing some odd things that really worry me,” he said. “You see multiple offers, and houses going for 20 per cent above asking. Those aren’t normal things, and the high level of confidence out there really does make me scratch my head a little.”

Mr. Aceto isn’t the only one scratching his head.  Mark Carney is wondering if Canadian debtors will be able to handle rising interest rates.  Carney is also telling Mr. Aceto and his banker buddies that they must be responsible when handing out taxpayer backed mortgage debt:

Similarly, lenders have responsibilities. Financial institutions should actively monitor risk stemming from households and not take false comfort derived from mortgage insurance and past performance of household credit. As our simulations suggest, the overall credit profile of Canadian households could well shift if debt continues to grow at current rates. The Bank expects that Canada’s financial institutions will continue to apply their high standards of risk management, for which they are being justly lauded the world over.

So there you have it, everyone is aware of the risks and making sure all buyers are ready for interest rates to rise.  So don’t worry you silly bears, everything is going to be all right alright.  Mr. Carney hasn’t said when rates will rise or by how much, but here’s the BMO forecast:

A tip o’ the hat to Don for the links!

Higher interest rates are coming.  You don’t even need to hear government spokespeople or bank economists say that to know it’s true.  With mortgage rates at record lows there’s really only one direction for them to go.  The question is how much longer they can be held down, and how quickly they will rise.

The C.D. Howe institute is the latest to raise alarms about the housing bubble risk created by record low interest rates:

The Ottawa-based public policy think-tank says many economists, including its own, are predicting rate hikes as much as a full percentage point or more later next year.

“Does the simple experience of short-term interest rates being so low, for so long, encourage people … to mortgage themselves more than they otherwise would, and buy a bigger house than they otherwise would … and get themselves into trouble longer term?” said C.D. Howe president and CEO William Robson.

On Tuesday, the Bank of Canada announced it would keep its key overnight rate at the historic low of 0.25 per cent. The C.D. Howe Institute says that is helping to create a false sense of security among borrowers who have taken on debts larger than they could normally afford.

Robson said a rapid rise in interest rates could prove devastating for homeowners who have not evaluated their ability to carry their mortgages at a higher interest rate.

Information on how many recent buyers could handle higher rates has been hard to come by, but when rates start to rise from their current record lows it will quickly become apparent if the recent mini-boom was driven by cheap credit.  Rising mortgage rates squeeze both ends: supply and demand.  Those that haven’t planned on payments at normal rates may find they need to sell just when there are fewer buyers due to increased carrying costs.