Vancouver Condo Info

Household debt levels in Canada are at record levels, higher than Greece. The Canadian reaction to recession has been to take on more debt, which has some worried about the impact that will have on our economy going forward.

Household debt has more than doubled from 1989 levels and now stands at a record $1-trillion – or $1.47 for every dollar of disposable income. With the Bank of Canada expected to raise interest rates, perhaps as early as next week, vulnerable Canadians could soon find themselves emptying their pockets to cover higher interest payments.

“The high rate of household indebtedness is a source of risk” to the Canadian economy, the Organization for Economic Co-operation and Development cautioned in a report Wednesday. It noted that household debt has swelled further in recent months – an unusual development. People usually save during recessions.

Read the full article in the Globe and Mail.

CIBC World Markets has just released a report calling Canadian home prices ‘overvalued’ and forecasting falling prices:

CIBC World Markets economist Benjamin Tal said Tuesday that prices could decline by as much as 10 per cent in the next two years, but that a “violent” correction similar to the one seen in the United States remains unlikely.

“We are more likely to see higher interest rates causing a modest decline in prices,” he said. “Because we lack the driver for a more violent decline, we should expect a more orderly rebalancing.”

That’s in the nation as a whole, where median price to income ratios in the five largest cities combined have reached 5.62 (the US market peaked at 5). Here in Vancouver we’re currently running at a ratio higher than 9, similar to where Miami was in 2006.

Last week, TD Bank issued a report that suggested prices could fall by 2.7 per cent in 2011. The Canadian Real Estate Association expects to see a decline of 1.5 per cent. Among recent forecasts, only the Canada Mortgage and Housing Corp. calls for higher prices in 2011, with an anticipated gain of 1.3 per cent.

..of course the Canada Mortgage and Housing Corp. is the one pumping government money into the housing market. They’ve gone from $138 billion securitized in 2007 and jacked that up by more than double in just a few short years with close to $500 billion in Canadian mortgages securitized today. Do they have the power to make their contrary prediction come true?

Observer pointed out this blog article over at the Vancouver Sun, which does an excellent job of rounding up some of the issues we’ve gone over about the CMHC and the Canadian Banking system:

Not only has the Harper government felt it necessary to prop up Canadian banks it was this same government which created financial system risk in the first place. In 2007 the Harper government allowed US competition into Canada which prompted the CMHC to dramatically change its rules in order to compete: it dropped the down payment requirement to zero per cent and extended the amortization period to 40 years. In August 2008 Flaherty moderated those rules in response to the US mortgage meltdown. CMHC then “securitized” an increasing number of its loans into bond-like investments (if you have a typical Canadian mutual fund, you’ve got some.)

At the end of 2007 there were $138 billion in securitized pools outstanding and guaranteed by CMHC –17.8 per cent of all outstanding mortgages. By June 30, 2009, that figure was $290 billion and by the end of 2010 it was $500 billion.

Read the full article, it’s full of interesting facts and figures.

Landcor data is out and in the first three months of 2010 both the number and value of BC real estate transactions dropped more than 25% from the previous quarter.

The results quantify the trend economists such as Cameron Muir, chief economist for the B.C. Real Estate Association, have observed occurring since January.

Landcor’s numbers “certainly support the data we’ve been looking at that shows that obviously the pace of sales have slowed since the last quarter of 2009,” Muir said in an interview.

Last year’s “fourth-quarter peak is unlikely to reoccur in 2010.”

Landcor president Rudy Nielsen said B.C. home sales typically slow at the beginning of the year, but the first-quarter of 2010 slowed more than usual compared with the last decade of results. This is in part, he believes, because of the Olympics.

Nielsen added that consumer uncertainty over a host of issues, ranging from the global economic situation to unknown effects of the harmonized sales tax, have consumers sitting on their wallets.

The agency, which insures almost $500-million of Canadian mortgages, said the average cost of a home by the end of 2011 should be $350,000. That would be a gain of 1.4 per cent over April’s record high of $344,968.

Forecasting higher prices next year puts the agency at odds with the Canadian Real Estate Association and Toronto-Dominion Bank, both of which are calling for prices to drop by 1.5 per cent and 2.7 per cent respectively in 2011.

Ok, this should hopefully be the last Olympic Village story for a while, but manx posted a link to more coverage of the uphill climb that the city faces to break even on construction costs and get paid for the land:

Inside city hall, officials are encouraged by the interest in the Olympic condos. But privately they express fears the city won’t recover the $170 million it is owed for the land on which the Olympic village stands.

Taking the land costs out of the equation, there may be the prospect for break-even, or a slight profit, on the construction price tag. But some serious challenges remain for this star-crossed real-estate deal.

The first is the HST, which will be applied to the new condos July 1.

Early buyers will no doubt be spurred on to make a deal before Canada Day, to escape the added HST costs. But the post-HST world could dampen buyer interest.

Vancouver city hall certainly thinks so. Officials have been lobbying the provincial government for an HST holiday, to help the city minimize the $1-billion project’s losses. The province has responded with a flat no.

The other challenge is the time frame of the Olympic sales plan.

It’s anticipated that sales of the remaining 474 condos will be stretched out over two years, to ensure there is no glut that might push down prices. The problem is the rising cost of credit.

Read the full article over at the Vancouver Sun.

Vansanity pointed out this article in the Vancouver Sun.  Canada has the highest level of household debt amongst developed nations and right here in BC we have the highest willingness to go into debt in all of Canada.

“It’s difficult to make a simple judgment [that B.C. is] better off or worse off,” said Elena Simonova, senior research and policy analyst with the association, because provincial figures on household debt are not available.

Across Canada, however, the CGA association was able to observe that by 2009, consumer debt in Canada had more than doubled since 1989 to $1.44 trillion -$41,740 for every single Canadian. By the end of 2009,

Canadians’ debt-to-income ratio reached 144 per cent. And household debt, expressed as a ratio compared with household assets, ranked as highest among 20 countries in the Organization for Economic Cooperation and Development.

We’re number one! We’re number one!

Painted turtle pointed out this article in the Vancouver Sun: Yes, there’s a housing bubble in Canada – but only in three cities.  You read that correctly.  The Vancouver sun printed an article calling the Vancouver market a bubble.  I hope Beelzebub has some of those left over Olympic mittens.

According to a national study released last year by Pitney Bowes Business Insight, the average household income level in Calgary topped $113,000, while the average in Edmonton exceeded $90,000.

Vancouver was well behind both Alberta cities, at $82,300. That’s about $2,000 higher than Windsor, Ont., which has some of the lowest house prices in Canada. Toronto boasted average household incomes of $101,400.

Let’s look at it another way.

When U.S. house prices got to their most extreme levels during the U.S. housing bubble, the ratio of average household income levels to average local house prices got to 10 times or more in overheated markets like Los Angeles and Phoenix.

In Vancouver, the average detached bungalow now costs roughly 11 times the typical average local household income level, based on the data above.

Read the full article at the Vancouver Sun website.

Laadies aaand Gentlemen! Step right up, one and all and ride the bubbliest market in North Americaa!. The Great Vancouver Real Estate Roller Coaster is now open for bizness! Experience the thrills! The Spills! The mind-boggling economic waste of it all!

Front row seats for you only my friend, here’s your tickets:

The Bank of Canada has announced that they are keeping the overnight rate at the record low of .25% for now but sent a strong message that rates will be going up sooner rather than later. Expectations that the Bank will raise rates on June 1st have sent the Loony up even higher, surpassing the US dollar.

The dollar jumped 1.58 cents to $1.0012 (U.S.) as investors bet interest rate increases in Canada will outpace those in the United States, where the Federal Reserve shows no signs of boosting rates any time soon.

With the timeline for a rate hike nearly set in stone, investors and economists are turning their attention to how fast rates will move.

Policy makers will end this year with a lending rate of 1.5 per cent, many economists believe, moving to between 2.5 and 3.5 per cent by the end of next year.

The level that most economists consider “neutral” is 4.5 per cent.

If you’ve got a variable rate mortgage now might be a good time to lock in.  If you’re over-extended now might be a good time to sell.  I suspect “neutral” rates won’t have a neutral effect on Vancouver house prices at this level.

Everybody knows that interest rates are going up, but the big question is how soon and how fast?  Recently two banks chimed in with two different forecasts:

CIBC: Interest rates unlikely to soar

Canadian interest rates will probably begin rising from July but are unlikely to soar as significant uncertainties remain in global economies, a new report by CIBC World Markets found.

Interest rates are likely to remain low by historical standards at no more than 2.5% at least until the end of 2011, CIBC Chief Economist Avery Shenfeld in the report.

Scotia: Interest rates seen rising

The Bank of Canada is set to embark on a series of interest rate hikes, starting in June, that will see its benchmark rate climb from its historic low of 0.25 per cent to three per cent in little over a year, Bank of Nova Scotia’s chief economist said yesterday in his latest outlook.

Warren Jestin said the move away from short-term “emergency level” rates is necessary because of inflationary pressure that is expected to emerge from stronger-than-expected growth. By the end of next year, the central bank’s target rate should be 50 basis points higher than the comparable rate set by the powerful U.S. Federal Reserve, he said in his latest update to Scotiabank’s economic forecast.

The increase of 275 basis points, to three per cent by the end of the third quarter of 2011, is bigger than what Jestin had previously anticipated. His earlier forecast had the central bank target rate climbing by a cumulative 200 points.

So which bank forecast will be correct when we see rates move from the historic low of .25%?  will we see rates go up by a factor of 10 as CIBC predicts, or a factor of 12 as in the Scotia outlook?  And what will this move mean for mortgages at renewal?