Category Archives: economy

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.

Renovation Time!

Sales have dropped off a steep cliff in Vancouver.

Last July came in more than 30 percent below the 10 year average.

But one thing is picking up: Renovations.

Instead of upgrading to a better home more people seem to be staying put and trying to make their home better.

The amount spent on renovations has gone up every year for the past several years, Simpson said, but added that he isn’t sure if that’s because more people are renovating or because they’ve become more expensive.

Canada Mortgage and Housing Corp’s third-quarter Housing Market Outlook, released in August, said renovation spending in 2011 was $61.7 billion in Canada. CMHC says that amount will moderate in 2012, growing to $63.3 billion, but is expected to strengthen in 2013 to $65.6 billion.

In B.C., spending on renovations in 2011 was $7.6 billion. Spending is expected to remain stable in 2012 and grow to $7.8 billion next year.

For the most part, business is good for contractors, even in this year’s moderate market, Simpson said.

“One contractor I talked to said he’s having his best year ever,” Simpson said. “He said one client bought a home and they’re spending money to update it, but most clients want to stay where they are and bring their homes up to date.”

I guess the advantage of living in a construction zone is that you can do it a little bit at a time when you can afford it, like buying a little bit of a house at a time instead of all at once.  Sounds like some people are also finding it harder to get financing for their dream homes:

Another contractor told Simpson he’s had some customers having a harder time borrowing money from the bank, which may be a result of new mortgage refinancing rules. “Some people seem to be getting a little pushback from the banks, or they might not be able to borrow as much as they want,” Simpson said. “If they can’t obtain the financing, they just have to scale it back a bit. With a renovation, you don’t have to do it all at the same time.”

Read the full article over at the Vancouver Sun.

Market moves for August 2012

Another month has come and gone.

The Real Estate Board of Greater Vancouver (REBGV) should release their market update for August any day now, buy in the interim we have the always entertaining GVREB and their news release.

The GVREB uses factual statistics, numbers and market data in their press releases just like the REBGV, but I think you’ll find the spin is a little different

Motivated Sellers Move Prices Downward in Extended Weak Market.

FOR IMMEDIATE RELEASE ON VCI

VANCOUVER, B.C. –September 4, 2012 – The extended weakness of the Greater Vancouver Property market has forced many motivated sellers to reduce prices significantly from their spring listing prices in order to sell their property. Sales volumes continued to languish at near record lows and daily sales volumes continue to decrease. Counteracting the low sales is the impact that market weakness has discouraged new sellers from listing their properties. This reduction in the pace of new listings has resulted in an overall decrease in the number of active listings compared to the number at the end of June 2012. Daily sales volumes continued to deteriorate first to 82 units per day in the first half of the month then to 71 units per day in the last half of the month. The lack of buyers has resulted in sellers taking significant discounts in order to complete their sale transaction and the majority of sales are now at prices below their July 2011 property tax assessed values.

GVREB reports that residential property sales of detached, attached and apartment properties reached 1,649 in August 2012. This total represents a 31 per cent decrease compared to the 2,378 sales in August 2011. August 2012 had the lowest average sales per market day for any August in the past 12 years at 76 sales per day compared to 78 sales per day in 2008, which was the most recent low.

August 2012 saw an increase in the sale of ultra-luxury properties as the summer travel season brought more foreign buyers than the previous few months. There were 3 sales in Greater Vancouver over $10 million during August 2012 and a large increase in properties over $5 million compared to the most recent months. The fact that these sales occurred in a month with very slow sales had a disproportionate effect of increasing the average price for the month with over $50,000 of the increase in the average selling price of detached properties coming from the 3 largest sales. The large increase in the average selling price compared to July 2012 should not be interpreted as a sign that the market is strengthening. Experienced local real estate professionals have noted that it is more important to focus on the high inventory levels and low sales volumes and the resulting inflated Months of Inventory (MOI) ratios than the average price which can be disproportionately affected by a small number of sales of very high value properties.

New listings for detached, attached and apartment properties in Greater Vancouver totalled 3,988 in August 2012. This is slightly below the average listing rate for the past 12 years however the sales to new listing ratio of 41.8% was the second lowest of the past 12 years. Continued market weakness has resulted in a slowdown in new listings. However, experienced market players have noted that “sellers waiting for better selling conditions are not expected to see the current price levels for the foreseeable future and waiting to list their property should not be a strategy to obtain a higher selling price. Sellers must reduce their price expectations if they wish to complete their sale before the end of 2012.”

Active listings at the end of August 2012 were 17,652, down 3 per cent from July 2012. However, total MOI continued to increase for the sixth straight month and was 10.5 at the end of the month. MOI for detached increased to 12.5 months at August 2012 from 10.1 months at the end of July 2012. Attached and apartment inventory increased significantly to 9.3 months from 7.7 months. At these levels, there are significant downward pressures on selling prices and very few buyers are available for the number of active listings. MOI increased in nearly every sub-market during August 2012 from July 2012 with West Vancouver detached increasing from 12 to 21 months and Burnaby increasing to 15 from 11 months. Without a significant withdrawal of listings by current sellers in Greater Vancouver, these ratios are forecasted to deteriorate further during September.

The Residential Reference Price for all residential properties in Greater Vancouver over the last 12 months has increased only marginally to $614,000 in August 2012 from $612,600 in August 2011. We believe that in September, the annual price comparison will show the first annual decreases in this index since 2009.

Sales of detached properties in August slowed to 625 units, a decrease of 39 per cent from the 1,020 detached sales recorded in August 2011, and a 30 per cent decrease from the 893 units sold in August 2010. August 2012 was the second lowest sales volume of detached in the past 12 years. The reference price for detached properties increased 1.4 per cent from August 2011 to $945,000 but fell from $949,000 in the previous month.

Sales of apartment properties fell to the lowest level in 12 years at 727 units in August 2012, a 24 per cent decrease compared to the 955 sales in August 2011, and a decrease of 22 per cent compared to the 955 sales in August 2010. The reference price of an apartment property was equal to the level at the end of August 2011 at $372,000.

Attached property sales in August 2012 totalled 298, a 26 per cent decrease compared to the 403 sales in August 2011, and a 20 per cent decrease from the 374 attached properties sold in August 2010. The reference price of an attached unit decreased 0.5 per cent from August 2011 to $464,000.

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.