Category Archives: economy

We want a nice housing bubble

I’m so sick of hearing realtors and mortgage brokers complain about the new CMHC rules.

The government isn’t really bringing in some tough new restrictions, they’re simply rolling back some of their bubble incentives.

The Feds clearly wanted to juice housing and that’s what they got.

Bank of Canada governor Mark Carney says the No. 1 risk to the Canadian economy is a housing bubble. Good grief! How on earth did rock-stable, good-banking, solid-regulating Canada end up on the edge of a possible real estate crisis? Simple. In Canada as elsewhere, housing is a political business policymakers find irresistible. There’s always some government policy — low interest rates, first-time home-buyer incentives, high-ratio mortgages, mortgage insurance, capital gains exemptions, interest deductibility — available to government agencies to bolster the feel-good business of home ownership.

It’s a global phenomenon, from Ireland to Spain, from Britain to the United States. Housing bubbles — rocketing prices following by plummeting prices — are not new to the world economy. The last decade, however, has left an unprecedented trail of housing price chaos and disaster. The similarities from one country to another are unmistakable.

We saw what was happening in the states, and still the government moved amorts from 30 to 40 years and flooded the housing market with money. Where did they expect this to lead?

Condo holes across Vancouver

Much has been made about the huge number of condo towers under construction in Toronto, but here in much tinier Vancouver we’re not doing so bad.

There are currently 16 towers in progress and 67 more in the works.

With population growth and prices on the retreat will there be enough buyers for all these new units or are we over-saturating the condo market?

Cameron Muir says don’t worry:

“Prices have been pretty flat since 2009,” Muir said. “There’s ample supply in the market place, but we are seeing prices at a steady pace.”

The fact more condos than single-detached homes are being built in Greater Vancouver is nothing new, said Muir, as condo starts have consistently made up about 75 per cent of all housing starts in the last several years. “It’s a function of land supply.”

Consumer demand during the last several months is trending on a 10 to 15 year average, he added.
One indicator, says Muir, of the demand-and-supply balance in the marketplace is the sales-to-new-listings ratio.

In Vancouver last month, the ratio, at 15.3 per cent, inched closer to a buyer’s market – but sits within the balanced range of between 15 to 20 per cent.

There hasn’t been a sustained buyer’s market since the recession hit, between late 2008 to early 2009.

..And of course it’s starting to smell like 08/09 again with the Eurocrisis and global economic sluggishness, but is it different this time?

Here’s one thing that’s different: Out in Burnaby yet another condo presale had a lineup, but what a waste of time for the participants according to VMD:

re: polygon’s “MODA” presale in Burnaby that opened today, with some people camping since Monday…

sold today: 138
total units: 249
ratio: 55%

yawn.

Wow. Can you imagine waiting in line for a week for something that sells only 55% of inventory?

Fizzle.

The new lending guidelines

Those new OSFI guidelines for CMHC mortgages are still ‘coming soon’, but the Vancouver Sun has an article up outlining the current state of the guidelines and predicting they will be announced in the next few weeks.

They’ve softened some since the first concepts floated out there by OSFI, but as a batch of changes that occur all at once they still stand to have a marked impact on the market.

Here’s the list of predicted new guidelines:

. Home Equity Line of Credit mortgages reduced from 80-per-cent financing to 65-per-cent financing.

. Lines of credit to be either amortized, or amortized after a specified period of time (no more never-never plans).

. More stringent income requirements for self-employed borrowers.

. All mortgages to be reviewed upon renewal (currently as long as payments are made, it is unlikely for a bank not to offer a renewal to a client).

. Funds from cashback mort-gages are not allowed as a source of down payment (currently only a handful of lenders allow this, but it does mean that “zero down” mortgages are technically avail-able, but with some restrictions.)

. Use of the five-year posted “benchmark” to qualify uninsured terms of one to four years and all variable terms (currently most lenders use a three-year posted or a lower rate to qualify uninsured mortgage.)

. More limits on underwriting exceptions (many recent applications don’t fit the ever shrinking “boxes” with the banks, which means fewer common-sense deals will get approved.)

. Home insurance to be included in debt-servicing ratios (it is currently not included.)

. More public disclosure of statistics pertaining to institutions’ mortgage practices.

. More accountability from management to ensure lenders are adhering to their underwriting guidelines.

If these changes are implemented I guess we’re going to find out how much of our real estate market is supported by those who are stretching beyond their means.

An isolated unfriendly town?

When you smile and say hello to people do they glare back at you?.

A recent study says Vancouver is not a very friendly city:

Talk to people in Metro Vancouver about their interactions with others, and similar stories abound. Newcomers to the city talk about going weeks without anyone offering to show them around or invite them for dinner. Apartment dwellers talk about distrusting their neighbours to the extent that they’re afraid to let their children play unsupervised outside.

And because this is Vancouver, everything comes down to real estate:

Significantly, more than half of respondents agreed that Vancouver is becoming a resort town for the wealthy and that there is too much foreign ownership of real estate. This view was particularly common among people aged 25-34, a group whose responses to many survey questions revealed a marked cynicism about the state of their communities compared with other age groups.

And it’s not just desirable to the wealthy with a longing for rain, it’s also irresistible to the homeless. But how do we house them?

A handful of people, including Vancouver assistant director of housing policy Abi Bond, sketched out a plan to transform a cargo ship into a green-roofed utopia. They proposed a kayak co-op for commuting to and from the shore, filtered seawater to drink, and occasional rotation of the hull so the container-homes on both sides could get southern exposure.

Other suggestions ranged from tweaking property tax laws to building tiny apartments atop warehouses. The prevailing attitude seemed to be that the current crunch in the least affordable city in North America was caused not by a lack of housing supply, but by a dearth of creativity.

I’ve heard housing bubbles justified by a lot of things, but I must admit ‘a dearth of creativity’ is a new one.

Homebuilder says it’s a great time to buy

Before I make a major investment, I always like to do a bit of research and consult an expert.

Before I buy a new car I always ask a car salesman if it’s a good time to buy. They’re the experts after all.

And when it comes to real estate, who better to ask than a builder if it’s a good time to buy?

Looking at 2011 numbers related to the economic impact of residential construction in B.C., we can easily see that this industry is a massive contributor to British Columbia’s well-being and future success, as well as a huge indicator of the province’s economic climate. Just think: For every single home we build, 3.5 person years of employment are created and more than $60,000 is generated in spinoff spending.

Ah yes, it’s not just a good time to buy, it’s the right thing to do for the economy. Without Real Estate our economy would be in the crapper. What could possibly go wrong?