Vancouver Condo Info

Look at these chicken littles at the International Monetary Fund:

The world has a 25 per cent chance of tipping into recession this year and next, and countries in trouble should pull out all their policy stops to make sure it doesn’t materialize, the International Monetary Fund says.

The global expansion which has endured for years is now at risk because the U.S. slowdown will likely stick around well into 2009, the IMF projects in its latest global economic forecast.

Canada’s economy will muddle through, however, with sub-par growth, the forecast suggests.

“The global expansion is losing speed in the face of a major financial crisis,” the IMF warns in its global economic outlook, released Wednesday morning in time for this weekend’s high-profile meeting of economic policy makers in Washington.

You know what you need to do. Go out there and buy more stuff! Take on more debt, get all the credit you can and together we can keep this thing from falling off the rails. Why are you just sitting there? Get out there and buy something!!

The Canadian Real Estate Association is predicting the Canada resale housing market will remain ‘at or near record levels’ this year.

“The statistics again show just how different the housing markets are in Canada and the United States. Canadian realtors know that Canadian mortgage lenders correctly see that home prices will continue rising.”

The association sees three factors that it believes will save Canada’s housing markets from the woes engulfing the sector in the United States: consumer confidence, employment and affordable interest rates.

CREA economist Gregory Klump said the market will pull back from the “breakneck pace” of 2007, but this is still forecast to be the second-busiest year on record in almost all provinces.

Average prices are forecast to continue rising in record territory, but the increase is likely to become slower, to 5.5 per cent nationwide.

“Slower job growth, not massive layoffs, are forecast for Canada in 2008,” Klump said.

What I’d like to know is which parts of canada will rise as forecast? Are there any overpriced Canadian markets that risk a drop in prices or will we see a steady rise across the board?

note: For a comprehensive look at why all might not go perfectly for the Vancouver market check out Mohicans Bubble Uberpost over at Financial Planning and Personal Sanity.

Things aren’t quite looking up state-side yet: Countrywide Financial is starting to layoff employees and Capitol One is closing its mortgage unit, but things are certainly different up here.

The Canadian Real Estate Association has just announced that its product will sell very well this year predicting record home sales for 2007.

Klump said the home-financing market in the U.S. and in Canada are completely different.

“(Canadians) have to pass tighter credit standards in order to get home-mortgage financing,” Klump said. “So, there’s no unwinding in Canada as there has been in the States.”

Its good to know that here in Canada we’ve got higher standards for our No-Doc zero-down Neg-am 40 year specu-vestor mortgages.

BCbuds sent in this commentary from the Wall Street Journal about the risk present in loose credit markets:

In 2006, a record 20.9% of new high-yield lending was to particularly credit-challenged borrowers, those with at least one rating starting with a “C.” So far this year, that figure is at 33%. No exaggeration is required to pronounce unequivocally that money is available today in quantities, at prices and on terms never before seen in the 100-plus years since U.S. financial markets reached full flower.

Led by private equity, borrowers have rushed to avail themselves of seemingly unlimited cheap credit. From a then-record $300 billion in 2005, new leveraged loans reached $500 billion last year and are pacing toward another quantum leap in 2007.

Even leading buyers of loans, such as Larry Fink, chief executive of BlackRock, say “we’re seeing the same thing in the credit markets” that set the stage for the fall of the subprime loan market.

That article will only be available to non-subscribers for a few days, but there are articles popping up all over on the same issue. Here’s one in the Globe and Mail:

“One of the biggest risks is the potential for a shift in liquidity,” Royal Bank of Canada president and chief executive officer Gordon Nixon said at the conference’s plenary session.

The furious pace in the growth of financial assets around the world - owing in no small part to the explosion of hedge funds and private equity - raises the risk that, for example, a sudden rise in interest rates could lead to the reduction or even the drying up of that liquidity, he said.

A tightening of credit and a drying up of liquidity would have an impact on all markets, from stocks to real estate. Is this really something to worry about, or are these voices just crying ‘wolf’?

There’s an article on MSNBC today about the ongoing US housing market woes:

Housing developers are being squeezed by tighter lending standards for borrowers trying to get mortgage loans. In response to weak demand, developers are cutting prices and offering buyer incentives to cope with a mounting supply of unsold homes, the National Association of Home Builders said Monday.

The trade group’s housing market index, which tracks builders’ perceptions of current market conditions and expectations for home sales over the next six months, fell to 28, the lowest reading since February 1991, the NAHB said.

So much for David Lereahs thought from May 2006 that ‘this may be the bottom’ of the US housing slump. I have a feeling if economic reality hits the Vancouver real estate market you’ll be hearing a lot of that from local ‘experts’, and just like bears that say ‘a correction is coming’ one day they will likely be correct.

The steady increases in mortgage rates got another bump this morning with predictions of more to come. We’re now at a five year record high for rates:

A flurry of increases in the past month has sent Canadian mortgage rates to their highest level in more than five years, and consumers shouldn’t expect a return to the low interest rates they enjoyed in the first half of the decade.

Interest rate hikes by the Bank of Canada to curb inflation, coupled with a slowdown in China’s economy, are likely to snap the country out of the falling interest rate environment it has been in since 2001, said Benjamin Tal, senior economist at CIBC World Markets.

Canada’s chartered banks are already pricing in rate hikes the Bank of Canada is expected to make later this year. Royal Bank of Canada has raised the posted rate for a five-year, fixed mortgage to 7.44 per cent, the highest since April, 2002.

Former federal reserve chairman Alan Greenspan can’t stop saying ‘boo’ to the boom. Today he warned of the potential for a big drop in the Chinese stock market and fallout for the global economy.

Addressing a meeting in Madrid via teleconference, Greenspan said the recent boom in Chinese stocks could not last.

“It is clearly unsustainable,” he said “There’s going to be a dramatic contraction at some point.”
…

“In the last five years, the world as a whole is a growing faster than at any time in the world’s history,” he said. “It can’t last and it won’t last because it’s a one-shot adjustment.”

Greenspan said asset prices around the world could fall but that the economy may escape unscathed if it were flexible enough to absorb asset price shocks.

“We will get major declines in certain levels but it need not feed back significantly to levels of employment or the real economy,” he said.

Earlier this month, Greenspan reiterated that he believed there was a one-third chance the U.S. economy, the world’s largest, would slip into recession this year.

Jeez, maybe they should call the guy ‘gloomspan’ his announcement today gave some investors jitters and knocked the North American market back a bit. Just to be safe I’m going to buy some local real estate because I hear prices can never go down there.

Paulb pointed out this article in todays Globe and Mail about the drag that the US Slowdown is putting on Canadian exports. The Bank of Canada says that slower growth in the US is expected to ’suck the heat’ out of the Canadian economy which will balance higher inflation here. In its semi-annual outlook the BOC says that they expect inflation to reach 3% by the end of this year.

“With the U.S. slowdown now expected to be somewhat more prolonged, net exports should exert a slightly greater drag on growth in 2007,” the outlook says. “All told, the Canadian economy is expected to expand at a rate slower than potential through 2007, and in line with potential through 2008 and 2009.”

Potential is considered to be about 2.7 per cent growth annually.

Total inflation is expected to return — on its own accord — to the bank’s 2 per cent target by mid 2008, the bank said, but will peak at about 2.8 per cent in the fourth quarter of this year.

Core inflation — which excludes food, energy and other volatile items — will remain above 2 per cent for a few months, returning to target by the end of 2007. Although housing prices are no longer a concern to the bank, capacity pressures will keep core inflation high.

I’m always suprised at how specific they get with their predictions - How has their track-record been for previous BOC outlooks?

Reductimat just gave me the heads up on this story: The B.C. Real Estate Association is seeing lower home sales and more inventory going into this spring and they predict this trend will go on due to affordability problems cutting into demand from first time buyers.

The Association’s Chief Economist Cameron Muir says BC housing starts will likely drop 7% this year and a further 6% in 2008. He says the BC market is starting to return to more balanced conditions, and the demand for housing has dropped a bit.

Muir says that’s good news for some home buyer’s deep pockets because there’s more inventory to choose from, and less sales pressure to put a bid on a home right away.

Theres a bit more detail in this story in the Sun where there’s no prediction of lower prices, just less demand and more supply.. clearly they’ve studied some esoteric economics courses that I’m not familiar with.

CIBC World Markets says that the average Canadian house price will double in the next 20 years:

Yes, the number of people aged 45 to 54 is expected to drop by 2.5 million by 2026 as the baby boomers age. But this age group accounts for only 12 per cent of the housing demand, it said.

Most home purchases take place when people are younger. CIBC says 68 per cent of all first-time home buying is done by people aged 25 to 44. That group is expected to decline only slightly in the coming two decades.

So only slightly less demand = double prices. They base their prediction on three factors:

-Interest rates are expected to stay low
For twenty years? Wow! That’s some crystal ball!

-Immigration is expected to increase
Good thing since its so much lower in BC now than the 90’s.

-New mortgage products will make home ownership more accessible.
What great news! You wouldn’t happen to offer any of those would you CIBC? You know, like those great 60 year mortgages in Japan?

Update: Cailin points out the obvious spin on this story. If all these positive factors come into play and house prices ‘double’ in the next twenty years that works out to be about 3.75% a year compounded, or a bit less than a presidents choice savings account, but I guess that doesn’t sound quite as impressive huh?