Archive for the ‘prices’ Category

Are you ready for higher interest rates?

Tuesday, January 27th, 2015

That seems like a really weird question as rates continue to drop.

But over at the Vancouver Sun, Barbara Yaffe says ‘Prepare now for interest rate shock‘.

On top of the Bank of Canada recent surprise .25% rate cut there are a number of people predicting another cut coming this year, so why worry about interest rates at all?

The size of the average mortgage on a dwelling in Greater Vancouver is $400,000, reports Jeff Johnson, mortgage broker at Cloverdale-based Dominion Lending Centres Canadian Mortgage Experts, with offices in B.C. and Alberta.

That jumbo figure is based on the average 2014 value of a Vancouver property, $801,000, and a Canadian Association of Mortgage Professionals survey last year showing the average equity position assumed by borrowers is 50 per cent.

Johnson notes that if interest rates rise in 2015 by even just half a percentage point, monthly payments on a typical variable rate $400,000 mortgage could increase by $100 to $1,872.

“And this is the best case scenario, as rates could continue to slowly increase (thereafter).”

Elyea points out such increases would be coming on top of 2015 hikes imposed on B.C. residents for MSP premiums, car insurance and BC Hydro.

And it is worth remembering British Columbians have more modest employment earnings than elsewhere in Canada. The B.C. average weekly wage last year was about $890, compared to $940 across Canada.

Ok, sure. But we know all that already. How long have we been hearing the warnings about ‘being ready’ for rate increases while they just stay down at record lows or continue to drop?

It’s like that old story ‘The Boy who cried Wolf’.  Eventually the villagers get sick of hearing all the false warnings, learn to ignore them and live happily ever after.

RBC first to cut mortgage rate

Monday, January 26th, 2015

Last week when the Bank of Canada announced their surprise rate cut none of the big banks seemed to be in a rush to announce lower lending rates on mortgages.

We asked which will be the first lender to lower mortgage rates and now we have the answer:

RBC is the first to cut mortgage rates as bond yields plunge.

Royal Bank, the country’s second-biggest lender by assets, offered a five-year fixed rate of 2.84 per cent on Jan. 24, down from 2.94 per cent last week, according to rate-tracking website Ratespy.com. That’s below RBC’s posted rate of 4.84 per cent. The bank also trimmed its three-, seven-, and 10-year rates, according to CanadianMortgageTrends.com, an industry news website.

Race to the bottom or just a good time to renew?

Deutsche Bank: Canada is 63% overvalued

Tuesday, January 13th, 2015

If there was a competition for ‘most bearish outlook’ on Canadian real estate Deutsche Bank would take home the prize.

When local banks say real estate is overvalued in Canada they usually go with a safe 10-20% figure.  The Bank of Canada recently said 10-30% overvalued which is pretty damn bearish, but not quite as extreme as this.

Research by Deutsche Bank chief international economist Torsten Slok even manages to out-bear the Economist Magazines estimations:

Broken down, Slok sees the market as being 35-per-cent overvalued when compared to incomes, and 91-per-cent overvalued when compared to rents. That’s a more bearish assessment than most. The Bank of Canada estimates the market is overvalued by between 10 per cent and 30 per cent.

But those are similar numbers to those at the Economist magazine, which for years has been calling Canada’s housing market overvalued. It pegs the overvaluation at 32 per cent, when compared to incomes, and 75 per cent, when compared to rents.

“Canada is in serious trouble,” reads the title of a chart from Slok’s report, showing Canada’s household debt, as a percentage of income, climb to 50 per cent above current levels in the U.S.

See the charts and read the full article here.

 

Happy New Year!

Wednesday, December 31st, 2014

As 2014 draws to a close and we move into 2015 here’s hoping your future is a bright one.

Some of you will buy property this year, some of you will sell, some will rent and others will move away.  Whatever 2015 holds for you it’s always good to keep some perspective.

Whether 2015 sees rising or dropping house prices in Vancouver we hope both sides of the debate will treat each other with a reasonable amount of respect – we’re all just trying to get by the best we can.

Happy New Year and here’s to an excellent 2015 for all of you!

House prices driving away key workers?

Monday, December 29th, 2014

High housing prices in Vancouver are driving away the key working demographic of 25-40 year olds – more are moving to other provinces than moving in from other provinces.

This article was pointed out by crikey.

Despite the challenges, numerous companies interviewed by Reuters said most of their staff are willing to make sacrifices — like long commutes or raising kids in shoebox condos — for the benefit of Vancouver’s mild climate and outdoor lifestyle.

But those same companies, such as Vancouver-based retailer Mountain Equipment Co-op, also had examples of key hires who ultimately turned down jobs because of the high home prices.

It’s an issue Craig Hemer, an executive recruiter with Boyden, has been grappling with for the better part of a decade.

Hemer has learned ways to soften the blow — selling older executives on the idea of downsizing to a luxurious downtown condo and convincing those with families that suburban life offers more amenities for kids.

And how do the companies react to this challenge?

Companies too are shifting their policies, with some offering car allowances and transit subsidies. Others are opening small suburban offices or allow staff to telecommute from home.

But that isn’t always enough, especially in Vancouver’s start-up scene. Executives say it is easy enough to hire junior staff, but a dearth of experienced engineers and technology workers makes it hard to grow past a certain point.

“There’s just not enough high calibre people here. They all leave when they realize they can make more money in other cities and live there for cheaper,” said Simeon Garratt, chief executive of Spark CRM, a property-focused tech start-up.

“We debate at least once a month whether we should just move to Toronto.”

Read the full article here.

Vancouver and Toronto ‘Desperation’ cities?

Tuesday, December 23rd, 2014

Over at the Globe and Mail Rob Carrick points out that real estate is expensive in Calgary, Toronto and Vancouver calling them ‘Desperation cities‘.

But let’s get real.  Not being able to afford a condo isn’t a ‘desperate’ circumstance.

Maybe it’s the fall out of overpaying he’s talking about though…

The theme in housing market forecasts for 2015 so far is steady pricing. Some markets will more or less be flat, while the Big Three markets could rise 3 to 4 per cent. What more could go wrong if you’re struggling to save enough money to buy a first home? Here’s something: You buy and then have to deal with a shock to the economy. Something like a plunge in oil prices that undermines growth and hurts the job market, for example.

In any case if you have shelter, enough food and the company of loved ones you’re pretty lucky on a global scale.  Maybe you’d be happier with granite countertops, but then again maybe you wouldn’t.

 

As oil, so goes Real Estate?

Wednesday, December 17th, 2014

Over at the CBC Don Pittis notes that what goes up can also go down.

Specifically, he notes that in the oil market there were a number of ‘experts’ with access to detailed data and analysis, yet seemed to be as surprised as anyone at the drop in oil prices.

Canadas housing market is of course a completely different beast, and we don’t really lack for ‘experts’ noting that prices are a bit out of sync with reality.  When the Finance Minister speaks up and the Bank of Canada estimates that real estate is as much as 30% overpriced nationwide that’s not exactly ‘without warning’.

Pittis notes another key difference between oil and housing is of course the liquidity of the market:

This is one example of how housing is different from oil. While oil trades on big, well-informed central trading desks by large corporations, housing is a market made of individual, many of whom have only bought and sold a house once in their life.

Partly because of that, housing is an illiquid market. Unlike stocks or oil, you can’t just sell a house at today’s price and get out. You have to go through the long process of finding another individual who wants to buy your exact house at a price at which you are willing to sell.

In previous housing downturns that has meant a stock of overpriced houses builds up because buyers are unwilling to pay the price sellers expect.

At that point, prices in the market are set by people who have to sell immediately and will take the price offered. Sudden divorces. A new job across the country. A death in family. People who can’t afford to keep up their payments. Overpriced properties waiting for their price actually fall in value while the seller waits.

Read the full article here.

Subprime lending in Canada ‘rockets’ to record high

Tuesday, December 16th, 2014

It’s a been a while since CMHC mortgage lending rules have been ramped back to more historical levels.

After dabbling in American style 40 year zero down mortgages we decided that might not be the best idea. Unfortunately we never did get the American style locked in interest rate for the full duration of the loan.

So now we’re back to 25 year terms and it’s more difficult to get a loan if you’re self employed.  A lot of loan applications that would have been approved a year or two ago are now being rejected.

So what affect has this had on the market so far?

Well apparently the sub-prime lending market in Canada has rocketed to a record level for one.

Capital Corp is a non-bank lender that has been operating since 1988. Their chief executive Eli Dadouch says there’s a lot of money out there for non-bank loans to higher risk borrowers.

He said there is no question it’s the top of the real estate cycle, so anybody lending out money has to be more careful today.

“People always want to deal with a bank, it’s the cheapest form of money,” he said. “When they come to us and people like us, it is because there is some type of story [behind why they can’t get credit]. It’s easy  to lend money, the talent in this business is getting it back.”

Read the full article in the Financial Post.

 

Does the Bank of Canada Think Real Estate Buyers are Suckers?

Wednesday, December 10th, 2014

Some of you are under the impression that Bank of Canada Governor Stephen Poloz does nothing but sit around all day eating Doritos and watching The West Wing on Netflix, but you are sadly mistaken.

He also issues reports that freak out Realtors.

Consumer debt loads and house prices that could be as much as 30 per cent overvalued are the two biggest risks to Canada’s economy, the Bank of Canada warned in its semi-annual Financial System Review on Wednesday.

Yeah, but “up to 30 percent” includes zero percent over-valued too you know? Surely not everyone is overpaying for Canadian real estate.

The bank says it’s about 95 per cent sure that house prices have been overvalued by an average of about 10 per cent since 2007. That’s based on a new forecasting model the bank says it created, which incorporates existing data from private banks and other government institutions.

Huh. 95% Sure? really? I bet it’s all a’cause of those wealthy foreigners right?

And a lot of those inflated house prices are coming at a cost of rising debt loads. About 12 per cent of Canadian households are considered to be extremely indebted — which means they have a debt-to-income ratio of at least 250 per cent. That ratio has doubled since 2000, the report notes.

Oh.

But that’s ok because younger buyers are building equity right?

Young homeowners, the bank added, have become even more vulnerable to negative shocks to income and to higher interest rates.

Wow. What a buzzkill.

*For those who followed the foreigner link we would like to offer our sincerest apologies.  If you are a glutton for punishment, here’s a video of our prime minister singing Guns n’ Roses “Sweet Child o’ Mine“. If you watch the whole thing you earn a cookie! If you cut it off at 3:33 you have to go to work at a Tim Hortons in Fort Mac. You have been warned.

 

CBC discovers the fun of ‘Compare and Despair’

Wednesday, November 26th, 2014

We’ve played this game before.

When you compare what you get in Vancouver for your housing dollar vs. some other locations you get some interesting comparisons.

The CBC has an article looking at the cheapest houses in Vancouver and how they compare to some US locations.

A new CMHC report says Canadian home prices are moderately overvalued in some cities, but Vancouver is labelled as low risk by the Crown corporation in its latest housing market assessment.

One measure used by economists is the amount of income earned by the average family compared to house prices. By those standards, prices in Vancouver are some of the most expensive in the world.

See their gallery here.

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