A new report from CIBC is warning of an excess of rental units in Toronto and Vancouver.
They are basing this outlook on the large number of condos being built in both cities and predict a less than half point rise in vacancy rates, so ‘warning’ sounds a bit strong.
The concern is that increased competition for good renters could drive owners to sell their condos, leading to a further downturn in the condo resales market.
Economists and policy makers have worried that an “increased supply of rental units will flood the market and will lead to a wave of sales by disappointed investors with no bargaining power,” Mr. Tal writes in the report. The Bank of Canada highlighted concerns about the condo market in December when it outlined the key risks to the economy.
“A sharp correction in the condominium market could spread to other segments of the housing market with stretched valuations, as buyers and sellers adjust their expectations of the future path of house prices,” the central bank warned. “Such a correction could also have significant repercussions on the real economy, since the construction sector is an important component of economic activity.”
Read the full article here.
The Globe and Mail has an article about shifting perceptions on home ownership in Canada.
Based on a very small sample size, they are predicting that young people in Canada are becoming less willing and able to buy property.
“Last year, in a class of 29 students, a clear majority said they would buy,” Prof. Harris wrote me in an e-mail. “I was surprised because I had spent a lot of time speaking about the dangers of price bubbles, and about the opinion of most experts that the markets in many Canadian cities had moved, or were moving, into bubble territory.”
This year, only five of 23 said they’d buy and 18 chose to rent. “Although the assignment was the same and the content of my lectures pretty much the same, the pattern of response was very different,” Prof. Harris wrote.
Its certainly not what you’d call a wide ranging survey, so what do you think? Are attitudes towards home ownership changing in Canada or do all the kids still want real estate?
Previously we highlighted b5baxters comment on the 19 months that have elapsed since Vancouver home prices have peaked (according to the REBGV home price index)
Of course there are a lot of variables in the housing market, so lets look just at condos, which Crabman has ever so helpfully run the numbers on:
I calculated the bottom line if someone bought a benchmark condo 4 years ago with a 10% DP and a 4% 30-yr mortgage. I took into account all carrying costs, rent savings and principal pay down. I also assumed rent, prop tax and condo fees increased 4%/year.
Benchmark price: $380,975
Mortgage balance: $342,878
Equity: $38,098 (10%)
Est. Rent: $1,100
Condo Fees: $200
Prop tax: $89
Monthly loss: $826 (extra costs of owning vs. renting)
Benchmark price: $365,600
Mortgage balance: $317,253
Equity: $48,347 (13.2%)
Est. Rent: $1,287
Condo Fees: $234
Prop tax: $104
Monthly loss: $688
Over those 4 years, equity only increased $10,249. But the extra monthly costs of ownership over that same period were $45,498, so the owner would have saved $35,249 by renting.
So it looks like the current ‘ownership premium’ for someone who bought a Vancouver condo in 2009 is just over $35k. Anybody see any problems with those numbers?
Remember when the area of False Creek that houses the Olympic Village was an semi-industrial wasteland?
Then we all pitched in and built an enormous number of high end condos at taxpayer expense.
Now everything is awesome.
…With the exception of a few problems.
It’s a busy Vancouver neighbourhood, that according to residents is riddled with problems reminiscent of the Downtown Eastside.
Police have been called to one building 215 times since May and that is more than 30 times a month, more than one call every day.
On Friday a cab driver was robbed in broad daylight and threatened with a needle.
The Olympic Village was marketed to families, retirees and young professionals. Some social housing was always on the table but condo owners say they did not bargain for this.
“I’ve seen an unfortunate drop in the cleanliness in the area because of random pets that people have,” says one resident. “There’s definitely a lot of garbage that has been left on the street, and graffiti, some people sleep on the stoops outdoors.”
“It’s become quite strange.”
Read the full article here.
Is anyone else getting tired of all the warnings?
Be careful how much debt you take on, be careful how much house you buy, make sure to save for retirement.
Well here’s another one: Stephen Harper has been told the entire countries economy is at risk due to record debt levels and the high cost of housing.
Municipalities are asking for the government to address high housing costs, but not everyone agrees.
… Finn Poschmann, vice-president of research at the think-tank C.D. Howe Institute, said Ottawa has “little jurisdiction and almost no practical capacity to deliver housing.”
“Past attempts to do so, through CMHC for example, have produced financial disasters for the people who participated and put CMHC in grave financial situation.” he said.
“We wouldn’t want to see that again, nor the federal mortgage agency deeply underwater and as similar U.S. agencies have been, through the course of much more recent financial disasters.”
Of course our current situation is that the CMHC has been pouring money into Mortgage Backed Securities to encourage buying, they recently had to cap this program because they couldn’t keep up with the growth.
It is likely that the government could reduce the cost of housing by simply pouring even less money into MBS.