“What’s causing the supply shortage is the restrictive single-family home neighborhood zoning on 85% of our residential land base. That keeps out young families, middle income earners and renters, who can’t afford single-family homes,” said Anne McMullin, president and CEO of the Urban Development Institute, Pacific Region.
At first glance the new CMHC rules sounds like a minor tweak rather than a major change, and it might be just that.
When the CMHC announced the change they specified that the products being eliminated made up less than 3% of their insured mortgage products by number of mortgages. What we haven’t seen anywhere are numbers in mortgage value, and BOM pointed this out yesterday:
“The Crown corporation has been offering insurance on second homes since 2005. It has been offering insurance to self-employed people without strong income validation since 2007.”
And then read this:
“CMHC says its second home program and its self-employed-without-third-party-income-validation programs combined account for less than 3 per cent of its insurance business volumes in term of the numbers of mortgages insured.”
CHMC has a pool of mortgages insured accumulated over the last 25 years. They have only offered the products they are cancelling for 7 to 9 years but they make up 3% of that pool. Simple math indicates over the last 7 years about 10% of mortgages would have been part of the program they are cancelling otherwise it could never reach 3% of the total pool which was already significant prior to the program starting.
So how much demand was there for insured mortgages on second homes and mortgages for the self employed without income verification? The numbers may be higher than we first thought.
From the obvious files: expensive homes are expensive.
The Globe and Mail has an article about changing attitudes towards real estate by Generation Y in Vancouver.
Essentially: they are more inclined to live urban and remain mobile.
They also say that Boomers are downsizing into condos.
Ben Smith, VP of sales and marketing at Rennie & Associates, says he’s already seen a major shift in the last six months. This year he’s seen a sudden surge in demand for three-bedroom condos, purchased by downsizing boomers. Those boomers are trading their homes for spacious condos. Those same boomers are helping their kids with a down payment on their own condo, which is the only way a lot of Millennials will ever afford to live in Vancouver.
“It’s exciting, because for years we’ve been talking about this, and we’re finally seeing it happen,” he says. “There is $88-billion worth of clear-title real estate tied up with boomers. In B.C. and Vancouver especially, we are all equity and no income. If you don’t have that down payment, you don’t have a home.”
Read the full article here.
There’s a funny comfort meme in the media now that house and condo prices are falling.
Its a strange interpretation of ‘supply and demand’ that says if demand is dropping dramatically we’ll just cut back on supply to match and prices will stay stable.
Soft landing here we come!
There are a number of talking heads in the media espousing this viewpoint at the moment and If you don’t think about it too hard it kind of makes sense.
Here’s just one recent example:
Don Lawby, chief executive of the Century 21 Canada, and a charter member of the club that doesn’t see home prices dropping anytime soon, can’t see any desperation from sellers.
“The economy continues to be okay, people have jobs, interest rates are low,” said Mr. Lawby. “Historically, anytime when prices dropped it was tied to high unemployment and interest rates. It’s not the case today, people are not forced to sell, they are staying with their price.”
If people don’t have to sell, then they’ll just take their homes off the market and there’s one less property on the supply side right?
..Of course if you start thinking about it a little bit it doesn’t make as much sense. As Patriotz points out:
..most discretionary sellers are planning to buy another property, so if they decide not to sell they are also deciding not to buy.
So for those of you keeping score, that’s one less seller AND one less buyer. Kind of cancels itself out doesn’t it?
The other point that has been repeated ad nauseum but always seems to get ignored in these articles: the seller that doesn’t sell has zero affect on the market. The ONLY activity that affects the market are the sales that take place and what price the exchange happens at. That sale then sets the comp price for all neighbouring properties.
So what really drives the market?
What buyers are willing and able to pay for their desired property from buyers who either need or want to sell.
In a falling market buyers are willing to pay less, because they aren’t completely stupid. They know it doesn’t make sense to bid high on a purchase that is falling in value each month.
And how fast are Vancouver property prices falling right now? Apparently even faster than the US bubble markets were falling at their peak.
So there’s that.
But possibly even more important is the buyers ability to pay. Even if someone really wants to buy that million dollar house and thinks it’s a great deal they might not be able to. If the credit isn’t available that sale will not happen.
Recent moderation in the mortgage market will have some effect here as we return to the historical standard 25 year amortization on CMHC insured mortgages. As CMHC hits it’s mortgage cap it is also pumping less credit into the housing market now than it has been for the last few years.
Every time you read another expert talking about the lack of a ‘trigger’ to cause a collapse in the housing market it’s worth thinking about what the trigger in the US or Spain or Ireland was.
The US housing market started to collapse in 2006. 2 years later financial markets collapsed. The ‘trigger’ for the US real estate collapse was simply this: House prices were too high.
Anyone still think the housing market’s going to snap back from the weakening trend that has taken hold in the past couple of months? It’s not, so act accordingly. Adjusting our expectations about housing won’t be easy because we’ve seen prices rise dramatically. Canadian Real Estate Association numbers show an average annual price gain of 7.7 per cent over the past 10 years on a national basis.
Aman Bhangu, Pacifica’s vice-president of research, said real estate has performed a lot like stocks did before the twin stock market crashes of the past decade. “At the end of the 1980s and 1990s, you had that mantra of ‘buy and hold, stock markets always go up, just get in there.’ It’s likewise with real estate – ‘real estate always goes up.’”
Mr. Bhangu said that taking a fresh look at the fundamentals supporting the real estate sector suggests prices are overvalued today by one-third, while other estimates call for a price decline of 10 to 25 per cent from current levels. Forecasts like these are educated guesses, whereas the demographic impact on housing is rooted in basic numbers.
It’s worth reading both the original report in full, there’s lots of interesting graphs there.