Author: Kirsten Mason

This article appeared in the Globe and Mail on December 30th, 2011 and was written by Katherine Scarrow.

As global housing markets coughed and sputtered in 2011, Canada’s barrelled ahead, even turning a few nervous heads along the way.

In fact, recently the Economist branded Canada one of the nine countries where “home prices are overvalued by about 25 per cent or more,” and among the four where prices are in line with those in the United States “at the peak of its bubble.”

Is there really a cause for alarm? Are we doomed to ride this white-knuckled roller coaster in 2012? Probably not, according to Benjamin Tal, deputy chief economist of CIBC.

“The housing market of tomorrow will not be as exciting as the housing market of yesterday,” he said in an interview.

While the current real estate market is overshooting, with home prices far higher than than they should be, we shouldn’t expect a crash either, he explains. As long as interest rates remain relatively low and subprime mortgages kept at bay, the most likely scenario is that the market will plateau.

“Prices are already softening, housing starts aren’t in the sky, MLS [multiple listing service] activity is starting to soften, so it suggests the market is already starting to level off, and that’s what we need,” he said.

How will a more relaxed real estate market affect new home buyers, investors and renovators in 2012? Here are Mr. Tal’s predictions:

1. First-time home buyers

• Affordability and interest rates will be the major concerns in 2012. Prices will continue to be expensive, especially in urban centres like Vancouver and Toronto, since interest rates are likely to remain low for the time being.
• But rates won’t stay low forever, which is why you should estimate mortgage payments based on interest rates that are 2 or 3 percentage points higher than current interest rates, and if you cannot afford that, get a smaller mortgage and buy a less expensive house.
• Expect an end to bidding wars, or at least a temporary ceasefire. New home buyers will have the luxury of time in terms of looking at properties without being rushed into decisions. That’s the positive. The negative is that prices continue to be drastically higher than they were five or 10 years ago.

2. Investors and flippers

• If you’re in it to flip it – meaning you buy a home hoping the price will rise by just doing minimal changes – those days are over.
• In some pockets of the country, you may even see prices go down.

3. Renovators

• The cost of renovations will not increase significantly so long as interest rates remain at their current level, so it’s a good idea to take advantage of this time to finance these projects.
• For those looking to take on a second mortgage, remember to make sure you’re equipped to finance them if interest rates creep up.
• Variable-rate mortgages are still a good option for those who are able to withstand fluctuations in the market and “ride the ups and downs without getting a stomach ache.”

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This article appeared on the Vancouver Sun’s Website on December 20th, 2011 and was written by Tracy Sherlock.

Canada’s real estate market is strong compared to its global counterparts, but the boom has lasted longer than in most other countries and shows signs of waning, a Scotiabank report said.

“The Canadian housing market remains an outperformer among advanced nations, with real home prices up 4.8 per cent year over year in [the third quarter],” Scotiabank’s Global Real Estate Trends report said. “While the sector’s continued buoyancy is impressive, monthly data through November suggest prices have levelled off since the spring, with conditions in the majority of local markets in ‘balanced’ territory.”

The report credits “ultralow” interest rates with continuing to attract buyers, while economic uncertainty and some recent slowing in hiring are possible dampers on demand in Canada. Canada is at the top of the 10 countries included in the report. Five countries — the U.S., the U.K., Ireland, Spain and (to a lesser extent) Italy — show average house prices significantly lower than their peak values, while the other five countries — Canada, Australia, France, Sweden and Switzerland — still show average prices at or near record highs.

The cycle of rising real home prices is long, lasting on average 12 years, according to the Scotiabank report.

“Italy’s boom was the shortest at eight years, while Ireland and Sweden count 15 years. Canada’s ongoing housing boom is in its 13th year,” the report states.

Canada’s house prices did not rise as steeply as those in other countries, with inflation-adjusted average home prices up 85 per cent since 1998, according to the report.

“Canada’s residential real estate boom started several years later than many of its counterparts, with the economy still feeling the effects of the deep recession of the early 1990s and weak labour markets through mid-decade,” the report says.

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