Category: National Real Estate News

The Canadian Real Estate Association released this article on February 8th, 2011. Click on the images below to enlarge.

OTTAWA – February 8, 2011 – The Canadian Real Estate Association (CREA) has revised its 2011 forecast for home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards and Associations, and extended it to 2012.

“Home buyers recognize that low mortgage interest rates represent a once in a lifetime opportunity. At the same time, they expect that rates will rise, so they’re doing their homework in order to understand what it could mean in terms of higher mortgage payments down the road before they make an offer,” said Georges Pahud, CREA President. “The housing market and buyer psychology is different now than it was at the beginning of last year, so buyers and sellers would do well to consult their REALTOR® to understand local market trends.”

The upward revision to CREA’s forecast for 2011 reflects recent improvements in the consensus economic outlook and a further expected improvement in consumer confidence. National sales activity is now expected to reach 439,900 units in 2011, representing an annual decline of 1.6 per cent. In 2012, CREA forecasts that national sales activity will rebound by three per cent to 453,300 units, which is roughly on par with the ten year average.

“Recent additional changes to mortgage regulations will further ensure that buyers don’t buy more home than they can afford when interest rates inevitably rise,” said Klump. “The announcement of the new changes to mortgage regulations will likely bring forward some sales into the first quarter that would have otherwise occurred later in the year, particularly in some of Canada’s more expensive housing markets. This is expected to produce a milder version of the volatility in sales activity that we saw last year which resulted from additional transitory factors.”

Three transitory factors contributed to volatility in sales activity last year: changes in mortgage regulations announced last February, the early withdrawal by the Bank of Canada of its conditional commitment to keep interest rates on hold until the second half of 2010, and the introduction of the HST in BC and Ontario during the summer of 2010.

CREA expects that home sales activity will gain traction after dipping in the second quarter as the economic recovery and job growth continue, incomes grow, and consumer confidence further improves. “Even though mortgage interest rates are expected to rise later this year, they will still be within short reach of current levels and remain supportive for housing market activity. Strengthening economic fundamentals will keep the housing market in balance, which will keep home prices stable,” said Klump.

The national average home price is forecast to rise 1.3 per cent in 2011 and 2012, to $343,300 and $347,900 respectively. Average price is expected to rise modestly in most provinces, reflecting the continuation of a healthy balance between supply of, and demand for, homes listed for sale. Although the supply of new listings is expected to trend higher, the expected continuation of sellers’ market conditions in Manitoba is forecast to result in a bigger percentage increase in average price in 2011 and 2012 compared to other provinces.

* Provincial weighted average price for Quebec; does not affect unweighted national average price calculations. Information on Quebec’s weighted average price calculation can be found at:
http://www.fciq.ca/immobilier-economiste.php

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This article appeared in the Globe and Mail on February 3, 2011. It was written by Steve Ladurantaye the Globe and Mail’s real estate reporter.

Higher interest rates could “easily” cause Canadian home prices to collapse, Capital Economics warned in a bleak report that suggests the housing market is likely to suffer the same sort of crash that has plagued countries such as the United States. The report suggests that house prices in Canada have climbed at the same pace as the United States, but have not fallen at the same rate. In the United States, some markets have seen prices fall as much as 50 per cent through the recession.

As the Bank of Canada raises interest rates, mortgages will become more expensive for consumers. Add inflation to the mix, and Capital Economics predicts prices could fall 25 per cent over the “next few years.”

“Even small rises in official interest rates have been shown to have a big effect on homeowner confidence in other countries under similar circumstances as they can change perceptions toward the housing market very quickly,” Capital Economics economist David Madani said. “If the Bank of Canada does resume its monetary tightening this year, this could easily prove to be a tipping point for a house price collapse.”

Other market watchers expect higher rates to hinder price gains, but few are calling for as sharp a drop. The Canadian Real Estate Association expects sales to fall 9 per cent this year, for example, but prices are only expected to drop 1.3 per cent. It hasn’t issued a forecast beyond 2011.

Bank of Nova Scotia economist Adrienne Warren said it’s difficult to compare the Canadian situation with the American because Canada’s gains have been based on a strong economy – relatively speaking – as opposed to easy lending.

“We lack the triggers that prompted the U.S. market to crash,” she said. “I think what you see is prices staying flat as incomes rise over the next few years.” Such a scenario could lead to home prices that are flat over the next five years, as personal incomes catch up.

“I think some markets may be overvalued and they can’t stay that way forever,” she said. “If you look at the longer-term trend in ratios, we could say things are overvalued by about 10 per cent, which is typical at the end of a boom. But there are so many different measures – it’s just safe to say that eventually you see a softening in prices.”

The country’s bank economists have varied short-term forecasts, but there are no expectations among the largest forecasters that a crash is inevitable, or even likely.

Some have suggested drops of 10 per cent may be in order next year as mortgage rates move higher and households struggle to service record debt loads, and the Bank of Canada specifically mentioned the prospect of “a more pronounced correction in the Canadian housing market” as one of three key risks to the country’s economy. However, real estate sales data from the autumn market showed that fewer houses have been listed and prices were largely unchanged from a year ago.

Capital Economics chief concern is that as the central bank raises rates, variable-rate mortgages become more expensive and homeowners could find themselves priced out of their homes. Fixed-rate mortgages are tied to government bond yields, but would move in the same general direction. If a homeowner is already stretched financially, any hike could prove problematic.

However, a survey by the Canadian Association of Mortgage Professionals released late last year showed that Canadians are confident they could shoulder higher mortgage payments without too much difficulty, with 84 per cent saying a $300 monthly increase was no problem.

If prices do fall as far as Mr. Madani predicts, “the knock-on effects to consumer spending and housing investment could be significant and perhaps even strong enough to push the economy into another recession,” he said.

Capital Economics also warns that a crash in prices could cost Canada Mortgage and Housing Corp., which insures high loan-to-value mortgages, a loss of as much as $10-billion.

In January, the federal government shortened the maximum amortization period for mortgages to 30 years from 35 to rein in Canadians from taking on more debt at a time when it is at record highs. While most private sector watchers expect the market to pull back in the second half of this year after a strong two-year run, the Capital Economics call for a 25-per-cent drop is the harshest.

After hitting record highs in May, the Canadian market did slow down, and ground to a halt across most of the country through the summer. Recent data from the Canadian Real Estate Association has many economists predicting a “soft landing,” however, with activity returning at a lower level and prices holding steady rather than rocketing higher each month as they have through the recovery.

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This article appeared on CTV News on Monday, January 17, 2011.

Finance Minister Jim Flaherty announced new rules for Canadian mortgages on Monday that he said will “protect the stability of the economy.” Flaherty’s announcement comes on the heels of a recent warning from the Bank of Canada that Canadians’ domestic debt burden is the highest on record.

The Monday announcement included three new rules for the mortgage industry:

• Mortgage amortization periods will be reduced from 35 years to 30 years.
• The maximum amount Canadians can borrow to refinance their mortgages will be lowered from 90 per cent to 85 per cent of the value of their homes.
• The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.

“Taxpayers should not bear any risk related to consumer debt products unrelated to house purchases. Those risks should be managed by the financial institutions that originate and offer these practices,” Flaherty said Monday.

The new restrictions are intended to ensure that Canadian don’t slip into unmanageable debt, which could throw the economic recovery off the rails, he said. “Today’s measures are about our government continuing to protect the stability of the economy by ensuring lenders’ practices are sustainable, which will in turn ensure Canadian families have increasingly secure and sustainable home ownership.” “This will also help increase the savings of Canadian families, savings of tens of thousands of dollars over the life of a mortgage.”

BNN’s Michael Kane said Flaherty is clearly concerned that Canada’s low lending rates have inspired people to borrow more than they would normally. “What he is saying, and he reiterated this two or three times, is we see Canadians borrowing to the max at record low interest rates, and what he is afraid of is that when interest rates to start to rise…then you can get into a dangerous situation where you can’t pay down your mortgage,” Kane told CTV’s Canada AM.

The Bank of Canada announced earlier this month that Canadians’ domestic debt burdens had hit the highest levels on record. The bank said the ratio of household debt to disposable income has reached 147 per cent. Canadian household debt is now at $1.4 trillion, while mortgage delay payments have increased by 50 per cent. The International Monetary Fund recently warned that household debt is the number one risk to the Canadian economy.

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This article appeared on January 6th, 2011 on CTV.ca.

TORONTO — The Canadian real estate market will follow a similar pattern this year as that seen in 2010 as buyers pull sales forward into the early months in anticipation of higher interest rates, according to a report from one of Canada’s largest real estate firms.

The aftershocks of the recession, including a lingering low interest rate environment, will continue to influence the Canadian real estate market in 2011 — a year that will be stronger than expected, said the report released Thursday by Royal LePage.

Royal LePage predicts that average home prices will rise three per cent to $348,600 in 2011, driven largely by a rush to buy in the first half of the year in advance of anticipated interest and mortgage rate hikes in the second half.

“Canadians realize that interest rates are unsustainably low and that homes will become effectively more expensive when mortgage rates return to normal levels,” said Phil Soper, president of Royal LePage.

“2011 is expected to unfold much like 2010, when close to 60 per cent of sales volume occurred in the first half of the year in anticipation of interest rate increases that never materialized.”

However, the number of transactions will be slightly lower than last year and activity will be modestly closer to the norm because the pull forward phenomenon last year was exacerbated by a tightening of mortgage qualification rules and the introduction of the HST in Ontario and British Columbia in the middle of the year.

Soper said the extension of low mortgage rates will be an unexpected boon to the market this year.

“Like many Canadians, we anticipated an end to the ultra-low interest rate era before year-end 2010,” he said.

“Paradoxically, global economic weakness, particularly in the United States, allowed policy-makers and financial institutions to keep borrowing costs low, resulting in a stronger Canadian housing market and a better than forecast fourth quarter.”

Average house prices rose between 3.9 per cent and 4.6 per cent in the fourth quarter of 2010, while price appreciation is expected to continue a moderate and steady climb throughout the current year.

The report contrasts with some recent predictions by economists that prices should remain flat or decline over the next year.

The Canadian Real Estate Association has predicted prices will fall by 1.3 per cent to a national average of $326,000, this year, tied to weakness in British Columbia and Ontario — the hottest real estate markets of 2010. It has also forecasted a nine per cent decline in sales.

CREA has yet to release year-end data for 2010, but preliminary reports from two of the biggest markets, Toronto and Vancouver, released this week indicate 2010 declined as expected.

Sales were down by one per cent compared with 2009 in Toronto, while the average home selling price was $431,463, up nine per cent from 2009.

In Vancouver, sales declined 14.2 per cent from 2009, and were 10.3 per cent below the 10-year average for sales in the region. The average selling price in B.C.’s largest city was up 2.7 per cent at $577,808.

Canada’s real estate market has been on a rebound over much of the past year after sales dried up in late 2008 and hit a multi-year low in January 2009.

The housing market’s sudden plunge was sparked by a credit crunch that developed in the U.S. housing and lending industries, and gradually spread across the globe, causing a worldwide recession in the late summer and early fall of 2009.

The commercial real estate market experienced a similar plunge as investors lost confidence in the sector.

However, the commercial market, which includes office and retail spaces, had a stronger than expected year in 2010 and that momentum is projected to strengthen throughout 2011, according to a report released Thursday by CB Richard Ellis Ltd.

Some market observers had predicted a glut of vacancies in Canada’s major business centres, but that didn’t happen, said John O`Bryan, vice-chairman of CB Richard Ellis Canada.

We`ve had good news over the past twelve months with respect to interest rates, housing trends and employment gains, with many companies announcing plans for expansion, he wrote in the report.

“2011 may well be another good, stable year but should be viewed with cautious optimism in light of the concentration in employment growth on part-time jobs rather than the full-time positions that indicate confidence in long-term, sustainable growth.”

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