YYZ & YVR homes: more expensive than Rome, closing in on Paris!
This is some interesting data on the housing market in Vancouver and Toronto from one of the banks we deal with.
Mark Herman; Calgary, Alberta mortgage broker
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Canadian home prices really are “world class”, at least in the country’s two hottest markets.
A survey shows the price for prime residential property Toronto and Vancouver has surpassed Rome and is closing in on Paris. Vancouver is at nearly $1,400 a square foot and Toronto is a little above $1,200. (Top spot is London at more than $3,600/sq. ft.)
The survey says growing foreign investment as a key reason for the rising prices because international investors consider Canadian real estate as a safe haven.
That’s backed up by high-profile Canadian economist Sal Gautieri. He also points to domestic factors: population growth in Toronto and Vancouver (and Calgary) has outpaced the national average by about 2 to 1 over the past decade; economic prospects remain good in both cities; and low financing continues to be a key factor in pricey markets.
Downtown living the ‘new normal’
This is more support for central/ down town condos in Calgary supporting their prices as more people move to the core to avoid the commute.
Mark Herman, Calgary Alberta mortgage broker
Downtown living the ‘new normal,’ report says
Employers move to urban cores to attract qualified workers, retail follows.
Homeowners choosing urban living over suburbia is a key trend in Canada’s real estate market and is helping drive both retail and commercial development in city cores, according to a report. …
“Younger workers in particular — though not exclusively — continue to flock to the urban core, preferring to work where they live, rather than take on long commutes,” the report says.
Members of the millennial generation are not the only ones giving up the more generous living space of suburbia for downtown living. Baby boomers with empty nests and the generation following the millennials, which the report calls “Generation Z,” are also joining the trend …
http://www.cbc.ca/news/business/downtown-living-the-new-normal-report-says-1.2815490
NO Condo Bubble in Calgary nor Toronto!
These comments below are in addition to the report last week that said that because Toronto has:
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lots of in-migration,
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New to Canada migration and
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no other kinds of homes being built in the inner city
they do need all of these new condos and it is not a bubble. Interesting.
Economists to condo investors: Smile!
Written by Vernon Clement Jones
Condo investors in Toronto have every reason to be keep smiling, with two separate bank reports suggesting their assets are almost certain to retain their value at the same time their cash flow gets buoyed by rental demand.
“As CMHC… mentioned, capital return for investors who bought new condominiums and decided to rent them once the construction was complete, could earn superior returns than on other investment products,” reads Laurentian Banks’ July economic outlook. “Furthermore, condominiums rents are generally 40% more expensive than apartments of same dimensions in the Toronto CMA, the most important spread in the whole country.”
Smiling yet?
There’s more.
RBC is also weighing in on the future of Canada’s most controversial housing market, suggesting there’s no indication condos, despite what most see as a glut of inventory, are in a bubble.
Far from it.
“Based on market activity to date,” say economists for the heftiest of Canada’s big banks, “the total number of new housing units (condos) completed by builders has not exceeded the GTA’s demographic requirements and is unlikely to do so by any significant magnitude in the next few years.”
Phew!
That dual analysis effectively counters concerns that T.O.’s high-rise properties are primed to fall in value as renters find themselves spoiled for choice and investors are forced to slash prices. The naysayers are also worried that even new construction will be subjected to a major price correction and in the short-term, a phenomenon directly tied to mortgage rule changes making it harder to win financing.
That could, in fact, still happen, although not likely on the scale many analysts had predicted earlier this year, says Laurentian in its analysis.
Snapshot of Canadians’ finances
| This is super interesting. Also remember that less than 1% of Canadians work in oil and gas, and less than 20% of Canadians make more than $85,000 a year! It shows how well Alberta is doing. |
| Jason Heath Jun 30, 2012
Who is the average Canadian — financially speaking? According to the Association for Canadian Studies, our median household income is $68,560 per year. Personal incomes are lowest in Prince Edward Island at $21,620 and highest in Alberta at $36,010. We pay $11,000 per year in income tax, donate $260 to charity, contribute $2,790 to our RRSPs and carry a credit card balance of $3,462. Mortgage and household debt comes in at a total of $112,329 Our net worth per capita has continued to rise, most recently clocking in at $193,500 per capita according to Statistics Canada. Real estate gains have continued to drive the increase to our net worth, though many have suggested the Canadian market could be in for a correction — or at least a pause. The Toronto Stock Exchange has risen 59% over the past 10 years, compared with a 3% gain for the MSCI World Index and a 4% loss for the S&P 500 (excluding dividends). Our Canadian dollar has appreciated 47% against the U.S. dollar and 16% against the euro over the past 10 years. This has made global and U.S. stock market returns even worse in Canadian dollar terms. Canada had a double-digit personal savings rate in the ’90s, but over the past two decades, this has dropped dramatically to the current 3.1% — one of the lowest savings rates of all OECD countries. The flipside of this coin is that our current personal debt to income has simultaneously reached an all-time high of 153%. So gains in real estate and stocks have been tempered by a corresponding increase in personal debt. The Economist Intelligence Unit lists Canada’s government debt per person at about US$39,883 or 81.6% of GDP. This compares with the U.S. at $37,953 or 76.3%. Go figure! That said, Greece’s public debt is currently $35,874 or 141.0% and Japan is at $87,601 or 204.9%. Canada’s federal government has been consistently posting budget surpluses of about 1% of GDP since the mid-1990s, a time when many people thought Canada was on the path to a sovereign debt crisis of its own. Quite to the contrary, Canada entered and emerged from the 2008 recession relatively unscathed. And this is the asterisk beside Canada’s 81.6% debt-to-GDP ratio when compared with the 76.3% figure for the U.S. — given our neighbours are currently spending US$1.50 for every US$1 of federal revenue. Call it a “Tale of Two Countries.” Some people suggest the U.S. and Europe could learn something from the Canadian government debt experience of the 1990s. While many people in other Western countries are now suffering as a result of their government’s debt problems, our government is sitting pretty. Our personal debt is the one black spot for the red and white as we celebrate our country’s birthday. Jason Heath is a fee-only Certified Financial Planner (CFP) and income tax professional for Objective Financial Partners Inc. in Toronto |
New Canadian Mortgage Rules are Possible
Below is a commentary on the possible new rules for Canadian mortgages. Anyone looking at buying with 5% down (which is about 80% of our clients) or using a 30 year amortization (75% of our clients) should look at buying sooner than later.
Comparing New Amortization & Down Payment Rules
Government mortgage restrictions instituted from 2008-2011 have not achieved their goal, suggests Desjardins’ Senior Economist Benoit Durocher.
He wrote this on Thursday: “…The third series of [government mortgage rules] was announced nearly a year ago now, and we must conclude that the tightening introduced to date has not
slowed the market enough.
Under these conditions, it is likely, and perhaps even desirable, that the federal government will shortly announce a fourth series of measures to further limit mortgage credit.”
It almost sounds like Durocher has some inside info.
He adds: “Among other things, the government could be tempted to once again raise the minimum down payment on new loans (it went from 0% to 5% in October 2008).”
Many believe a down payment increase would have a more chilling effect on home prices than the other option being talked about: a reduction in the maximum amortization from 30 to 25 years.
The difference in impact would depend, however, on the degree of rule changes.
For example, raising the minimum down payment from 5.0% to 7.5% (a possibility that’s been discussed) would require that entry-level homebuyers come up with $8,700 more on a typical Canadian home purchase. For most, that’s not totally out of reach.
A five percentage point increase to the minimum down payment is a somewhat different story. Requiring 10% down equates to $34,780 on an average home. That’s beyond the means of a sizable minority of first-time buyers.
First-time buyers are essential to home price stability. They account for 1/2 of unit demand according to Altus Group research. While the latest data suggests that average down payments are somewhere around 30% (an estimated $104,000), first-time buyers put down far less.
That means stricter down payment rules could potentially hurt home values at the margin, if other things are held equal.
In terms of amortization, a government-imposed reduction—from 30 to 25 years—would lower a typical family’s maximum purchase price by roughly 9%. (That’s based on today’s 5-year fixed rates, normal qualification guidelines, median incomes, and average consumer debt.)
To put this in perspective, a reduction in amortization from 30 to 25 years would cut a typical buyer’s maximum possible purchase price by ~$31,000 (again, based on an average income, average debt, a 5% down payment, etc.).
Fortunately, most people don’t need a 30-year amortization to buy a home. Despite 41% of homebuyers choosing extended amortizations, the majority could have qualified with a standard 25-year mortgage. (That said, this doesn’t mean that cutting amortizations across the board is justified. Well-qualified borrowers deserve a carve-out in the rules because they utilize extended amortizations for legitimate cash-flow management purposes. But that’s a topic for another day.)
Rates, spreads and all the rest
This is an article that was sent to me. It is totally technical and I love it. This is the real reason behind what are the lowest rates we have ever seen.
It also explains why the days of Prime -.95% are GONE for what looks like a long time.
In between the lines is says rates are going to go up quickly as soon as there is a sniff of recovery.
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In the last few days, RBC and Scotiabank have eliminated their advertised variable-rate discounts.
They’re now promoting variable mortgages at prime + 0.10%, twenty basis points more than their previous “special offers.”
Prime + 0.10% (i.e., 3.10%) is an interesting number. A few months ago consumers thought that fat variable-rate discounts were here to stay. Variables above prime will now come as a shock to some people.
The banks are well aware of that. They know that pricing above prime impacts consumer psychology.
They could have priced at prime. Spreads are not that horrendous. But pricing above prime makes more of an impact. It makes higher-profit fixed rates more appealing and it mentally prepares consumers for potentially higher VRM premiums down the road.
That said, banks are not just arbitrarily sticking it to borrowers. Far and away, the main reason variable rates are worsening is that banks’ costs are rising.
At the moment, there are multiple factors at play:
• Higher risk premiums are compressing margins.
O We have Europe to thank for the that.
O The TED spread, a measure of interbank credit risk, just made a new 2½ year high. As volatility increases, banks have to factor that into their funding models.
O Another reflection of risk is the most recent floating rate Canada Mortgage Bond (which some lenders use to fund variable-rate mortgages). It was issued at a 15 basis point premium over the prior issue in August.
• Margin balancing is an underlying bank motive.
O Banks have publicly stated their desire to even out margins between profitable fixed rates and low-margin variables, and they’re slowly doing just that.
O Back in September, RBC Bank exec David McKay put it this way: “…Given the dislocation between fixed and variable, the very, very thin margins (of variables), we felt we needed to move prices up in our variable rate book.”
• New regulations (e.g., IFRS) have boosted the amount of capital required for mortgage lending.
O That has lowered the return on capital for mortgages, and thus influenced rates higher.
• Status Quo for prime rate doesn’t help margins.
O Lenders partly rely on deposits (that money rotting in your chequing and savings accounts) to fund VRMs.
O Demand deposit rates rise slower than prime rate. So, when prime goes up, some lenders get wider margins temporarily.
O When expectations changed three months ago to suggest that prime rate will fall or stay flat (instead of rise like expected), it was bad news for some deposit-taking lenders. That’s because they now have no spread improvement to look forward to in the near-to-medium term.
O MBABC President Geoff Parkin says that until recently, “lenders have been prepared to accept low (VRM) profit margins with the knowledge that, as the prime rate inevitably rises, so too will their profit on variable mortgages.” As it turns out, the inevitable is taking longer than the market expected.
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Canadians still looking towards Alberta for employment
Comment – all the in-migration is what caused the home prices to boom form 200k to 400k in 6 months in 2006 and 2007. This is all happening again right now – as noted below.
The outcome will not be prices going to 600k but well priced homes will move quickly and there will be upward price pressure until most of the excess inventory is moved.
Alberta continues to be a draw for people in other parts of the country.
And that’s good news because in recent months there has been more talk about looming labour shortages in the future.
According to Dan Sumner, economist with ATB Financial in Calgary, 4,720 Canadians relocated to Alberta during the second quarter of 2011, largely unchanged from the 5,275 that moved here during the first quarter. But Alberta is on pace for about 20,000 net-interprovincial migrants in 2011, which if achieved will be the highest annual pace for net interprovincial migration since 2006.
Sumner says the largest net migration gain in the second quarter was from Ontario. Alberta was by far the largest benefactor of net-interprovincial migration in the country with Saskatchewan in second place gaining only 1,239 net migrants.
“Interprovincial migration can be a difficult variable to predict; however, with the unemployment rate lower in Alberta, wages higher, housing prices relatively affordable and the provincial economy expected to grow among the fastest in the country, it’s hard to imagine that more Canadians won’t be calling Alberta home over the near future,” adds Sumner.
“While more skilled workers is essential for the continued development of Alberta’s economy, it also puts pressure on social and institutional resources. As a former premier of this province once stated, ‘when people move to Alberta, they don’t bring their schools and hospitals with them’.”
Calgary resale homes top $400,000 average
CALGARY — The average price of resale homes in Calgary topped $400,000 in August, according to a report released Friday by the Conference Board of Canada.
The board said all residential property sales in the city hit an average of $404,755 during the month, up from $391,497 a year ago.
The seasonally-adjusted annualized rate of sales also jumped to 22,092 from 18,816 in August 2010.
And the annualized rate for new listings has also increased to 44,940 from 43,536.
The board said the sales to new listings ratio in Calgary increased to 0.466 in August from 0.410 a year ago.
The board also forecasts short-term year-over-year price growth of between five to seven per cent for Calgary.
According to the Calgary Real Estate Board, month-to-date up to and including Thursday, there were 740 single-family MLS sales for an average price of $466,754 and 307 condo sales for an average of $302,460.
For the same period in 2010 up to Sept. 22, there were 682 single-family transactions at an average of $467,486 and 258 condo sales for an average price of $280,790.
© Copyright (c) The Calgary Herald
Calgary MLS sales jump 22% in August
CALGARY — MLS sales in Calgary rose by 22.1 per cent in August compared with a year ago — a greater year-over-year rate of growth than the rest of the country.
The Canadian Real Estate Association said Thursday that Calgary recorded 1,907 MLS sales for all residential properties during the month for an average price of $394,251, up 2.2 per cent from last year.
New listings in Calgary rose by 11.7 per cent in August to 3,819 and the sales as a percentage of new listings jumped by 4.2 per cent to 49.9 per cent.
In Canada, sales of 39,542 were 15.8 per cent higher than August 2010 and the average sale price of $349,916 was up 7.7 per cent.
New listings in Canada rose by 13.4 per cent to 73,125 and the sales as a percentage of new listings jumped by 1.1 per cent to 54.1 per cent.
“The housing market in Canada remained on a firm footing in August when compared to volatile financial markets,” said Gary Morse, president of CREA. “Through their actions, homebuyers are showing that they remain confident about the stability of the Canadian housing market, and recognize that the continuation of low interest rates represents an excellent opportunity to buy their first home or trade up.”
Gregory Klump, CREA’s chief economist, said economic and financial market headwinds outside Canada are keeping interest rates lower for longer.
“Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved,” he said. “In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.”
© Copyright (c) The Calgary Herald
Housing Market in Canada is Stable
Housing Market Still Stable: CREA
- Friday, 16 September 2011
According to new data released from the Canadian Real Estate Association, housing activity in Canada remained stable in the month of August, which represents the second month in a row.
“The housing market in Canada remained on a firm footing in August when compared to volatile financial markets,” said Gary Morse, CREA President. “Through their actions, homebuyers are showing that they remain confident about the stability of the Canadian housing market, and recognize that the continuation of low interest rates represents an excellent opportunity to buy their first home or trade up.”
Looking at specific metropolitan centres, Toronto and Ottawa registered a monthly increase in activity, compared with Calgary, Montreal and Vancouver registering slight declines. Year-over-year, actual sales activity nationally rose by 15.8%.
Representing the first time that year-to-date activity has surpassed 2010 levels, 324,030 homes have traded hands, which is also in line with the ten year average.
70% of all local markets were solidly in balanced territory for the month of August, which represents the largest percentage on record. Only 12 markets reported being in buyer’s market position.
The national sales-to-new listings ratio, a measure of market balance, stood at 51.6 per cent in August, unchanged compared to July. The actual (not seasonally adjusted) national average price for homes registered in at $349,916, which marks a 7.7 % increase year-over-year, which was also the lowest price point seen in 2010.
“Once again, economic and financial market headwinds outside Canada are keeping interest rates lower for longer,” said Gregory Klump, CREA’s Chief Economist. “Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved. In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.”
Centres that had been hotbeds for both sales and for price appreciation, that had been having the effect of skewing national prices upwards like Toronto and Vancouver appear to have moderated somewhat, pulling price levels more in line with averages.