A posting from The Toronto Star January 28, 2012 issue. Visit the Star to view article and comments.
Moneyville / Real Estate / Why it’s a good time to buy a home
Good time to buy a home?
Why it’s a good time to buy a home
By Mark Weisleder | Fri Jan 27 2012
I believe there has never been a better time to buy a home. I’ve been in the industry for 28 years as a lawyer and I haven’t seen so many positive signs for housing, whether you are thinking or buying or locking in a mortgage.
Here’s why:
Mortgage rates at historic lows: They can’t get any lower. Four to five-year fixed mortgages at 3 per cent are unheard of. It is lower than the variable rate that most Canadians have been paying for years. Rates have nowhere to go but up, either later this year or next. If you are paying a variable interest rate, lock in now.
Canada’s appeal: This country has everything going for it — a stable banking and political environment, steady real estate market, the natural resources people want and few social tensions. That makes us a safe haven in a volatile world.
Our immigrant draw: Because of the above, we’re a draw for immigrants, often wealthy ones. When they get here, they need a home. So in my view while the real estate market may level off in some areas of Ontario, it should stay strong in most of the GTA and likely Canada’s other large urban centres as well.
Mortgage defaults: According to CMHC, over 99 per cent of Canadians pay their mortgages on time. It quite a different picture in the U.S. where 7 million homes are in foreclosure and perhaps another 7 million homeowners are under water. This represents almost 15 per cent of all homes. So while the American housing market will likely be weak for the next few years, this should not occur in Canada. Our banks are not dumping homes onto the market, so there is no downward pressure on prices.
Recourse Mortgages: In many U.S. states, if you can’t pay your mortgage, the only thing the bank can do is foreclose; they cannot sue you for any shortfall. So when homes go under water, owners give the keys back to the bank. In Canada, loans are almost all Recourse, meaning if you don’t pay and there is a shortfall, the lender can sue you for the difference. This is another reason why, in my opinion, even if times do get tough, Canadian homeowners will find a way to make the payments until things improve.
Income-to-price ratio: Another misleading statistic is that in major markets, like Toronto, the average price of a home is now 4.6 times the income of the average Canadian. This same statistic was found just before the U.S. and UK markets went into the tank. However, if you look at median incomes of Canadians against the median cost of homes, this average comes down to around 3.5, which is not dangerous. Using averages are wrong. A person receiving social assistance will not buy a home, and should not be included in any relevant statistic.
High consumer debt: The warnings about rising debt ratios must be examined carefully. The Governor of the Bank of Canada is worried that the average personal debt ratio is now 156 per cent in Canada. This means a household making $100,000 per year, owes $156,000, two-thirds of which is mortgage debt. Why is this so bad? At an interest rate of 3 or even 5 per cent, the amount needed to service the debt is manageable. Most people do not pay off their mortgages in one year. Still, this is another good reason to consolidate your debt now, at these low interest rates, and lock in.
No guarantees: Nobody can predict the future and there’s always the possibility of a major economic shock. Yet, in a U.S. presidential election year, politicians will do whatever is necessary to prevent it. If the economy goes into the tank, so do re-election chances. The U.S. is already showing signs of economic recovery.
No matter what, do not take on a monthly payment higher than what you can afford. Meet with your lender or mortgage broker in advance to figure out what you can afford before you start looking for a home. It may be the best time to buy, but you need to buy smart.
Mark Weisleder is a lawyer, columnist, author and speaker to the real estate industry. You can contact Mark at mark@markweisleder.com
Saturday, January 28, 2012
Wednesday, January 18, 2012
Is a 2.99% Mortgage Too Good To Be True?
Is now time to refinance mortgage?
Is a 2.99% mortgage too good to be true?
January 17, 2012 By Madhavi Acharya-Tom Yew 2 Comment(s)
Bank of Montreal made headlines with the 2.99 per cent five-year mortgage it unveiled last week.
Most of the other big banks have followed suit, but before signing on the dotted line you should read the fine print. These mortgages have restrictions that you won’t find on other products.
“It’s the lowest rate available but I would only recommend it to people who are very sure of their circumstances for the next five years,” said Kerri-Lynn McAllister of RateHub.ca, a Web site that compares mortgage rates. “You may want to look at a slightly higher rate that offers all the flexibility of a standard mortgage.”
The Bank of Montreal says this mortgage offers Canadians a way to be mortgage-free faster because it offers a great rate and a shorter amortization. But it differs from a typical mortgage in several ways.
1) The maximum amortization period is 25 years. A typical mortgage offers an amortization period of up to 30 years.
2) You can make as lump sum payment once a year equal and increase your monthly payments as long as the total doesn't exceed 10 per cent of the principal amount owed. Most mortgages let you make monthly and lump sum pre-payments of 20 per cent or more.
3) You cannot skip or double-up on a payment.
4) You cannot refinance or switch your mortgage to another lender for five years. Most home owners who sign a five-year term don't make it that long. On average, they last three years and 9 nine months, and then they either refinance or move.
McAllister said that because the amortization is capped at 25 years, you may not be able to borrow as much. That could hurt first-time buyers in markets such as Toronto and Vancouver where home prices are in the stratosphere.
The refinancing restriction means, the only way you can refinance is if you do so with BMO," McAllister said. "They know you’re locked in to them so you don’t have any bargaining power if they don’t offer you a good rate or term.”
BMO agrees that this mortgage is best-suited for someone who plans to be in their home for awhile.
“Customers were telling us they wanted something simple and easy to understand that would allow them to be mortgage-free faster,” said Katie Archdekin, head of mortgage products at the Bank of Montreal.
Archdekin said the shorter amortization rate is designed to do just that.
While many home owners have good intentions when it comes to pre-payments, very few actually take advantage of these options, she added.
“This product carries fewer features than our other mortgage products but it’s very easy to understand,” Archdekin said. “This product really supports customers to pay off their mortgage faster by instilling that discipline directly into the regular payments.”
Is a 2.99% mortgage too good to be true?
January 17, 2012 By Madhavi Acharya-Tom Yew 2 Comment(s)
Bank of Montreal made headlines with the 2.99 per cent five-year mortgage it unveiled last week.
Most of the other big banks have followed suit, but before signing on the dotted line you should read the fine print. These mortgages have restrictions that you won’t find on other products.
“It’s the lowest rate available but I would only recommend it to people who are very sure of their circumstances for the next five years,” said Kerri-Lynn McAllister of RateHub.ca, a Web site that compares mortgage rates. “You may want to look at a slightly higher rate that offers all the flexibility of a standard mortgage.”
The Bank of Montreal says this mortgage offers Canadians a way to be mortgage-free faster because it offers a great rate and a shorter amortization. But it differs from a typical mortgage in several ways.
1) The maximum amortization period is 25 years. A typical mortgage offers an amortization period of up to 30 years.
2) You can make as lump sum payment once a year equal and increase your monthly payments as long as the total doesn't exceed 10 per cent of the principal amount owed. Most mortgages let you make monthly and lump sum pre-payments of 20 per cent or more.
3) You cannot skip or double-up on a payment.
4) You cannot refinance or switch your mortgage to another lender for five years. Most home owners who sign a five-year term don't make it that long. On average, they last three years and 9 nine months, and then they either refinance or move.
McAllister said that because the amortization is capped at 25 years, you may not be able to borrow as much. That could hurt first-time buyers in markets such as Toronto and Vancouver where home prices are in the stratosphere.
The refinancing restriction means, the only way you can refinance is if you do so with BMO," McAllister said. "They know you’re locked in to them so you don’t have any bargaining power if they don’t offer you a good rate or term.”
BMO agrees that this mortgage is best-suited for someone who plans to be in their home for awhile.
“Customers were telling us they wanted something simple and easy to understand that would allow them to be mortgage-free faster,” said Katie Archdekin, head of mortgage products at the Bank of Montreal.
Archdekin said the shorter amortization rate is designed to do just that.
While many home owners have good intentions when it comes to pre-payments, very few actually take advantage of these options, she added.
“This product carries fewer features than our other mortgage products but it’s very easy to understand,” Archdekin said. “This product really supports customers to pay off their mortgage faster by instilling that discipline directly into the regular payments.”
Tuesday, January 17, 2012
Is Now The Time To Lock In My Mortgage?
Is now the time to lock in my mortgage?
Published Tuesday, Jan. 17, 2012 10:51AM EST
Last updated Tuesday, Jan. 17, 2012 2:26PM EST
Thanks to intense competition between lenders, a 10-year mortgage is now available for under 4 per cent. It certainly makes it tempting to dive into the real estate market, writes Rob Carrick in today's Globe Investor section.
In the article, veteran mortgage broker Vince Gaetano of MonsterMortgage.ca is quoted as saying, “This is a fantastic opportunity for somebody to lock in and have peace of mind for 10 years without worrying about a renewal.”
Of course, household debt is at record highs in Canada, so consumers must tread carefully when borrowing for a home.
Mr. Gaetano joined The Globe and Mail for a live discussion about mortgage rates, where they are heading and what home owners should consider when making decisions about borrowing.
If you have a question that did not get answered, you can reach Mr. Gaetano at info@monstermortgage.ca.
Published Tuesday, Jan. 17, 2012 10:51AM EST
Last updated Tuesday, Jan. 17, 2012 2:26PM EST
Thanks to intense competition between lenders, a 10-year mortgage is now available for under 4 per cent. It certainly makes it tempting to dive into the real estate market, writes Rob Carrick in today's Globe Investor section.
In the article, veteran mortgage broker Vince Gaetano of MonsterMortgage.ca is quoted as saying, “This is a fantastic opportunity for somebody to lock in and have peace of mind for 10 years without worrying about a renewal.”
Of course, household debt is at record highs in Canada, so consumers must tread carefully when borrowing for a home.
Mr. Gaetano joined The Globe and Mail for a live discussion about mortgage rates, where they are heading and what home owners should consider when making decisions about borrowing.
If you have a question that did not get answered, you can reach Mr. Gaetano at info@monstermortgage.ca.
Buy Now To Get an Unheard-of Rate For a 10-year Mortgage
Rob Carrick
Buy now to get an unheard-of rate for a 10-year mortgage
Rob Carrick | Columnist profile | E-mail
From Tuesday's Globe and Mail
Published Monday, Jan. 16, 2012 6:02PM EST
Last updated Tuesday, Jan. 17, 2012 5:11PM EST
There’s a brilliant reason to get into our expensive and quite possibly weakening housing market right now.
A 10-year mortgage is now available for under 4 per cent. You can thank the banks for this unheard-of rate. In the past week or so, competition between them on mortgage rates has gone nuclear.
Have you caught all the warnings about how the house that you can afford now because mortgage rates are so low will crush you when borrowing costs rise? With a 10-year mortgage, you’ve got long-term cost certainty. “This is a fantastic opportunity for somebody to lock in and have peace of mind for 10 years without worrying about a renewal,” said veteran mortgage broker Vince Gaetano of MonsterMortgage.ca.
Now, about the housing market. Numbers released Monday show average prices are down almost 3 per cent since April, even after ticking a bit higher last month. At a conference last week, some of the country’s top bankers talked as if a cooling in the market is a done deal.
Price-wise, patience will very likely be rewarded in the housing market: Prices could easily decline enough to make a difference to buyers – especially in markets like Vancouver and Toronto.
But low mortgage rates also have a big impact on affordability, and that’s a point that supports buying now if you plan to live in your house for a good long while and can afford the costs of home ownership while meeting your savings obligations.
Low is a word that may actually undersell what’s happening in the mortgage market right now. Last week, Bank of Montreal announced a 2.99-per-cent rate for five-year fixed-rate mortgages amortized over 25 years or less. That’s the lowest rate on record for this type of mortgage.
Other banks announced a special rate of 3.99 per cent for seven years, a deal that Vancouver mortgage planner Robert McLister said was not as good as the BMO offer despite providing two more years of rate certainty. “There’s no question in my mind that the five-year rate would work out better,” said Mr. McLister, editor of the Canadian Mortgage Trends blog.
It’s a different story with a 10-year mortgage for 3.99 per cent, which became available late last week from online bank ING Direct. According to the RateHub.ca website, 10-year rates as low as 3.84 per cent can be had through lenders working with mortgage brokers.
A 10-year mortgage at less than 4 per cent “creates a much more interesting conversation,” Mr. McLister said. Monster Mortgage’s Mr. Gaetano said that when the cost of locking in for 10 years gets as cheap as it is now versus the five-year term, “you have to pounce on it.”
Not too long ago, Mr. Gaetano was one of many experts who believed variable-rate mortgages were superior to all fixed-rate options. But while the banks have been highly competitive on fixed-rate mortgages lately, they’ve pretty much ruined the variable-rate option by cutting way back on discounting.
You can get a variable-rate mortgage today for 2.8 to 3 per cent at best, which is darn close to the cost of locking in for four or five years right now, and you’ve got zero rate certainty. Every time the prime rate rises in the next several years, so will your borrowing costs. “The variable-rate party’s over,” Mr. Gaetano said. “Those products are dinosaurs.”
Let’s get back to the housing market for a moment. The biggest support for prices right now are the low mortgage rates we’ve been talking about here. When rates rise, that support crumbles. Things could get ugly.
Why consider buying now? Because you can borrow money at 3.99 per cent or a bit less for 10 years. It’s like freezing time at the exact best moment ever to finance the purchase of a house. If the price of your home declines, it’s bound to be on the rise again a decade from now. Meanwhile, you’d have the chance to put a decade’s worth of salary increases to work in ramping up your payments and making periodic lump-sum payments.
One hitch with 10-year mortgages is that you won’t likely get the best rates from the big banks. Mr. Gaetano said the banks don’t much like 10-year mortgages because they can’t easily securitize them, which means packaging them up to sell to investors. That means you’ll may need to visit a mortgage broker or check out ING Direct.
Note: You can play around with various mortgage rate and house price scenarios by using our online mortgage payment calculator.
Here's how rates on 10-year mortgages compare with other terms:
One year 2.59% - 2.84%
Two year 2.59% - 2.69%
Three year 2.89% - 2.99%
Four year 2.99% - 3.09%
Five year 2.99% - 3.29%
Seven year 3.84% - 3.99%
10 year 3.84% - 3.99%
Source: RateHub.ca, MonsterMortgage.ca
Today (Jan. 17) at noon (ET), Vince Gaetano of MonsterMortgage.ca joins The Globe and Mail for a live discussion about mortgage rates, where they are heading and what home owners should consider when making decisions about borrowing.
Buy now to get an unheard-of rate for a 10-year mortgage
Rob Carrick | Columnist profile | E-mail
From Tuesday's Globe and Mail
Published Monday, Jan. 16, 2012 6:02PM EST
Last updated Tuesday, Jan. 17, 2012 5:11PM EST
There’s a brilliant reason to get into our expensive and quite possibly weakening housing market right now.
A 10-year mortgage is now available for under 4 per cent. You can thank the banks for this unheard-of rate. In the past week or so, competition between them on mortgage rates has gone nuclear.
Have you caught all the warnings about how the house that you can afford now because mortgage rates are so low will crush you when borrowing costs rise? With a 10-year mortgage, you’ve got long-term cost certainty. “This is a fantastic opportunity for somebody to lock in and have peace of mind for 10 years without worrying about a renewal,” said veteran mortgage broker Vince Gaetano of MonsterMortgage.ca.
Now, about the housing market. Numbers released Monday show average prices are down almost 3 per cent since April, even after ticking a bit higher last month. At a conference last week, some of the country’s top bankers talked as if a cooling in the market is a done deal.
Price-wise, patience will very likely be rewarded in the housing market: Prices could easily decline enough to make a difference to buyers – especially in markets like Vancouver and Toronto.
But low mortgage rates also have a big impact on affordability, and that’s a point that supports buying now if you plan to live in your house for a good long while and can afford the costs of home ownership while meeting your savings obligations.
Low is a word that may actually undersell what’s happening in the mortgage market right now. Last week, Bank of Montreal announced a 2.99-per-cent rate for five-year fixed-rate mortgages amortized over 25 years or less. That’s the lowest rate on record for this type of mortgage.
Other banks announced a special rate of 3.99 per cent for seven years, a deal that Vancouver mortgage planner Robert McLister said was not as good as the BMO offer despite providing two more years of rate certainty. “There’s no question in my mind that the five-year rate would work out better,” said Mr. McLister, editor of the Canadian Mortgage Trends blog.
It’s a different story with a 10-year mortgage for 3.99 per cent, which became available late last week from online bank ING Direct. According to the RateHub.ca website, 10-year rates as low as 3.84 per cent can be had through lenders working with mortgage brokers.
A 10-year mortgage at less than 4 per cent “creates a much more interesting conversation,” Mr. McLister said. Monster Mortgage’s Mr. Gaetano said that when the cost of locking in for 10 years gets as cheap as it is now versus the five-year term, “you have to pounce on it.”
Not too long ago, Mr. Gaetano was one of many experts who believed variable-rate mortgages were superior to all fixed-rate options. But while the banks have been highly competitive on fixed-rate mortgages lately, they’ve pretty much ruined the variable-rate option by cutting way back on discounting.
You can get a variable-rate mortgage today for 2.8 to 3 per cent at best, which is darn close to the cost of locking in for four or five years right now, and you’ve got zero rate certainty. Every time the prime rate rises in the next several years, so will your borrowing costs. “The variable-rate party’s over,” Mr. Gaetano said. “Those products are dinosaurs.”
Let’s get back to the housing market for a moment. The biggest support for prices right now are the low mortgage rates we’ve been talking about here. When rates rise, that support crumbles. Things could get ugly.
Why consider buying now? Because you can borrow money at 3.99 per cent or a bit less for 10 years. It’s like freezing time at the exact best moment ever to finance the purchase of a house. If the price of your home declines, it’s bound to be on the rise again a decade from now. Meanwhile, you’d have the chance to put a decade’s worth of salary increases to work in ramping up your payments and making periodic lump-sum payments.
One hitch with 10-year mortgages is that you won’t likely get the best rates from the big banks. Mr. Gaetano said the banks don’t much like 10-year mortgages because they can’t easily securitize them, which means packaging them up to sell to investors. That means you’ll may need to visit a mortgage broker or check out ING Direct.
Note: You can play around with various mortgage rate and house price scenarios by using our online mortgage payment calculator.
Here's how rates on 10-year mortgages compare with other terms:
One year 2.59% - 2.84%
Two year 2.59% - 2.69%
Three year 2.89% - 2.99%
Four year 2.99% - 3.09%
Five year 2.99% - 3.29%
Seven year 3.84% - 3.99%
10 year 3.84% - 3.99%
Source: RateHub.ca, MonsterMortgage.ca
Today (Jan. 17) at noon (ET), Vince Gaetano of MonsterMortgage.ca joins The Globe and Mail for a live discussion about mortgage rates, where they are heading and what home owners should consider when making decisions about borrowing.
Monday, January 9, 2012
2nd Best Year
President's Message
TREB Publishing New Months of Inventory Indicator
January 9, 2012 -- Happy New Year! I hope all TREB Members had a restful holiday season after a very busy 2011. Just to recap, we had the second-best year on record in terms of sales (89,347) and the average selling price rose by eight per cent to $465,412. At the same time, total new listings for the year were down by almost four per cent.
The supply side of the market was the big story over the last 12 months. I am guessing that many TREB Members had clients who faced significant competition from other Buyers when trying to get a deal done on a home. On the flip side, I am guessing that many Members also had listings that attracted substantial interest and sold in short order for a good price. What I am describing here is a typical Sellers’ market: lots of Buyers, a shortage of listings and strong price growth.
TREB is now publishing a Months of Inventory (MOI) indicator to help Members and the public get a better handle on market conditions. MOI is also published at the national scale in Canada by CREA and in the United States by NAR. I want to briefly explain how this new indicator works and then give some examples of its use.
MOI is calculated by dividing the 12-month average for active listings by the 12-month average for sales. The result tells us how long it would have taken, on average, to sell all actively listed homes. As of the end of December, this number was 2.2 months. If, moving forward, we see the MOI trend upwards this would suggest that the market is becoming better supplied and we may see less upward pressure on price. If we see the indicator trend lower, this would suggest that market conditions are tightening and strong upward pressure will continue to be exerted on price.
In the post-recession period, MOI has hovered in the 2.0 to 2.5 month range. This is substantially lower than the pre-recession norm of between 3.0 and 3.5 month range. When we look at market conditions in this context, it is easy to see why we have seen above average price growth over the last couple of years – eight per cent last year following nine per cent in 2010.
We can also use MOI to compare different municipalities in the GTA. A look at the MOI column on pages 3 and 4 of the December Market Watch shows us that the relationship between sales and listings varies quite a bit across the region – from a low of 1.2 months to a high of over nine months.
The MOI can also help us position the GTA within the national context. According to CREA, MOI was 7.4 months for Canada and 4.8 months for Ontario in November versus 2.2 months for the GTA. This may suggest that the GTA market is tighter than the national and Ontario averages. With this in mind, it is not surprising that year-to-date average price growth for the GTA was in the upper third of Canadian metropolitan areas. However, when making these types of comparisons it is important to bear in mind that each market area has evolved differently over time. So, while a more balanced market in Toronto may be associated with MOI of 3.5, other markets may be characterized by a MOI of six months.
As we move through 2012, we should expect to see the MOI start to increase. The strong price growth we have seen over the last year should prompt more households to list. In fact, we have started to see year-over-year growth in new listings outstrip growth in sales in many parts of the GTA. If this trend continues, we will likely see the annual rate of price growth moderate into the mid-single-digits.
Stay tuned for news of other upcoming TREB initiatives.
Yours truly,
Richard Silver, President
Toronto Real Estate Board
TREB Publishing New Months of Inventory Indicator
January 9, 2012 -- Happy New Year! I hope all TREB Members had a restful holiday season after a very busy 2011. Just to recap, we had the second-best year on record in terms of sales (89,347) and the average selling price rose by eight per cent to $465,412. At the same time, total new listings for the year were down by almost four per cent.
The supply side of the market was the big story over the last 12 months. I am guessing that many TREB Members had clients who faced significant competition from other Buyers when trying to get a deal done on a home. On the flip side, I am guessing that many Members also had listings that attracted substantial interest and sold in short order for a good price. What I am describing here is a typical Sellers’ market: lots of Buyers, a shortage of listings and strong price growth.
TREB is now publishing a Months of Inventory (MOI) indicator to help Members and the public get a better handle on market conditions. MOI is also published at the national scale in Canada by CREA and in the United States by NAR. I want to briefly explain how this new indicator works and then give some examples of its use.
MOI is calculated by dividing the 12-month average for active listings by the 12-month average for sales. The result tells us how long it would have taken, on average, to sell all actively listed homes. As of the end of December, this number was 2.2 months. If, moving forward, we see the MOI trend upwards this would suggest that the market is becoming better supplied and we may see less upward pressure on price. If we see the indicator trend lower, this would suggest that market conditions are tightening and strong upward pressure will continue to be exerted on price.
In the post-recession period, MOI has hovered in the 2.0 to 2.5 month range. This is substantially lower than the pre-recession norm of between 3.0 and 3.5 month range. When we look at market conditions in this context, it is easy to see why we have seen above average price growth over the last couple of years – eight per cent last year following nine per cent in 2010.
We can also use MOI to compare different municipalities in the GTA. A look at the MOI column on pages 3 and 4 of the December Market Watch shows us that the relationship between sales and listings varies quite a bit across the region – from a low of 1.2 months to a high of over nine months.
The MOI can also help us position the GTA within the national context. According to CREA, MOI was 7.4 months for Canada and 4.8 months for Ontario in November versus 2.2 months for the GTA. This may suggest that the GTA market is tighter than the national and Ontario averages. With this in mind, it is not surprising that year-to-date average price growth for the GTA was in the upper third of Canadian metropolitan areas. However, when making these types of comparisons it is important to bear in mind that each market area has evolved differently over time. So, while a more balanced market in Toronto may be associated with MOI of 3.5, other markets may be characterized by a MOI of six months.
As we move through 2012, we should expect to see the MOI start to increase. The strong price growth we have seen over the last year should prompt more households to list. In fact, we have started to see year-over-year growth in new listings outstrip growth in sales in many parts of the GTA. If this trend continues, we will likely see the annual rate of price growth moderate into the mid-single-digits.
Stay tuned for news of other upcoming TREB initiatives.
Yours truly,
Richard Silver, President
Toronto Real Estate Board
Saturday, January 7, 2012
Whither The Real Estate Market
Will housing decline be mild or 'something much nastier'?
Michael Babad | Columnist profile | E-mail
Globe and Mail Update
Published Friday, Jan. 06, 2012 6:55PM EST
Last updated Friday, Jan. 06, 2012 11:41PM EST
Follow Michael Babad and Globe top business news on Twitter
Whither the real estate market?
Canada’s housing market is headed for a cooling-off period, which is no surprise, given the uncertain economic climate, a rising unemployment rate and recent changes to mortgage rules. The question is the path, and how steep that downturn will be.
By many accounts, the slowdown will not become a bust, with a moderate decline in prices over the next couple of years. Not all observers believe that, though.
“The conventional wisdom is that Canadian housing is headed for a slowdown (at best), with many looking for something much nastier,” deputy chief economist Douglas Porter of BMO Nesbitt Burns said in a report this week.
“While the timing of said slowdown remains up in the air (and it’s no foregone conclusion it will start this year), it is highly unlikely that Canada’s housing market can continue its recent winning ways.”
Mr. Porter’s colleague at BMO, senior economist Sal Guatieri, doesn’t expect the “nastier” turn, saying in a separate report that the market is losing steam, and that valuations remain a worry, but that there will still be “modest gains” in overall sales this year, along with steady prices, a dip in housing starts and more moderate mortgage growth compared to its pace of almost 8 per cent.
"If you listen closely you can hear the sound of air seeping out of Canada's housing balloon," Mr. Guatieri said in his report.
"(Unlike a bubble, a balloon can deflate slowly.) Outside of Toronto and Saskatchewan, home sales have moderated since new mortgage rules were introduced in March (for the third time in four years). Markets are balanced in over half the country, but sellers still rule in Toronto, Saskatchewan and Manitoba. Prices have pulled back moderately from spring highs, led by once white-hot Vancouver."
There are regional differences, of course. Senior economist Jacques Marcil of Toronto-Dominion Bank believes housing markets will weigh on the economies of British Columbia and Ontario.
Mr. Marcil said as he projected a “significant correction” this year, noting that the hot Vancouver market probably peaked in 2011.
Mr. Marcil expects resales in B.C. to sink 3.7 per cent this year, and prices 3.5 per cent.
"The correction will extend into 2013, as unit resales fall a further 5 per cent while prices slip 4.4 per cent," he said.
Indeed, the Real Estate Board of Greater Vancouver reported this week that sales last year climbed 5.9 per cent from 2010, but slowed at the end of the year. Sales in December fell 12.7 per cent from the same month a year earlier. And while prices were still up by 7.6 per cent, they were 1.5 per cent below their peak of June, 2011.
Mr. Marcil also expects Toronto’s condo market to slow.
"In addition to the growing pipeline of supply, the knock-on effects of financial market volatility to buyer confidence will likely result in a cooling down in condominium sales in the region in 2012 and 2013,” he said.
For now, the Toronto housing market is still going strong over all, The Globe and Mail’s Sean Silcoff reported this week.
According to the Toronto Real Estate Board, sales in December climbed 10.1 per cent from a year earlier, and prices rose 4 per cent. That marked the end of the second-strongest year in records dating back to 1994.
Markets will be watching next Tuesday when Canada Mortgage and Housing Corp. reports the level of home building in December. While housing starts are expected to begin dipping going forward, December's reading is expected to show an annualized reading in the area of 190,000.
"Analysts in recent months had been expecting housing construction to slow, led by weaker multiples construction - with the heated condo market losing its affordability edge over detached properties," said CIBC World Markets economists Emanuella Enenajor.
"But November’s 13,000 fall in starts to 181.000, the lowest level in nine months, came as an outsized surprise, even with the weakness driven by multiples (condo) building. While we expect housing starts to trend down in the quarters ahead, November’s sharp plunge could correct in December, with starts rising to 189,000. However, even with the year-end uptick in home building, weak housing starts readings in earlier months suggests that residential construction could be a drag on [fourth-quarter] GDP growth, after providing a generous lift in [the third quarter]."
As senior economist Michael Gregory, also of BMO Nesbitt Burns, sees it, Canada's housing market is "stabilizing" amid slow job growth in the second half of last year, waning consumer confidence, a drop-off in foreign investment from Asia, and the tighter mortgage rules. The bounce-back in housing starts that is believed to have taken place in December in fact marks just a partial rebound in starts of multiple units, such as condos, and poor weather in some regions in November.
"Nevertheless, stabilization is still a remarkably robust outcome given the abovementioned housing headwinds, and reflects the offset provided by low borrowing costs," he said.
"However, the allure of low interest rates is waning, as Canadian households amass record high debt burdens and policy makers sound the alarm on related risks to economic and financial stability, pointing to a cooler pace of housing activity this year."
Will U.S. slump end this year?
While Canada’s housing market cools, however, there are suggestions that U.S. housing may finally be emerging from its long, deep slump.
Evidence is mounting that U.S. housing has finally hit bottom, and will contribute slightly to growth this year,” said BMO’s Mr. Porter.
But while the lengthy decline in house prices could end this year, analysts aren’t projecting marked increases.
"Tough credit conditions and rising foreclosures will prevent significant and sustained price gains until 2014," said Paul Dales, senior U.S. economist at Capital Economics in London.
"We now think that prices are close to finding a floor," he added in a report. "The key difference between this year and last is that banks are a little bit more willing to lend. For example, towards the end of last year lenders were willing to extend a loan worth 80 per cent of the home purchase price up from nearer 70 per cent in 2010."
At the current pace of sales, Mr. Dales said, it would take seven months to sell all the unsold stock in the pipeline. And when you exclude the 2010 "distortion" of a temporary tax credit, it's the first time in five years that that measure of the demand and supply balance is close to its long-term average.
Still, it won't be a rapid rise, and much still depends on how the euro crisis plays out.
"The loosening of credit criteria has so far been modest," Mr. Dales wrote. "And by reducing the ability of households to extract a down payment from their home, the previous fall in prices has shut out up to half of all mortgage borrowers from the mortgage market. Moreover, given how many people were burned during the crash, it will take many years to rekindle America's love affair with home ownership."
He also projected a further three million foreclosures.
The American dream now just a pipe dream for many
Michael Babad | Columnist profile | E-mail
Globe and Mail Update
Published Friday, Jan. 06, 2012 6:55PM EST
Last updated Friday, Jan. 06, 2012 11:41PM EST
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Whither the real estate market?
Canada’s housing market is headed for a cooling-off period, which is no surprise, given the uncertain economic climate, a rising unemployment rate and recent changes to mortgage rules. The question is the path, and how steep that downturn will be.
By many accounts, the slowdown will not become a bust, with a moderate decline in prices over the next couple of years. Not all observers believe that, though.
“The conventional wisdom is that Canadian housing is headed for a slowdown (at best), with many looking for something much nastier,” deputy chief economist Douglas Porter of BMO Nesbitt Burns said in a report this week.
“While the timing of said slowdown remains up in the air (and it’s no foregone conclusion it will start this year), it is highly unlikely that Canada’s housing market can continue its recent winning ways.”
Mr. Porter’s colleague at BMO, senior economist Sal Guatieri, doesn’t expect the “nastier” turn, saying in a separate report that the market is losing steam, and that valuations remain a worry, but that there will still be “modest gains” in overall sales this year, along with steady prices, a dip in housing starts and more moderate mortgage growth compared to its pace of almost 8 per cent.
"If you listen closely you can hear the sound of air seeping out of Canada's housing balloon," Mr. Guatieri said in his report.
"(Unlike a bubble, a balloon can deflate slowly.) Outside of Toronto and Saskatchewan, home sales have moderated since new mortgage rules were introduced in March (for the third time in four years). Markets are balanced in over half the country, but sellers still rule in Toronto, Saskatchewan and Manitoba. Prices have pulled back moderately from spring highs, led by once white-hot Vancouver."
There are regional differences, of course. Senior economist Jacques Marcil of Toronto-Dominion Bank believes housing markets will weigh on the economies of British Columbia and Ontario.
Mr. Marcil said as he projected a “significant correction” this year, noting that the hot Vancouver market probably peaked in 2011.
Mr. Marcil expects resales in B.C. to sink 3.7 per cent this year, and prices 3.5 per cent.
"The correction will extend into 2013, as unit resales fall a further 5 per cent while prices slip 4.4 per cent," he said.
Indeed, the Real Estate Board of Greater Vancouver reported this week that sales last year climbed 5.9 per cent from 2010, but slowed at the end of the year. Sales in December fell 12.7 per cent from the same month a year earlier. And while prices were still up by 7.6 per cent, they were 1.5 per cent below their peak of June, 2011.
Mr. Marcil also expects Toronto’s condo market to slow.
"In addition to the growing pipeline of supply, the knock-on effects of financial market volatility to buyer confidence will likely result in a cooling down in condominium sales in the region in 2012 and 2013,” he said.
For now, the Toronto housing market is still going strong over all, The Globe and Mail’s Sean Silcoff reported this week.
According to the Toronto Real Estate Board, sales in December climbed 10.1 per cent from a year earlier, and prices rose 4 per cent. That marked the end of the second-strongest year in records dating back to 1994.
Markets will be watching next Tuesday when Canada Mortgage and Housing Corp. reports the level of home building in December. While housing starts are expected to begin dipping going forward, December's reading is expected to show an annualized reading in the area of 190,000.
"Analysts in recent months had been expecting housing construction to slow, led by weaker multiples construction - with the heated condo market losing its affordability edge over detached properties," said CIBC World Markets economists Emanuella Enenajor.
"But November’s 13,000 fall in starts to 181.000, the lowest level in nine months, came as an outsized surprise, even with the weakness driven by multiples (condo) building. While we expect housing starts to trend down in the quarters ahead, November’s sharp plunge could correct in December, with starts rising to 189,000. However, even with the year-end uptick in home building, weak housing starts readings in earlier months suggests that residential construction could be a drag on [fourth-quarter] GDP growth, after providing a generous lift in [the third quarter]."
As senior economist Michael Gregory, also of BMO Nesbitt Burns, sees it, Canada's housing market is "stabilizing" amid slow job growth in the second half of last year, waning consumer confidence, a drop-off in foreign investment from Asia, and the tighter mortgage rules. The bounce-back in housing starts that is believed to have taken place in December in fact marks just a partial rebound in starts of multiple units, such as condos, and poor weather in some regions in November.
"Nevertheless, stabilization is still a remarkably robust outcome given the abovementioned housing headwinds, and reflects the offset provided by low borrowing costs," he said.
"However, the allure of low interest rates is waning, as Canadian households amass record high debt burdens and policy makers sound the alarm on related risks to economic and financial stability, pointing to a cooler pace of housing activity this year."
Will U.S. slump end this year?
While Canada’s housing market cools, however, there are suggestions that U.S. housing may finally be emerging from its long, deep slump.
Evidence is mounting that U.S. housing has finally hit bottom, and will contribute slightly to growth this year,” said BMO’s Mr. Porter.
But while the lengthy decline in house prices could end this year, analysts aren’t projecting marked increases.
"Tough credit conditions and rising foreclosures will prevent significant and sustained price gains until 2014," said Paul Dales, senior U.S. economist at Capital Economics in London.
"We now think that prices are close to finding a floor," he added in a report. "The key difference between this year and last is that banks are a little bit more willing to lend. For example, towards the end of last year lenders were willing to extend a loan worth 80 per cent of the home purchase price up from nearer 70 per cent in 2010."
At the current pace of sales, Mr. Dales said, it would take seven months to sell all the unsold stock in the pipeline. And when you exclude the 2010 "distortion" of a temporary tax credit, it's the first time in five years that that measure of the demand and supply balance is close to its long-term average.
Still, it won't be a rapid rise, and much still depends on how the euro crisis plays out.
"The loosening of credit criteria has so far been modest," Mr. Dales wrote. "And by reducing the ability of households to extract a down payment from their home, the previous fall in prices has shut out up to half of all mortgage borrowers from the mortgage market. Moreover, given how many people were burned during the crash, it will take many years to rekindle America's love affair with home ownership."
He also projected a further three million foreclosures.
The American dream now just a pipe dream for many
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