Prices defying both gravity and logic

Sales were up from the month previous, however, when compared to a year ago there are considerable double-digit drops across the nation.  Yet, prices are still increasing overall mainly due to a few select markets such as Calgary.  Calgary’s buoyant market is experiencing low inventory, increasing building permits and higher prices and showing signs of a strong market and boom-like activity.  That being said, Vancouver and Toronto still hold 1 and 2 respectively for the most expensive markets, with some buyers forced into artificial bidding wars set by Realtors in the Easter market.

Canadian household and mortgage debts had the smallest 12-month increase for any month since 2001 and other debts such as credit cards and loans have had the smallest 12-month increase for any month since 1993. Finance Minister Jim Flaherty is taking responsibility for this momentum, but believes that there is still more to be done.

The Bank of Nova Scotia Chief Executive Officer Richard Waugh voiced his concerns with the level of influence the Minister is enforcing. Waugh believes the Government shouldn’t interfere with mortgage pricing set by the country’s lenders. “I understand why the finance minister is concerned about the Canadian economy, but I just philosophically don’t think government should be setting product pricing,” Waugh said  “Despite the difficulties of central banks to use interest rates, the alternative of trying to manage specific products or prices, to me, is fraught with difficulty.”

More highlights from April’s headlines:

Overall Market

STATS

  • National home sales declined 2.1% from January to February, according to the Canadian Real Estate Association, and actual activity came in 15.8% below levels in February, 2012. Almost 80% of local markets posted year-over-year declines in house sales while new listings dropped 60%; worst in Toronto, Vancouver, Montreal and Saskatoon.
  • Royal LePage said the average price for a standard two-storey detached house was up 2.2% in the January-March period compared with a year ago, while the national average price for detached bungalows rose 2.4%. The average price for condominiums rose 1.2% from first quarter of 2012, however, Vancouver, Victoria and Saint John, N.B., had year-over-year and quarter-over-quarter price declines in all three categories.
  • Royal LePage survey, the national average price for a two-storey house was $407,044 in the quarter, the bungalow average was $364,857 and the average price for a condos was $246,071.
  • Overall, prices rose in 10 cities, stayed unchanged in nine and fell in two. On a year-over-year basis new housing prices in Canada rose by 2.1% in February, down from 2.2% in January.
  • While housing starts rose for a second straight month, all the strength was in the rural market — urban starts dropped sharply — and a longer-term trend showed construction is continuing to moderate, according to a report from government agency Canada Mortgage and Housing Corp.
  • Data from Statistics Canada showed the value of Canadian building permits rose a weaker-than-expected 1.7% in February as a sharp decline in plans for multi-family housing partially offset strength in other projects.
  • Reports show further evidence of a slowing in Canada’s housing market, which was red-hot a year ago but has cooled dramatically since the government tightened mortgage rules in mid 2012 to prevent a U.S.-style real estate bubble.
  • In line with the softening trend in the housing market since mid-2012, permits for multi-family housing fell 19.1% in February, the seventh decrease in eight months, Statscan said.
  • Urban starts fell 2.7% in March to 157,217 units, led by a 6.6% decline in single-family starts to 60,558 units. Multiple-unit urban starts were relatively unchanged at 96,659 units in March, CMHC said.
  • Statistics Canada released a report on building permits that showed future building intentions for residential construction fell 7.2 per cent in February to $3.6 billion.
  • Starts in March totaled 12,273 or 184,028 annualized, just slightly higher than in February but down 13.6 per cent from a year ago.
  • Loan growth reached a recent peak of 13% in May 2008, according to Geoffrey Kwan and Sean Adamick, analysts at the Royal Bank of Canada unit.
  • The Canadian Real Estate Association reported Monday that existing home sales in the 26 municipal markets it tracks rose a seasonally adjusted 2.4% in March over the previous month
  • Overall, the real estate association said there were 39,527 residential properties sold through the Multiple Listing Service in March, compared with 46,669 a year earlier.
  • Ground zero for the cooling scenario in the report was Halifax, which dropped almost 11% in March from February and 36% from a year ago. At the other end of the spectrum, Edmonton was up 1.6% in the month and 1.4 from a year ago.
  • On a month-to-month basis, Sales were up in most big cities, particularly Vancouver, which saw a 10.9% jump after seeing among the biggest drops recently, and Regina, up 12.2%.
  • On an annual comparison, sales in Winnipeg and Regina were down almost 24%, 15% in Calgary, 20% in Toronto, about 19% in Vancouver, about 17% in Montreal, and almost 16% in Ottawa.
  • On the inflation front, there is little pressure to hike rates, with annual inflation slowing in March to 1% — well below the bank’s 2% target. The bank on Wednesday said inflation would “remain subdued in coming quarters before gradually rising to 2 percent by mid-2015 as the economy returns to full capacity.”
  • The multiple offer game creates an inflationary environment that these days the real estate market just might need. The latest statistics from the Canadian Real Estate Association show average prices in Canada up 2.2% from a year ago. March sales were off 15.3% from a year ago and active listings are still climbing in many markets.
  • Statistics Canada.The federal agency reported that the Vancouver census metropolitan area had the highest value per dwelling at $482,800, followed by Victoria, at $393,400, Calgary, at $384,500, and Toronto, at $362,000.
  • RBC Economics says overall household debt stood at $1.67-trillion in February, up 4.5% — the smallest 12-month increase for any month since June 2001. Total Canadian mortgage debt stood at $1.16-trillion in February, up 5.4% compared with the same month last year — the smallest since November 2001. Non-mortgage debt including credit cards, personal loans, lines of credit and other loans stood at $512-billion — up 2.5%, the smallest 12-month increase since July 1993.

SURVEYS

  • The average Canadian homeowner doesn’t think they’ll be mortgage-free until they’re 57 — two years longer than what they expected last year, a survey by CIBC suggests (TSX:CM).
  • The average first-time homebuyer in Canada is 29 years old and expects to be able to put down a down payment of $48,000 on $300,000 home, according to a recent poll by the Bank of Montreal. Those in Atlantic Canada say they expect to spend an average of $224,000 on a first home, while those in British Columbia anticipate to pay an average of $454,000. Forty-six per cent of those surveyed also they’ll choose a fixed mortgage rate when they buy, versus 20% who will choose a variable rate. Twenty-three per cent of those surveyed say they will still have a mortgage within 25 years; 16% say within 20 to 24 years and 20% say within 10 to 19 years.
  • Steeper down payments, higher property prices, heavy student debt loads and an inability to afford monthly mortgage payments are among the top obstacles facing Millenials, or Generation Y, looking to own a home, according to the poll. The poll from TD Canada Trust suggests. Perhaps the most unique challenge faced by would-be Gen Y homeowners: student debt. Balancing student loan payments while saving for a home or paying a mortgage was cited as a barrier by 23% of Millenials. Compare that to 2% of Boomers.
  • The study found Generation Y (or Millennials) identifies three main obstacles to home ownership that weren’t as much of an issue for Boomers: the ability to save for a down payment, housing prices and insufficient salaries.

QUOTES & PREDICTIONS

  • “Typically when you have a distortion in the economy, it is rarely painless to rebalance it. We’re in for a relatively painful period…We’re in store for something between a U.S.-style crash and a soft landing.” Ben Rabidoux, an analyst at M Hanson Advisers.
  • “Overall, we think existing home sales will continue to decline with negative implications for the elevated level of home building and broader knock-in implications for domestic demand growth,” David Madani, an analyst with Capital Economics.
  • “Despite the earlier-released upside surprise in March housing starts, today’s data confirm that homebuilding activity could continue to struggle in the months ahead, weighing on the overall economy,” Emanuella Enenajor, economist at CIBC World Markets.
  • In one of the gloomiest forecasts issued on the Canadian economy since the recession, Capital Economics predicts a sharp and protracted housing correction, in conjunction with muted business investment and government austerity, will keep Canada’s economy in stall mode throughout 2013 with a one per cent growth rate, only improving slightly to 1.3 per cent in 2014.
  • In an interview, the firm’s chief Canadian economist David Madani agreed that his view is darker than most, but noted the consensus — the average of forecasts — has been steadily dropping for months and coming closer to his position. “I wouldn’t be surprised to see housing starts fall to 150,000 by the end of the year,” he said. “Historically housing markets are either overbuilding or underbuilding and this boom we’ve been in the last decade has been enormous … and that why I think the correction process will be fairly severe and protracted.”Over the long term, Madani says Canadian home prices, which have held up remarkably so far in the face of falling sales and starts, will drop by 25 per cent.
  • Mortgage loan growth will slow to about 2% to 4% in the next two years from 5.4% as home sales and prices cool, RBC Capital Markets says in a new note. Mortgage loan losses will remain low partly due to employment growth, they said. Growth rates over the next two years will be similar to the 1990s housing downturn, the analysts said.
  • Bank of Montreal chief economist Doug Porter noted that sales in the last four months are down 14% over the past year, but he too saw the slide moderating and that sales will likely only fall by seven per cent through 2013.
  • The consensus of economists is that home prices will likely fall about 10% in the next two years, with some believing the correction could be as high as 25%.
  • Dunning expects housing-related employment to take a dive, with as many as 190,000 jobs being lost through 2015. “Ottawa is getting more than they bargained for,” he adds, and the worst economic impact may be yet to come. “Slower sales will translate into slower housing starts with the impact felt in the second half of this year. The reduction in housing starts will be much larger than anyone is expecting.” housing analyst Will Dunning told CMT.
  • Bank of Canada chief Mark Carney said he is unlikely to raise interest rates until economic growth surpasses 2% and inflation quickens, adding that personal debt levels and the housing market will also influence the timing of his next move.
  • A new survey from Bank of Montreal finds 72% of buyers are unwilling to get into a bidding war. Among first-time buyers, 37% are willing to go “over budget,” BMO said in a news release Tuesday.
  • “The combination of very low mortgage rates and flat home prices, against a background of general economic improvement across the nation, is not something we’ve seen before,” Soper said Thursday.
  • There is no Canadian housing market,” says Campbell, senior analyst and founding partner with the 2,900-member Real Estate Investment Network (REIN). “At no other time in history has the real estate market in Canada been so regional,” he notes. “If you go to Hamilton, that market is strong. But in Waterloo the market is starting to slow down, even though the cities are only half an hour apart. And what’s going on in Ottawa has nothing to do with Halifax.” Campbell’s point? Housing is a local commodity, and always will be. That’s why average house prices in Fort McMurray dwarf those in Camrose, and why average prices in Edmonton are barely half those in Vancouver. Just because housing markets in Toronto and Vancouver are soft — a point made ad nauseum by the myopic national media — doesn’t mean the rest of the country is in the same boat.
  • Despite the recent moderation in the rate of new housing construction, there are still signs of overbuilding, particularly of multiple-unit dwellings in some urban areas (see chart below),” the Bank of Canada

Vancouver

  • Vancouver remained by far the most expensive market in Canada with the average price for detached two-storey houses and bungalows above $1-million while the average condo price was $481,250.
  • Real Estate Board of Greater Vancouver reported a decline in sales of 18.3% at 2,347 sales in March compared with 2,874 sales recorded in the same period a year ago. The sales last month were the second lowest March total in Greater Vancouver since 2001 and 30.2% below the 10-year sales average for the month, the board said.
  • “While home sales were below what’s typical for March, we are seeing more balance between the number of sales and listings on the market in the last two months, which is having a stabilizing impact on home prices,” said Sandra Wyant, president of the Vancouver board. The sales-to-active-listings ratio was 15.2% in Greater Vancouver, the first time the ratio was above 15% since May 2012.

Toronto

  • Toronto, the country’s most populous city and often considered the second-most expensive after Vancouver, followed the national trend to higher prices in all three types of housing.
  • The Toronto two-storey average in the first quarter was $671,252, the bungalow average was $565,700 and the condo average was $359,671.
  • The Toronto Real Estate Board said sales were down 17% at 7,765 sales through its MLS system last month compared with 9,385 in March 2012.
  • While Toronto saw a double-digit downturn in buying activity in the first quarter of this year over last, it has yet to seriously impact prices, the survey shows. Royal LePage president Phil Soper.
  • Soper predicts prices gains could slip, possibly into negative territory, by the end of 2013 and would be unlikely to pick up again until into 2015, driving the Toronto market into serious buyers’ territory for the first time since the 2008 recession
  • In Toronto, the drop in sales did not seem to affect house prices as the average March selling price crept higher compared with a year ago.
  • The Toronto board says the average price was $519,879, up 3.8% from March 2012
  • According to the Toronto Real Estate Board, home sales in Toronto fell more than 17 per cent in March, compared to the same month a year earlier. Condo sales fell 18.4 per cent, but detached homes fell almost as much — 17.8 per cent.
  • Prices in the Toronto area rose 4 per cent, year over year. And news continues to come in that bidding wars for detached homes in Toronto are still happening.
  • Appears to be artificially-created bidding wars in the form of real estate agents “holding offers” — the practice of requesting that all potential buyers submit a bid for a house in writing, all at the same time.
  • So far this year, they’ve announced 13 new condominium projects, the fewest since the recession in 2009, when there were just three over the same period, RealNet figures show. In the same period last year, 29 new projects were announced, including Tridel Corp.’s Ten York, the third-tallest residential tower in the country at 75-stories when it was first marketed.
  • Sales of high-rise homes in Toronto have dropped 34% since 2011, after rising 64% in the past decade until 2012. Prices have declined 5.5% over the past two years, according to RealNet.
  • “There is only one area of real softness and that is the condo apartment market,” stressed Pinsonneault. “For condos, you have the worst market conditions, outside of the recession, that we’ve seen since 1998.” n March there were 4.3 months of condo inventory on the market The historic median level is 3.1 months. National Bank economist Marc Pinsonneault. When it comes to the single-family home market in Toronto, however, demand continued to outstrip supply in March. That has buoyed house prices and seen the active sales-to-listings ratio drop to 2.2 months, below historic averages closer to 3 per cent, said Pinsonneault.
  • “The lack of inventory is a big problem in the high-end market,” so agents are having to find their own properties rather than look to the MLS system, said Andy Taylor of Sotheby’s Toronto office, which has done more international business in the last 18 months than in the last six years. Demand from wealthy Syrians, Egyptians and Europeans looking for a safe and relatively stable place to park their millions — Canada’s softening real estate market.
  • Toronto condo builders are slowing development in a bid to avoid a crash after a decade-long boom led to 159 towers now under construction.
  • The now-renamed Residential Tenancies Act sets out tenant protections for all rental units across Ontario, but rent control provisions only apply to buildings occupied before Nov. 1, 1991. That’s turned out to be great news for condo investors, allowing them to pass on escalating maintenance fees and other costs almost directly to their tenants.

Calgary

  • In Calgary, average housing unit prices including condos and townhouses were up nine per cent to $460,800 from $422,400 in March 2012. That’s more expensive than the record $457,100 in February, which upset the previous high mark of $452,600 set in July 2007.
  • Single-family homes sold in the city averaged $518,400, ahead by nearly 10 per cent over March 2012, while condos were up nearly 11 per cent at $300,900 and townhouses were up 13.5 per cent at $355,500.
  • The average MLS sale price for a single-family home in February was $518,500, beating the previous record of $506,700 in July 2007.
  • CREB said the inventory of active homes for sale in Calgary showed the lowest March levels in more than five years, coming in at about 4,000 units, up from February’s levels but well below the number available one year ago.
  • Ann-Marie Laurie, CREB’s chief economist, said new single-family listings under $500,000 are declining at double-digit rates, driving consumers at that price point to either surrounding towns, condominiums or the new home market.
  • Alberta’s population grew by nearly 116,000 residents or 3.04 per cent in 2012, almost triple the national growth rate. Yet the average price of a single-detached home in Edmonton, at roughly $401,000 in February, has yet to surpass its 2007 peak.
  • Alberta: So what has capped the market’s gains to date? Campbell says several negative “influencers” have limited the price increases thus far, including tougher mortgage qualification rules as well as those gloomy national headlines. In addition, some buyers who were burned by purchasing at the peak of the last cycle remain gun shy, and many recent newcomers to the province aren’t yet comfortable committing to major purchases, such as a new home. Campbell also cites the perverse psychological effects created by Alberta’s boom-and-bust economy. The result: Albertans, more than residents of other provinces, tend to obsess about the timing of the next big bust. “The real difference this time is hidden in the strong forces of today’s market influencers. It is very true that the market drivers are all in place to support a large growth in housing purchase demand and price increases, in fact it is a textbook market for a boom,” said Campbell.
  • New home prices in Canada rose by 0.2% in February, the 23rd consecutive month-on-month increase, pushed up by a buoyant market in Calgary, Statistics Canada said on Thursday.
  • The supply of new high-rise units reached 21,262 in February, 34% more than the same period a year ago and close to a record 21,696 in October 2012, RealNet figures show. About 61,000 units are currently under construction — the most ever — and a record 35,757 residential units will come on stream next year, RealNet said.
  • Sales of high-rise homes in the city have dropped 34% since 2011, after rising 64% in the past decade until 2012. Prices have declined 5.5% over the past two years, according to RealNet.
  • Ben Brunnen, chief economist with the Calgary Chamber of Commerce, said the province is definitely seeing all of the signs of strong economic and potentially housing growth. “Net inter-provincial migration, population growth is up. Unemployment is low and GDP growth is relatively high,” said Brunnen. “I think we’re seeing probably a bit more of a cautious consumer out there. I do think we’ll see some strong real estate activity happening in Calgary but not like in the boom. “I think there continues to be some caution in the market for a number of reasons. While Alberta’s economy is good, the global economy continues to be shaky, especially Europe and the United States. So people don’t have that strong confidence per se…
  • The estimated value of building permits in March in Calgary reached $476.7 million, up 25 per cent from a year ago.
  • Year-to-date, total permits of $1.2 billion are up 20 per cent from the same period a year ago.
  • Residential permits have risen by 15 per cent to $647.3 million while the non-residential sector is up by 27 per cent to $543.3 million.
  • The Conference Board of Canada report listed Calgary — along with Regina, Saskatoon, Thunder Bay, Halifax and Newfoundland — in the seven per cent plus range for average year-over-year price growth for the latest three months.
  • In March, the board said, the seasonally-adjusted annual rate for sales in Calgary was 27,636, up 4.8 per cent from last year while listings were down 3.0 per cent to 42,540.
  • The average price was $435,032, an increase of 6.6 per cent from a year ago.
  • In Alberta, total assessment value of $471.7 billion represented a 97.0 per cent hike between 2006 and 2011 and an increase of 8.1 per cent from 2010 to 2011.

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