Housing Market Update

I just read a very sound report from Scotiabank Group titled "Special Update: Canadian Mortgages". It supports what was reported on the local news last week. The newscasters had interviewed Cameron Muir from the BCREA and a couple of local Realtors. One of the conclusions was that prices have dropped about 5% so far in the last six months, and we may expect up to the same amount again over the next 6 months to a year. The Scotiabank Group report speaks of "further fairly modest erosion of house prices." So, without putting a number on it, they are saying that prices will continue to decline a little bit for the next little while.

While I do not have a crystal ball to predict the future, I am presently of the opinion that a lot of the price drops in the last six months have been due to the fear factor, not sound economics. No one really knows how much the U.S. slowdown will affect our economy and Buyers are afraid to make the wrong decision. Perhaps they are afraid to buy a first home before the market bottom comes, thus paying too much, or afraid to get a mortgage on a home and then lose their income. So, a lot of people are in the "wait and see" mindset. The activity that we continue to experience in the market is from people who are not easily scared off by the media hype, or people who cannot afford to wait due to a change in their circumstances.

With the bailout package in the U.S. having just been put in place, it will take some time to see how much success it has to rescue the U.S. from a serious recession, or even a depression. Depending on the severity of the problems in the U.S., B.C. may not see much of a decline in the economy, since our economy is in some ways more insulated from the U.S. effect (due to fewer manufacturing jobs, more exports to Asia). We will definitely fare better than many other Canadian provinces will.

I believe that there are only two changes that are possible come the spring - either it will become clear that our economy has definitely declined and many people are losing their jobs, which will cause house prices to drop even further, or people will start to realize that our economy will weather this storm, and housing prices will start to rebound. I am optimistic that prices will rebound sooner, rather than later.

I believe that much of the media hype is just that - "hype" - and that time will tell how much our economy will withstand this. I believe that prices are not going to erode for very long, and agree with the experts that price drops will be slow and gradual.

For buyers there are still many reasons that now is the right time to buy. If they sit and wait, they may have less selection, and in the mean time, how many rent payments will they have thrown away? There are many homes that are fantastic steals due to divorces or job transfers forcing a quick sale, and there are definitely many deals to be had in this strong buyers' market. The options and inventory are abundant, so finding your dream home, with all the options and features that you want, is easier than it has been in years.

Also, for sellers, now is a great time to make an upward move, or perhaps to shorten your commute. If you have been wanting that extra bedroom or that larger lot, or to move closer to Vancouver, you can't lose right now. Any declines in your home's value have most likely been more than offset by the declines in the price of the bigger home, or the one closer to town.

Also, in a strong sellers' market, many sellers were tempted to buy first - writing an offer subject to the sale of their home. This is not a recommended practice because it generally costs you more money overall, but many people do it so they ensure they won't end up with nothing appropriate to buy, (with the slim pickings of a seller's market), and to be forced to rent until something appropriate comes available, meaning they have to move twice. With the buyers' market we are in, you can be sure that with the inventory levels we currently have, only the pickiest people will be hard-pressed to find a suitable home to buy. That leaves you free to sell your home before making an offer on a home to purchase, keeping more money in your pockets.

If I can be of service to you in the Mission or Abbotsford area, or if you need a referral to one of my colleagues in your area, please do not hesitate to contact me. My information is in the side panel. Have a safe and happy October!

A Market Shift = A Shift In Expectations

Market conditions have shifted. After five years of blockbuster activity and double-digit price growth, market conditions have slowed, and now favour buyers in many areas of the province.

Residential sales have declined 22 per cent in the first six months of this year, while available resale inventory has grown by 54 per cent to 57,000 active listings in June. In the Greater Vancouver board area, where longer-term data is available, inventory is at the highest level since 1998.

Home price appreciation observed from 2004 to 2007 is less attainable in today’s market, and sellers’ expectations for such gains should be tempered. More generally, in a market favouring buyers, prices generally increase at or below the level of inflation. While the average residential home price in BC increased at a healthy 6 per cent per year since 1981, large gains are often followed by periods of price stagnation. Over-optimistic pricing by sellers will only inhibit the timely sale of properties, adding to inventory levels.

Buyers have more homes to choose from now than in previous years, resulting in greater freedom to compare the attributes and prices of similar properties in the market before making purchase decisions.

Despite current buyers' market conditions fuelled by housing affordability constraints and economic uncertainty, the economic and demographic backdrop in support of housing demand remains strong in BC. BC's unemployment rate remains near record lows, while the labour force participation rate hovers near historical highs. Meanwhile, the province remains a favoured destination for new migrants, reflected in the third-highest population growth among provinces during the first quarter of 2008. However, challenges continue in the forestry sector, and eroded consumer confidence may also be playing a role in a pull back of consumer spending.

Copyright British Columbia Real Estate Association. Reprinted with permission. BCREA makes no guarantees as to the accuracy or completeness of this information.

Ottawa Tightens Mortgage Rules

Wednesday, July 9th, 2008 CBC News

The federal government said Wednesday that it is tightening the rules relating to government- guaranteed mortgages, even though there is no evidence that the Canadian market is facing the kind of turmoil that has disrupted the United States.

The new rules, set to take effect Oct. 15, are a "responsible and measured approach … to reduce the risk of a U.S.-style housing bubble developing in Canada," the Department of Finance said in a news release.

However, it also said that Canadian creditors' "prudent and cautious approach" to mortgage lending, as well as sound supervision, have "allowed Canada to maintain strong and secure housing and mortgage markets."

The government said the measures will apply to new, government-backed, insured mortgages. "Canadians who already hold mortgages will not be affected," it said.

The changes include:
Cutting the maximum amortization period to 35 years from 40.
Requiring a minimum down payment of five per cent, whereas loans for 100 per cent of the price are possible now.
Establishing a requirement for a consistent minimum credit score.
Introducing new loan-documentation standards.

The government acknowledged that the proportion of bank mortgages in arrears is stable at 0.27 per cent, "near the lowest levels experienced since 1990 and well below the highs of 0.65 per cent experienced in each of 1992 and 1997."

And housing prices don't show evidence of speculation, the Finance Department said, because they are "in line with economic factors such as low interest rates, rising incomes and a growing population."

Mortgage insurance protects lenders when a borrower defaults by making up any shortfall needed to repay the loan if the sale of the property doesn't cover the debt.

Federally regulated lenders must have mortgage insurance on loans where the buyer's down payment is less than 20 per cent of the price.

The Canada Mortgage and Housing Corp. (CMHC), a Crown corporation, as well as private insurers provide mortgage insurance. The government backs CMHC and also private mortgage insurers so the private insurers can compete with CMHC.

Just over a year ago, Parliament passed a bill changing mortgage insurance to make home buying easier, and in 2006, CMHC eased the insurance rules.

Housing Market Update

The latest US Unemployment rate held steady last month at 5.50%, however; year to date they have lost 438,000 jobs. Their Housing Crisis is not over and you can expect more gloomy news over the next few months.

Canada had some good news in April, reporting modest Economic growth. This gives us some hope that Canada will avoid a Recession. In Europe, the Central Bank recently increased interest rates by a quarter point to ensure their Inflation stays in control.

The Western provinces of Canada have much different economies than in the Eastern provinces, and at this point in time are in a good position to weather the surrounding economic storms quite nicely. That should translate to our housing markets in the West staying stronger than in the East, as our unemployment levels remain at extremely low levels, thus bolstering consumer confidence.

In the June 27, 2008 Real Estate Weekly for Mission, it was noted that the Canada Mortgage and Housing Corporation said that the seasonally adjusted annual rate of housing starts rose 3.5 per cent to 221,300 units in May from 213,900 in April. It attributed the increase to a rise in single-family home starts, which in April had reached their lowest level since May 2001. BMO economist, Doug Porter, was quoted to have said "It just shows that things are not deteriorating rapidly and continue to not disappoint: The Canadian housing market, after all, is still holding up relatively well." But he also noted that he believes there will be some slowdown in activity later this year.

The CMHC is forecasting around 214,000 to 215,000 home starts for 2008, as rising incomes, low unemployment and low mortgage rates boost home ownership. This number is slightly down from 2007, but still strong by historical standards. Economist Pascal Gauthier notes anything above 200,000 is fairly robust. "There's nothing that suggests construction activity is going to come off the tracks," Gauthier said. "It is really just a gradual cooling."

If you are considering a Real Estate move this year, I would be happy to offer a second opinion about your decision, with relation to what the market is currently doing. Feel free to give me a call or drop me an e-mail at the contact information noted on this page.

Best regards, Cyndi Polovina

HOMEOWNERS RUSH TO PAY DOWN MORTGAGES

The Globe & Mail, March 19th, 2008

Canadians who have recently bought a home intend to pay off their mortgages as quickly as possible, with many already taking steps towards that goal, according to an annual mortgage consumer survey released Wednesday by Canada Mortgage and Housing Corp.

One-third of recent buyers said they have already made a lump sum payment to help pay down the principal on their mortgage, and 84 per cent said they are making payments on an accelerated basis, which shortens the original amortization period, according to CMHC.

A more conservative attitude towards debt has often been cited for helping buffet Canadian homeowners from the mortgage mess in the United States. The CMHC study shows this caution remains, said Pierre Serré, vice president, insurance products and development, at CMHC.

“The fact that new homeowners are working to pay down principal early and are accelerating payments is a good indication that this responsible behaviour will continue throughout the life of their mortgage,” Mr. Serré said in a statement.

The survey also indicated 84 per cent of respondents felt they had access to suitable housing options, and 88 per cent felt confident they could manage their debt.

The survey is conducted each fall, and based on a sample of more than 1,400 recent active mortgage consumers, including first time and repeat buyers, along with customers renewing and refinancing their mortgages. Results are considered accurate within 2.6 percentage points 19 times out of 20.

Canadian Residential Real Estate Future is Solid

The Canadian Real Estate Association is confident that the future of the Canadian residential real estate market is solid. It appears that the largest threat of a 2008 slow-down in the Canadian residential real estate market is from predictions of doom and gloom becoming self-fulfilling if consumers are not informed about certain economic truths, and therefore lose confidence in the market.

There really are no economic reasons for people to lose confidence in the Canadian housing market at this time. Statistics show just how different the housing markets are in Canada versus the United States. According to the January 23rd, 2008 report from CREA "Three key economic ingredients will keep Canada's housing market on a different track from the United States. One is consumer confidence, the second is employment, and third is affordable interest rates." CREA president, Ann Bosley said, "The challenge for the Canadian housing market will be the extent to which employment and consumer confidence may be affected by a slowdown in the U.S. economy."

"Slower job growth, not massive layoffs, are forecast for Canada in 2008," CREA's Chief Economist, Gregory Klump adds. "Consumer confidence may be sideswiped by stock market volatility, and reports that chances of a U.S. economic recession will put the brakes on the Canadian economy. With slower job growth, a low unemployment rate, and the absence of widespread layoffs, consumer confidence will bounce back. The domestic economy and the housing market will weather the sub-prime fallout with the help of lower interest rates."

Canada Lowers Growth Forecast, Signals More Rate Cuts

The Bank of Canada lowered its growth forecast because of weak export demand from the U.S. and said it will probably cut interest rates again this year.

The central bank said today, in an economic forecast paper, that gross domestic product will expand 1.8 percent in 2008, , revising their October prediction of 2.3 percent. Inflation will slow to 1.4 percent in the second quarter, less than the bank's 2 percent target and October's 2.4 percent forecast, as a strong currency makes imports cheaper.

"The weaker U.S. economy will lead to additional downward pressure on Canada's export growth," Governor David Dodge said at a news conference in Ottawa after releasing the new forecast. "Further monetary stimulus is likely to be required in the near term.''

Policy makers reduced their main interest rate a quarter point to 4 percent on January 22, 2008, citing the need for more easing. It is widely believed that the new governor, Mark Carney, who becomes governor on Feb. 1, will cut the rate by a quarter point at each of his first three decisions starting March 4.

The central bank said in its report that "more accommodative monetary policy" in the world's industrialized economies should moderate a global slowdown, and that "lower policy rates" will support Canada's economy in the next two years. The bank said the forecast assumes further rate cuts by the U.S. Federal Reserve, which three days ago made an emergency cut of three-quarters of a point to stave off a recession.

Bank Of Canada Not Done In Cutting Rates

The Bank of Canada cut the overnight rate, the morning of January 22, 2008, by a quarter-point to 4.00%. According to a TD Economics Commentary, this was broadly in line with market expectations; however speculation was building in the days leading up to the meeting that the Bank might be more aggressive given that financial market confidence had been severely undermined by the prospects of a U.S. recession and the possibility of some contagion to the global economy. Speculation of a more aggressive Bank of Canada decision climaxed when the Federal Reserve caught financial markets completely off guard this morning with an inter-meeting cut of 75 basis points. Nevertheless, the Bank stuck to their guns with a more measured approach, reflecting their view that domestic demand on this side of the border is expected to remain strong. However, the Bank made it quite clear in the morning’s communication that they are prepared to deliver more rate cuts down the road when they stated that “further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to return inflation to target over the medium term”.

The prevailing thoughts now among economists are that the next move on March 4th will be a more aggressive 50 basis point cut. That rate decision will probably not be the result of declining domestic demand. So far, the domestic side of the Canadian economy appears well grounded. In today’s communiqué, the Bank noted that "despite tighter credit conditions, strength in domestic demand is expected to remain supported by continued income growth associated with the increase in commodity prices since October, which has led to further gains in our terms of trade.” It is also important to remember that unlike their American counterparts, Canadians are not getting hit on both ends of their asset portfolios. Home prices remain on the upswing in most major urban centers, and there is little concern that the Canadian housing market will start to mirror the slump in the U.S. In fact, it is believed that national home prices will rise at a rate of 5-7% in 2008, compared to a U.S. market that will likely absorb losses of around 5% or more.

However, it is generally believed that by the next meeting, data on the U.S. economy will show clear signs of a sharp economic slowdown. Given that inflationary pressures remain strong, a 50 basis point cut would provide insurance against the degree to which a U.S. economic downturn would affect the Canadian economy. Certainly, inflation will not provide a barrier to a more aggressive Bank of Canada. The central bank has indicated that increased competitive pressures in the retail sector and the one percentage point GST cut at the start of the year will cause both core and total CPI inflation to fall below 1.5% by the middle of this year before returning to their 2% target by the end of 2009.

Following the March 4th meeting, there could possibly be another 25 basis point cut. However, because there is so much economic uncertainty on both sides of the border, the degree of additional rate cuts will depend on how events in the U.S. unfold and whether financial market confidence is still question.

2008 to Bring Balance to Fraser Valley Real Estate Market

It is projected that both the Fraser Valley and Greater Vancouver will see another solid real estate year in 2008, with the trend being more selection for buyers and prices rising at a slower pace than we have seen in recent years.

The BCREA (British Columbia Real Estate Association), forecasts that the average residential price increases we will see in 2008 in the Fraser Valley will be approximately six percent. They expect that detached homes will rise approximately six percent, but that townhomes may rise as much as eight percent and apartments somewhere in between, at approximately seven percent.

Cameron Muir, BCREA's chief economist, projects listing volumes will continue to increase in the Valley resulting in, "less upward pressure on prices, reducing the number of multiple offers, and giving consumers and members more time for comparison and negotiation."

"How can prices continue to rise after so many years of increases?", you may ask. Muir says consumer confidence in the Lower Mainland and Fraser Valley remains high, "Despite some challenges in the economy such as the high Canadian dollar, we have strong job growth, wages rising higher than inflation and mortgage rates are expected to edge down in the first half of 2008."

Overall experts predict continued stability in Fraser Valley's 2008 housing market, with the resale market remaining sound, new construction at a steady level and hot demand for rental and apartment units, all due to underlying strong economic fundamentals.