What a roller coaster ride the last two years have been. In the spring of 2009, Canadian house prices fell across the board and transactions slowed as fears of a global economic downturn spread. But then, as if only pausing for breath, Canada’s real estate market revved up once again and the spring dip looked like nothing more than a good buying opportunity. So why is everyone so nervous? When I talk to Realtors, fears of rising interest rates are among the first concerns raised. There is a widespread assumption that rates can only go up, and a related belief that higher rates will hammer the real estate market. In fact, I don’t think either fear is warranted. Here’s why:
Short-term (variable) rates aren’t going anywhere fast because
* The central bank’s primary reason for raising rates is to control inflation. Our inflation rate (as measured by the consumer price index) was at one per cent as of July 23, well below the central bank’s upper limit of two per cent.
* The effects of higher rates are felt only over time, so raising short-term interest rates gradually allows the central bank time to measure the impact of previous increases before tightening further.
* The real estate market is cooling off. One of the central bank’s main concerns with leaving its overnight rate at emergency low levels was that it would fuel a housing bubble. Today’s more balanced housing market has rendered that concern moot for the time being.
* While the Canadian economic recovery is in full swing, most of the rest of the world is not faring as well. In its recent commentary, our central bank acknowledged that aggressive interest-rate hikes could stifle our momentum, especially against today’s backdrop of global economic uncertainty.
* The U.S. Fed is not expected to increase its short-term policy rate until 2012 at the earliest. If our central bank keeps raising rates independently of the Fed, our dollar will continue to appreciate and this will slow our economy further. Most experts do not believe that Canadian short-term rates can be sustained at much more than one per cent above comparable U.S. rates (and we’re already .75 per cent higher today).
Moderately higher rates won’t hammer the real estate market because
* Contrary to popular belief, there is no strong correlation between rising interest rates and lower house prices. In fact, historical data show that rates and house prices rise together more often than not. Before you say I’m out to lunch, let me elaborate. I readily accept that, all being equal, higher rates hurt affordability and are bad for the housing market. But all is not equal. Rising rates generally occur in an improving economy, and the positive economic momentum that accompanies higher rates creates a net effect that has historically proven more positive than negative.
* Job creation has far outpaced any forecasts and is considered one of the key factors in our rapid economic recovery (it’s dropping a little recently but after a very good run). If you’re looking for indicators that foretell the health of our real estate markets, historical data shows that job creation (and rising incomes) is far more indicative than the direction of interest rates.
* Canadians can afford higher rates. In a 2009 CAAMP survey based on 40,000 loans totalling more than $10 billion to purchase houses across the country, the data showed that we borrowed far less than the maximum we could afford. For example, the highest acceptable GDS ratio that lenders are generally comfortable with is 35 per cent, and in the survey, borrowers averaged only 21.8 per cent. Lenders normally set the highest acceptable TDS ratio at 44 per cent, while in the survey borrowers averaged a TDS of 32.3 per cent. Results like this don’t usually correlate with people lining up at the banks to hand in their keys.
While no one can say with certainty what the future will hold, especially with the world in the midst of a massive credit deleveraging cycle, I think the alarmist rhetoric about dramatically higher rates in the near future is overblown (and I’ve been saying this since April when most of the bank’s economists were sounding the alarm bells). Make no mistake, the central bank would like to continue to raise interest rates to provide some additional breathing room for future monetary stimulus, probably from today’s .75 per cent to about two per cent. But Mr. Carney and his governors at the central bank won’t do this if it risks smothering the green shoots of our economic recovery. Instead of fast, knee-jerk rate hikes, my money is on gradual rate increases over time, which the data shows Canada’s borrowers can comfortably afford. On balance, even with higher rates, the sky should stay more or less where it belongs – comfortably over our heads.
David Larock MBA, AMP, PFPC, CSC is a Toronto-based independent mortgage planner and long-time industry insider who specializes in helping clients purchase, refinance or renew their mortgages. He is an active blogger on mortgage related topics and his posts have been distributed in national media and by Realtors and financial planners. www.integratedmortgageplanners.com
Monday, September 6, 2010
Friday, September 3, 2010
Thursday, September 2, 2010
The truth buried beneath the stats: Buyers are looking for a bargain
How come new low-rise home sales in the GTA in July dropped almost to mid-recession levels?
How come the volume of resale home sales in July fell 34 per cent from the same month last year and new listings dropped to the lowest level for the month of July since 2002?
How come the biggest chunk of new high-rise sales moved from the City of Toronto to the 905 communities in July?
And finally, how come, despite all this disturbing news, prices for the average new and resale home – both high- and low-rise – kept ticking solidly upwards?
George Carras, president of RealNet Canada Inc., which tracks the GTA’s housing market, says he doubts if anyone can yet unravel all the factors at play in today’s housing market. There is no easy-to-identify single or multiple factors that can be directly linked to such dramatic swings.
We had a late winter and spring full of bright hope as thousands of people flocked to high-rise and low-rise sites and snapped up product. We had a double-digit jump in resales.
Now just three months later it is all change at Charing Cross.
“The three biggest factors I can see affecting the market are lack of consumer confidence, a continuing lack of understanding about the HST and rising prices,” he says. “But each of those catch-all categories has its own set of factors at play that could keep you talking for weeks,” he says.
Down to the numbers. Low-rise sales in July stood at 678 units, which is just about 100 more than in January when everyone was blaming the recession for poor sales. And yet the average price rose 9.2 per cent from last July to $489,088.
In the resale market the Toronto Real Estate Board says 6,564 homes changed hands in July, 34 per cent fewer than the same month last year. At the same time new listings dropped to 10,825, the lowest level for July since 2002.
The average price for July transactions was $420,482 or 6 per cent higher than the same month last year. Tucked away in the July statistics, however, is an interesting number. July’s average resale price is almost $12,000 down from the average selling price for the first seven months of this year ($432,253).
Finally high-rise sales for the month stood at 1,900 units making July the second worst month for sales after January. But just like low rise, prices were up. RealNet says the average high-rise condo price stood at $430,782 that month, up 10 per cent from the previous month.
Again, however, there is a statistic buried among the facts and figures that is worth noting. While traditionally sales of condos in the 416 area have far outstripped high-rise condo sales in the 905 area, July saw a dramatic turnaround.
That month 905 sales were 63 per cent of the month’s total with those outside major urban concentrations like Mississauga City Centre playing a big role.
So, to finally make a point, what do all these statistics suggest? Kind of a no-brainer really. Affordable homes – new high-rise, new low-rise and resale – are what buyers are looking for.
That is likely why the average resale price in July is well below the seven-month average. That is why 905 condos outside major urban areas are selling. Cheaper land means cheaper condos. That is why builders are able to move their lower-priced detached homes but not their higher-priced ones.
If you need a few examples, Mr. Carras suggests taking a look at Daniels Corp.’s First Home Brampton project north of Sandalwood Parkway, west of Bramalea Road. This is a 150-unit, stacked townhouse project, which went on sale for $251 a square foot and sold out within days.
Park 570, a four-storey midrise by Vandyk Properties north of Dundas Street and west of Mississauga Road had 180 units for sale at the start of July, priced at $328 a square foot. By the end of the month it had sold 137 of them.
In low rise, he cites Upper Village Wismer Commons by Greenpark Homes north of 16th Avenue and west of Markham Road. The company offered detached homes from $466,990 and townhouses from $355,990. Of the 22 sales in July, 17 were the much cheaper townhouses.
“The funny thing is all builders are reporting strong traffic through presentation centres. It is just that people are looking but not buying,” he says.
And if they do buy it is a home well down on the price ladder even if they have to live in an area well away from an urban centre.
Mr. Carras also raises an interesting point. He wonders if builders would have been better off showing prices without HST.
“That way people could clearly see the impact it has on prices and focus any anger where it belongs – on the province and not on the builder,” he says.
Terrence Belford
Globe and Mail ,Sep. 02, 2010
How come the volume of resale home sales in July fell 34 per cent from the same month last year and new listings dropped to the lowest level for the month of July since 2002?
How come the biggest chunk of new high-rise sales moved from the City of Toronto to the 905 communities in July?
And finally, how come, despite all this disturbing news, prices for the average new and resale home – both high- and low-rise – kept ticking solidly upwards?
George Carras, president of RealNet Canada Inc., which tracks the GTA’s housing market, says he doubts if anyone can yet unravel all the factors at play in today’s housing market. There is no easy-to-identify single or multiple factors that can be directly linked to such dramatic swings.
We had a late winter and spring full of bright hope as thousands of people flocked to high-rise and low-rise sites and snapped up product. We had a double-digit jump in resales.
Now just three months later it is all change at Charing Cross.
“The three biggest factors I can see affecting the market are lack of consumer confidence, a continuing lack of understanding about the HST and rising prices,” he says. “But each of those catch-all categories has its own set of factors at play that could keep you talking for weeks,” he says.
Down to the numbers. Low-rise sales in July stood at 678 units, which is just about 100 more than in January when everyone was blaming the recession for poor sales. And yet the average price rose 9.2 per cent from last July to $489,088.
In the resale market the Toronto Real Estate Board says 6,564 homes changed hands in July, 34 per cent fewer than the same month last year. At the same time new listings dropped to 10,825, the lowest level for July since 2002.
The average price for July transactions was $420,482 or 6 per cent higher than the same month last year. Tucked away in the July statistics, however, is an interesting number. July’s average resale price is almost $12,000 down from the average selling price for the first seven months of this year ($432,253).
Finally high-rise sales for the month stood at 1,900 units making July the second worst month for sales after January. But just like low rise, prices were up. RealNet says the average high-rise condo price stood at $430,782 that month, up 10 per cent from the previous month.
Again, however, there is a statistic buried among the facts and figures that is worth noting. While traditionally sales of condos in the 416 area have far outstripped high-rise condo sales in the 905 area, July saw a dramatic turnaround.
That month 905 sales were 63 per cent of the month’s total with those outside major urban concentrations like Mississauga City Centre playing a big role.
So, to finally make a point, what do all these statistics suggest? Kind of a no-brainer really. Affordable homes – new high-rise, new low-rise and resale – are what buyers are looking for.
That is likely why the average resale price in July is well below the seven-month average. That is why 905 condos outside major urban areas are selling. Cheaper land means cheaper condos. That is why builders are able to move their lower-priced detached homes but not their higher-priced ones.
If you need a few examples, Mr. Carras suggests taking a look at Daniels Corp.’s First Home Brampton project north of Sandalwood Parkway, west of Bramalea Road. This is a 150-unit, stacked townhouse project, which went on sale for $251 a square foot and sold out within days.
Park 570, a four-storey midrise by Vandyk Properties north of Dundas Street and west of Mississauga Road had 180 units for sale at the start of July, priced at $328 a square foot. By the end of the month it had sold 137 of them.
In low rise, he cites Upper Village Wismer Commons by Greenpark Homes north of 16th Avenue and west of Markham Road. The company offered detached homes from $466,990 and townhouses from $355,990. Of the 22 sales in July, 17 were the much cheaper townhouses.
“The funny thing is all builders are reporting strong traffic through presentation centres. It is just that people are looking but not buying,” he says.
And if they do buy it is a home well down on the price ladder even if they have to live in an area well away from an urban centre.
Mr. Carras also raises an interesting point. He wonders if builders would have been better off showing prices without HST.
“That way people could clearly see the impact it has on prices and focus any anger where it belongs – on the province and not on the builder,” he says.
Terrence Belford
Globe and Mail ,Sep. 02, 2010
Wednesday, September 1, 2010
Housing bust unlikely, says think-tank
A U.S.-style housing crash is unlikely in Canada, says a study by the C.D. Howe Institute.
A decline in underwriting standards played an essential role in the American housing boom and subsequent bust. That has not been the case in Canada, says the study released Tuesday.
Canadian housing policies, which avoided the sharp declines in underwriting standards seen in the U.S. “worked well in reducing the possibility of a housing bust in Canada,” said the report.
The C.D. Howe report comes on the heels of one from the Canadian Centre for Policy Alternatives, which said the Canadian housing market is a bubble ready to burst. It also shows the debate that economists are having over the direction of the market.
Virtually all major economists have already said that a U.S.-style meltdown will not happen in Canada. And the Canadian Centre for Policy Alternatives report also says a U.S.-style housing bust is the most extreme scenario, and the unlikeliest to happen.
However, they agree that some kind of correction is overdue. The TD Bank has estimated that average prices are 10 to 15 per cent too high while CIBC has said 14 per cent. The Canadian Centre for Policy Alternatives says it could be anywhere from 9 to 21 per cent.
“Many of the concerns about the Canadian housing market are motivated by recent U.S. experiences,” says economist Jim MacGee, author of the report and an associate professor of economics at the University of Western Ontario.
“A comparison of housing market policies in Canada verses the U.S. suggests that there is a little likelihood of a U.S.-style surge in foreclosures or a collapse of house prices in Canada.”
From 2000 to 2006 U.S. house prices climbed twice as much as in Canada. Prices then declined by 30 per cent over the next three years from 2006 to 2009, according to C.D. Howe.
The decline in Canadian house prices lagged the U.S. and was more muted, as prices continued to appreciate until 2008, then declined by 9 per cent between August 2008 and April 2009. The decline was followed by a sharp bounce upward, with house prices returning to their pre-recession high.
“After another surge of pricing this year, buyers and sellers remain on tenterhooks about the future path of prices,” says MacGee.
The key to Canada’s relative strength to the U.S. is that federal government policy meant that banks north of the border did not engage in the same volume of risky loans. Low documentation, interest only and adjustable rate mortgages were driving sales in many markets.
“During the U.S. housing boom, both private insurers and government sponsored enterprises facilitated looser underwriting standards” said the report.
“It will be in the interest of all Canadians if policy makers recall the lessons of the 2008 to 2009 experience should pressures to relax underwriting standards reoccur in the future.”
August 31, 2010 Tony Wong
A decline in underwriting standards played an essential role in the American housing boom and subsequent bust. That has not been the case in Canada, says the study released Tuesday.
Canadian housing policies, which avoided the sharp declines in underwriting standards seen in the U.S. “worked well in reducing the possibility of a housing bust in Canada,” said the report.
The C.D. Howe report comes on the heels of one from the Canadian Centre for Policy Alternatives, which said the Canadian housing market is a bubble ready to burst. It also shows the debate that economists are having over the direction of the market.
Virtually all major economists have already said that a U.S.-style meltdown will not happen in Canada. And the Canadian Centre for Policy Alternatives report also says a U.S.-style housing bust is the most extreme scenario, and the unlikeliest to happen.
However, they agree that some kind of correction is overdue. The TD Bank has estimated that average prices are 10 to 15 per cent too high while CIBC has said 14 per cent. The Canadian Centre for Policy Alternatives says it could be anywhere from 9 to 21 per cent.
“Many of the concerns about the Canadian housing market are motivated by recent U.S. experiences,” says economist Jim MacGee, author of the report and an associate professor of economics at the University of Western Ontario.
“A comparison of housing market policies in Canada verses the U.S. suggests that there is a little likelihood of a U.S.-style surge in foreclosures or a collapse of house prices in Canada.”
From 2000 to 2006 U.S. house prices climbed twice as much as in Canada. Prices then declined by 30 per cent over the next three years from 2006 to 2009, according to C.D. Howe.
The decline in Canadian house prices lagged the U.S. and was more muted, as prices continued to appreciate until 2008, then declined by 9 per cent between August 2008 and April 2009. The decline was followed by a sharp bounce upward, with house prices returning to their pre-recession high.
“After another surge of pricing this year, buyers and sellers remain on tenterhooks about the future path of prices,” says MacGee.
The key to Canada’s relative strength to the U.S. is that federal government policy meant that banks north of the border did not engage in the same volume of risky loans. Low documentation, interest only and adjustable rate mortgages were driving sales in many markets.
“During the U.S. housing boom, both private insurers and government sponsored enterprises facilitated looser underwriting standards” said the report.
“It will be in the interest of all Canadians if policy makers recall the lessons of the 2008 to 2009 experience should pressures to relax underwriting standards reoccur in the future.”
August 31, 2010 Tony Wong
Tuesday, August 31, 2010
Housing prices due to fall, says think-tank
Canada’s major metropolitan housing markets are looking awfully bubbly and are due to burst, says a report released Tuesday.
The report, entitled Canada’s Housing Bubble: An Accident Waiting to Happen, by the Canadian Centre for Policy Alternatives, looks at prices in Toronto, Vancouver, Calgary, Edmonton, Montreal and Ottawa.
It concludes that housing price appreciation is frothy in comparison to historic values.
“I think at best you will see stagnation in housing prices or some kind of correction, and at worst you will see the bubble bursting,” said David Macdonald, an economist and research associate at the centre.
Housing bubbles emerge when prices increase more rapidly than inflation, household incomes and economic growth. That has been the case for Canada over the last run-up in prices, according to the report.
Macdonald said this bubble is different than others, because for the first time it is spreading beyond Toronto and Vancouver.
“Canada is experiencing for the first time in 30 years a synchronized housing bubble across the six largest residential markets,” he said.
Major banks have reached conclusions similar to those of the left-of-centre think tank. The Toronto Dominion Bank has estimated that average prices are 10 to 15 per cent too high, while the CIBC has said prices are 14 per cent overvalued.
Canada has only had three bubbles. Toronto experienced a large bubble in 1989, while Vancouver had two burst in 1981 and 1994.
Macdonald said a full-blown crash can still be avoided if mortgage rates do not ratchet up quickly and if government puts more stringent requirements on lending.
He said legislation could be introduced to return mortgage lending to 2006 criteria, where purchasers had to put 10 per cent down for a 25-year amortization. Although the federal government already put tighter restrictions in place earlier this year, buyers still have the option of putting 5 per cent down and can take a 35-year amortization on homes.
“Consumers should also play a part by not buying more house than they can afford,” says Macdonald.
The report says the last bubbles were triggered by interest rates moving up by just one per cent above the two-year rolling average.
“It doesn’t take much for consumers to take pause, especially those who are used to seeing such low rates,” said Macdonald. “You also have a lot of consumers, particularly outside Toronto and Vancouver, who have no memory of what a bubble is like or the aftermath.”
Low mortgage rates, access to easy credit and net immigration have also contributed to price pressures, said Macdonald.
Between 1980 to 2000, the historical price range for housing stood at between $50,000 and $80,000 in inflation-adjusted 1980 dollars. But within a brief five-year period from 2001 to 2006, major housing markets shot to well above that $80,000 average, according to the report.
“The comfort level isn’t there as affordability erodes,” said Macdonald.
Housing prices have stayed in a narrow range of 3 to 4 times income in the 20 years before 2000. The problem is, says Macdonald, is that housing prices adjusted for income today are anywhere from 4.7 to 11.3 times annual income in the six major areas.
Not everyone agrees with the findings of the report.
Toronto economist Will Dunning says that the market cycle is in a cyclical downturn – not a bubble.
“It is quite possible that the next phase of the cycle will be a partial reversal of the price gains of maybe 5 to 10 per cent, but this is not a post bubble collapse,” says Dunning.
“It is the operation of a functioning market in which the vast majority of buyers are making decisions based on their real needs, not the mindset normally associated with bubbles.”
Despite their differences, all analysts seem to agree that prices could fall.
Macdonald gives three scenarios in which prices might drop. The first is similar to what happened in Vancouver in 1994, a market correction through price deflation.
In that scenario, Toronto prices would decline by 9 per cent from an average of $420,000 to $382,000.
In the second scenario, the bubble would burst more slowly, similar to the 1989 Toronto bubble. In that case, prices would decline by 21 per cent from $420,000 to $330,000 over a five-year period.
In the worst scenario, a bubble would form similar to the United States and prices would fall rapidly. In that case Toronto prices would drop 20 per cent over three years to $335,000. The price drop would be slightly less than in scenario two, but happen more rapidly.
“Bringing house prices down just enough to moderate expectations but not so much as to cause a panic is a delicate balance,” says the report.
“Government policy makers, the Bank of Canada, as well as rate setters at the big banks need to work together to steer the Canadian market to a soft landing. The alternative is not acceptable.”
August 31, 2010
Tony Wong
The report, entitled Canada’s Housing Bubble: An Accident Waiting to Happen, by the Canadian Centre for Policy Alternatives, looks at prices in Toronto, Vancouver, Calgary, Edmonton, Montreal and Ottawa.
It concludes that housing price appreciation is frothy in comparison to historic values.
“I think at best you will see stagnation in housing prices or some kind of correction, and at worst you will see the bubble bursting,” said David Macdonald, an economist and research associate at the centre.
Housing bubbles emerge when prices increase more rapidly than inflation, household incomes and economic growth. That has been the case for Canada over the last run-up in prices, according to the report.
Macdonald said this bubble is different than others, because for the first time it is spreading beyond Toronto and Vancouver.
“Canada is experiencing for the first time in 30 years a synchronized housing bubble across the six largest residential markets,” he said.
Major banks have reached conclusions similar to those of the left-of-centre think tank. The Toronto Dominion Bank has estimated that average prices are 10 to 15 per cent too high, while the CIBC has said prices are 14 per cent overvalued.
Canada has only had three bubbles. Toronto experienced a large bubble in 1989, while Vancouver had two burst in 1981 and 1994.
Macdonald said a full-blown crash can still be avoided if mortgage rates do not ratchet up quickly and if government puts more stringent requirements on lending.
He said legislation could be introduced to return mortgage lending to 2006 criteria, where purchasers had to put 10 per cent down for a 25-year amortization. Although the federal government already put tighter restrictions in place earlier this year, buyers still have the option of putting 5 per cent down and can take a 35-year amortization on homes.
“Consumers should also play a part by not buying more house than they can afford,” says Macdonald.
The report says the last bubbles were triggered by interest rates moving up by just one per cent above the two-year rolling average.
“It doesn’t take much for consumers to take pause, especially those who are used to seeing such low rates,” said Macdonald. “You also have a lot of consumers, particularly outside Toronto and Vancouver, who have no memory of what a bubble is like or the aftermath.”
Low mortgage rates, access to easy credit and net immigration have also contributed to price pressures, said Macdonald.
Between 1980 to 2000, the historical price range for housing stood at between $50,000 and $80,000 in inflation-adjusted 1980 dollars. But within a brief five-year period from 2001 to 2006, major housing markets shot to well above that $80,000 average, according to the report.
“The comfort level isn’t there as affordability erodes,” said Macdonald.
Housing prices have stayed in a narrow range of 3 to 4 times income in the 20 years before 2000. The problem is, says Macdonald, is that housing prices adjusted for income today are anywhere from 4.7 to 11.3 times annual income in the six major areas.
Not everyone agrees with the findings of the report.
Toronto economist Will Dunning says that the market cycle is in a cyclical downturn – not a bubble.
“It is quite possible that the next phase of the cycle will be a partial reversal of the price gains of maybe 5 to 10 per cent, but this is not a post bubble collapse,” says Dunning.
“It is the operation of a functioning market in which the vast majority of buyers are making decisions based on their real needs, not the mindset normally associated with bubbles.”
Despite their differences, all analysts seem to agree that prices could fall.
Macdonald gives three scenarios in which prices might drop. The first is similar to what happened in Vancouver in 1994, a market correction through price deflation.
In that scenario, Toronto prices would decline by 9 per cent from an average of $420,000 to $382,000.
In the second scenario, the bubble would burst more slowly, similar to the 1989 Toronto bubble. In that case, prices would decline by 21 per cent from $420,000 to $330,000 over a five-year period.
In the worst scenario, a bubble would form similar to the United States and prices would fall rapidly. In that case Toronto prices would drop 20 per cent over three years to $335,000. The price drop would be slightly less than in scenario two, but happen more rapidly.
“Bringing house prices down just enough to moderate expectations but not so much as to cause a panic is a delicate balance,” says the report.
“Government policy makers, the Bank of Canada, as well as rate setters at the big banks need to work together to steer the Canadian market to a soft landing. The alternative is not acceptable.”
August 31, 2010
Tony Wong
Saturday, August 28, 2010
The buyer: In the driver's seat
Bianca and Mike Raso purchased a home in Vaughan, just north of the city of Toronto, about 12 years ago. Over the years they’ve steadily seen their net worth increase as the housing market sailed upward.
But after having two children, the couple found they had outgrown their 2,000-square-foot home. Last winter they started searching for a bigger house with a larger backyard.
“We started looking just when the market was really active, so I kind of freaked out a bit over the prices,” said Raso, who works in the payroll department for the city of Toronto.
The market continued a frenzied march over the winter and into the spring, where prices and sales started to accelerate.
Raso thought she would be priced out of the market.
“We weren’t looking for a mansion, just some more room for our children, but anything that seemed reasonable just seemed so far out of range,” said Raso.
But timing can be everything. After a heated first half of the year when sales in the Greater Toronto Area broke records, the second half is shaping up to be a bust.
Analysts say many sales were pulled forward in the first half of the year as buyers tried to avoid the HST and more onerous restrictions on mortgages.
Existing home sales are down by 29 per cent in the first two weeks of August compared with the same time last year, while new home sales are down 42 per cent in July.
“Ontario’s housing market continued to slow in July with activity now well below the long term historical trend,” said a report by economist David Hobden for Central 1 this week. “The main sales negative is higher mortgage rates and other less stimulative financing terms which will squeeze our the lowest equity buyers.”
When Raso first entered the market last year, bidding wars were the norm for many properties. Not so in today’s market.
“You can really see there is a bit of a shift. Homes out there are sitting longer,” said Raso.
Realtor Steven Belitsky said buyers are also being much more picky, not just on price, but on conditions.
“They will ask for every little detail to be done after the home inspection report, it could be caulking a wall or replacing a showerhead, and the vendors are complying,” said Belitsky.
The TD Bank said this month that they expected to see a correction of about 10 per cent in average housing prices. Other analysts have said housing prices are as much as 25 per cent overvalued.
In the meantime, there seems to be a stand off between buyers and vendors. Vendors want yesterday’s prices. Buyers want to pay prices that reflect the new reality.
Transitional markets are tricky, say realtors, because not everyone is reading from the same page. Some vendors have already realized that they must lower pricing if their homes are going to move. Others are stubbornly holding on to what they feel their home is worth.
“Some people aren’t getting the message that prices are going lower,” says Raso. “But we can afford to wait.”
The couple bid on a home in Vaughan last week. The vendor was asking $709,000, and they bid under $700,000. the vendor refused to come down in price. The home also needed another $100,000 in work.
“If they’re not willing to deal, then I’m not willing to look,” said John Lee, an optician who is looking for a home in Mississauga.
Lee said he called off his search for a home last year when prices started going up and he didn’t want to be involved in bidding wars.
“I think the sellers have had a pretty good run. It’s been frustrating for over the last few years, so I think it’s time for buyer’s to get some love.”
It’s not hard to see why vendors are so spoiled. They’ve had a 14 year string of unbroken price increases since values started rising in 1996 when the average price of a home was $198,150. Today average prices are more than double that at $412,000 as many buyers have been priced out of the market.
“You’re still seeing some vendors out there holding on to what they think the value of their home is worth,” said Angie Foggia, a lawyer who is looking for an investment condominium property.
“But as a buyer my attitude has shifted toward expecting lower pricing, people are much more conservative with their money.”
Foggia said she looked at one condominium in Yorkville last week listing for $499,000, but decided it was overpriced. She is also looking at pre-construction units, particularly in the trendy King West area.
Analysts have said the condo sector is the most vulnerable part of the housing market because of potential overbuilding. There are more than 35,000 new units under completion in the GTA, with the bulk of occupancies taking place this year and next, giving buyers far more choice.
But with time on her side, Foggia has decided to sit back and take her time as the market ratchets down before pulling the trigger.
In May, she managed to time the market perfectly by selling her two year old condo at Yonge and Eglinton during the peak of the market. At the time it fetched the highest selling price for that particular floor plan, selling in three days with multiple offers.
As a result, she is in the catbird seat: Sold high, and now buying low.
“I wasn’t intentionally trying to sell before the market went down, it just worked out that way for me,” said Foggia. “I’m fortunate that at this point it’s certainly a much better time to be a buyer.”
August 27, 2010 Tony Wong
But after having two children, the couple found they had outgrown their 2,000-square-foot home. Last winter they started searching for a bigger house with a larger backyard.
“We started looking just when the market was really active, so I kind of freaked out a bit over the prices,” said Raso, who works in the payroll department for the city of Toronto.
The market continued a frenzied march over the winter and into the spring, where prices and sales started to accelerate.
Raso thought she would be priced out of the market.
“We weren’t looking for a mansion, just some more room for our children, but anything that seemed reasonable just seemed so far out of range,” said Raso.
But timing can be everything. After a heated first half of the year when sales in the Greater Toronto Area broke records, the second half is shaping up to be a bust.
Analysts say many sales were pulled forward in the first half of the year as buyers tried to avoid the HST and more onerous restrictions on mortgages.
Existing home sales are down by 29 per cent in the first two weeks of August compared with the same time last year, while new home sales are down 42 per cent in July.
“Ontario’s housing market continued to slow in July with activity now well below the long term historical trend,” said a report by economist David Hobden for Central 1 this week. “The main sales negative is higher mortgage rates and other less stimulative financing terms which will squeeze our the lowest equity buyers.”
When Raso first entered the market last year, bidding wars were the norm for many properties. Not so in today’s market.
“You can really see there is a bit of a shift. Homes out there are sitting longer,” said Raso.
Realtor Steven Belitsky said buyers are also being much more picky, not just on price, but on conditions.
“They will ask for every little detail to be done after the home inspection report, it could be caulking a wall or replacing a showerhead, and the vendors are complying,” said Belitsky.
The TD Bank said this month that they expected to see a correction of about 10 per cent in average housing prices. Other analysts have said housing prices are as much as 25 per cent overvalued.
In the meantime, there seems to be a stand off between buyers and vendors. Vendors want yesterday’s prices. Buyers want to pay prices that reflect the new reality.
Transitional markets are tricky, say realtors, because not everyone is reading from the same page. Some vendors have already realized that they must lower pricing if their homes are going to move. Others are stubbornly holding on to what they feel their home is worth.
“Some people aren’t getting the message that prices are going lower,” says Raso. “But we can afford to wait.”
The couple bid on a home in Vaughan last week. The vendor was asking $709,000, and they bid under $700,000. the vendor refused to come down in price. The home also needed another $100,000 in work.
“If they’re not willing to deal, then I’m not willing to look,” said John Lee, an optician who is looking for a home in Mississauga.
Lee said he called off his search for a home last year when prices started going up and he didn’t want to be involved in bidding wars.
“I think the sellers have had a pretty good run. It’s been frustrating for over the last few years, so I think it’s time for buyer’s to get some love.”
It’s not hard to see why vendors are so spoiled. They’ve had a 14 year string of unbroken price increases since values started rising in 1996 when the average price of a home was $198,150. Today average prices are more than double that at $412,000 as many buyers have been priced out of the market.
“You’re still seeing some vendors out there holding on to what they think the value of their home is worth,” said Angie Foggia, a lawyer who is looking for an investment condominium property.
“But as a buyer my attitude has shifted toward expecting lower pricing, people are much more conservative with their money.”
Foggia said she looked at one condominium in Yorkville last week listing for $499,000, but decided it was overpriced. She is also looking at pre-construction units, particularly in the trendy King West area.
Analysts have said the condo sector is the most vulnerable part of the housing market because of potential overbuilding. There are more than 35,000 new units under completion in the GTA, with the bulk of occupancies taking place this year and next, giving buyers far more choice.
But with time on her side, Foggia has decided to sit back and take her time as the market ratchets down before pulling the trigger.
In May, she managed to time the market perfectly by selling her two year old condo at Yonge and Eglinton during the peak of the market. At the time it fetched the highest selling price for that particular floor plan, selling in three days with multiple offers.
As a result, she is in the catbird seat: Sold high, and now buying low.
“I wasn’t intentionally trying to sell before the market went down, it just worked out that way for me,” said Foggia. “I’m fortunate that at this point it’s certainly a much better time to be a buyer.”
August 27, 2010 Tony Wong
Friday, August 27, 2010
Aaron: Lawyer not obligated to negotiate better purchase agreement
When a lawyer is presented with an unconditional but obviously defective agreement of purchase and sale by a client, does he or she have an obligation to try to negotiate an improvement to its terms?
That was the question for the court to decide in the case of Graham v. Diamond, released by the Ontario Superior Court of Justice in June.
In July, 2002, Patrick and Heather Graham entered into an agreement to purchase a house on Carrington Lane in Quinte West from George Diamond. The agreement was conditional until the end of the month on the Grahams arranging satisfactory financing, failing which the deal would die and the deposit money would be returned.
There was no condition for either an environmental assessment or a home inspection.
After the financing condition had been waived and the deal was firm, the Grahams retained Belleville lawyer Raymond Kaufman to represent them in the transaction.
Prior to closing, Kaufman confirmed with the city of Quinte West that there were no outstanding work orders on file against the property. The transaction closed August 16, 2002.
Three years later, the buyers sued the sellers, their real estate agents, their lawyer, and others claiming damages for “serious and permanent injuries” resulting from apparent contamination of either the land or the building itself.
Among other things they claimed that Kaufman failed, neglected or refused to ensure that a proper environmental site assessment was performed at the property, and that it was a customary practice to have a home inspection performed on the property before the closing of the purchase.
In response to the law suit, counsel for Kaufman brought an application in the Superior Court of Justice in Belleville in May asking the court to dismiss the action against him on the basis that there was no genuine issue for trial.
Kaufman’s position in court was that he accepted the retainer from the Grahams after all the conditions in the agreement had been waived by them, that he completed all the standard title and other searches and had certified title in accordance with standard solicitor’s practice.
On June 4, Justice Michael Quigley released his decision dismissing the claim against Kaufman without the need to have a trial.
“There is no law,” wrote the judge, “to suggest that the Grahams were entitled to either a home inspection or environmental assessment unless there was a condition in the agreement to that effect.”
“Even if (Kaufman) had been alerted to such potential problems, I am not convinced that Kaufmann’s retainer to close the transaction could be extended to include an obligation on his part to examine the possibility of the existence of such problems. Once Kaufmann had completed the title search and found the property free and clear of any encumbrances and/or title problems . . . the Grahams were then obligated to close.”
In his decision, the judge asked, “Did Kaufmann have any obligation to negotiate a ‘better’ deal than the one negotiated by the Grahams themselves?”
Answering his own question, the judge wrote, “Firstly, he was never instructed to do so, and secondly, had he been so instructed, the Grahams were not entitled to a ‘better’ deal by virtue of their signed agreement of purchase and sale. In effect, the Grahams are asking the court to find that Mr. Kaufmann should have closed the barn door some days after the horse had bolted the stable.”
Several lessons emerge from the case of Graham v. Diamond:
• Lawyers should be consulted before an offer is signed, or at the very least, during the conditional period. Getting legal advice after the conditions have been waived is very risky.
• Buyers who sign agreements that are not conditional on home inspections are risking years of aggravation and huge expenses to remediate a defective house.
• Trying to renegotiate any part of a firm transaction is frequently a waste of time and effort.
• And finally, there is no such thing as a “simple” real estate deal which doesn’t require legal advice in advance. Even the most straightforward transaction can blow up, resulting in years of expensive litigation.
Bob Aaron is a Toronto real estate lawyer and board member of the Tarion Warranty Corp.
That was the question for the court to decide in the case of Graham v. Diamond, released by the Ontario Superior Court of Justice in June.
In July, 2002, Patrick and Heather Graham entered into an agreement to purchase a house on Carrington Lane in Quinte West from George Diamond. The agreement was conditional until the end of the month on the Grahams arranging satisfactory financing, failing which the deal would die and the deposit money would be returned.
There was no condition for either an environmental assessment or a home inspection.
After the financing condition had been waived and the deal was firm, the Grahams retained Belleville lawyer Raymond Kaufman to represent them in the transaction.
Prior to closing, Kaufman confirmed with the city of Quinte West that there were no outstanding work orders on file against the property. The transaction closed August 16, 2002.
Three years later, the buyers sued the sellers, their real estate agents, their lawyer, and others claiming damages for “serious and permanent injuries” resulting from apparent contamination of either the land or the building itself.
Among other things they claimed that Kaufman failed, neglected or refused to ensure that a proper environmental site assessment was performed at the property, and that it was a customary practice to have a home inspection performed on the property before the closing of the purchase.
In response to the law suit, counsel for Kaufman brought an application in the Superior Court of Justice in Belleville in May asking the court to dismiss the action against him on the basis that there was no genuine issue for trial.
Kaufman’s position in court was that he accepted the retainer from the Grahams after all the conditions in the agreement had been waived by them, that he completed all the standard title and other searches and had certified title in accordance with standard solicitor’s practice.
On June 4, Justice Michael Quigley released his decision dismissing the claim against Kaufman without the need to have a trial.
“There is no law,” wrote the judge, “to suggest that the Grahams were entitled to either a home inspection or environmental assessment unless there was a condition in the agreement to that effect.”
“Even if (Kaufman) had been alerted to such potential problems, I am not convinced that Kaufmann’s retainer to close the transaction could be extended to include an obligation on his part to examine the possibility of the existence of such problems. Once Kaufmann had completed the title search and found the property free and clear of any encumbrances and/or title problems . . . the Grahams were then obligated to close.”
In his decision, the judge asked, “Did Kaufmann have any obligation to negotiate a ‘better’ deal than the one negotiated by the Grahams themselves?”
Answering his own question, the judge wrote, “Firstly, he was never instructed to do so, and secondly, had he been so instructed, the Grahams were not entitled to a ‘better’ deal by virtue of their signed agreement of purchase and sale. In effect, the Grahams are asking the court to find that Mr. Kaufmann should have closed the barn door some days after the horse had bolted the stable.”
Several lessons emerge from the case of Graham v. Diamond:
• Lawyers should be consulted before an offer is signed, or at the very least, during the conditional period. Getting legal advice after the conditions have been waived is very risky.
• Buyers who sign agreements that are not conditional on home inspections are risking years of aggravation and huge expenses to remediate a defective house.
• Trying to renegotiate any part of a firm transaction is frequently a waste of time and effort.
• And finally, there is no such thing as a “simple” real estate deal which doesn’t require legal advice in advance. Even the most straightforward transaction can blow up, resulting in years of expensive litigation.
Bob Aaron is a Toronto real estate lawyer and board member of the Tarion Warranty Corp.
Fixed vs.Variable Rate Mortgages: How to choose
The good news in the housing market these days isn’t just low interest rates.
Experts say that whether you choose a variable rate mortgage or a fixed rate for a set period of time, the difference over the long run is likely to be minimal.
“Rates have never been this low so Canadians are increasingly looking for advice when it comes to mortgages. The question of fixed versus variable takes on greater importance when you consider where rates are and the possibility that rates will start to increase towards the end of this year,” said Collette Delaney, senior vice-president of mortgages and lending at the Canadian Imperial Bank of Commerce.
Experts typically say that a fixed-rate might bring more peace of mind to first-time home owners, and that those who are further into their mortgage payments may like to try a variable rate to save some money.
But that may not be right for everyone.
“There is really no generic answer,” Delaney said. “What’s right for me may not be right for you or someone else because we’re all at different stages in terms of financial planning and lifestyle.”
The big advantage of fixed rate mortgages is that they offer a high level of stability. When you lock in a mortgage at a fixed rate, you’re locking in for the term of your mortgage so you will know, for each monthly mortgage payment, exactly how much is going to the interest and how much is going to the principal.
“You’ll know at the end of your term how much of your amortization you’ve paid off. The downside is that you can’t take advantage of lower interest rates. If rates do drop, you won’t have the ability to have more of your payment go towards the principle and less to interest,” said Bernice Dunsby, director of home equity financing at the Royal Bank of Canada.
With a variable rate mortgage, your monthly payments don’t change. What may fluctuate is your interest rate. That means when rates go down, an increased amount of your payment will actually go to your principal, and less to interest. That means when rates go down, you’re paying off your mortgage faster.
But when interest rates increase, so does the portion of your payment that goes to interest. With less going to cover the principal, it’s possible that your amortization period could be extended.
Research by Canadian economic experts shows that variable rate mortgages hold more benefits to consumers the vast majority of the time.
Moshe Milevsky, associate professor of finance at York University, studied mortgage rate data from 1950 to 2007 and found that choosing a variable rate mortgage would have saved Canadians $20,000 in interest payments over 15 years, based on a $100,000 mortgage.
He also found that Canadians would have been better off with a variable rate mortgage compared to a five-year fixed rate 89 per cent of the time.
The question is whether this other 11 per cent of the time when it is advantageous, is right now, said Benjamin Tal, senior economist with the CIBC World Markets.
“This is one of the few examples of times when it really doesn’t make much of a difference. If you take variable and I take fixed now and we meet five years from now, you would probably be able to buy me lunch, but it would be a cheap lunch.”
That’s largely because interest rates are so low right now. Economists are expecting rates to increase by about half a percentage point or more beginning in June, with further rate hikes to come in 2011.
Right now, variable rate mortgages tend to be about 1.75 percentage points cheaper than fixed rates. But interest rates will probably rise by more than that overall in the next couple of years.
“This will probably take variable rates, more or less to where fixed rates are now, maybe a bit higher. If you do the math, you would find the difference would not be very significant,” Tal said.
If you’re looking for peace of mind, he added, take the fixed rate.
“If you have a large mortgage vis-à-vis your income, I would go fixed and just relax about it. Learn the market, pay as much equity as possible but go fixed because you don’t want the volatility,” Tal said. “However, if you have been in the mortgage for a while and your mortgage is not as large relative to your income, pay with the variable and you will do better over five years from now but not significantly.”
Many banks have an array of mortgage products that combine the fixed and variable rates mortgages. These typically allow homeowners to combine the security of the fixed rates with the ability to take advantage of any interest rate declines.
But experts say that even if a variable rate mortgage could save you money in the long run, you still need to think about the risk.
“If a fluctuating interest rate is going to keep you up at night because you’re not sure how much is going to principle and interest, then maybe a variable rate mortgage is not right for you,” Dunsby said.
It’s also important to consider your stage of life. If you’re counting on having your mortgage paid off in five years because you want to retire, then the possibility of your amortization period being extended probably isn’t for you.
Don’t forget to take your other debt obligations and savings goals into account.
“For some people locking into a payment actually gives them flexibility to working to other savings goals or paying other debts,” Delaney said.
“It’s very tempting to look at low rates today but we encourage people to look beyond where rates are today and consider what mortgage is right for them in the medium and long term.”
MADHAVI ACHARYA-TOM YEW
Experts say that whether you choose a variable rate mortgage or a fixed rate for a set period of time, the difference over the long run is likely to be minimal.
“Rates have never been this low so Canadians are increasingly looking for advice when it comes to mortgages. The question of fixed versus variable takes on greater importance when you consider where rates are and the possibility that rates will start to increase towards the end of this year,” said Collette Delaney, senior vice-president of mortgages and lending at the Canadian Imperial Bank of Commerce.
Experts typically say that a fixed-rate might bring more peace of mind to first-time home owners, and that those who are further into their mortgage payments may like to try a variable rate to save some money.
But that may not be right for everyone.
“There is really no generic answer,” Delaney said. “What’s right for me may not be right for you or someone else because we’re all at different stages in terms of financial planning and lifestyle.”
The big advantage of fixed rate mortgages is that they offer a high level of stability. When you lock in a mortgage at a fixed rate, you’re locking in for the term of your mortgage so you will know, for each monthly mortgage payment, exactly how much is going to the interest and how much is going to the principal.
“You’ll know at the end of your term how much of your amortization you’ve paid off. The downside is that you can’t take advantage of lower interest rates. If rates do drop, you won’t have the ability to have more of your payment go towards the principle and less to interest,” said Bernice Dunsby, director of home equity financing at the Royal Bank of Canada.
With a variable rate mortgage, your monthly payments don’t change. What may fluctuate is your interest rate. That means when rates go down, an increased amount of your payment will actually go to your principal, and less to interest. That means when rates go down, you’re paying off your mortgage faster.
But when interest rates increase, so does the portion of your payment that goes to interest. With less going to cover the principal, it’s possible that your amortization period could be extended.
Research by Canadian economic experts shows that variable rate mortgages hold more benefits to consumers the vast majority of the time.
Moshe Milevsky, associate professor of finance at York University, studied mortgage rate data from 1950 to 2007 and found that choosing a variable rate mortgage would have saved Canadians $20,000 in interest payments over 15 years, based on a $100,000 mortgage.
He also found that Canadians would have been better off with a variable rate mortgage compared to a five-year fixed rate 89 per cent of the time.
The question is whether this other 11 per cent of the time when it is advantageous, is right now, said Benjamin Tal, senior economist with the CIBC World Markets.
“This is one of the few examples of times when it really doesn’t make much of a difference. If you take variable and I take fixed now and we meet five years from now, you would probably be able to buy me lunch, but it would be a cheap lunch.”
That’s largely because interest rates are so low right now. Economists are expecting rates to increase by about half a percentage point or more beginning in June, with further rate hikes to come in 2011.
Right now, variable rate mortgages tend to be about 1.75 percentage points cheaper than fixed rates. But interest rates will probably rise by more than that overall in the next couple of years.
“This will probably take variable rates, more or less to where fixed rates are now, maybe a bit higher. If you do the math, you would find the difference would not be very significant,” Tal said.
If you’re looking for peace of mind, he added, take the fixed rate.
“If you have a large mortgage vis-à-vis your income, I would go fixed and just relax about it. Learn the market, pay as much equity as possible but go fixed because you don’t want the volatility,” Tal said. “However, if you have been in the mortgage for a while and your mortgage is not as large relative to your income, pay with the variable and you will do better over five years from now but not significantly.”
Many banks have an array of mortgage products that combine the fixed and variable rates mortgages. These typically allow homeowners to combine the security of the fixed rates with the ability to take advantage of any interest rate declines.
But experts say that even if a variable rate mortgage could save you money in the long run, you still need to think about the risk.
“If a fluctuating interest rate is going to keep you up at night because you’re not sure how much is going to principle and interest, then maybe a variable rate mortgage is not right for you,” Dunsby said.
It’s also important to consider your stage of life. If you’re counting on having your mortgage paid off in five years because you want to retire, then the possibility of your amortization period being extended probably isn’t for you.
Don’t forget to take your other debt obligations and savings goals into account.
“For some people locking into a payment actually gives them flexibility to working to other savings goals or paying other debts,” Delaney said.
“It’s very tempting to look at low rates today but we encourage people to look beyond where rates are today and consider what mortgage is right for them in the medium and long term.”
MADHAVI ACHARYA-TOM YEW
Thursday, August 26, 2010
Home prices continue to rise and ownership becomes less affordable
TORONTO - Canadian home prices are still on the rise even as sales fall as demand peters out, one factor that is making homes less and less affordable, according to a study by the Conference Board of Canada.
Home sales have fallen by 25 per cent since reaching a peak at the beginning of the year as fewer buyers compete and more houses come onto the market. That hasn't stopped houses from becoming more expensive, a trend that is likely to continue, said conference board associate director Michael Burt.
"Most of the costs associated with home ownership, such as mortgage costs and insurance, are outstripping inflation and income growth," said Burt, who studies industrial economic trends.
"As a result, housing affordability in Canada, which has been deteriorating over the past decade, will continue to decline during the next two years."
Canadian home prices were up 13.6 per cent in June from a year ago, according to the Teranet–National Bank composite house price index, released Wednesday. Month over month, June prices were up 1.5 per cent — the largest monthly increase since last August and the 14th straight monthly increase.
Price increases in June were driven by the bustling housing markets of Vancouver and Toronto, where many buyers entered the market in advance of the new harmonized sales tax that took effect July 1 in Ontario and British Columbia.
Recent figures from the real estate brokerage industry show July sales fell 30 per cent and prices were essentially flat.
As more resale houses come onto the market and fewer buyers compete for homes, the housing market is at a crossroads between a balanced market and one that favours buyers.
Many economists predict the sector could move further toward a buyers market, which could be accompanied by a deceleration of price increases, if not outright price drops as seen in the United States.
Marc Pinsonneault of National Bank (TSX: NA.TO) says home prices could soon fall, especially since the introduction of the HST in the hot housing markets of B.C. and Ontario have raised the price of many home purchases
His report on the index — a compilation of average home price changes in six metropolitan areas — suggests that it may be too early to conclude that vigorous price rises in April, May and June represent a trend.
"The prospect of harmonized sales taxes coming into effect July 1 in Ontario and B.C. may have stimulated sales in Vancouver, Toronto and Ottawa in the preceding months," the report said.
Seasonally-adjusted home sales fell 8.2 per cent in June from the month before and shrunk 19.7 per cent compared to June 2009, according to the Canadian Real Estate Association.
However, the average Canadian home price sat at $342,662 compared to $326,689 in 2009.
Sales activity peaked in December 2009 and hovered near record levels during the first quarter of this year as buyers rushed into the housing market ahead of changes to mortgage rules, interest rate hikes and the HST.
Activity so far this year is up 5.6 per cent compared to the first seven months of last year, but the gap is expected to shrink as the year progresses because sales ramped up heavily during the latter part of 2009.
The strong pace of spending at the beginning of the year indicates the Canadian industry has fully recovered from the recession, and although new home construction activity is expected to slow, housing starts will remain at a healthy level, the Conference Board said in its report.
Housing starts slowed to 192,800 units in June, the slowest monthly pace this year. And home building is expected to slow during the second half of the year.
"The slowdown represents a shift to a more sustainable building pace rather than the beginning of a large correction in demand," said the Conference Board.
Many economists predict an accompanying deceleration of price increases, with some saying prices could begin to fall modestly by the end of the year.
While performance in the Canadian housing market is weakening, it is faring much better than the U.S. market, where the past three months have been the worst on record for new home sales.
Sales of new U.S. homes dropped sharply last month to the slowest pace on records going back nearly half a century, the latest sign that the economic recovery is fading.
The U.S. Commerce Department said Wednesday that new home sales fell 12.4 per cent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600.
Wed Aug 25, 5:20 PM
Sunny Freeman, The Canadian Press
Home sales have fallen by 25 per cent since reaching a peak at the beginning of the year as fewer buyers compete and more houses come onto the market. That hasn't stopped houses from becoming more expensive, a trend that is likely to continue, said conference board associate director Michael Burt.
"Most of the costs associated with home ownership, such as mortgage costs and insurance, are outstripping inflation and income growth," said Burt, who studies industrial economic trends.
"As a result, housing affordability in Canada, which has been deteriorating over the past decade, will continue to decline during the next two years."
Canadian home prices were up 13.6 per cent in June from a year ago, according to the Teranet–National Bank composite house price index, released Wednesday. Month over month, June prices were up 1.5 per cent — the largest monthly increase since last August and the 14th straight monthly increase.
Price increases in June were driven by the bustling housing markets of Vancouver and Toronto, where many buyers entered the market in advance of the new harmonized sales tax that took effect July 1 in Ontario and British Columbia.
Recent figures from the real estate brokerage industry show July sales fell 30 per cent and prices were essentially flat.
As more resale houses come onto the market and fewer buyers compete for homes, the housing market is at a crossroads between a balanced market and one that favours buyers.
Many economists predict the sector could move further toward a buyers market, which could be accompanied by a deceleration of price increases, if not outright price drops as seen in the United States.
Marc Pinsonneault of National Bank (TSX: NA.TO) says home prices could soon fall, especially since the introduction of the HST in the hot housing markets of B.C. and Ontario have raised the price of many home purchases
His report on the index — a compilation of average home price changes in six metropolitan areas — suggests that it may be too early to conclude that vigorous price rises in April, May and June represent a trend.
"The prospect of harmonized sales taxes coming into effect July 1 in Ontario and B.C. may have stimulated sales in Vancouver, Toronto and Ottawa in the preceding months," the report said.
Seasonally-adjusted home sales fell 8.2 per cent in June from the month before and shrunk 19.7 per cent compared to June 2009, according to the Canadian Real Estate Association.
However, the average Canadian home price sat at $342,662 compared to $326,689 in 2009.
Sales activity peaked in December 2009 and hovered near record levels during the first quarter of this year as buyers rushed into the housing market ahead of changes to mortgage rules, interest rate hikes and the HST.
Activity so far this year is up 5.6 per cent compared to the first seven months of last year, but the gap is expected to shrink as the year progresses because sales ramped up heavily during the latter part of 2009.
The strong pace of spending at the beginning of the year indicates the Canadian industry has fully recovered from the recession, and although new home construction activity is expected to slow, housing starts will remain at a healthy level, the Conference Board said in its report.
Housing starts slowed to 192,800 units in June, the slowest monthly pace this year. And home building is expected to slow during the second half of the year.
"The slowdown represents a shift to a more sustainable building pace rather than the beginning of a large correction in demand," said the Conference Board.
Many economists predict an accompanying deceleration of price increases, with some saying prices could begin to fall modestly by the end of the year.
While performance in the Canadian housing market is weakening, it is faring much better than the U.S. market, where the past three months have been the worst on record for new home sales.
Sales of new U.S. homes dropped sharply last month to the slowest pace on records going back nearly half a century, the latest sign that the economic recovery is fading.
The U.S. Commerce Department said Wednesday that new home sales fell 12.4 per cent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600.
Wed Aug 25, 5:20 PM
Sunny Freeman, The Canadian Press
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