House Prices – Why Most ‘Experts’ Have it Wrong

A steady stream of experts in the mainstream media have been predicting a fall in Canadian real estate prices. How can prices be so high? And how can they keep on rising? Surely we are due for a correction!

Some nationally known authors such as Garth Turner have been preaching doom and gloom for over 10 years now, Turner for so long that he has actually missed the entire bull market….and yet he still gets press attention, even after being dead wrong for so many years..

Most of these so-called experts make a fundamental mistake when examining the Canadian real estate market – they confuse Cause and Effect. The high prices in Toronto and Vancouver, you see, are not the Cause of the market – they are the Effect.

So when they decry high prices in Canada, they are missing the point..they are attacking the Effect of the market, not the Cause – a fundamental mistake.

The causes of the bull market we have enjoyed in Canada for the last 15 years or so are three fold:

1.) low interest rates

As long as interest rates remain low, the market will continue

2.) a decent economy

As long as the Canadian economy remains decent, and there are jobs being created, the market will continue

3.) continued immigration into Canada

Here I am talking about the Greater Toronto Area (GTA), my area of expertise, although the same rule applies for any Canadian cities where there are large numbers of people moving into the area.

As long as government policy facilitates continued immigration into Canada’s large cities, the market in those cities will continue.

If we look at these three Causes – the Causes of the real estate boom in Canada, there is still room for optimism. Our Federal Government is loath to increase interest rates, as it boosts the Canadian dollar too high, killing our manufacturing industry vis a vis the United States. The U.S., with its current set of problems, has indicated that it will retain low rates for at least the next two years, so the outlook for Canada’s rates remains low for the foreseeable future.

As for a decent economy, the Canadian economy actually seems to be improving; everywhere I look these days in my home town of Mississauga, or anywhere in the Greater Toronto Area, there are ‘help wanted’ or ‘now hiring’ signs….so the economy, in spite of some global macro issues, seems to be on the right track.

And finally, unless there is a change in government policy, Canada continues to welcome new immigrants from all across the globe. All these folks (reportedly 100,000 per year moving into the Toronto area) need somewhere to live, and many arrive in Canada with money to buy property. God bless ‘em..

So there is my take on the Canadian real estate market. Sure, there are issues of absolute affordability, but we in the GTA have only to look at Vancouver to see that much greater prices are indeed possible, as long as the three causes of the market remain in place. If any of these change – is rates start rising, if the economy goes in the tank, or if immigration dries up – then the market will slow. Until then, the future is bright. Whenever you read a self-proclaimed ‘expert’ in the mainstream media saying that the market will fall because prices are ‘too high’, know that they are mixing up cause and effect; they are addressing the effect of the market, not the cause.

Bank of Canada Leaves Interest Rates Unchanged

Mark Carney and the Board of Governors announced today that they are leaving  Canada’s key monetary policy rate unchanged at 1.0%. Correspondingly there will be no change to Canadian Prime rates at the current time.

Background:

The Band of Canada indicated that both the Canadian and global economic recoveries have proceeded largely as expected, however there are still risks: The Canadian recovery faces risks if the Canadian dollar continues its high flying ways (a strong currency makes it difficult for our exporters to do business).

The U.S. recovery faces challenges due to tapped-out  consumers in that country.  High debt levels are constraining spending.The global expansion faces risks from so- called “peripheral” economies – those seeking continued support via various bailout programs.

Carney noted that, although commodity prices have come off their highs recently, the Bank expects them to remain at elevated levels for the foreseeable future.

One new factor is the effect of  the March disasters in Japan, which have caused temporary supply chain disruptions throughout developed economies.

Canadian growth is expected to soften slightly in the 2nd quarter of 2011, with a rebound in the second half of the year.Total CPI inflation is running at a hefty 3%+, but is expected to moderate due to currency effects.

Carney gave no real clues as to when to expect rates to begin increasing, but they are coming – the Bank indicated that some of the considerable monetary stimulus currently in place will be eventually withdrawn.

It now looks like the expected July rate hike is off the table and and any interest rate increase will be pushed out further into the fall.  Mr. Carney will probably want to get at least a preliminary look at how 3rd quarter GDP unfolds before making any decision to hike rates.

Implications

With no change to prime rates today, or in the foreseeable future, Canadians should be tempted to resume spending, which could translate into continued use of credit by consumers. With mortgage rates continuing at historic lows, some bump to the housing sector is expected.  This could lead to increased mortgage (and house-buying) activity.The beat goes on……

Canadian Mortgage Rules Are Changing

Jim Flaherty, Canada’s Finance Minister, announced  changes to mortgage lending rules today which will have an effect on the Canadian real estate market. 

In announcing the changes, Mr. Flaherty lauded Canada’s well-regulated housing industry, and noted that the real estate market has been an important strength in the Canadian economy. Canada’s relatively conservative banking rules have allowed the country to avoid the mistakes of other nations and have helped protect Canadians from the worst of the recent global recession….

There are three basic changes under the new rules, which take effect on March 18, 2011:

1.)  the maximum amortization period for new government-backed insured mortgages will be reduced from 35 to 30 years.

2.) the maximum amount Canadians can borrow to refinance their mortgages will be lowered to 85% per cent from the current 90% per cent.

3.) The government will withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit. (not in force until April 18, 2011)

These changes will take effect on March 18, 2011. Overall this is not bad compared to what had been speculated. The one which will have the greatest effect is the lower amortization period, as it reduces borrowing power by the purchaser.

If you are a buyer, or are considering refinancing your home, it is probably a good idea to speak to your mortgage professional asap.

What Are 50/50 Mortgages?

There’s something new on the Canadian mortgage scene – hybrid mortgages – also known as 50/50 mortgages – they include an equal mix of fixed-rate and variable-rate components within a single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility and lower cost of a variable rate.

Although in recent times, most mortgage experts have considered a variable rate mortgage as the obvious choice to save consumers money over the long term, with fixed rates remaining near historic lows, a 50/50 mortgage may be something to consider.

In a nutshell, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.

If you opt for a  50/50 Balanced Mortgage, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge.

The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:

• Would normally go fully variable but are afraid prime rate is at its bottom
• Aren’t comfortable being locked into a fully fixed rate
• Can’t decide between a fixed or variable mortgage

Some features of the 50/50 mortgage include:

• 20% annual lump-sum pre-payment privileges
• 20% annual payment increase ability 
• Portability (the option to transfer your existing loan amount to a new property without penalty)

This information is courtesy of Sarah Makhomet,  my good friend and expert mortgage broker at Dominion Lending. As always, if you have questions about the 50/50 mortgage product and whether it’s right for you, or any other mortgage-related questions, we welcome your comments!

High-Rise Condo Market Shifts to 905

from today’s press release…..

High-rise condo market shifts to 905

GREATER TORONTO, Aug. 23 /CNW/ – The high-rise condo market in the Greater Toronto Area continues to rise high while the low-rise suburban (905) housing market remains constrained by the acute lack of product available for sale, the Building Industry & Land Development Association revealed today.

While high-rise sales in July slipped a modest 10 per cent from July 2009, sales in the January-July period were up 104 per cent with the 11,327 units sold representing the second highest total (behind only 2007 at an astounding 13,365 units) in the last 11 years.

In what may be the first signal of an emerging trend, nearly half (46 per cent) of high-rise unit sales in July were recorded in the 905 Regions of the GTA. “Toronto has consistently commanded an 80 per cent share of all high-rise sales while 80 per cent of low-rise sales have been in the suburbs. However, that balance is expected to shift as municipalities start to conform with the Greater Golden Horseshoe Growth Plan,” said BILD President and CEO Stephen Dupuis.

With continued strong sales, the high-rise price index rose exactly 10 per cent year over year, and currently sits at $430,782 compared with $391,673 last July.

Meanwhile, on the low-rise side of the equation, sales dropped 65 per cent from last July although they still remain up 8 per cent over 2009 on a January-July basis. As noted, the inventory of low-rise homes available for sale in the GTA remains near all-time lows.

“The shortage of supply of new, low-rise housing product is reflected in the fact that nearly two-thirds (64 per cent) of all new home sales in July were high-rise condos compared with the new norm of around 50 per cent,” Dupuis said, adding that the low-rise price index jumped 9.2 per cent year/year, rising from $447,950 to $489,088.

————————————————————————-
July ’10      Low Rise                     High Rise                               Total
————————————————————————-
% % %
Region   2009   2010  Change   2009   2010  Change   2009   2010   Change
————————————————————————-
Durham 238     199    -16.4%        2          1      -50.0%    240       200      -16.7%
————————————————————————-
Halton     321     47      -85.4%     35        21     -40.0%     356         68      -80.9%
————————————————————————-
Peel         453     140    -69.1%     85     328     285.9%    538      468      -13.0%
————————————————————————-
Toronto  102       40     -60.8% 1,091  658      -39.7% 1,193      698      -41.5%
————————————————————————-
York       810     252    -68.9%      145   214      47.6%     955      466      -51.2%
————————————————————————-
GTA    1,924    678    -64.8%  1,358 1,222   -10.0% 3,282  1,900     -42.1%
————————————————————————-
Jan-
July   9,372 10,157      8.4%  5,543 11,327 104.3%  14,915  21,484    44.0%
————————————————————————-
Source: RealNet Canada Inc.

Simple Guide to CMHC New Mortgage Rules April 2010

Created a summary “In Plain English” of the new rules from CMHC pertaining to mortgage loan approval in Canada….these new rules will  affect all home buyers across Canada, but especially self employed people, as well as commission sales people….link to my Simple Guide to CMHC New Rules April 2010……..

Absoluteworld Condo Towers in Mississauga

Posted a photo update of the amazing Fernbrook/Cityzen Absoluteworld condo towers over at my main website…these are two twisting towers at 56 storeys and 50 storeys….Absoluteworld link is here….

Changes to Canada’s Mortgage Requirements

Finance Minister Jim Flaherty Tuesday announced tighter lending standards for mortgages, saying that while the housing market is “healthy” the moves are needed to “help prevent negative trends from developing.”

Under the new rules, all borrowers will need to meet standards for 5-year fixed-rate mortgages regardless of whether they’re seeking a loan with a lower rate and shorter term.

Also, the government is lowering the maximum amount Canadians can withdraw when refinancing to 90 per cent of the value of their homes, from the current 95 per cent, and requiring a 20 per cent down payment for government-backed mortgage insurance on “speculative” investment properties.

“There are no definitive signs of a housing bubble,” Mr. Flaherty said. “We think we’re being pro-active in the three steps we’re taking today.”

Frank Techar, the President of Personal and Commercial Banking for BMO Bank of Montreal, welcomed the announcement.

“While we do not believe that Canada faces a housing bubble, we fully support the minister’s actions,” Mr. Techar said in a statement. “Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent. Currently, we require high ratio mortgages to be able to qualify using the 5 year rate.”

In a release, the finance department indicated that the three new changes to the mortgage insurance guarantee rules are intended to take effect April 19, 2010.

In reference to the tightening of re-financing rules, Mr. Flaherty said this will encourage Canadians to build equity in their homes instead of tapping that equity as a source of cash.

“This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up. We are encouraging people to build equity over time, using home ownership as an effective way to save, rather than as a vehicle for quick cash,” he said.

In his comments on the third measure, Mr. Flaherty said the hike in minimum down payments for such properties will help keep prices from climbing too high.

“We will require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner occupied properties purchased for speculation. This will discourage the kind of reckless real estate speculation that can drive prices to unsustainable levels which does not serve Canadian home buyers,” he said.

“We’re not aiming here at investment properties,” Mr. Flaherty added. “What we’re getting at is the speculation in multiple-condo markets, in particular.”

Oakville Real Estate Yearend Review – 2009

What a difference a year makes! It is interesting to compare real estate market statistics for Oakville, Ontario (W21), as they appeared on December 31, 2008, versus Dec 31, 2009. All figures provided by the Toronto Real Estate Board.

December 31, 2008:

Property Type	Active	Sales	Avg $	Med $	Min $	Max $
Condo Apt	47	6 109	$203,417 $251,663	$209,500 $225,000	$165,000 $136,000	$232,500 $654,000	Month Year
Link	3	1 16	$442,000 $334,488	$442,000 $321,950	$442,000 $288,000	$442,000 $442,000	Month Year
Co-op Apt	0	0 0	- -	- -	- -	- -	Month Year
Semi-Detached	13	3 82	$346,300 $359,282	$353,000 $357,500	$315,900 $259,000	$370,000 $733,000	Month Year
Condo Townhouse	18	2 88	$184,000 $284,117	$184,000 $267,100	$173,000 $1,450	$195,000 $865,000	Month Year
Det Condo	1	0 1	- $282,000	- $282,000	- $282,000	- $282,000	Month Year
Detached	278	26 809	$644,308 $660,570	$605,500 $518,000	$272,000 $1,500	$1,650,000 $6,250,000	Month Year
Att/Row/Twnhouse	37	8 224	$444,313 $348,825	$324,250 $321,250	$243,000 $2,200	$1,100,000 $1,600,000	Month Year
District Total:	397	46 1,329	Month Year

December 31, 2009:

Property Type	Active	Sales	Avg $	Med $	Min $	Max $
Link	0	1 22	$395,000 $332,318	$395,000 $321,000	$395,000 $280,000	$395,000 $449,000	Month Year
Semi-Detached	1	6 71	$427,456 $364,730	$433,675 $372,000	$359,888 $1,600	$473,500 $473,500	Month Year
Co-op Apt	0	0 0	- -	- -	- -	- -	Month Year
Condo Apt	49	10 132	$251,078 $302,461	$240,887 $236,500	$191,500 $1,550	$339,000 $2,180,000	Month Year
Detached	161	60 1,076	$688,470 $664,932	$652,000 $535,000	$358,000 $285,000	$1,800,000 $9,000,000	Month Year
Att/Row/Twnhouse	14	16 259	$391,889 $372,248	$352,000 $338,700	$258,000 $2,000	$725,000 $975,000	Month Year
Condo Townhouse	7	13 108	$275,492 $292,822	$264,000 $269,000	$166,000 $160,000	$435,000 $690,000	Month Year
Det Condo	0	0 2	- $725,000	- $725,000	- $350,000	- $1,100,000	Month Year
District Total:	232	106 1,670	Month Year

 

Here is a short summary of some of the above numbers:

• Active homes on the market…in December of 2008, there were a total of 397 homes for sale on the MLS in all of Oakville; in December of 2009, there were 232, a decline of 42% per cent.
• Firm sales (all types)December, 2008  – 46, versus  December, 2009 - 106
• Firm sales for the year, all types, 2008 – 1329, 2009 – 1670
• Median selling price for detached homes: 2008 – $518,000 2009 – $535,000, an increase of 3.28% per cent
• Median selling price for semi-detached homes: 2008 – $357,500…2009 – $372,000, an increase of 4% per cent
• Median selling price for condo townhouse: 2008 – $267,100…2009 – $269,000, an increase of less than 1% per cent
• Median selling price for condo apartment: 2008 – $225,000…2009 – $236,500, an increase of 5% per cent

What is most striking is the decline in active listings. As many sellers take a wait-and-see attitude, this shortage of listing inventory, combined with large numbers of buyers fueled by the current low interest rates, points to rising prices in 2010.

OAKVILLE CLEARVIEW NEIGHBORHOOD – 2009 REAL ESTATE PRICES

Review of Real Estate Activity in 2009 

Now that 2009 has drawn to a close, it is interesting to go over the real estate activity which has taken place in the Oakville neighborhood of Clearview. Clearview is located in the northeast part of Oakville, bounded by the QEW Highway to the north, Winston Churchill Blvd. to the east, Sheridan Garden Drive to the south, and Ford Drive to the west. There are just over 2000 residences in Clearview, comprising of detached homes, semi-detached, link homes (joined below grade), and freehold townhomes.

After a slow start at the beginning of the year, real estate activity really picked up towards the end of March, and an active market continued throughout the balance of the year.

End result – during 2009 there were 72 properties in Clearview which were sold through the MLS. Of the 72 total sales, 42 were located north of Kingsway Drive, and 30 were located south of Kingsway Drive. Of the total 72 sales, 51 were detached properties – the remainder being a mix of semi-detached, link, and attached freehold townhouses.

2009 Statistics for Clearview:

For the detached homes sold, several interesting statistics are available:

- the median* listing price was $515,175

- the median* sold price was $509,500

- average days on the market was 35

- average sold price as a percentage of listing price – 98% per cent

- highest sale price for a detached home in Clearview during 2009 - $620,000

- lowest sale price for a detached home in Clearview during 2009 – $335,000 

*we use the median, rather than the average price, as a more accurate measure of sales – average price points can be inflated by one or two high-end sales, whereas median is simply the midpoint for all sales in the area.

The vast majority of these detached homes were 2 storeys, had 4 bedrooms, and a double car garage. Selling prices  south of Kingsway Drive were  approximately 3% per cent higher than those north of Kingsway Drive.

Outlook for 2010:

With interest rates remaining low, and the Canadian economy slowly improving, many real estate experts are cautiously optimistic about where the market is headed in 2010. In early January, we are seeing last year’s  shortage of listings continuing into the new year, which bodes well for prices in 2010.

As for Oakville in general, and Clearview specifically, the outlook is bright. One thing that will add value to the neighborhood – the addition of the new Clearview Public Elementary School. One of the only objections that some potential home buyers have had in the past was the need to bus their children to a public elementary school, and now that objection will be gone.