Frank's Fun Facts

Can the unprecedented boom in housing prices continue? The largest increase ever seen in Canadian housing prices has wrenched real estate out of its usual alignment to peoples income, Capital Madani says. He beleives the signs increasingly point to a housing bubble.

“The stories we hear about people buying homes to rent out as investment properties, and others buying homes fearing that if thewy wait they will be priced out of the market, only convince us even more,” he writes in a research note.

It’s mass psychology-”animal spirits”-that has driven up housing prices to unsustainable levels, he believes. The upshot; He expects house prices to fall by 25% over the next few years.

In the short term, Mr.Madani sees any further gains as modest. “Housing affordability is already stretched., with costs accounting for a very large share of household income, over 40% according to some estimates.”

The recent tightening of mortgage insurance rules may have a damaging effect on the market. Given the recent easing in the sales-to-listings ratio, housing prices could start to retreat late this year or early nest year, he warns.

(quoted from the globe and mail)

According to a new poll, Canadians are brimming with optimism regarding the housing market.

According to the poll, “An overwhelming majority of Canadians (90%) are confident about real estate in Canada as an investment and 85% feel they are doing a good or excellent job of paying down their mortgage, according to the 18th annual RBC Homeownership study. Almost three quarters of Canadaians (73%) believe that they or their family are well positioned to weather a housing drop.”

“Canadians beleive in the long term benefits of owning a home including the value it can provide, both personally and as a long term investment,” said Marcia Moffat, RBC head of home financing. “Last years survey showed that people were looking to buy ahead of rising costs. This years marks a return to more normal levels of purchase intentions and recent housing data reflects this move to a more balanced market.”

Quoted from PROPERTY WIRE

Record low interest rates and a lack of houses on the market have rekindled demand for Canadian real estate, helping to pull the industry out of its sale slump and setting the stage for the most balanced spring market in years.

The Canadian Real Estate Association said October sales were halfway between the lows of December 2008 and the record high of December 2009.

Economists said October’s data likely means the market bottomed out in July; while prices won’t rocket to previous highs anytime soon, it’s unlikely they have much farther to fall.

Average resale prices peaked at an all time high $346881 last May, causing concern that cheap money was driving prices to unsustainable levels.  The average resale price in October $337842.00 CREA said.

With the number of houses listed for sale sharply lower than in July, prices are expected to stay firm as buyers compete the few homes available.

(FROM REPORT ON BUSINESS, THE GLOBE AND MAIL)

           Canadian housing starts fell in October for the trird month in a row.  Falling to a greater than expected 167900 units last month from  185000 in September. Thats down 11.3 % from August.  

           Home buying ac  The boom in multiple starts has been a “head scratcher”tivity has stalled lately after a strong start to the year.  This activity is expected to continue.  The Canadian Real Estate Association cut its home sales forecast for 2010 and 2011, citing sluggish economic and job growth.

          Since the spring of last year through to this September, starts of single detached units have fallen 39 % while multiple unit starts have risen 29%.  The Boom has been a “head scratcher”, with starts in recent months well above historical norms.  Multiple starts will show some vulnerability in the coming quarters, and that October may be the first month reflecting this.

(Info from Globe and Mail)

Average resale home prices drop again inAugust. This is the third month in a row. Housing activity though has expectedly has picked up in the month.

Resale priced fell to an average of $324,928.00 in August from $330,351.00 in July, and are now 6.3% lower than the record levels they reached in May.

The market is likely to continue to soften. “Rising interest rates and a projected slowdown in job growth mean that the Canadian housing market is expected to continue to cool,” said Georges Pahud, CREA’s president. He is not alone. In a time of highly indebted Canadian housing seholds along with slower growth in jobs and personal income,”we expect the cooling of the housing market to continue” through the rest of this year and throughout the next. TD Bank economist Fransis Fong said in a note. he thinks existing home sales will fall by more than 20% next year and existing home prices by more than 7% in the same percent.

The market appears to have picked up in August after a lull. Resale activity rose 4.1% from the previous month, the first increase in nearly half a year.

(quoted from the globe and mail, Sept 16)

The red hot housing market is cooling through the summer.  Depending on whicj economist you nask, it could be a short-term blip or the start of a catastrophic crash.

The picture will come into tighter focus this week, as data is released on new home sales. Anyone who owns a home has a vague idea of why they should care about how the overall market fares. But they aren’t the only ones with something at stake. Here are three prospectives on why everyone-whether they own a house or not-should keep an eye on what prices are doing.

(quoted from the globe and mail)

OTTAWA – June 16th, 2010 – Statistics released by The Canadian Real Estate Association (CREA) show that home sales activity and new listings in Canada declined in May.

Seasonally adjusted home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards declined nationally by 9.5 per cent in May from near-record level activity the previous month. While activity declined in more than 70 per cent of local markets, the lower national figure resulted largely from fewer sales in Toronto, Vancouver and Ottawa.

The Canadian Real Estate Association announced last week that home prices will fall by 2.2 per cent next year. CREA expects the average price of a home in Canada to be $325,400 by the end of 2010,
But by 2011, CREA expects a 2.2 per cent decline in the average price. That’s because a slowdown in Ontario and British Columbia, the two largest housing markets in the country, will drag the national average down.
All other provinces are forecast to post gains, CREA said.
a 1.6 per cent increase over 2009’s level. Though still a gain, that’s well below the 5.4 per cent increase the CREA was previously expecting for 2010.

The Canadian Real Estate Association (CREA) has lowered its forecast for home sales for 2010. The revision reflects a weaker than expected start to the year in some provinces, and recent developments that pulled forward the timing as to when sales are expected to ease in other provinces.

Recent news reports claim that Canada’s top bankers are asking the government to cut down on mortgage availability in order to stem the rise in real estate prices. Supposedly they want to prevent a U.S. style collapse in the housing market.

According to these reports, these bankers have been asking for tighter controls ever since last November. The stated intention is to prevent a real estate bubble before it happens.

For this reason, the bankers are asking for measures such as raising the minimum downpayment from 5% to 10%, and shortening the maximum amortization period from 35 years to 30 years.

The Bank of Canada seems to agree, and the federal government is rumoured to be serisously considering going ahead with such moves. Right now the only thing holding it back is the fear of political backlash.

Such measures would be bound to be very unpopular with home owners because they would be designed to minimize continuing increases in the value of their homes. Or even worse, they could actually cause real estate prices to go down.  That would probably put a drag on consumer spending, and so hurt the whole economy. 

The economic and political consequences could be devasting.  It might even cause a whole new recession.  That would be a frightful change from current market trends. 

Right now average home sale prices in the Cambridge area, for example, have gone up about 16% over the last year (January 2010 over January 2009) but the bankers and possibly the government seem to feel that this rise is real estate prices is enough for now.

Nonethless, for the time being at least, the government seems to be satisfied that there is no real estate bubble. So the only current policy is to watch, wait and be ready.

Apparently things could change, and maybe sooner rather than later.

ADDED MAY 20, 2010

Federal Finance Minister Jim Flaherty is now officially on record saying that he sees no sign of a housing bubble, and no need to take action at the present time. However he went on to also say that the government is watching and monitoring the situation. He added that there are some reasons for concern, and pointed out that the government does have tools at its disposal should action become necessary.