Toronto Condo and Real Estate Blog

By Greg Quinn

(Bloomberg) — Canadian building permits fell more than three times faster than economists forecast for July, with losses spread from housing to government and commercial projects.

The value of permits issued by municipalities fell 11% to C$6.16 billion ($5.84 billion), from a revised record high of C$6.94 billion in June, Statistics Canada said today in Ottawa. Economists expected a 3.3% drop, according to the median of 14 estimates in a Bloomberg News survey.

Domestic spending may be tempered later this year by a “tightening of credit conditions” that stems from the U.S. subprime mortgage market collapse in August, the Bank of Canada said yesterday. The central bank kept its main interest rate at 4.5%, giving policy makers time to assess how much the global credit squeeze may slow demand for homes and exports.

Non-residential permits fell 19% to C$2.31 billion in July, Statistics Canada said. Projects for commercial buildings such as offices and warehouses plunged 29%. For institutional works such as hospitals and schools, they fell 17%. Industrial projects made up the only major category with an increase, gaining 24%, the statistics agency said.

The value of permits to build new houses or apartments decreased 6.3% to C$3.85 billion, with declines in both single-family homes and dwellings such as apartments and condominiums.

Statistics Canada revised the June change in total permits to a 0.1% increase from its earlier estimate of a 0.4% decline. The figures are seasonally adjusted.

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CanWest News Service

Canadians invested a record $22.8 billion in residential construction in the second quarter of this year, up 7% from the same period in 2006, driven mainly by strong economic growth in Western Canada.

Increases in the values of both renovations and new housing were the biggest contributors to the jump in overall investments, Statistics Canada said Tuesday, while acquisition costs rose only moderately.
“The real estate sector has been positively affected by Western Canada’s dynamic economy, still attractive mortgage rates, appealing financing possibilities, strength in employment and growing disposable incomes,” Statistics Canada said.

“Strong immigration more evenly distributed across the country and inter-provincial migration have also been beneficial. Increased housing cost was important in the rise in investment figures, though it would have tended to limit demand.”

New residential construction spending increased 6.1% to $11 billion in the second quarter from a year earlier, the agency said. The biggest jump came in single-family investment, which rose 3.8% to $6.8 billion. Apartment and condominium construction increased 9.1% to $2.5 billion.

Spending on renovations also hit a record high, jumping 9.1% to $9.9 billion, the highest quarterly level on record and accounting for 43.5% of total residential investment in the second quarter, the agency said.

Meanwhile, acquisition costs increased just 2.2% to $1.9 billion, it said.

Statistics Canada said residential investment was strongest in Western Canada, representing about two-thirds of the increase in the second quarter. Saskatchewan, alone, saw a 28.3% surge to $479 million due to a jump in new construction.

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By Rob Carrick - Globe and Mail

Some tips offered yesterday by the mortgage brokerage firm Invis help people understand the current interest rate environment and upheaval in the U.S. housing market.

“The key to a successful mortgage experience is carefully considering all your options and buying within your means so that you can sustain your payments,” Invis president and CEO Neil Glasberg said in a press release.

Invis starts off by recommending that people find out what they can afford by getting preapproved for a mortgage by a lender. One benefit of doing this is that you can lock in a mortgage rate for as long as 120 days. Another is that you’ll quickly get an idea of whether you’ll comfortably be able to afford a home or whether you’ll be asking for trouble.

We’re not talking about falling into the same difficulties as those poor U.S. home buyers who are defaulting on mortgages that enabled them to get in over their heads. The U.S. subprime mortgage market, catering to people with weak credit ratings and a strong desire to buy a home, is a striking example of how a predatory financial industry eats up gullible people and spits out the bones.

The risk of taking on a mortgage here in Canada is not so much that you’ll default, but rather that you’ll be so house-poor it hurts.

Invis suggests revisiting your current debts to make a house more affordable, which makes sense in theory because it looks like interest rate declines are going to help on this front. The Bank of Canada left its trendsetting overnight rate unchanged yesterday and said the domestic economy remains strong, even if there are risks posed by the trickle-down effects of the U.S. mortgage situation.

One way to restructure your current debts would be to increase the amortization on a car loan, thereby lowering the monthly payments. This would have the effect of lowering your total debt services ratio, which lenders follow closely because it shows how much of your pretax income is consumed by all your debts, including your mortgage.

Barring financial distress, there are only two good reasons to restructure a loan of any kind: To get the debt paid off sooner, or to take advantage of falling interest rates. Don’t renegotiate your debts just so you can borrow more. If this is the only way for you to afford a home, one interpretation would be that you can’t actually afford that home.

Lenders generally don’t want to see your total debt service ratio go above 40%, which means $40 of every $100 you earned would go to loans, credit cards and your mortgage. If you think this is a financial plan you can live with, stop a moment to consider whether money would be so tight that you end up piling on more debt over the years to maintain your lifestyle.

Invis acknowledges the potential stresses of carrying a big mortgage by suggesting you look into a longer amortization period than the traditional 25-year period. You can go as long as 30, 35 or 40 years, and in doing so you will buy yourself some financial stock on a day-to-day basis. The downside is that you’ll pay thousands more in interest, and require an extra five to 20 years to get your mortgage paid off.

If you’re 30 years old, you could conceivably be committing yourself to a mortgage you won’t be rid of until you retire. Round about the time most people are ramping up their retirement savings, you’ll still be paying big chunks of money to your mortgage lender.

Invis suggests increasing the size of your down payment as a way of reducing the amount you need to borrow. The obvious threshold to shoot for is 20%, which would allow you to save on mortgage insurance. But with the average house price in Canada now above $310,000, you’ll need at least $62,000 to qualify.

Invis points out that the federal Home Buyers’ Plan may help because it allows you to withdraw up to $20,000 from a registered retirement savings plan to buy a home. If you’re young and have time to backfill your RRSP, that’s not a bad option.

A lot of what’s gone on in the mortgage market in recent years has been about helping people buy homes in a market where prices have soared. The underlying assumption is that there’s always a way to make homes attainable, when in fact this just isn’t true.

If you find that discouraging, just look to the U.S. housing market. Sales there are falling, and you know what that does to prices and affordability.

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