Toronto Condo and Real Estate Blog

TD warns of “flashing warning lights”

By Roma Luciw - Globe and Mail

Housing markets in Western Canada are “flashing warning lights,” and some cities might be on the cusp of a major price downturn, Toronto-Dominion Bank warns.

“There is no question that the recent dramatic price gains in Calgary and Vancouver are unsustainable, and that these urban centres are vulnerable to significant moderation, including the possibility of a pullback in prices at some point in the future,” economists Craig Alexander and Steve Chan said in a note to clients yesterday.

The warning arrived just as the Canadian Real Estate Association reported that the number of home sales in Canada’s major markets slipped 3.1% in July from June.

Home sales through CREA’s Multiple Listing Service in the first seven months of the year blew past all previous highs, and are on track to close the year with a new annual record. However, the association said a “marked increase in new listings in Alberta and the return to more normal levels of sales activity in British Columbia and Alberta” have left the national market “more balanced than it has been at any point in the past five years.”

CREA’s chief economist Gregory Klump said national sales are starting to come off record levels. “What is new this month is that there are signs that Vancouver and Calgary are starting to join that trend.”

The TD economists acknowledge that housing activity in Western Canadian cities is easing a little, but say their real estate bubble-watch indicators suggest Calgary, Vancouver and Edmonton bear closer watching.

A series of weak U.S. data have generated worry that the slumping housing market south of the border will hobble U.S. economic growth. The concern is that Canada’s real estate market will follow suit.

TD has consistently argued that Canada’s real estate market has “generally lacked the degree of speculation that dominated past boom-bust cycles,” and that excesses lag those evident in the United States.

The TD economists are sticking with that argument, but say they are concerned about certain pockets of the Canadian housing market.

The housing situation in Calgary, a city flush with oil money, has seen explosive growth in recent years, TD said. The city’s housing situation has started to open up: Demand is easing, unit sales are weaker, new listings have picked up and the powerful sellers’ market is showing signs of becoming more balanced.

“Given that the market is overheated at the moment, a bubble may be forming, or could easily develop, but the hope is that the trend toward a more balanced market continues,” Mr. Alexander and Mr. Chan said.

The situation is similar in Edmonton, where robust demand and tight supply have fuelled a steep rise in prices. If the pace of price increases continues, a bubble could form, TD said. However, housing in Edmonton is still quite affordable, raising the chances of a soft landing.

In Vancouver, demand for housing is also softening, although that could be because the average resale home, at $509,606, is now the most expensive in Canada. Indications of weaker unit sales and rising listings suggest a soft landing, the TD economists said, but developments in the market need to be monitored.

The warning signs that TD sees in Western Canada are absent from the rest of the country.

“Other major Canadian real estate markets appear to be in much more balanced shape, and housing activity in Central and Atlantic Canada has already cooled without prompting a price correction - supporting the view that a bubble never formed in these regions,” the economists said.

———————————————————————————

Contact the Jeffrey Team for more information

Homeowners ’scared,’ MPP says
Liberals say help already on the way

Excerpt from an article by Harold Levy - Toronto Star

The story of an 89-year-old Toronto man who lost his home to identity thieves has left many homeowners in Ontario feeling “scared and vulnerable,” Tory MPP Joe Tascona says.

Tascona, the provincial government services critic, was referring to Paul Reviczky, who was recently shocked to learn that the thieves, using a fraudulent power of attorney, had sold the home he had owned since 1980 to an unsuspecting purchaser, and that under Ontario law he may never get it back.

After the Legislature reconvenes Sept. 25, Tascona plans to introduce a private member’s bill to pressure the Liberal government to take action. But Gerry Phillips, Ontario’s minister of government services, told the Star yesterday that he does not need prodding from the opposition through a bill.

Reviczky, a retired tobacco farmer who lived elsewhere, was using the rental income from the home to help out his relatives in Hungary.

Phillips has brought a group of experts from Ontario’s financial, real estate, and policing communities together for advice, and is intervening in a court case on behalf of a North York woman whose 100-year-old Victorian home was recently stolen by criminals. But Tascona says his constituents are telling him and many of his colleagues that the McGuinty government is not moving quickly enough to overhaul the system and ease owners’ fears that their homes can be stolen from under their noses.

Tascona also proposes to overhaul Ontario’s Land Titles Assurance Fund, which provides compensation to homeowners who have not purchased title insurance, so they will no longer have to go through costly, time-consuming litigation to sort the situation out. Under his proposal, fraudulent transactions would no longer be considered valid merely because they have been registered through the province’s land titles system under the proposed bill, and the homeowner would receive compensation “up front,” instead of first having to bring lawsuits against those who failed to protect them such as lawyers or lenders.

The bill would also make it more difficult for criminals to obtain information about people’s properties from registry offices and the province’s electronic land transfer system that can then be used to steal their homes. It would also give the province’s registrar of land titles the power to police the system by refusing to register apparently fraudulent transactions — and to rescind clearly fraudulent registrations that have fallen through the tracks.

Read the full article

———————————————————————————

Contact the Jeffrey Team for more information

Slowdown here not a sure thing - U.S. homeowners borrowing more

By Romina Maurino - Canadian Press

Should the U.S. housing market bog down in an anticipated slump, its Canadian counterpart is likely to be in for a softer landing thanks to lower interest rates and a different attitude to home financing, observers say.

“When you take a look at the new home construction numbers, we’ve been running at the 200,000-plus level for a number of years — this will mark the fifth such year — and it’s felt that generally this is in excess of what long-run demographic demand is,” said Brent Weimer, senior economist with the Canada Mortgage and Housing Corporation, or CMHC.

“We see housing activity easing to a more long-run sustainable level moving forward.”

In recent weeks, analysts have been debating an impending North American housing slowdown and the form it might take. Some say when the market drops it will do so with a resounding crash, while others see a more gradual decline.

They also differ on how Canada and the U.S. will fare.

In Canada, hikes in interest rates, increasing home prices and higher energy costs are nibbling away at affordability but the country has benefited from a strong housing market in the West, as more and more workers settle in Alberta, drawn by the province’s booming energy economy.

Canadians have also seen less aggressive interest rate increases than in the U.S., and are less likely to borrow as much money for their homes.

David Rosenberg, North American economist for Merrill Lynch, has pegged the odds of a “hard landing” in the U.S. between 40% and 80% — significantly above the consensus view of 27%.

“Practically every indicator at our disposal tells us that we are very late in the cycle and the historical record also strongly suggests that the next wave after the Fed has inverted the entire yield curve is either a hard landing or a very bumpy soft landing,” he said in a note.

“Either way, the economy is going to have some sort of a ‘landing,’ which is far different than a ‘take-off.’”

On Tuesday, luxury home builder Toll Brothers Inc., based in Philadelphia, reported its third-quarter profits fell by 19% as housing market woes weighed on sales and caused the company to abandon some building locations.

The company also cut its earnings estimate for the full year, signalling it doesn’t expect the housing market to stabilize soon.

A day earlier, home improvement chain Lowe’s Cos. warned that a slowing U.S. housing market will hurt its earnings for the rest of the year, sending its stock down despite good quarterly results.

BMO economist Douglas Porter said a correction in Canada “won’t be nearly as severe as it’s likely to be in the U.S., because the boom hasn’t rumbled on as long (here).”

And while he expects housing starts and sales to weaken in 2007 and possibly in 2008, he doesn’t see the impending slowdown as a sure thing.

“For about the past five years, economists have been calling for declines in Canadian housing starts and sales, and the entire housing industry has defied expectations and remained incredibly resilient in recent years,” he said.

“This housing cycle has been counted out a number of times in the past and it’s proved to be a lot healthier than many economists believed possible.”

Once the slowdown does hit, it could spread out over a couple of years and “take a little bit of wind our of the sails for consumer confidence,” he added, saying decreases aren’t expected until 2007.

Mark Chandler, an economist with Scotia Capital, said a possible slowdown isn’t enough to push either the U.S. or Canadian economy into a recession.

One of the big differences between Canadian and American homebuyers, he added, is that “U.S. (homebuyers) have been taking a lot more out in terms of mortgage equity withdrawal.”

“Essentially, they’ve been borrowing more than the wealth in their homes have been increasing.”

The CMHC has forecast that both housing starts and sales will slow in 2007, with total housing starts expected to come in at 209,100 and sales of existing homes at 462,200 — less than a 10% drop.

———————————————————————————

Contact the Jeffrey Team for more information