Toronto Condo and Real Estate Blog

Jamie Sturgeon, Financial Post

It’s going to get worse before it gets better. That’s the message from industry leaders gathered on a conference call yesterday to discuss the state of Canada’s housing market over the next year.

Canada’s entire real estate market — from home building to new and existing sales and, not least, home prices — is beginning to feel the downdraft of a global liquidity crisis between banks.

The good news is that they say the national market is in far better shape than its American counterpart and it’s already moving to correct itself.

“The market is realigning and we don’t see that there will be a housing market bust in Canada like we’re seeing in the United States,” said Gregory Klump, chief economist at the Canadian Real Estate Association.

“Rather, we’re going from a rather strong seller’s market to more balanced market conditions.”

Calming words, but of little comfort to homeowners that witnessed national prices fall the fastest in 12 years in August and are in for a similar blow when Ottawa-based CERA delivers September’s data next week, according to Mr. Klump.

Still, there’s a point to be made of Canada’s position vis-a-vis the United States, where there have been unprecedented foreclosure rates in some states stemming from subprime mortgages, still estimated to represent 18% of outstanding mortgages in the United States.

Here, Mr. Klump said that while torrid growth remains in a few markets in Western Canada, nationally prices will continue in a downward trend until the “second half of next year. With sales declining as well as listings declining, [prices] will stabilize.”

Home building, too, is poised to decline, according to Derek Holt, vice-president of economics at Scotia Capital. Despite a robust showing of 217,000 annualized construction starts on new homes last month, the rate of permits is falling to well below that level for coming months and next year.

Mr. Holt contends the annualized rate for 2009 will slow to about 180,000 as home builders scale back.

Indeed, there was marked concern over the threat that the widening financial crisis poses.

Inter-bank lending is quickly seizing up, and no matter how strong Canadian lenders’ balance sheets are, the drying up of international lending is anathema to domestic recovery.

“That worries us, to be frank,” said Mr. Holt. “Bankers are worrying about the fragile state of the global financial system and that is absolutely for every consumer and business borrower across the world … going to tighten access to credit on tighter terms.”

Credit conditions for mortgage borrowers are already beginning to come under strain. Despite a cut of half a percentage point by the Bank of Canada on Tuesday, Canadian banks shed only a quarter of a point, citing their own elevated costs of borrowing in open markets.

Rates on variable mortgages have also been raised in recent weeks.

Will it mean Canadians looking for a mortgage will be shut out?

“For the vast majority, no,” said Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals. “There’s always issues for those who may not have the credit score or have debts … [but] for people that qualify, no.”

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By Lori Mcleod - Globe and Mail

The latest victims of the growing financial crisis could be the standard discount available to consumers on variable mortgages, and home equity loans at prime.

In a move expected to be followed by other banks, all of which have been stung by higher funding costs, TD Canada Trust is raising rates on both types of loans.

Rates on these products will rise to 5.75 per cent, a percentage point above the prime rate. Only last week, TD eliminated the discount on its variable rate mortgages, offering them at the prime rate of 4.75 per cent. During the housing boom of the past several years, consumers could often get their bank to drop the rate by half or even up to a full percentage point.

“While TD Canada Trust has endeavoured to not pass on the increases in rates to its consumers, this change reflects steadily increasing costs of funds in the current economic environment,” the bank said in a statement.

The percentage point increase raises the term interest cost on a $250,000 variable rate mortgage by $12,247.22 over five years, according to Royal Bank of Canada’s online mortgage calculator. The difference is based on a 25-year amortization, a variable rate mortgage with a five-year term and bi-weekly payments. On that basis, the bi-weekly payment amount rises to $725.90 from $657.83.

The credit crisis and economic uncertainty have caused banks to stockpile their cash. That’s driving up their short-term cost of borrowing from one another, and means margins on variable-rate mortgage products are shrinking.

Rates on fixed-term mortgages went up last week too, as banks have passed on fewer of their savings from falling bond yields to consumers.

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Resale home prices in most major Canadian cities continued rising in the summer quarter, “in stark contrast to the housing market woes that continue to plague the U.S.,” Royal LePage Real Estate Services reported Monday.

While the rate of price appreciation is dropping, the national real estate sales company said Canada’s housing market is on an entirely different track than the American meltdown.

“Boasting still-affordable homes, resource-rich Regina and St. John’s (N.L.) posted significant double-digit gains, while home prices in Alberta corrected downwards slightly after experiencing a period of unprecedented growth,” Royal LePage reported.

“It is not surprising that the regions that had experienced the largest and quickest rise in home value are now experiencing easing price appreciation trends as their markets return to more balanced conditions.

On average across Canada, condominium prices in the July-September quarter were up 0.2 per cent from a year earlier to $243,529, according to the Royal LePage tally. Standard two-storey properties edged up 0.1 per cent to $408,927, while the average bungalow price was flat at $240,000.

Regina’s housing market posted the steepest year-over-year appreciations with gains as high as 49 per cent for standard condominiums; St. John’s condo prices swelled 26.9 per cent.

“Canada’s housing market is holding up well, with resilient buyer demand supporting house prices that continue to inch upwards,” stated Royal LePage president Phil Soper.

“While rate of price appreciation is obviously tempering across the entire country, it’s important to underscore the fact that Canada’s housing market is supported by markedly different, and stronger, economic fundamentals than those that American homeowners are wrestling with.”

He cites solid employment and population-growth fundamentals and the continuing availability of affordable financing.

“Credit-worthy Canadians continue to have wide access to fairly priced mortgages,” Soper said.

“While we are not immune to the serious problems facing global credit markets, our financial institutions are in much better shape than mortgage providers in the U.S. In Canada, subprime or high-risk mortgages account for a small portion of our banks’ portfolios and the mortgage approval process has many more checks and balances in place. As such, we should expect stability in Canada’s real estate market.”

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