Tag Archives: economic growth
Risk of Canadian housing bubble appears to be easing
Michael Babad – The Globe and Mail
Risk of Canadian housing bubble easing, Fitch says
Risks of a bubble in Canada’s housing market appear to be easing, a “positive development” for the country’s banks, the Fitch ratings agency said today.
“In Fitch Ratings’ view, these early signs of a cool-down in the housing market could be generally positive for the stability of the Canadian banking system and the sustainability of economic growth, though the full extent and pace of the housing correction remains unclear,” the agency said.
Fitch cited the most recent report by the Canadian Real Estate Association, which said this week that home sales fell 5.8% in August from July.
New federal mortgage restrictions that went into effect in July are believed to have played a role in taming Canada’s real estate market, though consumer debt burdens remain the biggest threat for the banks, Fitch said.
“The latest sales numbers provide some initial evidence that risks of near-term overheating in the Canadian housing market may be subsiding,” the agency added.
“This could be a positive development for Canadian financial institutions as long as the labour market remains relatively stable.”
The reduced threat of a bubble will also probably take some pressure off the Bank of Canada to hike interest rates any time soon, the agency added.
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Contact the Jeffrey Team for more information – 416−388−1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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With no sign of cooling in Toronto condo market, housing starts to rise sharply
Julian Beltrame, The Canadian Press
Canada’s home-building industry was unexpectedly hot in March – particularly the condo sector in Toronto.
The latest data on residential construction surprised analysts Wednesday, with Canada Mortgage and Housing Corp. reporting 14,517 actual starts in March, giving a seasonally adjusted rate of 215,600 units a year.
That constitutes a 5% jump from the previous month and the highest level of starts since the fall of 2008.
As well, CMHC upgraded its estimates for January and February, suggesting home construction was a key component of economic growth for Canada in the first quarter of this year.
Ontario, particularly Toronto, had the country’s biggest increase in multiple-dwelling units, a group that includes condos and apartments. Multiple starts in the province jumped by 50% on a seasonally adjusted basis.
“Certainly we think the housing sector will downshift at some point … but we’re not quite at that point yet,” said Peter Buchanan, an analyst with CIBC World Markets.
Comment: Sure, but is it next year or in 10 years? It is no use making suppositions without any sort of data.
“Clearly low mortgage-financing costs are helping to support the segment. This kind of level of starts is certainly above the underlying level of household formation by 20,000 or 30,000 (annually).”
Comment: That is pretty low. There are 100-110,000 people immigrating to Toronto annually alone. Never mind those moving out of the family home or changing from renting to buying. I would say there are 150,000 people entering the housing market every year. Even with a chunk of them renting, they need somewhere to rent. With 2-3 people per family unit, you are closer to 50,000 or even 70-80,000 new households in the GTA every year.
Buchanan said the condo market may be sizzling due to demographics as baby boomers downsize from larger, detached homes, as well as international speculation and a trend to more downtown living among Canadians as the cost of commuting increases with rising gas prices.
CMHC said the condo trend is not sustainable, and many analysts agreed.
There is anecdotal evidence of a “shadow condo inventory” in Vancouver and Toronto, units that have been sold but are unoccupied and not for rent, said Scotiabank economist Derek Holt.
Comment: So one person makes up these “shadow” units and now everyone talks about them? Who cares, they are bought and paid for and not for sale.
These unoccupied units could signal foreign investors who see Canada as one of the few global real estate plays that offer good returns, Holt said.
Comment: So the “shadow” units are a good thing? Another article said they were bad. Whatever, I am not even sure I believe they exist.
But it’s always tricky to predict when or if a bubble will burst, he warned.
Comment: Nope, it is easy here. There is NO BUBBLE. Thus, it will not burst.
Holt noted that as far back as 2008, some were calling for Canada’s housing market to plunge due to the same pressures that caused the U.S. market to collapse. However, Canadian real estate hasn’t followed the same path.
Comment: Yup, those “experts” sure know what they are talking about. And the Toronto condo market was supposed to collapse back in 2003. I just feel bad for those who put too much stock into these people. I know of someone who sold off all of their investment properties last year, fully expecting the market to drop. Now those properties are worth 10% more. I do not even want to think of how much money they lost…
“We know there are stressers in the Canadian marketplace just as there were in the U.S. It’s just that you can never time the point at which they turn abruptly in the other direction,” he said. “There would need (to be) a shock.”
Comment: What stressors? We do not have a sub-prime market, which is what destroyed the US market. We have rising employment, which they did not have then. We have a stronger economy than they did. I keep hearing about these stressors but no one can point to any – except to say what “might” or “could” happen. Guessing about possibilities does not make them real.
Speaking in New York on Tuesday, Finance Minister Jim Flaherty repeated his view that the housing market is slowing, adding he has no plans to tighten mortgage rules for a fourth time in six years.
“I would prefer for the market itself to correct to the extent that a correction is necessary,” Flaherty said.
Flaherty did repeat his budget pledge to make changes to CMHC’s rules for insuring mortgage loans, saying both his Finance officials and the Office of the Superintendent of Financial Institutions were engaged in the process.
Moody’s rating service said Wednesday it foresees a soft landing for Canadian housing – not a crash – with prices rising a modest 1.1% this year on average.
Comment: Wow… at least that is more honest. A soft landing is prices rising “only” 1.1%. Better than the half-baked calls for prices to drop 25%. I bet we see national prices rising more than 1% by the end of the year, with the local Toronto market closer to 8-9%.
“But downside risks are present,” it added. “Should growth in the U.S. slow, we believe Canadian house prices would fall (slightly). Should the U.S. fall into an outright recession, Canadian house prices would fall 5.6% in 2012 and 10.3% in 2013.”
Comment: Why? US growth has been essentially negative for years now – and we have done nothing but grow. And now their economy has suddenly kick started again – which should only mean good things for us, by that logic. And there is no evidence for the US to have a recession, none at all. Like I said above, playing the guessing game does not benefit anyone.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Canadian home prices cooling
Overheated Ontario and B.C. markets slowing
Adam Carter, CBC News
As mortgage rates plummet to historic lows, some consumers may be wondering what’s waiting for them in the usually frantic spring housing market.
Comment: Bidding wars, chaos, not enough inventory. The usual…
“March through June is prime time in the real estate and mortgage markets,” Robert McLister, editor of Canadian Mortgage Trends told CBC News in an email.
McLister said headline-making interest rates are encouraging some to buy early, but those numbers are not huge, at least at this point.
“The spring should be ‘steady as she goes’ unless the government tightens mortgage qualifications again, or rates spike. In either case, we could see a meaningful bulge in demand from people trying to beat those changes.”
Comment: But neither of those things will happen, so why mention them?
McLister is not alone in this prediction. Most experts seem to think the Canadian housing market will remain relatively stable for the foreseeable future.
Comment: Amen!
According to the most recent Canadian Real Estate Association (CREA) forecast, national home sale activity for 2012 and 2013 is projected to remain roughly on par with the 10-year average for annual activity, because of low interest rates and the projected low economic growth.
Comment: So why the headline about cooling if the market is staying steady?
“Interest rates aren’t going to be low forever – but they’re not going anywhere fast,” Gregory Klump, CREA’s chief economist, told CBC News.
Scotiabank Senior Economist and Real Estate Specialist Adrienne Warren echoed that sentiment earlier in March, at Scotiabank’s 2012 Canadian Real Estate Outlook and Trends Forum.
“Home prices have leveled out over the past six months as market conditions become better balanced and as higher prices, tighter mortgage regulations and slowing job growth cool demand,” she said.
“We expect sales and prices will be relatively flat in the year ahead.”
The low rate debate
In the last CREA forecast, Klump called the continuation of low interest rates a “silver lining” in the face of what looked like a risky Canadian economic outlook.
But some experts say the low rates could be dangerous if consumers jump into the housing market and then find that interest rates, or their employment prospects, change.
Comment: But interest rates have only gone down over the past few years. The banks are not stupid, they want mortgages. That is why they are having a rate war right now. People are buying, they know that – and they want your money.
“The general concern is interest rates are at historic lows both in nominal terms and to some extent in real terms,” Tsuriel Somerville, a professor in real estate finance at the University of British Columbia told CBC News.
“The Bank of Canada has given signs that rates are going to rise and people feel that rates are going to rise – so there’s a worry that people might take on debt that they can handle now, but might not be able to handle at higher interest rates.”
“Fixed rates are still at eye-popping lows,” McLister said, referring to the current four– and five-year mortgage interest rate at 2.99%.
“Falling mortgage rates improve housing affordability, which draws more buyers out of the woodwork and allows people to pay more,” he said. “That, in turn, leads to somewhat greater demand and stronger prices.
“If rates were to surge a few percent, and incomes and employment didn’t strengthen simultaneously, we’d see a rather unpleasant impact on prices.”
Comment: But rates will not surge a few percent. Even if they went from 3% to %5, it would not have a measurable impact – at least not in Toronto. Unemployment is down again, almost 1% now from 2008. So that is not a concern. Tell me where the magic bad things are coming from?
Nonetheless, Klump says, the evidence is that people educate themselves very well before undertaking huge debt, lessening some of this worry.
“I’m hearing from our realtors that before people sign an offer they know what it is they can afford, they’re not going out on the edge and grabbing more than they could afford long term.”
Ontario, B.C., settling down
CREA said national resale housing activity should be around 458,800 units in 2012, representing an annual increase of 0.3% compared to 457,305 sales in 2011. Higher demand in Alberta, Saskatchewan, and Nova Scotia is expected to offset softer activity in British Columbia, Ontario, and New Brunswick.
“Each region has its own economic dynamic, and that’s stronger growth in the Prairies right now, certainly more than Ontario and, to a minor extent, B.C.,” UBC’s Somerville said.
“Both B.C. and Ontario, or the Toronto condo market and B.C., had a recent period of accelerated activity, and now there’s a step back from that.”
Comment: What? There is no step backward at all in Toronto. Action was up over 12% last month and you call that a step back?
Klump agrees. He said sales activity in Ontario was trending up throughout 2011, alongside a spike in price in the second quarter, and CREA didn’t see that as being sustainable.
“What you’re looking at from a trends perspective is a pretty steady average price,” Klump said. “The spike is why we have a decline in average price this year for Ontario.”
Comment: And by Ontario he means everywhere that is not Toronto.
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Contact the Jeffrey Team for more information – 416−388−1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
—————————————————————————————————–
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