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Drop in home prices spreads to Toronto

November 26, 2012 National Real Estate, Other Real Estate Markets, Real Estate Prices, Toronto Real Estate

Tara Perkins – The Globe and Mail

The decline in house prices that has hit Vancouver is spreading to Toronto, a shift that economists say marks the beginning of a national price correction.

While many say the market has long been due for a correction, and that a healthy and gradual decline in prices is ahead, the new numbers are fuel for those who argue that federal Finance Minister Jim Flaherty’s moves to cool the market went too far this summer.

Prices in Toronto dipped 0.6% in October from September, the first monthly decline since the end of last year, according to the house price index compiled by Teranet and National Bank of Canada.

Comment: What? Your are comparing a drop of some 27% in Vancouver to 0.6% in Toronto? And drops sustained over more than a year with one seen briefly in one month? That is terrible, trying to make something out of nothing.

It comes after sales began to soften this summer, a trend that has continued. Sales in the Greater Toronto Area during the first two weeks of November were 17.5% lower than the same period last year, according to the local realtors board, which has pointed out that Mr. Flaherty’s decision to cut the maximum length of an insured mortgage to 25 years means higher payments.

Comment: And amazingly, the day after the new mortgage rules, sales volume dropped. Anyone trying to say it is NOT the new rules is crazy, stupid or lying. The evidence is clear. And it is supported by other data: the 4 months following the new mortgage rules saw sales volume drop by 12.5% to 21% while CAAMP says that 11% to 17% of past mortgage clients would not qualify under the new rules. I think I know where the sales drop is coming from, from those who cannot qualify now. It is more than clear what is going on.

A number of other cities, including Quebec City, Victoria, Ottawa and Montreal, also saw prices fall in October. Nationally, prices were 0.2% lower than in September.

Comment: And 0.2% is not even statistically meaningful.

Craig Alexander, chief economist at Toronto-Dominion Bank, said he was struck by how broad the declines were. “It’s no longer just about Vancouver.”

Comment: But that is only if you use Teranet’s very specific method of measurement. The raw data says all but Vancouver rose, with an average increase of 0.02% nationally – even more moot. The HPI shows a 3.6% increase. Pick your stats, you can make the numbers say whatever you want them to – but be sure to show them all, not just the ones you cherry pick to make your pre-conceived point.

Vancouver’s prices actually ticked up 0.1% in October from September, but remain one% below where they were a year ago.

Comment: CREA’s HPI shows Vancouver going down 0.8% so there you go. But I cannot believe we are even talking about price movements of less than 1%! That is how nit-picky we have gotten about real estate…

Nationally, house prices are still 3.4% higher than a year earlier, but the year-over-year gains have been shrinking. The data suggest that the market is shifting toward negative territory.

Comment: NO – the data suggest that price increases are slowing down. Prices rising by 3.4% does not in any way suggest that prices will go down at any point. Holy twist things Batman!

A number of economists are optimistic that, barring any significant increase in unemployment or interest rates, house prices will nudge down gradually over the next year.

Comment: Hmm… seeing as unemployment just fell 0.2% last month, does that mean prices are going to rise? I also see one of my mortgage broker is offering a 2.89% 5-year rate – which is lower than before. So both interest rates and unemployment went DOWN – how does that fit into your disaster scenario?

“We are starting to see the beginning of a negative trend in the housing market in Canada, but I think it will be a gradual and somewhat controlled slowdown,” said Canadian Imperial Bank of Commerce economist Benjamin Tal. That’s the outcome that Mr. Flaherty and Bank of Canada Governor Mark Carney are hoping for, as they’ve sought to take some of the froth out of the market now to prevent a crash down the road, and to keep consumers’ mortgage debt levels in check.

Comment: The new mortgage rules did the exact thing the 3 previous changes did not do – slow things down. Where we settle is still up in the air. Do we flatten, do slow the increase and keep rising, do we drop? We need at least a year to know for sure.

Marc Pinsonneault, an economist at National Bank who works on the Teranet-National Bank national house price index, said that if the data are adjusted for seasonal factors, then home prices were flat in October compared to September. But even that is newsworthy, he adds. (While the average price of houses sold can be influenced by a shift in sales towards certain neighbourhoods or types of homes, the Teranet-National Bank Composite House Price Index seeks to account for that by, among other things, only including homes that have changed hands at least twice in their history and have not been renovated.)

“We wouldn’t be surprised to see prices in Toronto down 5% from where they are at the moment at the end of 2013,” he said. However, prices have risen 6.4% in the past year. “We think it will be a price decline consistent with a soft landing of the resale market,” Mr. Pinsonneault said.

Comment: So even with a 5% drop in 2013, it will be 1.4% higher than 2011. I still think we will see a flattening until spring when things will jump again and we ill return to 3-6% annual increases (which is really only about 0-3% after inflation, nothing really). Like the Toronto land transfer tax, people will just get used to the new mortgage rules.

But some economists, and a number of real estate industry players, say the softening could be more severe and protracted than desired. This week, Will Dunning, the chief economist at the Canadian Association of Accredited Mortgage Professionals, said he thinks Mr. Flaherty’s rule changes are jeopardizing the health of the market and the economy, and will continue to have an impact for years to come.

“Home prices have held up so far, prompting economists to declare a soft landing,” David Madani, an economist at Capital Economics who has long been predicting a 25% national price correction, wrote in a note Wednesday. “But we think this is premature.”

Comment: The key is that they have been LONG predicting it… and it has not happened. Nor is it going to happen. I could shout from the rooftops about a 25% price spike to get my name in the paper too – doesn’t mean it will happen.

Data from RealNet Canada Inc. Wednesday showed that 2,792 newly constructed homes were sold in October, the second-lowest sales for that month for the 13 years on record. Of those, 1,914 were condominiums. The Building Industry and Land Development Association, which represents developers, blames Mr. Flaherty for the decline.

Comment: Really? You are yet again taking one month and using it to create a whole new trend that reverses the past decade? Really?

“In an attempt to cool down the market, the federal government has severely affected the building and development industry in the GTA,” CEO Bryan Tuckey said in a press release. “The introduction of stricter mortgage regulations has triggered a decline in new home sales, and if this trend continues, it will affect job creation in the coming years, restricting economic growth.”

Comment: No, it won’t. We will just drop from almost 100,000 sales to something in the mid 80,000 range. And the 5 years before 2011 saw sales in the 81,000 to 87,000 range – and we were not seeing jobs disappearing all over the place with slow economic growth. Quite the opposite. Everyone needs to tone down the hyperbole just a LITTLE bit.

The softening prices, coupled with rising household incomes, has made homes slightly more affordable, according to Royal Bank of Canada. “Despite the improvement, the latest readings still point to slightly greater-than-average affordability pressures in Canada, with such imbalances being somewhat more intense in the two-storey home segment,” RBC says in a recent housing affordability report.

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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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Flaherty expects cool condo market

April 11, 2012 Mortgages and Financial Information, National Real Estate, Other Real Estate Markets, Toronto Condos

The Canadian Press

Federal Finance Minister Jim Flaherty is predicting changes at Canadian banks will soon slow down Vancouver’s condominium market, pointing to cooling off already seen in Toronto.

Flaherty, who was in Vancouver on Wednesday to talk about his latest budget, told reporters banks tightening lending rules for home buyers.

“I think that’s wise,” he said. “We’ve warned for some time about the danger of an overheating housing market, were it to become overheated. It’s better that the market fix it than government has to fix it. I’ve tightened up the mortgage-insurance market three times in the last six years, really, I don’t want to do it again.”

Flaherty said he was basing his comments on conversations he’s had with people who build condos and what he’s been told by some of Canada’s banks.

Flaherty and financial experts have been warning for some time that homeowners should be cautious about how much debt they take on, because interests rates can increase.

A recent report from economists at the Bank of Montreal cautioned the days of ultra-low mortgage rates were coming to an end.

The report, issued March 24, said the U.S. economy seemed to be building steadily and central bankers on both sides of the border have become more comfortable with the economy and less comfortable with low interests rates that are fanning hot housing markets.

The minister said in his budget last week that the government would implement “enhanced supervision” for the Canadian Mortgage and Housing Corp., the body that insures loans for buyers who put down less than 20 per cent of the cost of the home.

“Interests rates are historically low. They only have one way to go, which is up. Canadians need to make sure when they take out a mortgage that when interests rates go up they’ll be able to afford it.”

The minister wouldn’t reveal what changes are coming for the Canadian Mortgage and Housing Corp. He said an announcement is coming soon.

Andrew Hasman, a Vancouver Realtor with Re/Max-Andrew Hasman Realty, has sold for two decades in the city and agreed the market is cooling slightly.

He also agreed new banking rules will likely have an impact on the Vancouver condo market, but he didn’t seen a major correction on the horizon.

“I don’t think there’s a major run for the exits. I think a lot of the people on the market for sale are those who want a sale if they could get so much money for their property. No one is in a forced position to sell.”

He said Vancouver’s market appears to be balanced, neither a seller’s nor a buyer’s market.

“Five or 10 per cent (drop in condo sales) could be in the cards,” he said.

However, Hasman said Vancouver’s market doesn’t follow economic trends like other Canadian markets, mainly because many buyers are coming from Asia.

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Contact the Jeffrey Team for more information – 416-388-1960

Housing finance rules pass the stress test

July 7, 2011 Buying Real Estate, General Real Estate, Mortgages and Financial Information, National Real Estate

Stephen Dupuis – Yourhome.ca

I will admit that I read each and every news report about Bank of Canada Governor Mark Carney’s speech to the Vancouver Board of Trade last week to determine whether he was focusing solely on the Vancouver real estate market, where prices are eye-popping and continuing to rise quickly, or Toronto’s as well, where sales volumes are quite elevated but average prices are much lower and increasing at a more sustainable pace.

At the same time, I was paying close attention to federal Finance Minister Jim Flaherty’s musings because, let’s face it, these two fellows have all the power and tools to make or break housing markets across Canada.

Obviously the Bank of Canada controls interest rates, and anybody who remembers the days of mortgage rates exceeding 20% will appreciate the wonderful work the Bank of Canada did to wrestle inflation to the ground and keep it there.

With today’s mortgage rates, homebuyers have it very good indeed, but the problem the Bank of Canada has to deal with is what happens when rates rise: Will people still be able to afford their mortgage payments?

Reading Carney’s exact words on the Bank of Canada website ( www.bankofcanada.ca), I found the answer to my question in the second line of his speech where he states that in the past three years, the average Vancouver house price is up about 30%, making that city an “extreme example” of general developments in Canadian housing.

Carney notes that “the value of residential real estate holdings in Canada has climbed more than 250% in the past 20 years, vastly outpacing increases in consumer prices and disposable income over that period.” That’s a very good thing if you got in the game 20 years ago, or even 10 or five years ago. But if you’re looking to get into the market today, your starting point is so much higher.

Here’s where it get’s interesting. Carney reveals that the value of housing-related debt in Canada has nearly tripled over the past decade to $1.3 trillion. This debt is also the single largest exposure for Canadian financial institutions, with real estate loans making up more than 40% of the assets of Canadian banks, up from about 30% a decade ago.

On the up side, Carney notes that “this unprecedented exposure exists in the context of a Canadian mortgage market that is subject to more stringent checks and balances than in the United States. For instance, almost all Canadian mortgages are full recourse, mortgage interest is not tax deductible, and high-ratio lending standards are generally prudent. These factors help instill responsibility and discipline on both homeowners and lenders.”

This is where Flaherty enters the picture. He deserves credit for his pre-emptive strike against the types of mortgage financing practices that caused all the problems in the U.S. He acted before the global financial crisis and he has tightened the mortgage financing rules twice since then.

I gave Flaherty full credit for all three moves, but after his most recent restrictions I made the point that any further tightening would go beyond prudence and into outright market manipulation. On that note, I was delighted to read earlier this week that he “has no plans to tighten mortgage rules again.”

Both Carney and Flaherty are walking fine lines every day. They are trying to achieve sustainable housing markets without killing the goose that is laying the golden eggs, which is never an easy task.

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Contact the Jeffrey Team for more information – 416−388−1960

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Laurin and Natalie Jeffrey are Toronto real estate agents. We would be happy to help you find your new Toronto home — be it house or condo or loft. We would also be more than pleased to help you sell your current Toronto property.

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The vast majority of content on this blog is not written by Laurin or Natalie Jeffery. It is written by many different authors, for many different publications and websites.

We re-print these articles here as a collection of Toronto real estate news and information. We aim for this blog to be a one-stop shop for people looking for information on Toronto real estate.

We do not claim any of the information we did not write as our own. We do not work for any publication, nor any builder. We are Registered Real Estate Sales People working for Century 21 Regal Realty Inc. Brokerage.