Tag Archives: real estate in canada
Tony Wong – Toronto Star MoneyVille
The upside in a global stock market rout may ironically be a healthier housing market – at least in the short term, say economists.
“The housing market has nine lives. Every time interest rates are supposed to go down, something happens and it helps to keep the market going,” said Benjamin Tal, senior economist at CIBC World Markets.
Interest rates were supposed to be headed up before the crisis of terrorist attacks in New York on 9/11, and the last crash in 2008. But that didn’t happen. And it looks like rates will be staying down for a while, says Tal.
The market is already betting that Bank of Canada Governor Mark Carney’s plans to hike interest rates as soon as September will have to be put off until the end of next year.
Comment: Do we forget that the BoC raised rates 0.25% three times over the past 12 months? Prime went from 2.25% to an even 3%. That means rates rose… though fixed rates have hovered in the mid 3% range for a number of years now. And all the while, the “experts” shouted from the rooftops that rates were going to spike to 7% or 8% any day. Yeah, that happened.
South of the border, the Federal Reserve said Tuesday that it expects “exceptionally low levels of the federal funds rate at least through mid-2013.”
And ironically, while the U.S. has experienced a downgrade in its credit rating from Standard & Poors, investors have continued to pile into the Treasuries market.
The U.S. dollar remains the global reserve currency as investors head for shelter as they find few safe haven options out there.
The demand for treasuries means that yields have gone even lower. Which means there is downward pressure on longer-term interest rates. Long-fixed term rates are affected by a variety of factors such as competition for funds in financial markets and to prices in the bond market. Short-term rates are more affected by the key overnight central bank rate.
“The interest rate environment will continue to be very attractive for homebuyers for both short term and longer term borrowing costs. With the safety of U.S. bonds that’s keeping longer term rates low,” said Scotiabank economist Adrienne Warren.
Industry groups are warning, meanwhile, that during an already tough recovery, any sudden move upward in rates could have dire consequences on real estate sales.
“The very recent global economic news demonstrates the Bank of Canada needs to consider any future rate hikes with extreme caution, as the recovery may be more fragile than believed,” said Ontario Home Builders’ Association President Bob Finnigan.
Comment: Which means the BoC may not hike the overnight lending rate for quit some time. Spring at the soonest, maybe not until summer 2012.
Some investors may also be looking at real estate assets for a place to park their money because of the volatile stock market, said Tal.
Comment: Toronto real estate has returned a 7% average annual compounded rate of return over the past decade or so – better than any other asset except gold. Funny that people find it a safe investment. And you can live in it to boot!
Lance Dore, a member of the U.S.-based Royal Institution of Chartered Surveyors, says investment in real estate may be a beneficiary from those looking for safe haven.
“The sell-off of stocks is a clear signal that people are not confident in the future and want safety now. What has also happened in the past declines in the stock market is a flight to quality,” said Dore. “Real estate tends to be the recipient as part of this flight. Real estate values are at all-time lows with returns at all-time highs. The convergence of excess cash due to stock sell-off and corporations flush with cash for investment will push these excess funds into the inevitable diversification to real estate.”
While the future for the stock market looks shaky, the real estate sector is improving due to improving fundamentals based on increasing rents, absorption of distressed supply and increased interest for diversification, said Dore.
However, if the stock market continues on a downward path, housing will not escape unscathed. While lower interest rates are a huge mitigating factor, the losses on the market may eventually translate into job losses.
Comment: Except unemployment here dropped 4% to 7.2% – and that is good news.
For one thing, it takes confidence to plunk down that down payment for a home. It usually means that you’ve got a job, some savings, and hope for the future.
But confidence is not in abundance in global stock markets this week as concerns over sovereign debt have panicked investors. Without confidence, the housing market – the biggest ticket item on the consumer checklist will suffer no matter how low rates go, say economists.
Comment: Confidence should be sound here, but the media keeps screaming about some impending catastrophe that is never going to happen. If the media kept to the facts and told people the positive news, real estate confidence in Canada would be through the roof.
In the United States, where more than a quarter of borrowers have negative equity – meaning they owe more than their homes are worth – this could mean another setback for the already beleaguered market.
In Canada, where markets have been stable, and have been forecast to cool down next year, this could mean that sales and valuations may come down to earth quicker than expected.
Comment: Nope, CREA changed the forecast to show the market staying stable, or continuing to rise.
“Assuming the volatility and uncertainty continues in the markets it will have negative implications for both potential home buyers and for builders,” said Scotiabank economist Warren. “There is still a big difference between Canada and the U.S. But it certainly reinforces our view that growth in Canada and internationally will be on the soft side.”
Comment: Come on, the past 5 years in Canada and the US have been polar opposites.
So far, economists have not changed their outlook on the Canadian housing market. Most expect the market to flatline or correct slightly by next year. But that could change if the rout continues.
Comment: No no, only a few people expect things to correct. Most expect a flattening or continual small increases. A few pundits, a right-wing think-tank and a bank or two are the only ones calling (incorrectly) for prices to drop in 2012.
“If this is the precipitation of a larger more protracted slowdown for the economy it will certainly affect housing,” said Peter Norman, chief economist real estate consultancy Altus Group.” If we get into a soft patch with slower employment growth then we will see slower home sales. For investors who are speculating on future events this adds another layer of uncertainty in the market. So this would cause them to sit on the sidelines.”
In separate reports on Tuesday, Canadian housing starts surprised by rising unexpectedly in July, climbing to a 15 month high, up 4.3% to 205,100 units according to the Canada Mortgage and Housing Corporation. And U.S. home values actually had the smallest drop in four years in the second quarter according to figures released by Zillow Inc.
But this was before the impact of the stock market drop which will affect confidence as consumers suffer from a declining wealth effect. During a recession, the high end of the market, of purely discretionary purchases such as cottages and luxury condos might be the first to feel the impact. But a lack of confidence will affect all sectors of the market.
“We continue to hold that new home construction will start to cool in the second half of the year, but this may come more slowly than anticipated as rates remain low for longer,” said Arlene Kish, principal economist for IHS Global Insight. “On the other hand, if the recent slide in financial markets remains persistent, consumers will become less optimistic and will likely stay away from home purchases.”
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.
Real estate in Canada is a relative bargain compared to homes in many other parts of the world, according to a global price survey by Coldwell Banker.
The survey also found typical executive homes were still affordable in many Canadian cities.
The real estate firm looks at the average price for a 2,200 square-foot, single-family home with about four bedrooms and 2½ baths — what it calls an “aspirational” home. This is the type of home that middle-management corporate transferees and move-up buyers typically look for, it said.
In Canada, a home like that costs an average of more than $1.26 million in Vancouver, the survey found. That figure topped the 35 markets Coldwell Banker surveyed in Canada.
But it also found that these type of executive homes were still affordable in many Canadian markets, with Charlottetown, Brantford, Ont., Moncton and Halifax among the eight Canadian markets with average executive home prices under $300,000.
“While Canadian home prices have been on the rise again following a brief market downturn, today’s historically low interest rates have kept the dream of homeownership within reach for most of today’s homebuyers,” said John Geha, president of Coldwell Banker’s Canadian operations.
“It is particularly interesting to compare the affordability levels now seen across North America and other global centres. Compared to many major markets throughout the world, Canadian real estate looks like a bargain,” he said.
On the North American stage, La Jolla, Calif., tops the most-expensive list with an average price of $2.13 million US. Beverly Hills is in second spot, while Vancouver is 10th.
The most affordable move-up homes in North America are generally found in the U.S. Midwest, with Grayling, Mich., offering the cheapest executive real estate, at an average price of $112,675 US. Charlottetown narrowly missed making it into the top 10 most affordable markets in North America.
Outside North America, the range of four-bedroom home prices was wide.
Coldwell Banker surveyed real estate in 30 countries and found one of its “aspirational” homes in Singapore would set a buyer back by a list-topping $1.9 million US, while a similar-sized home in Salinas, Ecuador, would cost just $69,375 US.
Italy was well represented in the “most expensive” list. Milan, Florence and Rome all had average four-bedroom home prices well above the $1 million US mark.
New York was excluded from the survey because of a lack of comparable single-family homes, Coldwell Banker said.