Thursday, June 25, 2009

What is a home sale worth to the economy?

Each time a home changes hands in British Columbia, the transaction generates significant spin-offs, creates jobs and wealth and helps keep our communities growing.
Exactly how much economic activity does a home sale generate? It depends on how it is measured.
A new report from the Canadian Real Estate Association (CREA) and Altus Group, Economic Impacts of MLS® Home Sales and Purchases in Canada and the Provinces 2006-2008 (April 2009), finds that in BC, a residential home sale transaction generates $60,200 in economic spin-offs and 0.42 jobs.
When multiplied by the 24,626 homes that changed hands in the Real Estate Board of Greater Vancouver (REBGV) area in 2008, total spin-offs amount to $1.48 billion and 10,343 jobs.
A September 2008 report from BC Real Estate Association, Multiple Listing Service® Residential Sales, finds that each residential sale in BC generates about $42,000 in spending and about 0.28 jobs. This amounts to $1.03 billion in economic activity and 6,895 jobs in the REBGV area in 2008.
What accounts for this difference?
“BCREA research focuses on the Gross Domestic Product (GDP) impacts the year of purchase, which in our study was 2007,” explains BC Real Estate Association Chief Economist Cameron Muir. “Whereas the CREA/Altus Group research focuses on GDP impacts during the first, second and third years after a home buyer purchases a home, which was 2006-2008.”
If we think about what home buyers might buy in the second year of owning their home, the amounts certainly do add up. Renovation expenses alone could be a large cost, as could new appliances or even new drapes or window coverings. And in the third year of owning their home, home buyers might landscape or get new drain tiles or gutters, all of which add to the spin-offs of the original purchase.
Thus, both studies are accurate. Each covers a different time period, which i"

"Wednesday, June 24, 2009 Vancouver Real Estate Board

Mortgage Update

Where Do We Go After Hitting Bottom?

Consider it one of the few positives floating in a sea of negatives during the current recession. In a period beset by job losses, drops in home prices and lower consumer confidence, mortgage borrowing costs have dropped precipitously for buyers and owners. This has
fueled a modest uptick in home ownership demand from early year lows and provided opportunity for some current owners to refinance at lower rates.

Since the end of April, posted mortgage rates have settled at decades low levels- precluding any discounts often offered by lenders to clients with preferred credit histories. The one-year borrowing cost on a fixed term mortgage fell to 3.9 per cent at the end of April, marking a 170 basis points (bps) decline since the end of 2008 (Fig.1). The five-year fixed term mortgage rate fell to 5.25 per cent, down from 6.5 per cent during the same period. These rock-bottom mortgage rates should move up in the quarters ahead—particularly for longer fixed term mortgages.

Existing households and new buyers with variable rate mortgages should see their borrowing rate remain flat until the second quarter of 2010. BCREA forecasts a 0.75 percentage point increase through 2010 as prime rates rise to meet changes in the Bank of Canada’s
(BoC) target overnight rate. The BoC kept its target for the overnight rate at 0.25 per cent on June 4 after lowering it by a cumulative 425 basis points (bps) since December 2007 in a bid to spur economic activity during a deepening recession. The BoC stated that the target overnight rate would likely stay at this level until the end of the second quarter in 2010, conditional on its inflation outlook. BCREA forecasts a cumulative rate increase of 75 bps by the end of 2010 as economic prospects improve and global interest rates rise from record lows.

Fixed term mortgage rates, which move closely with bond yields and deposit rates of similar maturity are expected to edge up this year and next but remain near record lows by historical standards. Longer-term bond yields have risen quickly since the first quarter of 2009 despite low short-term rates, suggesting that the market expects higher inflation and interest rates in late 2010. However, BCREA forecasts a more modest rise in fixed term mortgage rates over the next two years as higher inflation expectations are tempered
by a slower than expected economic recovery, an elevated Canadian dollar and weaker labour market.

Is Higher Inflation on the Table?

Rising Government of Canada bond yields in recent months has reflected a move away from safe-havens and back into equities and renewed expectations that significant inflationary pressure may be waiting in the wings (Fig. 2). This has led to increased upward pressure on medium-term lending rates given that funds for these products are largely raised in bond markets and from deposits of similar maturity. While spreads between 10- and 2- year bonds are at the widest margin since early 2002 suggesting higher medium-term interest rates in the future, a number of economic factors suggest moderate inflationary pressure and point to a gradual increase in administered lending rates.

The worst of the current recession may have already passed. While the economy contracted sharply by 5.4 per cent in the first quarter, the weakest performance since 1991, the bulk of the declines occurred from November to January at the height of the global economic
crisis (Fig. 3). Since this time, commodity and financial market conditions have improved, while consumer and business confidence have partly rebounded.

Nonetheless, there remains considerable excess capacity in the economy which will dampen some of the impacts that a modest recovery phase will have on inflationary expectations and future interest rates. While the rate of employment declines have stabilized from
January highs, the economy continues to shed workers The national unemployment rate climbed to 8.4 per cent in May, the highest since June 1998. Continued job losses and downward pressure on incomes will factor into lower domestic spending while forcing retailers
to offer further discounts to consumers.

Meanwhile, Canadian exporters continue to be dragged down by a global contraction in demand– particularly from the US. The recent appreciation of the Canadian dollar, reflecting US dollar weakness and a rebound in commodity prices, will make Canadian exporters less
competitive on the global market, while lowering the cost of importing goods to Canada.

Inflation in Canada is expected to remain relatively low, albeit still higher than current levels and result in a modest increase in medium term interest rates.

“Copyright British Columbia Real Estate Association. Reprinted with permission.”

Wednesday, June 3, 2009

Increased Demand Steadies Housing Market in Greater Vancouver

VANCOUVER, BC - A continued increase in buyer activity over the last four months has resulted in increased home sales and lessened the downward pressure on housing prices in Greater Vancouver.
The Real Estate Board of Greater Vancouver (REBGV) reports that the number of residential property sales in Greater Vancouver totalled 3,524 in May 2009, an increase of 17.4 per cent from the 3,002 sales recorded in May 2008, and an increase of 18.9 per cent compared to last month.
Since the beginning of the year, the MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver has increased 4.5 per cent to $506,201 from $484,211. However, home prices compared to May 2008 levels are down 10.9 per cent.
“The increased level of buyer activity over the last few months has had a stabilizing effect on home prices across our region,” Scott Russell, REBGV president said. “MLS® data continues to show a trend toward a balanced market in the region.”
New listings for detached, attached and apartment properties declined in Greater Vancouver, down 36 per cent to 4,733 in May 2009 compared to May 2008, when 7,390 new units were listed. At 13,641, the total number of property listings on the Multiple Listing Service® declined 4.7 per cent compared to last month and 16 per cent compared to May 2008.
Sales of detached properties increased 16.5 per cent to 1,402 from the 1,203 detached sales recorded during the same period in 2008. The HPI benchmark price for detached properties declined 11.8 per cent from May 2008 to $680,320.
Sales of apartment properties in May 2009 increased 17.2 per cent to 1,458, compared to 1,244 sales in May 2008. The benchmark price of an apartment property declined 10.2 per cent from May 2008 to $349,987.
Attached property sales in May 2009 are up 19.6 per cent to 664, compared with the 555 sales in May 2008. The benchmark price of an attached unit decreased 9 per cent between May 2008 and 2009 to $435,848.

Real Estate Board of Greater Vancouver