BC Home Sales Lower through June, Stronger Second Half Expected

Vancouver, BC – July 12, 2012. The British Columbia Real Estate Association (BCREA) reports that during the first half of 2012, BC residential sales dollar volume declined 17.1 per cent to $20.4 billion, compared to the same period last year. Residential unit sales dipped 9 per cent to 38,312 units, while the average Multiple Listing Service® (MLS®) residential price was 8.9 per cent lower at $533,681.
"The pace of home sales slowed during the first half of the year,” said Cameron Muir, BCREA Chief Economist. “However, the downturn is likely to be temporary as population growth, persistently low mortgage rates and encouraging employment figures suggest a stronger second half of 2012."
"The 5-year conventional mortgage rate remains within 5 basis points of its 20 year monthly low. BC’s population is growing by approximately 45,000 individuals a year. Full-time employment climbed 3 per cent during the first half of 2012 at the expense of part-time employment, which declined 1.9 percent."

The dollar volume of homes sold through the MLS® in BC declined 24.1 per cent to $3.4 billion in June compared to the same month last year. A total of 6,815 MLS® residential unit sales were recorded over the same period, down 13.8 per cent from June 2011. The average MLS® residential price was $503,232, 12.0 per cent lower than a year ago.

Copyright BCREA reprinted with permission

Multiple Offers in Some US Markets

RISMEDIA, Monday, July 09, 2012— Record tight inventories are making it increasingly difficult for growing numbers of buyers, who are creating multiple-bid environments in markets that haven’t seen buyers battle over homes in six years.

Buyers are back but sellers aren’t, especially in Western markets recovering from large volumes of foreclosures. The result is that inventories are still tightening as the spring buying season ends. Buyers are fighting over what’s available, often to the benefit of those sellers who took a risk in this year’s evolving marketplace.

Prices are reported to be on the uptrend with 62 percent of REALTORS® reporting constant or increasing prices compared to the same time a year ago, according to the National Association of REALTORS’® (NAR) REALTOR® Confidence Index for May29 -June 8, 2012 that was released recently.

Buyer demand is reported to be growing faster than supply, and many REALTORS® are reporting multiple offers. However, buyer foot traffic slowed in May compared to last year, perhaps as buyers grew discouraged by slim pickings.

However, buyer traffic is still well above the moderate level, but seller traffic is flat, according to the NAR survey. First-time homebuyers accounted for 34 percent of total buyers. Normally first-time buyers are in the neighborhood of 40 percent of total residential sales, according to NAR’s Profile of Home Buyers and Sellers.

A majority of the 145 markets monitored by NAR Research experienced slower foot traffic in May of this year relative to the same time in 2011. The data, provided by SentriLock, LLC., is based on the total number of visits to properties as recorded on electronic clock boxes. Foot traffic was lower over the 12 months ending in May in 60 percent of the markets, while 35 percent expanded and 5 percent were unchanged. This moderating pattern suggests a broad based decline in the late spring following an equally broad-based expansion in the late spring/summer of 2011 and early spring of this year.

Multiple bids are changing the playing field in a number of markets this spring and summer. Many agents new to the business who have little experience with them are dealing with a sudden and unexpected competition for homes brought about by inventors more than 20 percent below those of a year ago.

“Remember the “Roaring ’90s?” Those days when you could list your house on Friday and on Saturday people would be parked in your driveway writing offers and good faith checks on the hood of their cars? Multiple offers were the norm and offered sellers a generous selection of offers from which to choose. Believe it or not. we are experiencing a trend toward multiple offers even in this still difficult market and there is evidence that this trend will continue as buyers compete in a market with limited inventory,” reported REALTOR® Noel Crider of Auburn, Calif.

“The Phoenix Metro Area Housing Market faces multiple offers even in the higher end and luxury market as buyers try to snag homes before the market rises further. We have seen multiple offers for quite some time in the lower price ranges, but now as the market is returning, and returning strong, we are seeing multiple offers in the higher price ranges. We are now seeing multiple offers on homes in the move-up and luxury home market. We are seeing offers that are $50,000 over asking that are not the winning bid. This is causing quite a bit of frustration as buyers are trying to get into a home before the market prices go up further,” reported Brenda & Ron Cunningham, real estate professionals in Arizona.

In Seattle, multiple offers on beginner houses in Seattle are common again reports Phil Leng of Kirkland, Wash. and in Austin, broker Gwynn Teal Carpenter reports, “It’s happened again! We are in one of those real estate markets where we are seeing homes with multiple offers. In Austin Texas, the market is so sizzling hot that it isn’t unusual to have more than 2 offers on a fantastic priced and conditioned home.”

New mortgage rules aimed at cooling hot housing market

Maximum insured mortgage length shortened to 25 years

CBC News

New rules Ottawa announced last month that will tighten Canada's mortgage industry go into effect today, but a major Canadian bank says many people are unaware of what exactly is changing.

In June, Finance Minister Jim Flaherty unveiled major changes to the limits of what the Canada Mortgage and Housing Corporation is allowed to insure, effectively tapping the brakes on a housing industry that many experts worry has become too hot.

Starting Monday, lenders can only issue home equity loans up to a maximum of 80 per cent of a property's value — down from 85 per cent. And anyone wanting to buy a home worth more than $1 million, for instance, must now have a down payment of at least $200,000.

But the biggest change of all is the shortening of the maximum amortization period for government-backed insured mortgages to 25 years from 30 years — forcing borrowers to pay back their debts sooner. That will reduce the amount of interest they'll pay over the life of the loan, but make mortgage payments larger as more debt gets paid back with each payment.

Mortgages must typically be insured if the borrower has a down payment amounting to less than 20 per cent of the home's cost.

Amber Dykstra of Edmonton sped up her home-buying plans by a year when she heard about the mortgage rule changes. She finalized her 30-year mortgage on Monday just before the rules were tightened.

"The difference between a 25-year and a 30-year amortization can be $200 or $300 a month," she told CBC News. "That can be the difference between eating soup and real human food."

One mortgage broker estimates that a family with a household income of $75,000 will see the amount of mortgage they can qualify for reduced by about $50,000 when their allowable maximum amortization is reduced from 30 years to 25 years. Some mortgage experts say that could have a big effect on the housing market.

"I believe that we could very much see a reduction in home prices, at least in the short term, while things stabilize," says Halifax mortgage specialist Audrey Wamboldt.

But even though the impact of all of these new mortgage moves is expected to be significant, a survey conducted by Pollara for Bank of Montreal found only about half of those surveyed were familiar with the changes brought in by the federal government. And yet two-thirds of respondents indicated they were familiar with the current mortgage rules in Canada.

Only 45 per cent of those surveyed June 29 to July 4 were aware that the maximum amortization period has been shortened by five years, the poll found.

Even among those who were aware of the new rules, a full 26 per cent of poll respondents believe that the maximum amortization length is still 30 years.

The limits on Canada's insured mortgage market are now back to where they were in 2006 before the Harper government started tinkering with the rules to allow more people to qualify.

The Pollara survey consisted of an online sampling of 1,000 Canadians between June 29 and July 4.

New Mortgage Rules

The following rules will apply to purchasers and home owners requiring hi-ratio financing  [less than 20% down payment / equity].

The Federal Government announced this morning four new clampdowns on insured mortgages effective Monday, July 9th, 2012.

These changes include:

• Reducing the maximum amortization period to 25 years from 30 years
• Reducing the maximum amount of equity homeowners can take out of their homes when refinancing to 80% from the current 85%
• Limiting the availability of government-backed mortgages to homes with a purchase price of less than $1 million
• Fixing the maximum gross debt service ratio at 39% and the maximum total debt service ratio at 44%

MLS® HPI trends vary by region in May

According to statistics released by The Canadian Real Estate Association (CREA), the MLS® Home Price Index, the leading measure of Canadian home prices, increased in May 2012.

Highlights:

·         The Aggregate Composite MLS® Home Price Index rose 5.2% on a year-over-year basis in May 2012.

·         Prices rose further in all five markets and in every Benchmark home category tracked by the index.

·         Price increases were biggest in Greater Toronto (7.9%), followed by Calgary (4.8%), Greater Vancouver (3.3%), the Fraser Valley (2.4%), and Montreal (2.2%).

·         One-and two-storey single family homes continued to post the biggest year-over-year gains (5.8% and 6.7% respectively), followed by townhouse units (3.3%) and apartment units (2.9%).

The MLS® Home Price Index (MLS® HPI) rose 5.2 per cent from April to May 2012. Year-over-year gains had been slowing through the end of last year and have stabilized at close to five per cent so far this year.

The MLS® HPI posted the largest year-over-year increase in Greater Toronto (7.9%), followed by Calgary (4.8%), Greater Vancouver (3.3%), the Fraser Valley (2.4%), and Montreal (2.2%).

Year-over-year price gains again picked up speed in Calgary, with May marking the largest year-over-year gain there in nearly two years. The increase lifted the MLS® HPI for Calgary to its highest level since August 2008.

By contrast, year-over-year gains continued to shrink in Greater Vancouver and the Fraser Valley. Price gains in Greater Toronto and Montreal held their ground in May compared to April. Greater Toronto also remains the hottest market tracked by the index, with single family homes in its urban core continuing to sell briskly.

“While price gains overall are running steady, diverging trends among local markets show clearly that all real estate is truly local,” said Wayne Moen, CREA President. “Because price trends are different between markets and within them, anyone buying or selling a home should consult with their REALTOR® to best understand how the housing market is shaping up locally.”

Among the Benchmark housing types tracked by the index, two-storey single family homes continued posting the strongest year-over-year growth in May (6.7%). Gains for one-storey single family homes (5.8%) also surpassed the rise in the overall index, while townhouses and apartments saw more modest gains (3.3% and 2.95 respectively).

“Home price gains in Greater Toronto continue to eclipse those in other markets. Gains are also starting to pick up speed in Calgary after months of stability,” said Gregory Klump, CREA’s Chief Economist. “As always, prospects for home price trends depend on buyers’ willingness to pay and sellers’ expectations and motivations, both of which are tied to economic, labour market, and interest rate prospects. With European sovereign debt and banking issues likely to cloud the global economic outlook, Canadian interest rates will remain at or very near current levels. The continuation of low interest rates will continue to support Canadian housing activity and prices for some time to come.”

In focus: The MLS® HPI and Canadian home price valuations

The MLS® HPI outperforms other measures of Canadian home prices, including other popular home price indices, medians, and averages.

While the MLS® HPI is highly correlated with other price measures, it enjoys a number of advantages. Among these advantages is that it takes into account contributions that a home’s quantitative and qualitative features make toward its sales price, including whether or not a home has been renovated. This is an important consideration given the significance of Canadian home renovation expenditure each year.

Unlike average and median prices, the MLS® HPI is not distorted up or down by changes in the mix of sales. Consider the period from pre-recession peak until the present for the MLS® HPI as compared to the average price for the aggregate of the same five markets.

 The MLS® HPI fell 8.4 per cent from its pre-recession peak to the bottom of its recessionary trough. The average price, by comparison, dropped 14.2 per cent. From the trough reached more than three years ago, the MLS® HPI has since climbed 23.7 per cent, while the average price has climbed by almost double that (40.2 per cent) due in large part to compositional factors in Vancouver and Toronto.

From a starting point of January 2005, average and median prices fell further during the recession and have since then climbed by more than the MLS® HPI.

This is important, since the ratio of price to income now compared to its long-term average is often used to gauge the extent to which Canadian homes may be considered as overvalued. Inferences made using this ratio based on distorted average price data may be tenuous.

Copyright Canadian Real Estate Association. Reprinted with permission

Mortgage Rate Forecast

 GLOBAL UNCERTAINTY KEEPING RATES LOW

 Mortgage Rate Outlook

 Global events have once again turned attention towards the interminable Euro-saga, which this time is seemingly closer to a conclusion. Unfortunately, whether that conclusion is orderly or catastrophically disorderly is still up in the air. What we do know is that the resulting uncertainty and risk-aversion has set bond yields on a steep descent back towards historic lows. For at least one day, Government of Canada five-year yields fell to just 1.06 per cent, a mere 6 basis points off of the prevailing Bank of Canada overnight rate.

Mortgage rates had been inching upward in the second quarter as an improved economic outlook and a more hawkish tone from the Bank of Canada pushed key bond yields sharply higher. However, global financial markets have since been hit with a tsunami of anxiety regarding the Eurozone and the subsequent flight to safety has again sent Canadian bond yields tumbling to historic lows. Rapidly falling bond yields will likely open the door for banks to reduce posted mortgage rates, though tighter proposed lending standards, a rationing of portfolio insurance, and more intense regulatory scrutiny may place a floor under rates. We are forecasting that the benchmark five-year fixed mortgage rate will average 5.3 per cent for the remainder of the year.

Shorter-term and variable rates, which are more immediately impacted by changes to the Bank of Canada policy, will likely remain fairly constant until the late fall or early winter when the Bank may begin to withdraw monetary stimulus with a 25 basis point rate hike. However, a rate hike viewed as almost certain a few weeks ago now seems much more unlikely in the current global financial climate.

Growth and Inflation Outlook

The direct economic linkages between Canada and Europe are not of a large enough magnitude to drag down Canadian economic growth on their own. The ultimate impact of the Euro-crisis on the Canadian economy, therefore, depends crucially on the impact of the Euro-crisis on global financial markets. Thus far, actions taken in the winter of 2011 by the European Central Bank to calm inter-bank lending markets have been successful and there are no imminent signs of the type of liquidity crisis that shook global credit markets in 2008.

While the Eurozone has been grabbing most of the headlines, the Chinese economy has been showing signs of a slowdown and data out of the US has also been notably weaker. All of this adds up to a troubling global economic environment that will no doubt weigh on Canadian consumer and business confidence this year.

We are forecasting that the Canadian economy will grow 2.4 per cent this year before bouncing up to 2.7 per cent in 2013. Slightly above trend growth in the economy and a narrowing Canadian output gap will put some upward pressure on inflation, though weakening global demand may lead to an offsetting adjustment in commodity prices. Overall we anticipate that inflation will remain well anchored to 2 per cent.

Interest Rate Outlook

Following the Bank of Canada’s April meeting, market expectations were beginning to align with the Bank of Canada’s preferred path of the short-term interest rate, as implied by its forecast for growth and inflation.

Since then, a wave of risk aversion and heightened anxiety over the Euro-crisis has sent Canadian bond yields plummeting and market expectations for Bank of Canada rate increases have sharply reversed course.

 In April, the Bank suggested that the Euro-crisis had moved from an acute to chronic phase. While this turned out to be a misdiagnosis, it does suggest that a sense of stability, if not definitive resolution of the Euro-crisis, may be enough for the Bank to begin tightening policy.

At this point, with policymakers and politicians in Europe still struggling to put out a number of fires, it is difficult to see a stable Europe on the horizon. It is therefore increasingly unlikely that the Bank will begin raising interest rates in late 2012, though it has certainly left that door open if growth and inflation accelerate in the second half of the year.

Copyright British Columbia Real Estate Association. Reprinted with permission

BCREA Housing Market Update - BCREA's Q2 Housing Forecast

BC Real Estate Association (BCREA) Chief Economist Cameron Muir discusses the May 2012 statistics and takes an in depth look at BCREA's Q2 Housing Forecast.

copyright BCREA reprinted with permission

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