Home Sales Edge Higher in September

The British Columbia Real Estate Association (BCREA) reports that Multiple Listing Service® (MLS®) residential unit sales in the province rose 8.8 per cent to 5995 units in September compared to the same month last year. The average MLS® residential price increased 6 per cent to $523,568 last month compared to September 2010.

"MLS® home sales edged up 3 per cent in September compared to August on a seasonally adjusted basis,” said Cameron Muir, BCREA Chief Economist. “Housing demand last month was bolstered by persistent low mortgage interest rates and a surge in employment."

"Despite a modest gain in unit sales, total active residential listings in the province remained elevated in September,” added Muir. A total of 55,616 homes were listed on the MLS® in the province at the end of September.

Year-to-date, BC residential sales dollar volume increased 17.5 per cent to $34.8 billion, compared to the same period last year. Residential unit sales increased 3.2 per cent to 61,127 units, while the average MLS® residential price rose 13.9 per cent to $569,922 over the same period.

Copyright BCREA reprinted with permission

Nelson rental market remains tight

By Greg Nesteroff - Nelson Star

Renters in Nelson can expect to pay an average of $776 per month for a one-bedroom apartment, according to the latest market survey by the Nelson Committee on Homelessness.

The organization conducts a snapshot each spring and fall of rental prices in the city.

Recently-hired coordinator Katie Tabor says the new figures are “quite similar” to last year’s.

“If somebody’s living in a place, there are rent controls around how much it can go up if they continue to live there,” she says. “But once a place opens up, the landlord has discretion over what to charge.”

The average price for a two-bedroom suite was $1,038 and for three bedrooms, $1,320, the survey found.

Conducted over a week in early September, it relied on ads in the Nelson Star and Pennywise, websites including craigslist, kijiji, and discovernelson, plus Coldwell Banker’s rental list, and calls to apartment buildings.

Suites, apartments, and homes within city limits were included in the survey.

In total, they found three bachelor suites, ranging from $550 to $650 per month; 16 single-bedroom apartments going for $625 to $1,000; 19 two-bedroom apartments between $700 to $1,300, and 18 three-bedroom apartments for $950 to $1,650. Some prices included utilities, but most didn’t.

The figures are comparable to last spring’s survey, which pegged one-bedroom rents at an average $850, and two and three bedrooms at $1,000 and $1,500, respectively.

A Canadian Mortgage and Housing rental market survey of the southern interior conducted a year ago found slightly lower figures for Nelson — an average of $542 for a bachelor suite, $610 for one bedroom, $719 for two bedrooms, and $1,007 for three bedrooms.

However, it only looked at apartments in buildings of three or more units, and included prices for currently rented units, which Tabor says may reflect units held by the same tenants for a long time.

“In comparison, the numbers in the September snapshot from our office reflect the cost of rentals actually available on the market, and the prices are much higher,” she says.

Even so, the CMHC report found rentals in Nelson were the highest in West Kootenay. In Castlegar, the average one-bedroom rented for $565 per month and in Greater Trail (not counting Rossland), $512.

Only Revelstoke had even higher rents, with one bedrooms going for $690 per month and two bedrooms $902.

Nelson’s vacancy rate was also the lowest by far at 1.8 per cent in 2010, compared to 19.5 per cent in Revelstoke, 11.8 per cent in Rossland, and 5.4 per cent in Cranbrook.

Tailwinds point towards a soft landing

• Tailwinds include low mortgage rates, relatively low unemployment and strong immigration
• Headwinds include high prices, elevated household debt and slowing employment
• More buyers are turning to variable rate mortgages on expectations that rates could stay low for some time, or even decline.
• Average Canadian house prices were a record two-thirds more than average U.S. house prices

TORONTO, September 30, 2011 – After a decade of strong growth in the Canadian housing market, residential real estate is headed for a “soft landing” with prices moderating in the months ahead, according to a Special Report from BMO Economics.

Low interest rates have fuelled Canada’s housing market in the past decade, pushing prices to new highs in most regions. Sales are now close to their past-decade norm, and well below pre- and post-recession peaks, while residential mortgage demand has also moderated. However, a weaker economy and new mortgage rules have dimmed activity recently.

“Since the prudent and timely mortgage rule changes announced early this year by Finance Minister Jim Flaherty, Canadian house prices have moderated,” said Sal Guatieri, Senior Economist and Vice President, BMO Capital Markets. “House price gains are slowing. Although average resale prices rose a brisk 7.7 per cent year-over-year in August, the rate of increase has slowed from nearly 9 per cent earlier this year.”

Mr. Guatieri noted in the report that housing activity should remain moderate in the year ahead, with tailwinds including low mortgage rates, relatively low unemployment and strong immigration. Furthermore, a weak global economy and Europe’s debt crisis will likely keep the Bank of Canada on the sidelines until early 2013, while further easing measures by the Federal Reserve should suppress long-term rates in both countries, thereby supporting affordability.

On the flip side, Mr Guatieri noted that the housing market also faces several challenges, including high prices, elevated household debt and slowing employment.

“Prices have risen twice as fast as incomes in the past decade, lifting the current ratio 16 per cent above its norm. Although the current overvaluation is below levels that triggered price corrections in Canada in 1989 and the U.S. in 2006, it will remain a thorn in the side of first-time buyers,” said Mr. Guatieri. He added that for bargain hunters, Canadian houses, on average, cost a record two-thirds more in local currency terms than properties in the U.S.

The upshot is that home sales are likely to remain steady in 2012 and prices should also stay put. However, the resource-rich provinces, notably Alberta and Saskatchewan, should outperform other regions since their economies are expected to grow the fastest. Because housing is moderately overpriced in most regions (and considerably so in Vancouver), it’s vulnerable to a correction.

“Regardless of the current low interest rates, it is still important for homeowners or potential buyers to be prudent and stress-test their mortgage against a higher interest rate to ensure they can afford what they signed up for. Total housing expenses should not consume more than one-third of total household income,” said Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal.

Ms. Archdekin added that Canadians need to be continually examining ways to reduce overall housing costs. “BMO has developed products, such as the low rate mortgage with a maximum 25-year amortization, that we believe are directly relevant to today’s environment and specifically designed to help Canadian consumers manage their debt. Furthermore, the lower amortization can significantly reduce the amount of interest paid over the life of the mortgage.”

Additional factors expected to affect the future of Canada’s housing market:

• The biggest threat stems from the perceived one-in-three chance of a recession, and the attendant loss of jobs.
• Another risk, though far smaller, is if interest rates spike higher next year. Even a moderate 2 percentage point increase in rates would severely impact affordability. Low rates are a threat too, since they could cause the market to heat up again, only to correct when rates eventually rise.
• Mortgage growth is expected to moderate as Canadians turn more cautious in managing their debt. Despite slower personal credit growth, household debt hit a record 1½ times disposable income in Q2, as residential mortgages continued to outrun income.
• Meanwhile, job and income growth should moderate next year, as the economy is expected to grow just 1.8 per cent versus about 2.2 per cent this year.
• More buyers are turning to variable rate mortgages on expectations that rates could stay low for some time, or even decline.

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RCMP’s New National Marihuana Grow Strategy

The Royal Canadian Mounted Police stands united with the Government of Canada and its business and community partners to launch the RCMP’s national strategy to combat marihuana grow operations (MGOs) entitled the Marihuana Grow Initiative (MGI).

“Marihuana grow operations pose a serious threat to Canadians, the safety of our communities and the law enforcement officers fighting against these illegal operations,” said Shelly Glover, Member of Parliament for St. Boniface on behalf of the Honourable Vic Toews, Minister of Public Safety. “The Government of Canada is taking action to combat illicit marihuana cultivation in Canada, as well the organized crime elements behind it.”

Complimentary to the National Anti-Drug Strategy, the MGI was developed in collaboration with subject matter experts from across the country and represents the RCMP’s renewed commitment to fight marihuana production controlled by organized crime groups. Based on three key components: Awareness, Deterrence and Enforcement; the MGI outlines how the RCMP will work with partners and community members. It helps inform the Canadian public about the consequences, inherent hazards and destructive impacts these activities and criminal groups have on their communities.

“MGOs harm communities. Wherever they exist, there’s the potential for an increase in criminal activity and a greater chance of fire, explosions, and violence,” stated RCMP A/Commr. Mike Cabana. “This initiative is part of the RCMP’s renewed commitment and priority to combat marihuana production controlled by organized crime groups.”

The RCMP is also launching a new page on the public website that will act as a centralized database of residences where a MGO or clandestine lab was dismantled by the RCMP under the authority of a search warrant. This site will be consistently updated with new properties and it will also provide guidance and feature resources for landlords and buyers alike concerning the damagesMGOs and clandestine labs have on a property and its occupants.

“IBC shares the concerns of the RCMP and we have some clear advice for property owners on how to prevent grow ops from taking root in their homes and buildings" says Ralph Palumbo, VP, Ontario, Insurance Bureau of Canada. “Property insurance is not designed to cover the destruction and loss resulting from an illegal marihuana grow operation. It is not an accident or a random act of violence, like a break-in or damage caused by a storm.

“Grow ops have become a major concern for homebuyers and REALTORS® across the country. REALTORS® are committed to protecting the interests of our clients and believe that buyers should be able to determine whether a house for sale has housed a grow op in the past, stated Gary Morse, CREA President. The structural integrity and inhabitability of such houses may be compromised and prospective buyers need to know that costly remediation may be needed to correct health and safety issues.”

Housing Market Update (September 2011)

Mortgage Rate Outlook

The third quarter saw a stunning collapse in government bond yields as markets digested weak US economic data and an increasingly serious debt crisis in the Euro-zone. The yield on five-year Government of Canada debt fell an incredible 150 basis points from its peak in the first quarter

to 1.35 per cent, the lowest level on record.  

The current level of bond-yields would normally prompt a dramatic fall in mortgage rates. However, there are a number of factors complicating the normal arithmetic. First, some lenders are offering deeper discounts for the most creditworthy borrowers. This allows banks to provide competitive rates while also filtering out higher-risk borrowers. Second, the emerging potential of credit crisis in Europe has raised the short-term cost of funding for financial institutions worldwide, thereby squeezing profitability. Moreover, the increasing popularity of variable rate mortgages due to very low rates may be putting further strain on the profitability of mortgage portfolios. Nearly a third of mortgages in 2011 are variable rate compared with 25 per cent five years ago and just ten percent a decade ago. Since variable rate mortgages tend to carry lower profit margins, the shift in consumer

preferences to variable rate mortgages is likely cutting into profits. Shrinking profit margins have even prompted some banks to increase their offered variable rates in absence of a change in the reference prime rate.

Our forecast for the remainder of 2011 assumes that very low bond yields will persist through the end of the year and will therefore lead eventually to a cut in mortgage rates. The five-year fixed rate has the potential to decline to its previous historical low of 5.19 per cent and will likely average around 5.3 per cent in the second half of 2011. The one-year rate is expected to average 3.5 per cent. Given current economic weakness and the almost certain delay in any monetary tightening by the Bank of Canada until as late as mid-2012, both long-term and short-term rates will likely stay very low for most of 2012. We expect that rates will move higher in the second half of next year, with the five-year rate hitting 5.6 per cent and the one-year rate reaching 4 per cent.  

Growth and Inflation Outlook

Canadian economic growth has sharply decelerated from the first quarter of 2011. Recent data shows that the Canadian economy actually contracted in the second quarter of the year by 0.4 per cent. While the very sluggish growth profile in the global economy means that a technical recession (two consecutive quarters of negative real GDP growth) cannot be ruled out, our baseline forecast is for slow growth in the second half of 2011 and throughout 2012. We are forecasting real GDP growth of 2.5 per cent this year, falling to 2.2 per cent in 2012 and then rising to 2.9 per cent in 2013.

We anticipate that both total and core inflation will remain muted, particularly as energy prices stabilize and the impact of the HST is no longer present in year-over-year price changes.

Interest Rate Outlook

Market volatility over the summer and incoming data indicating very weak economic growth prompted an abrupt change in the policy stance at the Bank of Canada. Whereas just a few short weeks ago it was widely expected that interest rates were set to rise this fall, those rate hikes have been pushed out, possibly to as far as next summer. The major economies of the world are dangerously close to slipping into recession over the next 12 months. High European sovereign debt combined with short-sighted stabilization policy and misguided austerity measures are threatening to destabilize world credit markets. These fears can be observed in the spike in borrowing rates of the peripheral states of the Eurozone. Meanwhile, political acrimony in the United States is only further damaging an already deeply troubled economy.

Once the economy sees its way through the current tempest, waters will calm and interest rates will need to normalize. Key to understanding the near-term path of interest rates is some idea of the destination that Bank of Canada has in mind. Economists tend to frame this question in terms of the neutral level of real (net of inflation) interest rates, or a rate that is neither stimulative nor contractionary. A popular short-hand is the level of interest rates prevailing when the economy is fully utilized. 

Over the long-term, the neutral real interest rate is determined by factors such as productivity, population growth and long-term saving preferences. However, in the short-run, the neutral real interest rate may deviate from its long-run level due to various disturbances or shocks that impact the economy.

Therefore, as the Bank of Canada recently signalled, a closing of the output gap does not necessarily have to coincide with interest rates being set to their long-term equilibrium. Given the magnitude of shocks to the global economy over the past three years, the neutral rate is very likely much lower than its long-term counterpart. Therefore, the Bank of Canada may need to keep rates very low while the economy stabilizes. In light of this, we have adjusted our forecast for the Bank of Canada’s overnight rate to 1 per cent for the remainder of the year and through at least the first quarter of 2012. We then expect rates to increase, ending next year at between 1.75 and 2 per cent.

 Copyright BCREA reprinted with permission

Canadian home sales hold steady in August

According to statistics1 released by The Canadian Real Estate Association (CREA), national resale housing activity in August 2011 remained stable for the second consecutive month.

Highlights:
• Sales activity was stable from July to August, but posted another big year-over-year gain reflecting weakened demand last summer.
• Year-to-date sales pulled ahead of 2010 levels for the first time this year, and remain in line with the ten-year average.
• The number of newly listed homes was also little changed from July to August.
• The national housing market stayed firmly entrenched in balanced territory.
• There were more balanced local markets in August than at any other time on record.
• The national average price posted another year-over-year gain in August, but has moderated from elevated levels earlier this year.
• Upward skewing of the national average price is diminishing due to fewer expensive sales and a declining share of national activity in Vancouver and Toronto.

For a second consecutive month, national home sales activity held steady in August 2011 when compared to the previous month.

Among major urban centres, Toronto and Ottawa posted a monthly increase in activity while Calgary, Montreal and Vancouver saw activity decline slightly.

“The housing market in Canada remained on a firm footing in August when compared to volatile financial markets,” said Gary Morse, CREA President. “Through their actions, homebuyers are showing that they remain confident about the stability of the Canadian housing market, and recognize that the continuation of low interest rates represents an excellent opportunity to buy their first home or trade up.”

Actual (not seasonally adjusted) sales activity came in 15.8 per cent above national levels reported one year earlier. This was the largest year-over-year increase since last April, but largely reflects weakened activity one year ago.

A total of 324,030 homes have traded hands via Canadian MLS® Systems so far this year. While this stands only marginally above levels in the first eight months of last year, it nevertheless marks the first time this year that year-to-date activity has pulled ahead of 2010 levels.

As has been the case for much of this year, the year-to-date sales figure continues to run in line with the ten-year average.

The number of newly listed homes nationally was also little changed from July to August. This kept the national housing market firmly planted in balanced territory. The national sales-to-new listings ratio, a measure of market balance, stood at 51.6 per cent in August, unchanged compared to July.

Based on a sales-to-new listings ratio of between 40 to 60 per cent, 70 per cent of all local markets in Canada were in balanced market territory in August – a greater percentage than at any other time on record. There were just 12 buyers’ markets in August, which was the lowest figure so far this year.

The number of months of inventory stood at 6.2 months at the end of August on a national basis, which is little changed from the end of July (6.1 months). The national months of inventory figure has been stable at about six months since April. The number of months of inventory represents the number of months it would take to sell current inventories at the current rate of sales activity, and is another measure of the balance between housing supply and demand.

The actual (not seasonally adjusted) national average price for homes sold in August 2011 stood at $349,916. This is 7.7 per cent above its year-ago level, which marked the low point for 2010.

The national average price has moderated compared to earlier this year, with sales activity in Vancouver, and more recently in Toronto, exerting less of an effect on the national average. Their share of provincial and national sales activity reached unusually elevated levels earlier this year, but has since receded in line with normal seasonal variations.

“Once again, economic and financial market headwinds outside Canada are keeping interest rates lower for longer,” said Gregory Klump, CREA’s Chief Economist. “Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved. In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.”

PLEASE NOTE: The information contained in this news release combines both major market and national MLS® sales information from the previous month.

CREA cautions that average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods or account for price differential between geographic areas.

Statistical information contained in this report includes all housing types.

MLS® is a co-operative marketing system used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.

The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 100,000 REALTORS® working through more than 100 real estate Boards and Associations.

Copyright CREA reprinted with permission

Home Sales Stable During Summer Months

The British Columbia Real Estate Association (BCREA) reports that Multiple Listing Service® (MLS®) residential unit sales in the province rose 16.4 per cent to 6,504 units in August compared to the same month last year. The average MLS® residential price climbed 10.7 per cent to $539,953 last month compared to August 2010.

“BC home sales edged up one per cent in August compared to July on a seasonally adjusted basis,” said Cameron Muir, BCREA Chief Economist. “Low mortgage interest rates continued to underpin housing demand in the province last month.”

“Total active listings in the province remained elevated in August,” added Muir. “Most regional markets exhibited buyer’s market conditions, meaning little upward pressure on home prices.”

Year-to-date, BC residential sales dollar volume increased 17.7 per cent to $31.7 billion, compared to the same period last year. Residential unit sales increased 2.6 per cent to 55,132 units, while the average MLS® residential price rose 14.7 per cent to $574,962 over the same period.

Copyright BCREA reprinted with permission

August 2011 Housing Starts

The seasonally adjusted annual rate¹ of housing starts was 184,700 units in August, according to Canada Mortgage and Housing Corporation (CMHC). This is down from 204,500 units in July 2011.

“Housing starts in August were in line with current demographic fundamentals and are consistent with CMHC’s recent Housing Market Outlook,” said Mathieu Laberge, Deputy Chief Economist at CMHC’s Market Analysis Centre. “Housing starts decreased in all regions, except the Prairies with the decline being more pronounced in the multiples segment.”

The seasonally adjusted annual rate of urban starts decreased by 10.2 per cent to 165,800 units in August. Multiple urban starts were down by 15.5 per cent to 101,400 units, while urban single starts decreased by 0.3 per cent in August to 64,400 units.

August’s seasonally adjusted annual rate of urban starts decreased by 41.4 per cent in the Atlantic region, by 15.3 per cent in British Columbia, by 11.8 per cent in Ontario and by 8.8 per cent in Quebec, while urban starts increased by 9.4 per cent in the Prairie region over the same time period.
CMHC