Survey: Consumers Grow in Optimism Toward Home Prices

Uncertainty over the fiscal cliff negotiations did little to shake consumers’ confidence about housing in December, according to the results from Fannie Mae’s latest National Housing Survey.

Consumers continued to show increased optimism toward home price, rental price, and mortgage rate expectations, a sign that home purchase activity may see a boost in the coming months.

“Combined with consumers’ growing mortgage rate and rental price increase expectations, the positive home price outlook could incentivize those waiting on the sidelines of the housing market to buy a home sooner rather than later and thus support continued housing acceleration,” said Doug Duncan, SVP and chief economist at Fannie Mae.

The average 12-month home price change expectation jumped from 1.7 percent in November to 2.6 percent in December, the highest level since the survey’s inception in 2010. To compare, the average price change expectation a year earlier was only 0.8 percent.

The share of respondents who believe home prices will rise over the next year also reached its highest recorded level, increasing 6 percentage points to 43 percent. The share of those expecting price declines fell to 11 percent, while the share who believe prices will stay more or less the same fell to 40 percent.

Twenty-one percent of respondents said now is a good time to sell, a decrease of 2 percentage points from November’s record high but still 10 percentage points above the December 2011 survey. The number of respondents who said now is a good time to buy decreased slightly to 71 percent, staying within the small range seen throughout 2012.

In addition, the percentage who expect mortgage rates will go up continued to rise, increasing 2 percentage points to 43 percent—the highest level since August 2011. Eight percent expect rates will drop (a decline from 9 percent in November), while 44 percent expect flat rates (down from 45 percent).

On the rental side, 49 percent of those surveyed said home rental prices will rise in the next year, a slight increase from November, while the share of those expecting rental prices to drop stayed flat at 4 percent. The average rental price change expectation was 4.4 percent, a survey high.

For all that, though, interest in buying and renting was little changed: The percentage of those who would buy if they were going to move decreased slightly to 66 percent, while the percentage of those who would rent remained unchanged at 29 percent.

That flatness may stem from consumers’ overall economic outlook, which tanked after November’s show of optimism.

“Despite continued strengthening in the housing market, consumers’ concerns over the fiscal cliff and debt ceiling have caused considerable volatility in their perceptions of the larger economy,” Duncan said. “This uncertainty seems to be prompting a growing share of consumers to expect their personal finances to worsen and may contribute to weaker near-term economic growth.”

The share of respondents who believe the economy is on the right track dropped 5 percentage points from November’s high, landing at 39 percent in December. Fifty-three percent say the economy is on the wrong track, up from 50 percent in November.

Meanwhile, the percentage of respondents who said their household income is significantly higher than it was a year ago rose slightly to 22 percent. However, 37 percent reported significantly higher household expenses compared to 12 months ago, a 3 percentage point increase over November and the highest level since December 2011.

Consumers’ outlook for the economy also suffered as the nation waited for news of fiscal cliff talks. The percentage who said they expect their personal financial situation will get worse over the next 12 months rose to 20 percent, its highest level since August 2011, while the percentage of respondents expecting their situation will improve stayed flat at 40 percent.

 

DS News - Tony Barringer

Canadian Building Permits

Canadian building permits rose fell 18 per cent in November, following a 16 per cent increase in October. The decline in permits was primarily due to weakness in both non-residential and residential construction intentions in Ontario.

In BC, permitting activity declined 6 per cent in November due to a slowing of non-residential permits which were down 34 per cent month-over-month and 12 per cent year-over-year. Residential permits rose 17 per cent over October, but were 14 per cent lower than November 2011.

Permit activity in BC's four major metropolitan areas  was mixed in November. Following a surge in October, the Kelowna CMA saw permit volumes slow in November, falling 34 per cent month-over-month and 7 per cent year-over-year.  The Vancouver CMA saw total permits rise 21 per cent in November following weaker activity in October, but were down 17 per cent over November 2011. In the Abbotsford CMA, permits rose 46 per cent month-over-month and 28 per cent year-over-year. Finally, the Victoria CMA recorded an 8 per cent increase in November permits and a 24 per cent increase over November 2011. 

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Canadian Housing Starts - January 9, 2013

Canadian housing starts registered 197,976 units at a seasonally adjusted annual rate (SAAR) in December, down slightly from 201,376 (SAAR) in November.  Annual starts rose 11 per cent in 2012.

New home construction in BC urban centres also posted a modest decline, falling to 20,227 (SAAR) in December from 22,043 units (SAAR) in November.  On a year-over-year basis, multiple unit starts in BC were unchanged from December 2011 while single family starts were 4 per cent lower. Overall,  total BC housing starts were 2 per cent lower than in December 2011. New home construction in BC's urban areas finished the year at 25,477 units, an increase of 5 per cent over 2011. New home construction continued to shift toward multiples in 2012. That segment of the market saw a 9 per cent increase in 2012 to 18.763 starts while single-detached starts declined 5 per cent to just 6,714 units.

Looking at census metropolitan areas (CMA) in BC, Vancouver CMA starts fell 1 per cent year-over-year in December but were 6 per cent higher for all of 2012 at 19,027 total units.  New home construction in the Abbotsford CMA was off 58 per cent compared to December 2011 and down 31 per cent for all of 2012 at just 371 total units.  Housing starts in the Kelowna CMA rose 27 per cent year- over-year in December due to a jump in single-detached starts. For all of 2012, total housing starts in the Kelowna CMA were down 10% from 2011 at 836 units.  Housing starts in Victoria were down 28 per cent year-over-year in December but were up 4 per cent for all of 2012 at 1,700 total starts.

 

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Tips for boosting your credit

In today’s economic climate of tighter credit requirements, there’s no doubt that many people may not fit into the traditional banks’ financing boxes as easily as they may have just a few years ago.

Your best solution is to consult your mortgage professional or lender to determine whether your situation can be quickly repaired or if you face a longer road to credit recovery. Either way, there are solutions to every problem.

Mortgage professionals who are experts in the credit repair niche can help credit challenged clients improve their situations via a number of routes. And if the situation is beyond the expertise of a mortgage professional, they can help you get in touch with other professionals, including credit counsellors and bankruptcy trustees.

Following are five steps you can use to help attain a speedy credit score boost:

1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.

2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.

3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders may view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.

Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards.

The best bet is to pay your balances down or off before your statement periods close.

4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. You should use these cards periodically and then pay them off.

5) Don’t let mistakes build up. You should always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

 

 

The differences between a collateral and standard charge mortgage

Since an increasing number of lenders are moving towards collateral charge mortgages these days, it has never been more important to understand the differences between a collateral and standard charge mortgage.

The primary difference is that a collateral charge mortgage registers the mortgage for more money than you require at closing. For instance, up to 125% of the value of the home at closing with TD Canada Trust or 100% through ING Direct and many credit unions, instead of the amount you need to close your transaction (as is the case with a standard charge mortgage).

The major downside to a collateral mortgage becomes evident at your mortgage renewal date. For borrowers who want to keep their options open at maturity and have negotiating power with their lender, this isn’t the best product feature because collateral charge mortgages are difficult to transfer from one lender to another.

In other words, if you want to change lenders in order to seek a better product or rate in the future, you have to start from the beginning and pay new legal fees, which range from $500 to $1,000.

With a standard charge mortgage, in most cases, the new lender will cover the charges under a “straight switch” in order to earn your business.

In addition, with a collateral charge, it could be difficult to obtain a second mortgage or a home equity line of credit (HELOC) unless your home significantly appreciates in value.

Lenders offering collateral charge mortgages promote the benefit that it makes it easier and more cost effective to tap into your equity for such things as debt consolidation, renovations or property investment. There’s no need to visit a lawyer and pay legal fees – the money is available as your mortgage is paid down. Yet, if you read the fine print, you may still have to re-qualify at renewal.

A standard charge mortgage gives you the ability to move to another lender at renewal should you want to without incurring legal fees, and many borrowers find it more beneficial to keep their options open. If you need to borrow more with a standard charge mortgage, you have the option of a second mortgage or a HELOC, which also enables you to take money out as your mortgage is paid down.

The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity via the Multiple Listing Service^® (MLS^®) Systems of Canadian real estate Boards and Associations in 2012 and 2013.

When CREA’s resale housing forecast was published in September, activity showed the first signs of slowing in the wake of new mortgage lending regulations. Demand has remained at lower levels, and this trend is expected to persist through the end of the year. Lower than projected third quarter sales have downgraded the prospects for activity this year in almost every province.

National resale housing activity is now projected to reach 456,300 units in 2012. This represents a 0.5 per cent decline from 458,412 sales in 2011, and stands 0.9 per cent below the 10-year average (2002 – 2011)

Alberta is still expected to post the biggest annual increase this year (+13.1%), offsetting most of the projected decline in British Columbia (-10.7%).

Sales activity is expected to be less volatile next year than it was in 2012. In 2013, CREA forecasts that national sales activity will recede by two per cent to 447,400 units. This is a slightly lower level of activity than previously forecast, reflecting the ongoing impact of new mortgage rules into next year. The continuation of moderate economic, job, and income growth will temper the impact of recent mortgage rule changes, which are not expected to dampen activity much more than has already been felt until interest rates are expected to begin rising in late 2013.

“All real estate is local, so housing market prospects can and do differ among regions and communities,” said Wayne Moen, CREA President. “For that reason, buyers and sellers should talk to their REALTOR® about the housing market outlook where they live or would like to live.”

“Annual sales in 2012 reflect a stronger profile prior to recent mortgage rule changes followed by weaker activity following their implementation,” said Gregory Klump, CREA’s Chief Economist. “By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted prior to the most recent changes to mortgage regulations,” said Klump.

 

 

 

Despite the small downward revisions to the forecast for national sales in 2012 and 2013, activity is still expected to remain within short reach of the 10-year average (2002 – 2011).

National sales activity over the first five years of the past decade compared to the most recent five years represent two very different periods. Most of the national average price growth in the 2002-2007 period was realized amid sustained sellers’ market conditions in most large urban housing markets. Most provincial housing markets are currently balanced, and are expected to remain or return to balanced market territory for 2013.

The national average home price is projected to rise by 0.3 per cent to $363,900 in 2012, with gains in excess of that in most provinces. The smaller gain in average price nationally as compared to most provinces largely reflects a decline in sales activity among more expensive housing markets compared to 2011, particularly in British Columbia and more recently in Ontario.

The national average price is forecast to edge up another three tenths of one per cent to $365,100 in 2013, with British Columbia, Ontario, and New Brunswick registering small price declines and modest average price gains in line with or below inflation in other provinces.

 

 

 

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Housing Bubbleoney

I am now convinced that we will never hear the end of housing bubble speak. The premise is now as firmly entrenched in popular consciousness as carbon emissions and TMZ. It has taken the form of idolatry in the blogosphere, where any countervailing narrative is demonized. It has catapulted university dropouts into media darlings because of a hackneyed webpage and an opinion. It has been tarted up by so-called experts who predict impending doom year after year, despite being completely wrong every time.

 

Now, I’m not wearing tinted glasses. Housing markets go up and they go down. However, my point is that sharp and significant declines in home prices are usually created by massive economic shocks, like the 21 per cent mortgage rates and recession of 1982. Yes, there can be short-term speculative bubbles that fl oat back to earth after the circus leaves town, but home prices in Vancouver, for example, have been incongruous with other Canadian markets for decades.

The big test was 2008. That was the year of the doomsayers, when the largest financial crisis since the Great Depression besieged us and the collateral damage hurled us into a global recession, one from which we still

haven’t fully recovered. The airwaves were all a buzz with end of the world prophets and those predicting home prices would be chopped in half, at least. It was going to be the big one! The housing market had gone through a significant inflationary period leading up to 2008. Unlike today, speculation was clearly evident. Accusations abounded that Vancouver was overvalued, unsustainable and frothy. One financial institution even had a publication called Housing Bubble Watch, now defunct, in which Vancouver was always the straw man.

 

So what happened? Home prices fell 15 per cent from peak to trough, but that was short-lived. Indeed, once the clouds of uncertainty dissipated only a few months later, buyers came back in droves. 

The most dramatic turnaround ever recorded occurred in Vancouver during 2009, when the year began with 1980s level consumer demand and ended with sales tracking near record levels. Prices came right back to where they were before the crisis, and have stayed there, for the most part, for the past three years. If such a severe financial crisis and global recession couldn’t trigger a meltdown of the housing market or pop any asset balloon, what could? 

The main misconception about housing markets is that they behave like the stock market. They don’t. Bad news can drive stocks lower in a matter of seconds, whereas homes are relatively illiquid; they take a long time to sell and have higher closing costs. In addition, owner-occupiers typically don’t speculate with the family home. In times of hardship, the home is typically the last thing to go. Instead, they hold off on other expenditures like lattes, movie tickets, new TVs and vacations. 

 In a market that has a well-diversified economy and expanding population, fire sales are extremely uncommon. Unless there is household financial catastrophe on a large scale, potential home sellers simply wait until market conditions improve. 

I write this piece as home sales in Vancouver and many other markets stagnate and homes prices tread water (see the Canadian Real Estate Association’s Multiple Listing Service® Home Price Index for an accurate reading). I have no doubt that the voices of impending doom will soon renew their bellicose refrain. Perhaps their tea leaves will be right this time and the market will indeed collapse, leaving homes selling for 50 cents on the dollar. I’d put my money on that refrain continuing for a long time to come.

 

By Cameron Muir, BCREA Chief Economist

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Housing Market Update (December 2012)

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Canadian and US Employment - January 2013

On the heels of a surge in employment in November, Canadian employment posted a strong increase again in December, growing by 40,000 jobs. December's increase in jobs was entirely due to gains in full-time employment. The Canadian economy added just shy of 100,000 new jobs in the final two months of 2012, which pushed the national unemployment rate to 7.1 per cent, its lowest level in 4 years.

Job growth in the BC economy was essentially flat as an increase of 4,300 in full-time employment was mostly offset by declining part-time employment. The BC unemployment rate fell 0.3 points to finish the year at 6.5 per cent.  Despite some softness towards the end of the year, the story of the BC labour market in 2012 was overwhelmingly positive.  BC employment grew 1.7 per cent in 2012, a marked improvement from just 0.8 per cent in 2011, while annual growth in full-time employment was 2.8 per cent in 2012 compared with just 0.5 per cent in 2011. The provincial unemployment rate averaged 6.8 per cent in 2012, the first time in 4 years that unemployment fell below 7 per cent.

Finally, the US economy continued its slow and steady recovery, adding155,000 jobs in December following job growth of 161,000 in November. The US unemployment rate remained constant, finishing the year at 7.8 per cent.

Copyright BCREA - Reprinted with permission

Home prices post biggest annual jump in two years

By Chris Isidore @CNNMoneyDecember 26, 2012: 9:14 AM ET

The recovery in the housing market continues to pick up steam, as home prices posted the biggest percentage gain in more than two years in the latest reading of the closely followed S&P/Case-Shiller index.

The index showed prices up 4.3% in October compared to a year earlier. That's the best improvement since May 2010. But that earlier increase was due to a temporary spike caused by a homebuyers' tax credit of up to $8,000 on homes purchased in late 2009 and early 2010.

This latest rise comes as the housing market has shown numerous other signs of recovery in recent months. A combination of near record-low mortgage rates, lower unemployment and a drop in foreclosures to a five-year low means there are more buyers interested in purchasing fewer available homes. That in turn has lifted prices.

October marked the fifth straight month that the index has been up on a year-over-year basis.

Related: 2013 housing outlook

The improvement in housing market fundamentals has helped to lift the pace of both home sales and home building. But even with the latest rise in prices, the index is still down 29% from the peak reached in June 2006.

The continued rebound in prices likely will be another positive for both purchases and construction in the year ahead. Higher prices give current homeowners a better chance to sell their home and get the down payment they need on their next home purchase. They also encourage buyers who may have been on the sidelines because of uncertainty about home prices' direction that now is the time to buy.

Of course, home builders benefit from higher prices and increased demand. Leading home builders such as PulteGroup (PHA), Lennar (LEN), KB Home (KBH), D.R. Horton, Inc. (DHI) and Toll Brothers (TOL) have all enjoyed better than a 50% rise in their stock price over the last 12 months, with PulteGroup's stock nearly tripling in value.

The increases in home values were widespread in this latest reading, with only two of the 20 cities tracked by index showing modest price declines from a year earlier. Prices were down a little more than 1% in Chicago and New York.

The biggest rise was in Phoenix, one of the cities hardest hit when the housing bubble burst. Prices in Phoenix were 21.7% higher than in October 2011.