No rate hikes until 2013: BMO

·· By Eric Lam, Financial Post

BMO Capital Markets pushed its rate hikes forecast back to 2013 on Tuesday, citing continued serious economic risks both home and abroad.

The new forecast pushes the expected time frame for the Bank of Canada to raise its benchmark interest rates back from previous expectations of the second half of 2012.

As recently as this spring, economists had been speculating about a rate hike before the end of 2011, but the market turmoil of the past few months sparked by the eurozone debt crisis has changed all that.

"As global economic risks have escalated, casting commodity prices and the Canadian dollar much weaker, the Bank of Canada's diminishing tightening bias has probably diminished further," Michael Gregory, senior economist with BMO Capital Markets, said in a report.

Mr. Gregory noted that the market has now actually swung all the way into cut territory pricing in two 25-basis point rate cuts by April 2012. But with inflation slightly below target, a weak loonie and credit markets still functioning, movement in either direction is unlikely.

"The policy easing bar remains high. Short of signs of imminent recession, the bank should remain on hold," he said.

Mr. Gregory also forecasts the loonie to tumble further, down to US93¢ before recovering to parity by 2013.

Read more: http://www.ottawacitizen.com/business/fp/rate+hikes+until+2013/5500200/story.html#ixzz1ZuLldhA5

lawlessbrown.com

Average House Prices a Misleading Gauge of the Health of the Canadian Real Estate Market: CIBC

Detailed analysis shows a highly segmented market that will see prices drop over time, but preconditions for a market crash don't exist

TORONTO, July 7, 2011 /CNW/ - The Canadian housing market is becoming highly segmented and multi-dimensional which is making traditional measures, like average prices, increasingly irrelevant in gauging the health and state of the sector, finds a new report from CIBC World Markets Inc.

"Glancing at popular metrics such as the price-to-income ratio or the price-to-rent ratio, it is tempting to conclude that the housing market is already in clear bubble territory and a huge crash is inevitable," writes Benjamin Tal, Deputy Chief Economist at CIBC, in his latest Consumer Watch Canada report.

"Tempting, but probably wrong. When it comes to the Canadian real estate market at this stage of the cycle, any statement based on average numbers can be hugely misleading. The truth is buried in the details—and there the picture is still not pretty, but much less alarming."

He notes that while the average house price in Canada rose 8.6 per cent on a year-over-year basis in May, that number slows to 5.6 per cent if you take Vancouver out of the picture. Remove Vancouver and Toronto and the average price increase drops to 3.7 per cent.

By digging into the details on the high profile Vancouver market he found that the gap between average and median prices is reaching an all-time high. While the average house price climbed 25.7 per cent on a year-over-year basis to more than $800,000 in May, he found that by removing properties that sold for more than a $1 million there was a much more moderate price appreciation in the market. It also reduced the average sale price by $220,000 to just over $590,000.

"What makes Vancouver abnormal is the high end of its property market," says Mr. Tal. "And in this context many, including Bank of Canada Governor Mark Carney, point the finger at foreign—mainly Asian wealth—as the main driver here."

Data on the extent of the role that Asian investors have played in Vancouver housing prices is quite limited. Mr. Tal's analysis of data obtained from Landcor Data Corporation suggests that only 10 per cent of the nearly 4,500 transactions involving foreign money over the past five years were above the $1 million mark, with an average purchasing price of just under $600,000.

According to the information provided by Landcor, foreign money accounted for only 2.6 per cent of all sales during the same period. However, Mr. Tal believes that could be a serious underestimate, as it is based on where property tax assessments are mailed, and would exclude offshore buying on behalf of children or other local proxies. "There are many reasons to believe that a significant portion of what is perceived to be buying by offshore investors is, in fact, driven by Chinese immigrants that are integrated into the community but still maintain strong links to mainland China, with many residing and working in China while their family establishes roots in B.C."

"Looking beyond the average price numbers reveals a highly segmented and multi-dimensional market that is probably influenced by different forces," says Mr. Tal. "But even a multi-dimensional market can overshoot—and the likelihood is that prices in the Canadian market and its sub-segments are higher than what can be explained by factors such as income growth, rent and household formation. Given that, the housing market will eventually correct. The only question is what will be the mechanism of that correction."

Mr. Tal feels the price correction in Canada will be gradual as the two key triggers for a price crash - a significant and quick increase in interest rates and/or a high-risk mortgage market that is very sensitive to changes in economic factors - are not at play in Canada.

"In Canada, a sharp and brisk tightening cycle is unlikely. The market expects a gradual increase in short-term rates in the coming years. The rising number of mortgage holders that carry a variable rate mortgage will be the first to feel the pain. But if history is any guide, they will return quickly to the comfort of a five-year fixed rate the minute the Bank of Canada starts hiking."

He also believes that the country is in relatively good shape when assessing the two sub-segments of the mortgage market that traditionally account for most defaults: mortgage holders that carry a debt-service ratio of more than 40 per cent and those with less than 20 per cent equity in their house.

Just over six per cent of households have a debt service ratio of more than 40 per cent—a number that has risen by a full percentage point since 2008. "However, this ratio is still well below the ratio seen in 2003, when the effective interest rate on debt was more than a full percentage point higher, and no correction in house prices ensued," adds Mr. Tal.

"All other things being equal, even a 300-basis-points rate hike by the Bank of Canada would take this ratio to only just over eight per cent. Not surprisingly, Vancouver has the highest ratio of households with high debt-service ratio, followed by Toronto."

A little more than 17 per cent of the Canadian residential real estate pool is in properties with less than a 20 per cent equity position, a number that has been rising over the past few years. More than 80 per cent of households with less than a 20 per cent equity position are first time buyers.

"Digging deeper and looking at the households with both low equity positions and high debt-service ratios, we found that this fragile segment of the market accounts for only 4.6 per cent of total mortgages—a number that has been on an upward trend over the past few years," says Mr. Tal. "Shock the system with a 300-basis-points rate hike and that number would rise to a still-tempered 6.5 per cent. Historically, even in that group, the default rate has been well below one per cent. Thus, short of a huge macro shock, there does not appear to be the risk of large scale forced selling that would typically be the trigger for a precipitous plunge in the national average house price.

"As a result, while house prices are likely to adjust as interest rates eventually climb, the national pace of any correction is likely to be gradual. That could still entail a period in which housing under performs other assets as an investment class, until rising incomes and a tame price trajectory bring the market back to equilibrium."

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/cw-20110707.pdf.

lawlessbrown.com

The Wild Ride of the Victoria Real Estate Market. What the heck is going on??

For many trying to keep up with current market conditions and interest rates is a dizzying experience. When to buy? When to sell? When to refinance? Everyone is trying to predict the most optimal time to make their move. To help answer some of those questions, here are some of the facts and highlights of current conditions.

There are currently around 4 477 properties on the Victoria market which is 23% higher than last year.

• For the purchasers this means a lot of selection to choose from and gives you time to make sound, unhurried decisions.
• For sellers it means you really need to consult your Realtor® in order to price your home realistically in order to attract qualified buyers.

Interest rates have declined to Fall 2009 levels which were at historical lows.

• Now is a great time to secure a mortgage and take advantage of the low rates to keep your monthly payments as low as possible.
• This also gives purchasers some added purchasing power, as it is easier to qualify at lower rates.
• For existing home owners now is the time for a mortgage check up. If you are in higher rates and have some outstanding debts that you are paying high interest rates on, now is time to take advantage and potentially save thousands in interest payments.
• For current rates and rate specials visit lawlessbrown.com or give us a call 250.656.0855

We are always happy to provide advice and help our clients navigate today's markets. If you are unsure of what to do, give us a call and let us help you make the sound choice that is best for you and your mortgage needs.

~Krista & Sherri

Home Sales Tumble!

Garry Marr, Financial Post · Monday, Aug. 16, 2010

Housing sales were down 30% in July from a year ago, and the Canadian Real Estate Association is blaming the drop on the new harmonized sales tax in Ontario and British Columbia.

The Ottawa-based group, which represents 100 real estate boards across the country, said July sales plunged 6.8% on a seasonally adjusted basis from the previous month, a decline “almost entirely the result of fewer sales in British Columbia and Ontario,” where the HST went into effect on July 1.

The slowdown had been expected as consumers rushed to buy homes ahead of the July 1 implementation in those provinces. The HST only applies to services used in purchasing and selling an existing home, such as real estate commission, and not the actual sale price.

Phil Soper, chief executive of Royal LePage Real Estate Services Ltd., said the HST, combined with tougher mortgage rules, expectations of higher interest rates and the bounce back from the recession, drove the market earlier this year. “You take those four things and add them together and you get a highly front-ended year, which we forecast,” he said.

The housing market did get some good news from Royal Bank of Canada, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Bank of Montreal, which all lowered interest rates Monday. The five-year, fixed-rate closed mortgage is down to 5.49%, which means that on a discounted basis, consumers can likely lock in a rate of less than 4% for five years.

But John Andrew, a professor of real estate at Queen’s University in Kingston, Ont., doubts the cut in bank rates will be enough to reverse a declining housing market.

“With homes sales down 30%, that’s surprising. I was expecting a drop, but nothing that big. I think prices are next [to decline] although they are holding their own now,” Prof. Andrew said.

“Thank goodness rates are as low as they are. If we were seeing significant increases in interest rates, it would disastrous for real estate prices,” Prof. Andrew said.

The average price of a home sold in July was $330,351, just a 1% increase from a year ago. However, the average price of a home sold in June was $342,662, so prices are off 3.6% from a month ago.

CREA said the lack of activity in British Columbia and Ontario — two of the country’s most expensive markets — likely skewed average prices down. In B.C., sales dropped 14.1% from a month ago on a seasonally adjusted annual basis. In Ontario, the decline was 8%.

The two provinces accounted for 85% of the change in national activity.

“The soft sales figures we’re seeing right now can be attributed in part to accelerated home purchases earlier in the year,” said Georges Pahud, CREA’s president.

He warned activity will be off for the rest of 2010.

“Activity may remain at lower levels for some time, but ultimately we expect a more stable market to emerge, with demand coming back into line with economic fundamentals,” Mr. Pahud said.

Prices are getting a boost from a drop in supply. The seasonally adjusted annual number of new residential listings fell 7.2% in July from the previous month, the third consecutive monthly decrease and the steepest drop in more than a decade.

However, the overall inventory rate, which reflects all housing on the market, is climbing. The number of months of inventory, which represents the number of months it would take to sell current inventories at the current rate of sales activity, was seven month in July. A year ago the number was 4.4 months.

Douglas Porter, deputy chief economist of BMO Capital Markets, said most consumers who were sitting on the sidelines already pushed their purchase ahead in the spring, so he’s also expecting a soft market for the next few months.

“Although with long-term mortgage rates dropping, employment improved and prices stabilized, the longer-term outlook is far from dire,” Mr. Porter said.

Financial Post

Read more: http://www.nationalpost.com/Home+sales+tumble/3405783/story.html#ixzz0wte1RWPV


Lawlessbrown.com

Its Still Growth but a bit Slower

Reuters

The Canadian Real Estate Association cut its 2010 forecast for resale house prices and sales, saying sales in British Columbia were not as strong as expected at the start of the year.

The industry group said it now expects the average price to climb 1.6% to $325,400 nationally in 2010, a big drop from its previous forecast of a 5.4% gain.

Sales are seen rising 5.5% to 490,600 units in 2010. In February, CREA forecast sales of 527,300 units in 2010, up 13.3% from 2009.

The group said a decline in affordability in British Columbia hurt sales in the province during the first quarter, although sales in Ontario were much as expected.

“Lower expected activity in British Columbia accounts for more than half of the downward revision in national sales activity,” the group said.

CREA said it now expects sales in B.C. to fall 5.9% this year to 80,000 units from 85,028 in 2009, while prices there are seen up 2.3% at $476,400.

It expects Ontario sales to rise 10% to 215,400 units, a record but a smaller gain than previously thought. Prices are seen to increase 3.9% to $330,900.

The association had expected to see stronger sales in the first half of the year, ahead of the introduction of new mortgage rules, rising interest rates and new sales tax regimes in Ontario and British Columbia.

Month-to-month home resales have been cooling from the beginning of the year, while listings have been rising, quieting a feisty debate that a bubble was forming.

The real estate association repeated Wednesday it did not see a U.S.-style housing price correction, mostly because of solid mortgage market trends.

The Bank of Canada raised interest rates for the first time in three years this week, bringing its benchmark overnight rate up a quarter point to 0.5%.

For 2011, CREA forecasts an 8.5% slide in sales to 448,700 units, with every province except Newfoundland and Labrador to post declines from this year. An earlier forecast pegged the slide at 7.1%.

The average national price is seen slipping 2.2% to $318,300, compared with an earlier view of a 1.5% decline.

lawlessbrown.com

November numbers heat up housing bubble talk

Wednesday, 16 December 2009


With the Canadian Real Estate Association's release of November housing numbers Tuesday, talk of a bubble is heating up among economists and industry professionals.

The CREA report said existing homes sales in November increased by a whooping 73 per cent compared to a year ago and prices rose almost 20 per cent.

"We're on the bubble of a bubble," Bank of Montreal economist Doug Porter told The National Post, sharing his worry about a potential surge of home sales before the central bank raises rates and the new harmonized sales tax is introduced in B.C. and Ontario. "We could see a bit of a buying frenzy coming this spring...followed by a "pop" in 2011?"

But despite continued fears that skyrocketing numbers signal the formation of an asset bubble, some insiders said the dramatic rise is due to how low the market was at this time last year. The number of listings also went up by five per cent from October to November, which is expected to help ease price increases.

"The numbers look huge, but you are coming off such a bad year," TD Securities economics strategist Millan Mulraine told The Globe and Mail. "You're seeing big numbers in the recovery, but the pace and momentum has eased. You could definitely say it's not driving as fast as it was a few months ago."

Another argument against a bubble came from Genworth Financial Canada president Peter Vukanovich, who told The National Post that because more consumers have been switching into fixed rate mortgage products, they will be less exposed to expected interest rate hikes.


www.lawlessbrown.com

CMHC forecasts continued new housing rebound

The Canadian Press

OTTAWA — The national housing agency is reporting that housing starts have started to recover and it expects the recovery to continue.

Canada Mortgage and Housing Corp. predicts starts will reach 141,900 this year and increase to 164,900 in 2010.

The CMHC’s fourth-quarter market outlook forecasts housing markets will continue to strengthen over the next year as economic conditions improve.

It says demand for existing homes has rebounded and both new and existing home markets are characterized by lower inventory levels.

However, the national housing agency says the strong pace of sales in the second and third quarters partly reflects delayed activity and is not likely to be sustained.

The CMHC says it expects the level of sales to move back closer in line with anticipated economic conditions.

It predicts existing home sales will reach 441,300 units in 2009 and increase to 445,150 units in 2010, while the average price is expected to be $312,950 in 2009 and $324,500 in 2010.

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