The company’s forecast called for prices across to country to rise 2.8 per cent by the end of 2012, after stronger gains last year.

Even pricey housing markets in Metro Vancouver and Toronto – where standard two-storey homes averaged $1.1 million and $629,188, respectively, in the last quarter – will see continued price appreciation in 2012, though the gain for Metro will be more muted, according to the broker-age firm’s forecast.

Metro Vancouver is expected to see its average house price climb 2.3 per cent to $802,000 in 2012, while Toronto is expected to see a 2.6-per-cent jump.

“Widespread calls for a major real estate correction in 2012 simply can’t be justified,” Royal LePage CEO Phil Soper said in a statement.

“The industry has significant momentum entering the year, and buoyed by the stimulative effect of very low interest rates, we expect the market to continue to expand – albeit at a slower pace.”

However, Royal LePage said stronger gains will be seen in cities benefiting from commodity-based economies, such as Calgary, Regina and Winnipeg, where price gains will be in the range of four to five per cent.

According to the company, in the fourth quarter of 2011, the average price of a standard two-storey home in Canada was $375,427, up 4.2 per cent from a year earlier.

The average rate of a detached bungalow was up 6.1 per cent to $344,392, while condominiums gained 3.6 per cent to $234,680.

Statistics Canada reported Thursday that its new housing price index rose 0.3 per cent in November, following on a 0.2 per cent increase in October, and was up 2.5 per cent yearover-year.

Price increases in Toronto, Oshawa and Montreal offset declines in Calgary, Metro Vancouver and the Ontario metropolitan regions of Sudbury and Thunder Bay, the agency said.

In Vancouver, Statistics Canada said some builders offered promotional pricing in order to sell units, which helped push new-home prices 0.3 per cent in November from October, and made the

Builders in the other areas reported lowering prices in order to stimulate sales and remain competitive, while price increases elsewhere were attributed to higher material and labour costs.

The Canada Mortgage and Housing Corp. has forecast the average price of a listed homes for resale to be $363,900 this year, up 1.2 per cent from 2011. The Canadian Real Estate Association predicted that the aver-age price would be relatively flat at $362,700.

Both forecasts were made in November.

http://www.vancouversun.com/business/Strong+market+means+house+prices+rise+major+cities+realtor+says/5990636/story.html

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A new report from RBC Economics says the driving factor was low interest rates, which helped reduce fixed mortgage rates across the country.

As a result, the bank says it was more affordable for Canadians to own a standard condominium, two-storey home or detached bungalow in the third quarter, though not by much.

The following RBC statistics include the total mortgage, utility and property taxes incurred by Canadian homeowners:

Owning a condo cost 29 per cent of median pre-tax household income at the national level, a drop of 0.2 percentage points from the previous quarter.

A two-storey home also became cheaper to own, but still costing 48.8 per cent of household income. That was down by 0.6 percentage points.

Finally, a detached bungalow ate up 42.7 per cent of that same income, a decrease of 0.7 percentage points from the second quarter.

In terms of a regional picture, RBC says Vancouver remains the most expensive housing market in the country.

In a statement, RBC Chief Economist Craig Wright said the Vancouver-area has “sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction.”

On the other hand, RBC says Alberta is among the most affordable provinces in which to buy a two-storey home, detached bungalow or condo.

RBC also says that the Manitoba market “showed some of the more significant improvement in affordability among the provinces in the third quarter.”

Daryl Harris, a Winnipeg-based mortgage professional with Verico One Link Mortgage and Financial, said he was surprised by the RBC report’s analysis of the Manitoba market.

“Affordability generally follows one of two things, either lower rates or a decrease in house prices and I have seen neither in our market,” Harris told CTVNews.ca in a telephone interview on Friday.

Looking ahead to 2012, RBC believes housing prices are unlikely to soar any time soon.

“We expect to see further slowing in the pace of home price increases next year, as housing demand levels out,” said Wright.

“These factors will set the stage for a period of relative stability in affordability trends in Canada.”

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The bank said in a report released Tuesday that Canada’s housing market has begun to cool, but it remains a “notable outperformer” compared with other countries.

“Ultra-low interest rates will continue to support affordability [in Canada] in the face of record high prices,” senior economist Adrienne Warren said. “Nonetheless, heightened economic uncertainty combined with recent signs of a loss of momentum in Canada’s jobs market could keep some potential buyers on the sidelines for the time being.”

Scotiabank said that of nine major developed markets it tracks, only three — Canada, France and Switzerland — had year-over-year real price growth in the second quarter of this year.

Prices in Canada were up by five per cent for that period, while figures for July and August show stable sales and a levelling out of prices.

In the other six countries — Sweden, the United States, the United Kingdom, Ireland, Australia and Spain — annual prices declined in the second quarter.

The bank said global housing demand is expected to remain “moribund” until the global economic recovery takes root and financial market stability returns.

“An oversupply of owner-occupied housing, due to overbuilding and rising foreclosures, remains problematic in many markets, adding to the downward pressure on prices,” the bank said. “A generally more cautious lending environment also will hold back the pace of recovery.”

http://www.cbc.ca/news/business/story/2011/09/27/housing-market-scotiabank.html

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RBC’s housing affordability measures for Manitoba rose between 0.7 and 1.2 percentage points in the quarter but remained either below or just slightly above their long-term averages. These levels keep Manitoba in the middle of the pack relative to the rest of Canada.

“Modest deterioration in Manitoba’s measures could have contributed to some cooling in home resale activity during the spring. However, major flooding in the province likely caused more significant disruption in certain areas,” said Robert Hogue, senior economist, RBC.

Prior to spring, Manitoba’s housing market registered its best first quarter ever for existing home sales (on a seasonally adjusted basis), led by strong gains in Winnipeg.

RBC’s housing affordability measures for Manitoba, which capture the province’s proportion of pre-tax household income needed to service the costs of owning a home at the going market value, increased modestly across all housing types in the second quarter of 2011 (a rise represents a loss in affordability). The measure for the benchmark detached bungalow in the province rose significantly to 36.6 per cent (an increase of 1.2 percentage points from the previous quarter), the standard condominium to 21.8 per cent (up 0.7 percentage points) and the standard two-storey home to 39.2 per cent (a gain of 1.0 percentage point).

http://www.newswire.ca/en/releases/archive/August2011/22/c5125.html

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“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 underperforms 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.

http://www.digitaljournal.com/pr/356694#ixzz1XkKwWyPi

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• Effect of Government Takeover of Freddie Mac and Fannie Mae on Mortgage Rates Recently the U.S. government took command of the sinking ships that were Freddie Mac and Fannie Mae. Officially Freddie Mac and Fannie Mae were placed in a government conservatorship. The move was in response to...

Renting doesn’t have to be a permanent choice and, in fact, it probably shouldn’t be for most people. But renting temporarily to avoid making an unfortunate leap into today’s housing market can make good sense.

Affording a house is murder these days. The average price nationally is $372,544 and three cities – Victoria, Calgary and Toronto – are in the $400,000 to $500,000 range. In a galaxy far, far away is Vancouver at just above $800,000.

The minimum 5-per-cent down payment for the national average-priced home is $18,627. Add another $5,000 to $6,000 for closing costs and you have a grip on the cost of buying.

Next come endless life lessons on the cost of owning. No one ever moved into a house and didn’t soon after have to pay hundreds or thousands of dollars in unexpected costs for everything from maintenance to furniture.

Royal Bank of Canada’s economists took a look at affordability recently and found that the costs of owning a two-storey house (mortgage, property taxes and utilities) consumed 80.4 per cent of median pretax household income in the Vancouver market, 55.6 per cent in Toronto, 53.7 per cent in Montreal, 40.9 per cent in Ottawa and 36.8 per cent in Calgary. As alarming as those numbers look today, they’ll be worse when interest rates rise.

Affordability Check

Here’s how to do your own affordability check: Total up all your monthly debt payments including mortgage, add your expected monthly share of property taxes and heating, and then see what percentage of your monthly pre-tax household income it amounts to.

Lenders will let you go as high as 40 per cent, but that’s going to leave you minimal room to save for retirement, your children’s college or university education, stuff for the house and so on. So consider an upper limit of 30 per cent to 35 per cent, unless you see big pay increases in your future.

If you’re on the affordability borderline, pull back. Don’t be one of those chumps who justifies buying something they can’t afford because they’re afraid it could get more expensive tomorrow.

This is where renting comes in. No, it’s not an ideal permanent solution unless you foresee the kind of housing market collapse the U.S. market has gone through. Renting drastically limits your options for choosing a nice place to live, and you’ll never hit that sweet spot of living rent- or mortgage-free and owning a big asset you can sell tax-free.

But renting temporarily offers a way to bide your time while building up your savings. It costs less to rent than own, which means you can write your monthly rent cheque and then bank the money a homeowner would be paying for property taxes and routine upkeep and maintenance.

Training Wheels

Call it home ownership with training wheels. You’ll try paying the same amount as a homeowner does and, if you wobble, there’s no harm done.

Delaying the purchase of a house is problematic, mind you. The later you buy, the later you pay off your mortgage and give yourself the room to start pumping big money into your retirement savings plan.

But that’s life. We’re all living longer, and many of us are going to be working longer as well. Having all your financial affairs wrapped up with a bow on it by age 65 is nice, but not always possible any more.

And let’s remember that renting does have some rewards of its own. If you’re young and restless, renting allows you to change jobs and cities with ease. Renting may also allow you to live downtown in a city where the only homes you can afford are an hour’s commute away.

I did an informal survey of attitudes about renting on my Facebook page (Rob Carrick – Personal Finance) and was surprised by the favourable take most people have on this option.

No, you’re not a slacker if you rent instead of buying a home you cannot properly afford. If there’s a correction in the housing market, people may even call you a genius.

http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/renting-v-buying-your-home-an-affordability-check/article2040469/

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The figure is slightly higher than the $45.3 billion spent last year and $40.9 billion in 2009. About two-thirds of homeowners said they plan to renovate over the next two years, the bank said.

The study shows Canadians are still willing to spend to upgrade their property even without tax incentives. The federal government introduced a credit for home renos as part of its package of stimulus measures to drag the economy out of recession. It expired in January 2010.

“We have seen quite a strong increase in reno activity in the first quarter and that has contributed to overall economic growth,” said BMO Capital Markets senior economist Sal Guatieri. “The resale market is quite strong so people are fixing up older homes and upgrading the ones they are living in.”

The focus on existing properties also comes as new building activity shows signs of slowing. Housing starts are likely to stabilize in 2011 at about 179,500 units, according to Canada Mortgage and Housing Corporation figures released Monday. Actual housing starts for 2010 totaled 189,930 units.

“I would describe home building as having normalized,” Guatieri said. “That’s a good thing because if the housing market cools down we won’t get stuck with a big overhang of unsold houses.”

The BMO report found respondents’ main motivation for upgrades was seeing a friend or neighbour’s projects, with one-quarter saying this was the major factor in their decision. Twenty percent said television programs had stirred the urge to make changes, while 16% got their impetus from newspapers or magazines.

Of those planning renovations, 90% said it is to improve their lifestyle, and 79% said it is to improve the value of their home.

The Leger Marketing survey was completed online from March 10-21 with a sample of 1,508 Canadian homeowners between the ages of 25 and 45.

http://www.torontosun.com/2011/05/30/canadians-to-spend-more-than-46b-on-home-renos-this-year

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“Mounting homebuyer demand continued to be met with an equal-sized increase in homes being put out for sale,” said Robert Hogue, senior economist, RBC. “This sense of balance across Manitoba kept property value appreciation under control.”

The RBC report indicates that home prices changed little in the first quarter. Prices rose modestly for detached bungalows and two-storey homes, while edging lower for condominium apartments (following a sizeable gain in the previous quarter).

The RBC housing affordability measures for Manitoba, which capture the province’s proportion of pre-tax household income needed to service the cost of owning a home, were mixed in the first quarter of 2011 (an increase in measure means that owning a home is less affordable). The measure for the benchmark detached bungalow rose by 0.1 of a percentage point to 34.1 per cent and declined by 0.2 of a percentage point for condominium apartments to 20.3 per cent. The measure remained even for two-storey homes at 36.8 per cent.

“Manitoba is still one of only two provincial markets in Canada, along with Alberta, where measures have remained below long-term averages for all housing categories that we track,” added Hogue.

The majority of Canadian markets experienced weakened affordability in the first quarter of 2011. Most notable was the sizeable deterioration in British Columbia. More specifically, Vancouver saw significant gains in property values, which drove the already elevated cost of homeownership even higher. Quebec’s homebuyers also faced noticeable rises in ownership costs, while those in Atlantic Canada saw their affordability advantage somewhat diminish. The picture remained mixed in other areas of the country, with Ontario, Alberta and Saskatchewan experiencing ups and downs in ownership costs, depending on the housing type.

“Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada – with Vancouver being a notable exception,” said Hogue.

RBC’s housing affordability measure for a detached bungalow in
Canada’s largest cities is as follows: Vancouver 72.1 per cent (up 3.4 percentage points from the last quarter), Toronto 47.5 per cent (up 0.8 of a percentage point), Montreal 43.1 per cent (up 2.0 percentage points), Ottawa 39.0 per cent (up 0.4 of a percentage point), Calgary 35.9 per cent (up 0.9 of a percentage point) andEdmonton 31.5 per cent (up 0.5 of a percentage point).

http://www.newswire.ca/en/releases/archive/May2011/20/c6373.html

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Unlike the United States and Europe, the Canadian housing market has continued to rise after the financial crisis, leading some observers to caution we could be headed for a bubble.

Mr. Flaherty said he’s already intervened to toughen mortgage rules three times in the last few years and there’s no need for further action as conditions in the market are finally moving in the right direction.

In his first major public appearance since the election, at Bloomberg’s Canada Economic Summit in Toronto, Mr. Flaherty also said this country continues to weather the ongoing upheaval in the global economy. He said his number one priority is to deal with the budget — likely in June — in order to continue to implement his government’s economic action plan.

The past few months have seen the emergence of a string of new problems affecting the global economy, ranging from conflicts in the Middle East and North Africa and the rising issues around U.S. government debt.

Mr. Flaherty said the best way to protect Canada is for the government to move as quickly as possible to a balanced budget and to continue to take measures to strengthen the economy, such as maintaining low taxes for businesses and individuals.
Canada already has one of the lowest corporate tax rates of any major developed economy and the Conservatives have vowed to bring it lower still.

In the depths of the crisis Canada’s banks remained strong partly because of steps taken by the government aimed at boosting liquidity such as buying more than $70-billion of home loans from lenders. Ottawa also increased the limit on the volume of mortgages banks could sell into the Canada mortgage bond program.

Critics say that one unintended result was that banks were encouraged to make more home loans, which helped push up prices in the market.

But Mr. Flaherty said he does not believe there were unintended consequences from the government’s emergency support for the banks.

As a result of recent fluctuations in global currency markets the Canadian dollar is now trading at close to its highest level since 2008, creating challenges for many companies, especially manufacturers.

But Mr. Flaherty said the private sector is coping. One of the dangers of intervening, he suggested, is a fluctuating currency, which would be even more problematic.
“What we want to avoid is sudden, jerky movements in the Canadian dollar,” he said.
Mr. Flaherty said his government will present a slightly revamped budget in June. It will be changed to reflect an economic update and may include some items from the election platform, but will be largely the same budget he presented in March, Mr. Flaherty said.

http://business.financialpost.com/2011/05/10/no-new-mortgage-rule-changes-flaherty/

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The world might be able to learn something from Canada about avoiding another housing-related financial meltdown, as the government recently announced several changes to the rules governing government insured residential mortgages. These changes are designed to reduce leverage in the system and promote housing market stability in the country.

Background

The Canadian housing market and financial system have worked their way through the global recession and financial crisis in much better condition than the United States and many other countries. Average home prices in 2009 were higher than in 2006 in virtually every Canadian market.

Despite this performance, the government has been concerned with the average level of household debt and has made several changes over the last few years. The latest changes were announced by Jim Flaherty, the Minister of Finance, on Jan. 17, and these changes affect government-insured mortgages and home equity lines of credit.

Maximum Amortization

The first rule change affects the amortization period on mortgages, which is the length of time that it takes to pay off the entire loan. The maximum amortization period is being reduced from 35 years to 30 years on mortgages where the loan to value ratio exceeds 80 per cent. The loan to value ratio is a common metric used in the mortgage market and is calculated as the mortgage principal amount divided by the appraised value of the property.

A reduction in the maximum term will result in higher payments for homeowners, but a substantial reduction in total interest payments over the life of the mortgage. If a homeowner has a $300,000 mortgage at 6 per cent, the five-year reduction in amortization will require an $88 higher payment every month, but that homeowner will realize interest savings of $70,924 over the term of the mortgage.

Borrowing Limit

Another change that the government is instituting is a reduction in the amount that a home owner can borrow against the value of their home during a refinancing. The new limit will be 85 per cent of the value, down from 90 per cent previously. A homeowner with a home appraised at $400,000, can now borrow up to $340,000 compared to the previous limit of $360,000. This $20,000 reduction means more equity in the home will be kept.

Home Equity Line of Credit

The final rule change is that the government will no longer insure home equity lines of credit that are non-amortizing. The concern here is that homeowners are rolling consumer debt into these instruments and therefore shifting the risk to the government. These are also riskier loans than first mortgages, with the majority of the lines structured as variable rate and non-amortizing or not requiring principal payments. Variable rates could mean increases in payment amounts, which could increase the risk of overextending the individual’s ability to pay.

The Bottom Line

The Canadian government has instituted several changes related to government-insured mortgages in an effort to promote housing market stability. These changes will reduce leverage in the system and are part of an effort to increase home ownership in Canada. The United States and other nations that were hit hard by the financial crisis and housing bust should probably consider similar measures.

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/mortgages-changes-you-need-to-know/article2003964/

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