Tag Archives: Housing Market

Mortgages changes you need to know

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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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U.S. home prices continue their slide but confidence improves

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While the U.S. economy is recovering, it is generally agreed that full health will not be restored until the housing sector turns around. That’s why the numbers on U.S. home starts, sales and prices are of such interest to economists and other analysts.

While new home starts and single-family home sales improved mildly in the latest month, prices performed pretty much as expected. That is to say, they fell again in the existing homes market, according to S&P Case-Shiller.

In February 2011, both the 10-city and 20-city composite indices pulled back 0.2% month to month and seasonally adjusted (-1.1% not seasonally adjusted). That left them -2.6% and -3.3% year over year respectively.

Over the last couple of months, U.S. resale home prices have been headed back down after a period of mild improvement in mid-2010. But that was when a rather large tax incentive for first-time homebuyers was augmenting demand.

Since the expiry of the tax break, the market has become distressed again. The levels of the indices have fallen to the point where they are only slightly above their April 2009 troughs.

Washington, D.C. was the only major city in the country to record a year-over-year gain in home prices in February, at +2.7%. There are advantages to being a government town.

It is shocking to realize that four U.S. cities are currently recording home prices below their levels in the year 2000 – Detroit, Las Vegas, Cleveland and Atlanta.

On average, U.S. home prices have now retreated to 2003 levels. Versus their peaks in June-July 2006, the 10-city and 20-city composite indices are -32.5% and -32.6%.

For foreigners looking at opportunities in the U.S. housing market, it isn’t just a matter of the price drops. A consideration of currency shifts also needs to be factored in. In many cases, the bargains seem unbelievable.

The U.S. dollar reached its peak internationally on March 3, 2009. That was in the darkest days of the financial crisis.

At that time, investors were fleeing risky investments and seeking security in the world’s only true reserve currency.

Since then, the greenback has declined against every other major currency. Some of the most dramatic drops have been as follows: compared with the Australian dollar, -33%; Brazilian Real, -30%; Canadian dollar, -23%; Swiss franc, -20%; Japanese yen, -16%; Mexican peso, -16%; Indian rupee, -12%; British pound, -11%; and euro, -6%.

Even versus the Chinese yuan, the American dollar has fallen 4% since early March 2009.

Interest by foreign investors in U.S. distressed homes should be helping to provide some measure of stability on the price front. This effect appears to have been only minimal so far.

Certainly foreign buyer interest has played a role in Canadian home prices. The media is fond of pointing out how Vancouver home prices, which are far higher than anywhere else in the country, are receiving a boost from wealthy Chinese purchasers.

March’s average resale home price in Vancouver was 72% higher than in Toronto, according to the Canadian Real Estate Association (CREA). There has been an influx of wealthy individuals and families from Southeast Asia under what is termed “immigrant investor” status.

To qualify, applicants must have a net worth of $1.6 million and make an investment of $800,000. Vancouver has become home to about half the number of such new arrivals in Canada.

The decline in value of the U.S. dollar has made U.S. goods exports cheaper and more attractive, helping to provide jobs in manufacturing and tourism/accommodation.

The improvement in the jobs market in the U.S. (+216,000 in March) has helped lift consumer confidence. In April, after a marked decline in March, the U.S. Conference Board’s consumer confidence index rose to 65.4. The month before, it was 63.8.

Consumers’ assessment of current conditions improved for the seventh straight month in April.

However, most of the improvement in the index came from lower percentages of survey respondents expecting business and labour market conditions to worsen over the next six months. One would prefer to see a significant pick-up in the numbers expecting improvement.

The Conference Board’s index is based on 1985=100. The value of the index hovered near 100, with little variation, from 2004 through most of 2007, while the economy’s engine was purring nicely.

During the worst of the U.S. recession, which lasted from early 2008 through mid-2009, the index value plummeted. It hit a rock bottom 25.3 in February 2009.

http://www.reedconstructiondata.com/construction-forecast/news/2011/04/u.s.-home-prices-continue-their-slide-but-confidence-improves/

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What the future holds for Canadian real estate

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Everyone wishes they had a crystal ball, with a clear picture of the future. But homeowners and investors looking at the housing market numbers for clarity are looking in the wrong place.

That’s because the numbers (average price, housing starts, sales-to-listing ratios, etc.) are only a reflection of what has occurred in the past.

Smart homeowners, first-time buyers and investors ignore those stats and focus on the underlying economic fundamentals, and by doing so can quite accurately predict what will happen in their target region’s real estate market.

The “Canadian real estate market” does not exist

Canada is actually a series of regional markets, all of which perform relatively exclusive of each other.

In 2011, the market really will be a Goldilocks story: some markets will be too hot (compared to underlying economics), others will be too cold, and some will perform just right. As our regions continue to detach from each other economically, this trend will continue for many years to come and will compel investors and homeowners to ignore national real estate numbers and trends.

2011 predictions

Long-term increasing prices of real estate stem from economic (GDP) growth.

GDP growth = job growth = (12 months later) population growth = increased rental demand = decreased vacancies = increased rents = (18 months later) property purchase demand = increase in property prices

Sustainable real estate price increases occur approximately 18 months after a region’s economy begins to grow. This cycle works in reverse, too: prices drop approximately 18 months after the economy in a region begins to shrink.

(There can be upward and downward blips not attributed to economic growth, such as when governments enact new measures, but these are just short-term.)

Because Canada’s 2011 market is going to be even more regionally fractured than in 2010, it is imperative that investors and homeowners understand this formula and make their investment decisions based on it, rather than on fluctuating housing market numbers.

http://homeandgarden.homes-extra.ca/Homes/2011/04/18/18032566.html

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Local real estate market shows optimism

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Starting this month, the federal government is toughening mortgage-lending standards for the third time in as many years in an effort to curb Canadians’ appetite for taking on too much debt, currently at a record 148% as measured as a ratio to disposable income.

The federal measures include:

• Limiting Mortgage amortization periods to 30 years from 35.
• Lowering the maximum amount Canadians can borrow to refinance their mortgages to 85% from 90%.
• Having the government withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.

Mortgage amortization periods were as long as 40 years as recently as 2008 when the government reduced them to 35 years. They had been at 25 years for decades before this housing boom. The Canadian Association of Accredited Mortgage Professionals says 30% of new mortgages last year were for amortizations of 35 years.

The housing market in Winnipeg still appears buoyant but in other areas the outlook is less sunny. Canadian household debt has now reached $1.4 trillion and the International Monetary Fund has called it the number one risk to the Canadian economy.

Eventually interest rates have to go up, possibly as early as this summer, and the fear is that higher payments on mortgages and credit cards will cause a ripple effect of mortgage foreclosures and bankruptcies. Rising monthly payments are fine if incomes are rising equally rapidly, but they are not. The price of fuel, food and clothing is also rising and inflation is eating into incomes.

The cure for inflation is higher interest rates, so we are back to square one and some homeowners will find themselves overextended and unable to keep up.

In April last year ,some new mortgage rules went into effect, forcing consumers to qualify based on a higher interest rate than was on their actual contract. It also required all housing investors — as opposed to people who use a home as principle residence — to have a 20% down payment, which mostly affected the condo industry.

Now, the government is planning to get tough on borrowing for the condominium sector, with new rules in the works to make it more difficult to qualify for a loan on a high-rise apartment. Finance department officials admit talks are underway on rules that would add 100% of condominium fees to the list of expenses that is measured against income when deciding whether a buyer can afford a mortgage.

Currently, only 50% of the condo fee is considered. This move, if adopted, has the potential to squeeze thousands of consumers out of the condominium market. To qualify for a mortgage, only 32% of gross income can go towards housing costs — which currently include mortgage payments — including principle and interest, taxes and utilities. Condo developments have been a very active sector in the Winnipeg market and such a move would undoubtedly slow the rapid growth in that sector.

Most analysts think Canada has fared well in the housing market, with none of the massive collapses seen in the U.S. and Europe. Many economists think gradual rises in interest rates will be manageable.

Contrast this with the dire U.S. situation. The city of Stockton, Calif. ranks first on the list of depressed house prices for the second time in three years. The community has been hit hard by the housing crisis, with the average property price dropping by 67% since 2005.

In Winnipeg, the Canadian Real Estate Association predicts home sales here will jump by 4.8% this year and a further 2.5% in 2012. It’s also confidently claiming average home prices here will rise 6.1% this year to $235,700 — and rise again in 2012 to $249,800. The average 2010 price was $222,132 — up 10.3% on 2009.

http://www.winnipegfreepress.com/our-communities/prime-times/Local-real-estate-market-shows-optimism–117250443.html

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Calgary one of the most affordable cities in Canada

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A once red-hot housing market in the Wild Rose province has now cooled as new numbers show Alberta is the most affordable market in the nation.

According to the RBC report, that’s thanks to lower mortgage rates and a further softening in housing prices.

“The combination of prices that have gone a bit lower, meant that mortgage payments have gone down,” says Senior Economist Robert Hogue. “And this is what affordability really measures is those mortgage payments plus utilities and property taxes as a percentage point.”

Those numbers for Alberta are all down including detached bungalows, standard condominiums and two-storey homes that all dipped from one to 2.4 per cent.

The figures in Calgary paint a similar picture with affordability the best it’s been in six years.

It was just a few years ago when the average home price was over $500,000; that now sits at just over $400,000.

According to RBC Cowtown fell the most among Canada’s largest urban markets, declining by 0.9 to 3.1 per cent.

However Hogue says don’t expect Calgary’s reign at the top to last for long.

“What we’ve seen more recently is that market conditions are more balanced now, and the price declines that we’ve seen over the last few years have probably run their course,” he says.

Moving forward for 2011, he says Calgarians should start to see more of a middle ground, instead of a buyer’s market.

http://www.660news.com/radio/660news/article/188455–calgary-one-of-the-most-affordable-cities-in-canada

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Manitoba’s Homeownership Costs Among The Lowest In Canada: RBC Economics

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Manitoba was one of only two provinces where homeownership costs stood below long term averages for all housing categories tracked by RBC in the fourth quarter of 2010, according to the latest Housing Trends and Affordability report released by RBC Economics Research.

“Manitoba’s housing market enjoyed the best of both worlds in the fourth quarter as home price moved a little higher yet ownership costs were lower,” said Robert Hogue, senior economist, RBC. “Continued growth in household income coupled with drops in mortgage rates late last year more than offset the affordability-eroding effect of small gains in property values in the province.”

The RBC Housing Affordability Measures for Manitoba eased for all housing categories in the fourth quarter, pushing levels further below their long-term averages in the province.

The RBC Measures capture the proportion of pre-tax household income needed to service the costs of owning a specified category of home. In the fourth quarter, the measure for the benchmark detached bungalow eased to 34.2 per cent (down 0.6 percentage points), the standard condominium decreased to 20.7 per cent (down 0.1 percentage points) and the standard two storey home dropped to 37.0 per cent (down 0.2 percentage points).

Sales of existing homes in the province significantly ramped up in the fall, reaching near historical peaks by December.

“The demand for housing is being boosted by the strongest net international immigration in the province since the mid 1950s and improved job prospects. Manitoba boasted Canada’s lowest unemployment rate in the fourth quarter of 2010, and we expect this to continue in 2011,” added Hogue.

RBC’s Housing Affordability Measure for a detached bungalow in Canada’s largest cities is as follows: Vancouver 68.7 per cent (down 0.4 percentage points from the last quarter), Toronto 46.8 per cent (down 0.5 percentage points), Montreal 41.3 per cent (down 0.4 percentage points), Ottawa 38.7 per cent (up 0.5 percentage points), Calgary 34.9 per cent (down 3.1 percentage points) and Edmonton 31.0 per cent (down 2.4 percentage points).

The RBC Housing Affordability Measure, which has been compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market in Canada. Alternative housing types are also presented including a standard two-storey home and a standard condominium. The higher the reading, the more costly it is to afford a home. For example, an affordability reading of 50 per cent means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household’s monthly pre-tax income.

http://www.newswire.ca/en/releases/archive/February2011/24/c5440.html

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Canada 2nd Best-Performing Housing Market in 2010

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Canada showed a good housing market performance last year landing the 2nd spot next to Australia, Toronto-based Scotiabank, an international financial organization that dates back to 1671.

Canada had one of the better performing housing markets among advanced nations in 2010, though also one of the most volatile.

An unusually active winter and spring, prompted by pent-up demand, expectations of rising interest rates that only partially materialized, the looming transition to a Harmonized Sales Tax (HST) in Ontario and British Columbia, and pending changes in lending qualifying criteria, gave way to an unusually soft summer.

Over the fall, sales have returned to a more typical, sustainable level, according to the report.

“We are neither overtly optimistic nor pessimistic regarding the outlook for 2011,” stated Warren.

“On the one hand, we expect interest rates to remain at historically low levels, with the Bank of Canada deferring any further rate hikes to late 2011 given an uncertain global economic outlook and subdued inflation, and longer-term borrowing costs drifting up only modestly.

“This is an extremely powerful inducement for both first-time and move-up buyers and should maintain a decent level of sales.”

Yet, demand will likely be tempered by more moderate employment and income growth as government restraint efforts take hold, Warren states.

Public sector hiring has accounted for fully a third of the net new jobs created in Canada over the past year, a pattern not likely to be repeated next year.

“Overall, we anticipate a fairly lackluster year for residential housing, with modestly higher sales volumes and flat inflation-adjusted prices,” says Warren.

“The bigger risk likely awaits 2012 when more significant interest rate increases, combined with record high home prices, will notably strain affordability.”

http://tinyurl.com/2due2ld

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Housing market to be more stable: RBC

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Canada’s housing market is likely to be far more stable in the next two years than it has been for the last two, the Royal Bank of Canada said in a report on Thursday.

The housing market since 2008 was shaped by truly exceptional events and factors such as the global financial crisis, a major recession that destroyed nearly 430,000 jobs in Canada, cuts in policy interest rates to the lowest levels in a generation, the introduction of a harmonized sales tax in Ontario and British Columbia, and the tightening of mortgage rules, RBC’s senior economist Robert Hogue said.

“With the economy (both global and national) on a more solid footing now, the road ahead will be less bumpy,” he said.

But there will be regional variances, the bank expects. With Saskatchewan, Alberta and Manitoba seen leading economic growth among the provinces in 2011, demand for housing will similarly outpace that of other provinces. A slowing housing market is possible in areas east of Manitoba.

The bank expects home prices to rise in all provinces, but at a very slow pace in most cases in 2011.

On average, the bank is forecasting price gains of 0.5 per cent in 2011 and 1.3 per cent in 2012. That compares with a very strong, but unevenly distributed, 8.3 per cent gain in 2010.

“In our opinion, the Canadian housing market is on path towards mostly flat levels of resale activity and minimal price increases this year and next,” Hogue wrote.

Earlier this week, the Canadian Real Estate Association forecast the national average price is now expected to rise by 1.3 per cent in 2011 to $343,300.

Read more: http://www.cbc.ca/money/story/2011/02/10/rbc-housing-forecast.html#ixzz1DjuWE5HP

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Higher assessment doesn’t mean tax hike

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When the city sends you a letter notifying you that your house has increased in value, the tendency is to freak out. But there’s no need to do that just yet.

Every one of Winnipeg’s approximately 208,000 residential properties and 25,000 commercial properties will be reassessed this year — and almost all of them are worth more now than they were two years ago.

“Everyone knows what’s going on in the housing market. Most homes are appreciating,” Mayor Sam Katz said Wednesday.

Between April 1, 2008 and April 1, 2010, the average Winnipeg residential property increased in value by 12 to 15 per cent.

But an increased assessment does not necessarily translate into paying more property taxes in 2012. The reality is next year’s tax bill depends on the value of your home compared to every other Winnipeg property — as well as the political machinations at budget time.

“At this point in time, it’s impossible to say what your taxes will be in 2012,” said Nelson Karpa, Winnipeg’s assessment and taxation director.

However, there is a way to surmise whether you’ll have to pay more property taxes next year. Here’s how the counterintuitive assessment process works:

Why does the city reassess the value of my home?
Every two years, the city checks to see whether the assessed values of residential and commercial properties in Winnipeg conform to their actual market value.

How do they come up with a number?
Generally, by comparing your home to other properties that recently sold in your area of the city, provided they’re roughly the same vintage, condition and size. Across the city, the average residential increase was 12 to 15 per cent.

Why the range?
The average increase varies from neighbourhood to neighbourhood. In River Heights, it was 15 per cent. In North Kildonan, it was 12 per cent. Individual properties within those neighbourhoods vary as well.

So if my assessment goes up, will my property taxes go up?
The value of your home is not the determining factor. What matters is how much it increased over the past two years in comparison to all city properties — both commercial and residential.

How does this work?
If the value of your home increased at roughly the same rate as most other properties in Winnipeg, you may not be asked to pay more taxes in 2012. But if your increase exceeded the combined commercial/residential average, you can expect to pay more taxes.

My taxes went up after the 2008 reassessment. How could that happen if there was a tax freeze in place?
Between 2003 and 2008, the average increase in residential property values was 78 per cent. If your property increased in value by more than that, you started paying more property taxes in 2010.

How was that a freeze?
Because the overall pool of property taxes the city collected did not increase. Some property owners paid less.

What about commercial properties?
The city is reassessing them as well and will calculate the average commercial property increase later this year. They will affect residential property taxes, even though there are only about 25,000 commercial properties.

Why is that?
If you look at property tax revenue as one big pot of money, commercial properties account for about 40 per cent of the cash and residential properties account for the other 60 per cent. Since commercial properties tend to increase in value at a lower rate than residential properties, the city-wide average increase will likely be slightly less than 12 to 15 per cent.

That means the threshold required for you to avoid paying more property taxes in 2012 will be slightly lower as well. But all this assumes city council will not increase property taxes in 2011 or 2012.

Will there be another tax freeze this year?
Possibly, but not certainly. Katz has said he views a tax increase as a last resort. But he may not have much choice, if the city can’t find enough revenue to cover the increasing cost of delivering services.

When will I hear about my new assessment?
The city mailed out the first batch of 2012 reassessment preview letters on Nov. 5 to 70,000 homeowners. Another 62,000 letters went out on Jan. 7. The final 76,000 letters will go out on Feb. 11.

What if I don’t like my assessment?
If you just received a preview letter, you can discuss it with city staff at Waverley Heights Community Club from Jan. 24 to 27. Call or email 311 for an appointment.

If you received your preview letter in November, call or email 311 and ask for an assessor to look at your file. If you have yet to receive a preview letter, wait until February.

Can they change my assessment?
Assessors have the power to make changes if they learn they’ve made a mistake. For example, if your file claims you have a garage and you do not, that, too, would be a mistake. But if you just don’t think your property is worth more and have no argument to back up that opinion, you’re out of luck.

How long do I have to gripe about my assessment?
Until the end of March, when the city begins preparing the final notices to be mailed out in June. “It takes time to print 220,000 pieces of mail or more,” Karpa said. “We can’t adjust the roll at the last minute.”

What if I miss that deadline?
After you get your final notice in June, you can appeal your assessment to the city’s Board of Revision. But it’s easier to deal with the issue now, while adjustments can be made that do not involve a quasi-judicial body.

http://www.winnipegfreepress.com/local/higher-assessment-doesnt-mean-tax-hike-113443394.html

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August Canadian Housing Market Performance

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August home price value jumped 0.2 per cent from July statistics— a clear indication that home prices is moderating across Canada, based from the recent Teranet-National Bank composite home price index.

According to the authors, for the second consecutive month, home value did not rise from the month before in all six markets. The trend of Canadian home prices has been different in every region, there was a noted decline in Calgary and Vancouver while on opposite direction in Toronto, Montreal, Halifax and Ottawa.

See the price gain in these 6 major Canadian cities based from the data gathered from public land registries:

clip image002 thumb August Canadian Housing Market Performance

Results had shown that home value was up 10 per cent in August compare to the previous year. Although majority were gained in the first half of the year.

Buyers rushed into the market amid fears of higher interest rates, tighter mortgage rules and a new harmonized sales tax in B.C. and Ontario—one good explanation why home prices inflated quickly at the beginning of the year. However, the market went on the opposite by spring which was supposed to be the busiest period.

According to a Royal Lepage poll, housing prices drop as well as the sales in the third quarter and increases in housing slowed to a more normal 5 per cent rate year-over-year. The Canadian Real State Association said in its monthly report that home prices in September were little changed from last year at $331,089.

Despite the weak market condition, prices continue hover record highs, which may place the country in a housing bubble. Canadian homes may be overhauled and that home prices drop could more sharply than expected. If this takes place it would exacerbate growing debt burdens that households are facing, said Bank of Canada Governor, Mark Carney.

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