This weeks top stories include how rising condo maintenance fee’s are not swaying buyers, how finance minister Jim Flaherty is taking credit for the slowing housing market and states that the new mortgage rules are working, how the Bank of Canada left it’s overnight lending rate unchanged again at 1%, how home sellers in Vancouver are pulling their listings off the market so that they don’t lose money, how the condo market is taking the brunt of the housing market slowdown, how Scotiabank economist feel that interest rates will remain unchanged through 2013 and how home sales in Toronto have declined 16% in the month of November from last year during the same period.
It seems that you can now purchase a condo for as little as $60,000 but there is a catch. The condo fee’s are through the roof and would be more than your mortgage payment. It seems that the older a condo development becomes, the more repairs that are needed. This means an increase to the monthly condo maintenance fee to cover the cost of the repair or even an overnight levy that could be substantially high.
The added costs are not swaying buyers from purchasing but a recent survey shows that many condo owners have not taken into account that fee’s do increase. The same survey showed that 68% of condo owners had no idea that maintenance fee’s could rise and 38% stated that they could not afford an increase in maintenance fee’s. When borrowers are qualify for a mortgage, the lenders only look at 50% of condo fee’s when they are qualified. This means that lenders have not taken into account any increases in maintenance fee’s in the future.
Some people are willing to pay high maintenance fee’s for amenities as long as they are useful to them. This could include a gym, pool, billiards room theater or more. Maintenance fee’s have increased 2¢ from a year ago and is now averaging 59¢ per square foot per month. The thing to look at when purchasing a condo is the number of units that the condo has. More units means that any increases are spread out over more units and costs an individual less. What do you think? Please comment below.
Finance minister Jim Flaherty is taking credit for the cooling housing market in Canada as was noted as saying that a slowdown now is better than a market crash later. The comments were based around the immediate cool down of Canada’s housing, which have also caused a slowdown in the Canadian economy as the sector contracted 3.5% annualized in the third quarter (Q3) of this year.
July of this year was the fourth time that we have seen mortgage lending rules tighten. This not only slowed sales and resale activity but also caused house prices to decline in some markets. Mr. Flaherty commented, “The housing market has softened somewhat in part because of steps that I’ve taken and I’m happy about that. Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust. So I’m all for a soft landing.” Bank of Canada (BoC) governor Mark Carney and Jim Flaherty have both been warning Canadians about the perils of taking on too much debt for the past two years.
The goal from the changes were to slow down household debt and mortgage debt without increasing interest rates, which would impact the entire economy. They did this by reducing the maximum allowable amortization periods from 30 years down to 25 years. This was after taking back the amortization periods from 40 years to 35 years and again from 35 years to 30 years. CIBC economist Benjamin Tal stated that Flahertys latest moves were taking place at a time that the market was already showing signs of cooling. He believes that there is more to the correction and that house prices are still in for a 10% decline within the next year. What do you think? Please comment below.
The Bank of Canada (BoC) decided to keep its overnight lending rate unchanged at 1% on Tuesday of this week, where it will stay for the rest of the year. This leaves lenders variable interest rate at 3%, where it has been for quite some time. The central bank stated that the economy is still in a weak condition and that it is not in a position to raise interest rates at this time.
The bank stated that the next interest rate announcement will likely be an increase if we stay on the current path. This was expected by many as the third quarter (Q3) of this year showed weak gains. Some economist speculated that there may be another interest rate cut in the works but that seems highly unlikely at this time. The BoC did note that the pace of economic activity is expected to rise next year. The BoC also stated that household credit and debt is beginning to decline. I anticipate that rates will stay low through the majority of next year. What do you think? Please comment below.
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The Vancouver housing market continues it’s decline with the latest numbers showing sales in the month of November 30.3% below the 10 year average for the month. Home prices are declining with sales according to the Real Estate Board of Greater Vancouver (REBGV). The board stated that many are pulling their homes off the market rather than settle for less money today.
Vancouver is Canada’s most expensive housing market where the average sale price of a home reached a peak of $625,000. This is off by 4.5% today with the average home costing $596,900 and off 1.7% from last year. Eugen Klein, president of REBGV commented, “Home sellers appear more inclined to remove their properties from the market today rather than lower prices to sell their properties. On the other hand, buyers appear to be expecting prices to moderate.”
According to the board, there were 1,686 sales in the month of November, which is a drop of 28.6% from last year. October’s decline alone was 12.7%. There were 2,758 new listings on MLS in the month of November for the Greater Vancouver Area. This is a 14.4% decline from last year. New listings were down 36.2% from October, which leads us to believe that many people will wait to sell their homes until prices rebound. What do you think? Please comment below.
Sales and prices both seem to be on the decline in the Toronto area, where a 16% decline in sales has taken place since November of last year, according to the latest release from the Toronto Real Estate Board (TREB). Condo’s continue to take the brunt of the hit with resale transactions down 25.5% across the Greater Toronto Area (GTA) and prices currently down an average of 2.3% overall.
Toronto took the largest hit in the condo market with city condo’s down almost 4% from last years figures. Resale housing prices were basically flat, only increasing by 1.6% from last year to an average of $485,328. This is a huge change from last years bidding wars as properties are now taking an average of 30 days to sell. TREB president Ann Hannah stated, “Transactions have been down on a year-over-year basis since June, after being up substantially in the last half of 2011 and the first half of 2012. Some buyers pulled forward their decision to purchase, which has impacted sales levels in the second half of 2012.”
TREB continued to lay blame on the cooling market on Finance Minister Jim Flaherty’s changes to the mortgage lending guidelines and noted that the decrease in amortization from 30 years to 25 years may be the root of the housing market cooling. TREB also noted that Toronto’s land transfer tax may have also attributed to the slowdown. Higher price home sales also continue to decline as changes to Canada Housing & Mortgage Corporation (CMHC) insurance rules, where no home over $1 million can be insured through CMHC, do their part to dry up the high price homes sector for anyone without a 20% down payment. What do you think? Please comment below.
Scotiabank’s head economist thinks that because inflation is currently so low, the Bank of Canada will continue to keep low interest rates through 2013. Scotiabank chief economist Warren Jestin commented, “The Bank of Canada is unlikely to change interest rates in 2013, particularly with inflation so low. Under the current forecast, we don’t see interest rates in this country changing at all over the next year or so. Inflation is going nowhere fast. We may see some inflation in food prices or other areas but by and large the economy is too soft to generate inflation. There is no cost push in place.”
Consumers will continue to benefit from low interest rates with minimal payments on mortgages and variable rate lines of credit. The concern around household debt remains with cheap money fueling a borrowing frenzy in Canada. Finance Minister Jim Flaherty has been discussing the downfalls of low interest rates for the past two years and has made numerous attempts to warn consumers of the perils of over borrowing. What do you think? Are Canadians borrowing more than they can afford? Please comment below.
Toronto is Canada’s largest housing market and the activity in Toronto has continued to weaken as November sales have declined 16% from the November of last year. Prices have remained stable with the average sale price increasing 1.6% from last year during the same period and reached $485,328 with the Toronto Real Estate Board (TREB) benchmark price index increasing by 4.6% during the same period.
Ann Hannah, president of TREB commented, “Transactions have been down on a year-over-year basis since June, after being up substantially in the last half of 2011 and the first half of 2012. Some buyers pulled forward their decision to purchase, which has impacted sales levels in the second half of 2012.” The Toronto Board had 5,793 sales last month on the MLS system. TREB continues to lash out at Finance Minister Jim Flaherty for troubles in the housing market.
Ms. Hannah commented further on this by saying, “Stricter mortgage lending guidelines, including a reduced maximum amortization period and a purchase price ceiling of one-million dollars for government insured mortgages, have prompted some buyers to move to the sidelines. This situation has been exacerbated in the City of Toronto because the additional up front land transfer tax takes money away from buyers that otherwise could be used for a larger down payment.” What do you think? Were the latest changes to the mortgage rules justified? Please comment below.
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