Weekly Mortgage News for March 1, 2013

This weeks top stories include how BMO insists that there is no risk of a housing bubble, how new home sales have declined this year by almost 35%, how baby boomers are looking to downsize but condo living is not an option for them, how the new mortgage lending guidelines are being blamed for the lack of new building permits and how Canada Mortgage & Housing Corporation is hiding foreclosure data.

No housing bubble

A new report released this week by BMO state that any concerns of a housing market bubble are unfounded.  BMO states that home prices are still affordable in 75% of the country except for Toronto, Victoria and Vancouver.  BMO did note that the housing market is currently 10% overvalued.  This is half of what it was in 1989 when prices began crashing and the dust settled with an overall 13% market correction.

This is also 33% of the prices U.S. homes reached before they declined a whopping 34%.  Even with substantial home price increases in the past 10 years, home prices are still considered to be affordable in most parts of the country.  Mortgage payments for the average Canadian home owner are only currently taking up 28% of a family’s income and only 23% if you take Toronto and Vancouver out of the equation.

Toronto, Victoria and Vancouver all are still exposed to a market downturn due to escalating prices that have drastically decreased the number of potential buyers for properties.  This risk is minimal as long as the Bank of Canada continues to keep low mortgage interest rates.  Currently, Toronto mortgage payments on an average single family home take up 43% of the median family income, which is roughly $72,000, which has increased 40% from eight years ago.

Homes are affordable in the governments eyes when it takes less than 39% of a family’s income to cover the costs of the home including the mortgage payments.  Right now in Vancouver, mortgage payments on an average single family home take up 79% of the median family income and surpasses 80% when you factor in insurance, utilities and property taxes.  Toronto is the other side of the fence where condo’s are only taking up 23% of median income and raises to just 31% when home related costs are added.  What do you think?  Are homes really that unaffordable?  Please comment below.

Read the full article here

New home sales decline

New home sales were down in the Greater Toronto Area (GTA) in the month of January.  Sales were down almost 35% from last year.  According to RealNet Canada Inc., 1,248 homes switched hands this January while last year saw sales of 1,918.  When compared to two years ago, sales have declined 44%.

High rise sales also took a hit with only 686 high rise sales in January across the whole of the GTA, which had dropped from 744 sales last year during the same period.  High rise prices, according to the RealNet Home Index, rose 2% in the month of January, on a year over year basis.  The index price is currently at $435,722 for a condo in the GTA.

The Building Industry and Land Development Association (BILD) has noted that the low rise market has declined due to government land policies that caused the index price of a low rise home to increase 16% from a year ago to $639,588.  BILD commented on the matter stating, “The tale of the low-rise market is illustrated by constrained land supply and a lack of product and choice.  People still want to purchase a detached, semi-detached or townhouse in the GTA and over the last few years, we have seen a reduction in sales of ground-related housing.”  What do you think?  Please comment below.

Read the full article here

No condo living for boomers

A new report released by Royal LePage discussed how the baby boomer generation is on the cusp of retirement starting in the next five years.  We expect than many boomers will be downsizing their homes but the news here is that they don’t expect to be downsizing to condo’s.  Phil Soper, CEO of Royal LePage says, “They love their garages and their yards.”

In the recent Royal LePage study, numbers showed that out of 1,011 baby boomers that were surveyed, 40.6% stated that they would move out of their current home and directly into another home.  25.9% stated that they would move out of their current home and into something smaller in size and 18% stated that they would move into something bigger than their current home.  54% of baby boomers agreed that they would downsize but only 22.9% stated that they would downsize to a condo or an apartment.

This is negative news for the condo market, which was expecting a surge of activity from the baby boomers.  With roughly 40% downsizing to bungalows, you can expect that the single family homes market to heat up in the next five years.  This will be a tough market to get in to as land continues to become more scarce.  What do you think?  Please comment below.

Read the full article here

Mortgage rules cause permit decline

Statistics Canada released a report stating that tighter mortgage lending guidelines are responsible for the decline in sales in the housing market and especially in the condo market.  This was proven though Decembers building permit numbers.  The value of building permits in Canada dropped 11.2% in the month of December after already witnessing a 14.5% decline in the month of November.

This is the largest two month decline since they started collecting the data in 1989.  The value of building permits are now 16.2% lower than the previous year.  Reuters survey of analysts showed expectations of a rise in the value of building permits by 5% in the month of December.  Permits for multi-family housing, including the condo sector, was down 24.6%.  Permits for single family homes were down 5.3%, which is the third consecutive decline.

Emanuella Enenajor and Andrew Grantham of CIBC World Markets were noted as saying at the time, “Today’s figures suggest Canada’s home building sector could be a drag on activity in late 2012/early 2013, and the recent trend in slowing permits bodes poorly for tomorrow’s housing starts reading.”  Housing construction will continue to decline to more sustainable levels this year and next year but building permits are always low during the winter. 

RBC assistant chief economist Paul Ferley stated, “If you get a little bit of noise through the winter period, the seasonal adjustment can be so large that it can result in a very sharp move in one month that’s likely not going to be sustained.” The residential sector took most of the brunt when it came to permits with building permits dropping by 13.1% in December.  What do you think of the data?  Building permits are always a sign of what’s to come.  Do you think we are going into a cooling period for housing?  Please comment below.

Read the full article here

CMHC hides foreclosures

Canada Mortgage and Housing Corporation (CMHC) has continued to request that realtors not disclose information on whether or not properties are sold as foreclosed.  CMHC’s national policy is to not disclose this information to the general public and Quebec realtors are now  making a push to change these rules as they worry about an ethical breach on their part.

The Quebec Federation of Real Estate Boards (FCIQ), responsible for 12 boards in the province of Quebec, challenged CMHC on realtors not reporting on detail sheets that are required for the sale of a property.  The information is mandatory when it is loaded by realtors onto the local MLS system.  FCIQ was noted as saying, “Because the repossession field is currently a mandatory field in the brokerage system you have no choice by to indicate ‘no’, which goes against ethical rules stipulating that real estate brokers are obliged to publish information that is truthful and verified.”

The two parties came to an agreement by implementing changes that make it so that it is no longer mandatory to show that a home was in a foreclosure status.  There are concerns over why CMHC is implementing this practice.  Is it preparing for a slew of foreclosures in the near future that it doesn’t want to report?  Also, if properties end up in foreclosure, without knowledge of the foreclosure, many properties could not be low balled knowing that the property must sell.  Is this to hedge their future losses so that can get more back for properties after foreclosure?  Please comment below.

Read the full article here