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Predictions of a Bursting Housing Bubble

Posted by: admin in CMHC, CCPA, Canadian Real Estate on Aug , 2010

bubbleWill the bubble burst or won’t it? The Canadian Centre for Policy Alternatives is suggesting Canada’s housing markets could be poised for a big crash akin to the US housing meltdown, but the Canada Mortgage and Housing Corporation is painting a rosy picture and predicting more starts and modest price increases in 2011.
The CCPA made a big splash in the headlines today when they released a report that suggested property values in some markets could drop up to 38% in less than three years. The cities hardest hit from a massive housing correction would be Edmonton and Montreal, but Vancouverites would stand to lose the most – nearly $200,000 on the average home if the CCPA’s worst case scenario predictions are true.
"The bursting of housing bubbles is a rare event in Canada, but the steep rise in house prices in so many cities displays all the hallmarks of an accident waiting to happen," according to David Macdonald, author of the report. The report went on to speculate that at best, Canadian markets were long overdue for a correction, and at worst a full US style market collapse.
Meanwhile, the CMHC’s chief economist Bob Dugan forecast that resales of existing homes would stay practically flat during 2011. The Corporation is predicting between 450,000 and 785,700 resales in 2010 and an average of 456,000 resales in 2011. The CMHC also slightly revised its housing starts estimate – 184,900 units for 2010, very slightly up from the previous estimate of 182,000 units. On the price front, the CHMC is betting more restrictive lending rules and increasing interest rates will deflate any housing bubbles and keeping prices stead in 2010 with minor increases in 2011.
However, even bank economists feel that some markets may be overheated. In a Toronto Sun article, Benjamin Tal, a senior economist and real estate expert at CIBC World Markets expressed concern that markets were “overshooting”. While he was unwilling to use the word bubble, he did say that prices are headed for a drop.
According the CCPA report, the average house price has far exceeded median family incomes, and that spells trouble. Prices for an average family home range anywhere from 4.7 to 11.3 times a family’s annual income – whereas only 10 years ago, they averaged between 3 and 4 times the price. While sales are down (as much as 40% in some markets) prices continue to remain steady, even as interest rates creep up.  The CCPA has warned that even a modest interest rate increase of 1.25 % would push many over-burdened mortgage holders over the edge and trigger a US style housing crash.
Whatever the case is, with even banks feeling cautious and the HST causing uncertainty in two of Canada’s largest housing markets, any potential homeowners should carefully consider their options before taking the plunge.
Sources:

Picture:
Reini68, Flickr

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Canadian Real Estate – is it correcting, or slumping?

Posted by: admin in Sales, CREA, CMHC, Canadian Real Estate on Aug , 2010

tuscan slopeIs it the HST? Creeping interest rates? High prices? Something is killing the Canadian real estate market - Canadian real estate sales have dipped sharply – and expectations should be following suit.
A year ago, Canadians marveled at the strength of the property market here. Prices and sales were up, while we noted quite smugly, that Americans were seeing record declines and price erosion in their real estate listings.
What a difference a year makes.
In 2009, Canadian home prices jumped  19% over prices from 2008 – compare that to 2010, when prices have risen a comparatively modest 5%, but sales are way, way down – as much as 40% in some markets. Meanwhile, the Canada Housing and Mortgage Corporation announced that housing starts are down again – falling for a third straight month, more than 10% from their peak in April.
Clearly demand is down, but prices aren’t set to follow suit.  Statistics Canada is anticipating that housing prices will rise by an almost imperceptible 0.3% in June – making that the 13th straight month that housing has gotten more expensive in Canada.  The Canadian Real Estate Association (CREA) is predicting a 7.3% decline in sales for 2011, but still expects housing prices to rise.
So, what’s going on in a formerly red hot market? A slowing economy, rising interest rates, and according to many realtors, the HST in BC and Ontario (two of Canada’s biggest housing markets) have all combined to make people re-asses their decision to buy real estate.
Unfortunately, as these factors aren’t poised to go away any time soon, which means that Canadians might need to get used to a… stable property market.
Over the last ten years, a booming economy and then unprecedentedly low interest rates pushed many people to buy homes and investment properties – statistics from CREA show that the average price of a house more than doubled in the last decade – climbing an incredible 110%.   However, going forward, the housing market might be much closer to the 1990s than the 2000s, if you ask Don Lawby, the Chief Executive of Century 21.
According to Lawby, the 1990s had a steady real estate market:  prices rose every year, due to real factors like inflation and natural market demand, but not factors like impending taxes, mortgage rule adjustments and speculators trying to get huge returns on their investments.
Is a stable property market bad? No – it’s probably better. People selling real estate will need to adjust to the fact that property may not be the get rich quick scheme it once was, but more buyers may be lured out of the woodwork, enticed by the safety of a stable market which promises no big gains, but no threat of huge equity destroying corrections either.  For years, everyone wanted to buy real estate to see how big they could win – those with a lust for gambling might just have to go back to the stock market.
Image: Canadians might just have to get to a market that rises slowly and steadily.
Credit: Robert Crum, Flickr

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What to do if you want to sell your home

Posted by: admin in selling, Realtors, moving, how to, CMHC on Aug , 2010


sell your homeSelling real estate can be a big headache. Finding a realtor, showing the house, entertaining offers… then worrying about taxes, fees and other administrative details can make the process seem far more complicated than it needs to be.  So, if you want to sell your home, doing your homework before you get onto the real estate listings can save you a lot of hard work and sleepless nights.
Step 1 - Decide what your home is worth:
This might seem like a no brainer, but many people don’t do this. They forget to factor the costs of improvements or pre-sale repairs into their home’s value. Getting the property appraised, then comparing it to other, similar homes can be very helpful. If you’re not prepared to accept what similar properties have fetched, you might need to wait. Only you can decide how much you’re prepared to gain or lose if you sell your house.  Set your minimum price and stick to it, unless you really need to get out of your current situation, it will help you decide what offers you’re willing to entertain.
Step 2 - Really get to know your Realtor:
Realtors can be incredible assets, but they don’t work for free. Ask them about their commission fees – what can you expect when you sell your home. Realtors can also help you figure out all the other taxes, fees and paperwork that will go with selling your home. Knowing what to expect ahead of time will make the process go much faster when it starts.
Step 3 - Scope out the competition:
Visit other open houses in your neighbourhood and see what your direct competition is doing. Ask your realtor what the best features of your house are, and how you can really use them to entice buyers.
Step 4 - Take care of repairs:
Sometimes it’s little things that can put off buyers – doing small repairs and freshening up paint doesn’t cost much, but it can make your house look far more appealing to buyers who aren’t interested in getting a property that looks shabby and comes with a to-do list a mile long. You might also consider having a professional inspector look at your home.  If there are serious problems with your home, you can have them fixed before putting them on the market and letting buyers discover them.  If there are not problems, you can show buyers that your home has been professionally inspected and they can have confidence in it.
Step 5 - Make it look great, inside and out:
Removing extra knick-knacks, clutter and personal items can also make a big difference. For better or worse, buyers will be looking for a blank slate that they can imagine themselves living in. You may love your bright pink sofa and shag rug, but some people won’t be able to look past it. If you’re bad at this kind of thing, consider hiring a professional stager.  The Canadian Mortgage and Housing Corporation (CMHC) has an excellent and thorough checklist you can work through.
And there you have it. If you start work ahead of time, you’ll have a property that looks great inside and out, has no major issues and has killer features that make it shine above the competition. Better yet, you’ll know how much money to expect from your sale, and will have already planned for the fees. Selling real estate isn’t without complications and hitches, but you can make it run as smoothly as possible.

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Helping homeowners direct...will this avoid foreclosures?

Posted by: tim in Vancouver, Sales, Realestock, real estate, property, Mortgage, G8, downsizing, Community, CMHC, Canadian Real Estate, buyer's market, British Columbia on Oct , 2009

Many people incorrectly believe that all of the bad news about homeowners defaulting on their mortgages mostly relates to the United States. Although there are obviously a lot of people who are losing their homes in the US, other countries are not immune to similar problems. The United Kingdom for one, is looking a number of house repossessions (as we Brits call it) and possibly even a longer recession period than the US. Problems in the UK have been partially exacerbated by scary mortgages like the Northern Rock’s ‘together’ mortgage where you can borrow 125% of your home’s value.

Here in Canada we have been lucky that our banks and mortgage lenders have been more conservative. However, this does not mean that here in Canada we are immune to these problems. Although foreclosure rates are much lower, the country as a whole is experiencing higher unemployment, which means that many, through no fault of their own, are losing their homes.

In the Globe and Mail this week, it was announced that Canada Mortgage and Housing Corporation, in partnership with a number of major Canadian banks, will be bringing forward measures to help homeowners BEFORE they get into trouble or behind on payments. Banks will be calling, mailing, and emailing customers to let them know about various ways that they can help them manage their mortgages better. These include:

· Converting a variable rate mortgage to a fixed rate one, so to avoid sudden interest rate increases

· Offering a temporary short-term deferment of payments

· Offering payment flexibility

· Extended the term or amortization period of the loan. While the 40 year loan was gotten rid of months ago, there is still an option to have 30 or 35 years, and if you have a 25 year mortgage, that’s quite the monthly savings (although much more expensive in the long run…)

· Negotiating special payment options on a client to client basis

· Adding any missed payments to the balance of the mortgage

I think this is a fabulous idea. All of the riskier 5% or less down loans (and I use the term risky loosely, because plenty of young, first time buyers could only afford to put 5% down , and pay their mortgage perfectly well – myself included) are insured and backed by CMHC, and so the fact that they are taking action to prevent the terrible situations that we have seen in the US is great. However, will most homeowners be able to admit that they are in trouble? Your mortgage should only be approximately 30%/35% of your gross income, so if you are having an issue keeping your mortgage, insurance, heating and hydro bills in check, then you might want to talk to your mortgage advisor. If you work in a high risk industry like auto or construction, and finding it hard to make payments due to a decrease in work, this might be a good time to refinance or extend amortization just in case.

What do you think? Is this too little too late? Or is this something that may help Canadians from losing their homes?

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