RETIREMENT
No policy change is needed to prevent the housing
bubble: There isn't one
Vancouver Sun February 11, 2010
It's not clear what problem Canada's chartered banks want the federal
government to solve by toughening mortgage rules. But the Big Six are
urging Ottawa to take measures, such as raising the minimum down payment
and shortening the maximum amortization period, to avert a U.S.-style
bubble and bust and the broader economic consequences that would bring
about.
However, there is no bubble -- Canada Mortgage and Housing Corp., the
Bank of Canada and the federal finance department all seem to agree
-- and an ill-timed move to dampen the housing market could set back
the economic recovery.
Besides, the government has already curbed the excesses of an overly
enthusiastic CMHC, which loosened the standards on mortgages it would
insure a few years ago to include no money down, interest-only payments
and 40-year amortizations. Even with those relaxed rules, no subprime
mortgage crisis emerged. To qualify for a zero down payment, a buyer
still needed a solid credit score of 680 or better.
To be sure, housing in Canada is expensive.
The 6th annual Demographia International Housing Affordability Survey
released last month found only five markets in Canada that it described
as affordable, meaning the median price was three times the median income
or less.
Vancouver's multiple was 9.3, the most unaffordable of the 272 markets
covered.
Perhaps the problem to be solved then is not high house prices but
low incomes.
In 2008, the average Canadian family earned $71,764 and paid 44 per
cent of it in taxes. That's more than the proportion of income spent
on food, shelter and clothing combined.
More than two-thirds of Canadians own their homes and half of them
are mortgage-free. For most, their homes provide a store of wealth,
security in retirement. Their home equity maintains their independence.
Why would government want to undermine them with policies that lower
property values.
Between 2004 and 2008, Canada's new housing price index, according
to Statistics Canada, rose by 28 per cent, or 5.6 per cent a year. That's
a steady market, not a frothy one. Housing prices dipped by just over
two per cent during the 2009 recession and began to recover in the fourth
quarter.
CMHC forecasts sales of existing homes to increase to 445,150 units
this year, compared with 441,300 in 2009, while the average price will
rise to $324,500 from $312,950. No problem there, even though pent-up
demand has recently accelerated buying activity.
What makes the banks' lobbying for policy changes perplexing is that
they control roughly 75 per cent of Canada's mortgage market. In other
words, they determine who qualifies for a mortgage, in what amount,
at what interest rate and for how long. The rate of mortgage default
in Canada is so small as to be insignificant. And since all mortgages
granted with less than 20 per cent down must be insured by CMHC, the
banks assume no risk whatsoever.
The recent upsurge in housing demand may well be partly fuelled by
the expectation that interest rates will go up in the second half of
2010, as the Bank of Canada has hinted. If they do, that should cool
things off.
The banks have all the tools at their command to lend money only to
qualified borrowers. There is no need for policy changes to fix a problem
that doesn't exist.
© Copyright (c) The Vancouver Sun
How Strong is Third Quarter for MLS® home sales?
OTTAWA – October 30, 2007 – National MLS® resale
housing activity edged back in the third quarter of 2007 from its peak
in the second quarter but remains very strong, according to statistics
released by The Canadian Real Estate Association (CREA).
Seasonally adjusted MLS® sales activity totaled 129,451 units in
the third quarter of 2007, a 3.2 per cent decline from the record set
in the second quarter. The quarterly decline in activity reflects fewer
sales in Alberta, Ontario and Quebec. Fewer transactions in those provinces
more than offset a quarterly increase in activity in British Columbia.
Seasonally adjusted sales set new quarterly records in Nova Scotia,
and Newfoundland and Labrador in the third quarter of 2007. In line
with national resale activity, sales reached their second highest quarterly
level ever in Saskatchewan, Manitoba, Ontario and Quebec.
Transactions for the year-to-date in September numbered 419,342 units,
up 8.4 per cent over the same period last year. Year-to-date sales continue
to run ahead of levels for first nine months of 2006 in every province
except British Columbia.
A seasonally adjusted total of 41,390 homes traded hands via the MLS®
systems of real estate boards in Canada in September, a 3.7 per cent
decline from August. Activity was down from August levels in British
Columbia, Alberta, Saskatchewan, Ontario and Quebec.
The national MLS® residential average price rose 11.7 per cent
year-over-year in the third quarter to $308,543. Average price reached
the highest quarterly level on record in British Columbia, Alberta,
Saskatchewan, Prince Edward Island and Newfoundland and Labrador.
MLS® residential new listings numbered 213,547 units on a seasonally
adjusted basis in the third quarter of 2007. This is the second highest
level on record, and just two tenths of one per cent below the record
set the previous quarter.
The mild decline in activity caused the resale housing market to become
more balanced in the third quarter. A surge in new listings has caused
markets in Alberta and Saskatchewan to become considerably more balanced
since the beginning of the year. By contrast, the market tightened in
most other provinces.
Seasonally adjusted MLS® residential dollar volume was valued at
$40.2 billion in the third quarter of 2007. This is the second highest
level on record, down just 1.4 per cent from the peak in the previous
quarter. New quarterly records for dollar volume were set in British
Columbia, Saskatchewan, Ontario and Newfoundland and Labrador.
“Over the long haul, the increase in listings combined with the
slight decline in sales activity means a strong and stable real estate
market, and that is good for both buyers and sellers” says CREA
President Ann Bosley. “We do expect to see an adjustment in the
Toronto market which will reflect the reaction to the new municipal
land transfer tax which will be implemented January 1, 2008. However,
we have not seen any of the large adjustments that have affected markets
in the United States.”
“ Resale housing activity reported through the MLS® has eased
back from its breakneck pace reported in the first half of the year,”
CREA's President added, “but sales activity remains on track to
set another annual record this year.”
“Dramatic price increases are beginning to temper housing demand
in Alberta and Saskatchewan, but activity there is still quite elevated,”
said CREA Chief Economist Gregory Klump. “In response to a dramatic
increase in listings, resale housing markets there are becoming more
balanced, which should result in smaller price increases next year.
Strong sales activity and the lack of a dramatic increase in listings
have caused markets in other provinces to become tighter since the beginning
of the year.”
Boomers driving market for upscale homes
Aging demographic looks for bells and whistles
Wealthy baby boomers are shying away from the traditional path of downsizing
properties as they approach retirement and instead are looking to upgrade
to more expensive homes, according to a study released by Re/Max.
The First Wave report examined aging baby boomers and their impact
on retirement housing in 18 major Canadian centres. The study found
that a significant number of baby boomers – a demographic that
tops out at those now 58 years old – were upgrading to more expensive
properties. Some, the report says, are even assuming mortgages, a surprising
trend at an age where many are enjoying the benefits of not having to
make monthly payments.
“As the first wave of baby boomers head into their retirement
years, REALTORS and builders alike are scratching their heads,”
says Elton Ash, vice-president and regional director of Re/Max of Western
Canada. “Bigger, better, and more expensive homes? Most of us work
all our lives to be mortgage-free. The thought of incurring debt at
this stage of the game has given many of us reason to pause.”
According to Statistics Canada, boomers holding mortgages is becoming
more common. In 1999, 59 per cent of Canadian homeowners between 45
and 54 and 35 per cent of homeowners between 55 and 64 held mortgages.
By 2001, those figures had jumped to 61.6 per cent and 39.1 per cent,
respectively.
The report says that baby boomers are not content to live with the
existing housing mix, especially as it pertains to retirement living.
Low maintenance, security, and location are major factors driving activity.
As a result, the report says, condominium sales are on the upswing across
the country, representing anywhere from five per cent of the total sales
activity in Cornwall, Ont., to a more significant 31 per cent in Vancouver
and 30 per cent in cities like Toronto and Edmonton.
With the appeal of investing in U.S. real estate falling due to the
high cost of health insurance and a high Canadian dollar, aging baby
boomers are moving into major centres to be close to family, friends,
cultural activities and health care services. Luxury condos, golf and
adult-lifestyle communities, secondary residences, and smaller homes
in better areas are prime targets for boomers looking to change residences.
With Canada’s senior population expected to double in the next
20 years to a level of approximately seven million, the report says
housing inventory levels may be heavily taxed in the future, as builders
and developers are only now moving to accommodate this demographic.
(Article by CREA) 18/02/2004)
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