Canada’s resale sales through the roof

Sales of exisiting home sales in Canada jumped 31.5%

Sales of existing homes in Canada jumped 31.5% in the second quarter from the previous one – their first year-over-year quarterly increase since before the peak of the financial crisis, the Canadian Real Estate Association said this week.

The industry group said actual home sales totaled 147,351 units in the second quarter of 2009, up 1.4% from the same quarter of 2008.

Home sales rose 8.7% in June from May on a seasonally adjusted basis. They were up 17.9% from June 2008, using non-seasonally adjusted figures.

“This is on par with the record for the month of June, set in 2007, and is the fourth highest ever for activity in any month on record,” CREA said in a report.

A total of 41,304 homes changed hands in the month.

The report is the latest piece of evidence showing that consumers are venturing back into the home market, encouraged by low mortgage rates and signs that the worst of the recession is over.

“The recovery in the Canadian housing market continued in earnest in June …,” said Millan Mulraine, economics strategist at TD Securities.

“With prices remaining quite favorable and low borrowing rates enhancing affordability, it is likely that this uptick in sale activity may continue for some time as the recovery in the housing sector takes hold,” he said.

The average home price rose 3.6% year-over-year to a record high $326,613 in June.

On a quarterly basis, the average price was up 0.5% from a year earlier to $318,696.

But CREA said strong sales activity in a handful of very expensive markets was distorting the national average to make prices look unusually high.

Sales growth in Vancouver, Toronto, Montreal, Calgary and Edmonton contributed most to the national increase.

The inventory of unsold resale homes – measured as the number of months it would take to sell the stock of houses at the current sales rate – fell to its lowest level since August 2007 at 4.2 months.

Reuteurs – National Post

The great rate debate – short-term or long?

When finances are tight, it’s good to plan ahead and have a clear idea of what your future expenditures will be. One of the standard ways to plan a budget is to base your monthly expenditures on your mortgage payment and fit other expenses around that. A fixed-rate mortgage gives you set monthly payments for anything from one to 10 years, allowing for a stable financial plan. There are currently five-year deals available at about 4%. On the other hand, if you are strictly looking for the lowest payment possible and feel you are able to tolerate the risk of a future rate rise, then you may choose a variable rate.

“The lowest variable is prime [2.25%] plus 0.3% and it goes up to prime plus 0.6%. It’s so low that it’s only going to eventually go up,” says Paula Roberts, a mortgage broker for Mortgage Intelligence in Unionville. “What’s most important is if clients want to take advantage of the prime plus, say, 0.5%, they need to be prepared that if prime goes up to 4%, their rate goes up to 4.5%.”

The Bank of Canada has signalled it is likely to keep rates unchanged until June 2010. This means an existing variable deal linked to prime is stable for the time being, but rates on new fixed-term deals (which are based on bond yields rather than prime) are rising.

“It does make the decision a little bit difficult … where one is apparently locked for at least another 11 months and the other one is slowly creeping up,” says Michael Gregory, senior economist at BMO Capital Markets. “The differential has become quite wide … so you are paying what would appear to be a pretty hefty insurance premium[if you choose a fixed rate] to guard against higher variable-rate mortgages.”

Both Ms. Roberts and Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals ( caamp.org),recommend checking the fine print on a new variable mortgage to ensure it permits you to lock in at a fixed rate when variable rates start to rise.

For refinancing an existing mortgage, Mr. Murphy cautions that the penalty for an early payout will likely outweigh any gains in reduced interest.

“If you’re only in the first year or even the second year of a mortgage … generally speaking, the penalty is going to be much higher,” says Mr. Murphy. “You’ve really got to sharpen your pencil and do the math and make sure that you’re getting an advantage.” Penalties are generally three months’ worth of interest payments or the interest rate differential on the balance, but check the fine print.

And the decision to switch also depends on where in your current mortgage term you are. Ms. Roberts says clients who have less than $100,000 to pay off may be more tolerant of rate rises than a client who is at, say, the start of paying off a $400,000 loan and may want to lock into a predictable fixed rate.

Ms. Roberts recommends that, if you do sign on to a new variable rate mortgage, you set your payments as if they were at a fixed rate of, say, 5%.

“More money is going to principal, and when you lock in at 4.5%, it’s no shock to your payment,” says Ms. Roberts. “The last thing anybody wants is to have to sell their house because they can’t afford it.”

As for deciding the best moment to lock in? There are no easy answers.

“There’s been a lot of stimulus. Maybe we will have inflation problems, in which case central banks will have to raise rates quickly and aggressively to try to cool that,” says Mr. Gregory. “That is one risk you’ll face with certain variable rates. It’s definitely a hard choice for consumers.”

Helen Morris, National Post

Improved affordability lifts Canada’s housing markets – Part 2

Regional Overview – BC & Alberta

British Columbia — Market springing back to life
The repair of poor affordability levels in British Columbia accelerated significantly in the first quarter of this year, with RBC’s affordability measures dropping between 3.4 and 7.4 percentage points. For most housing types, the cumulative declines over the past year have been the sharpest since 1991, which has helped
to set the province’s housing market onto a healing course in recent months. Sales of existing homes have picked up vigorously from historical lows during the November-January period, and prices have shown hints of leveling off after generally falling since winter last year. At the same time, the pace of homes being put
up for sale has slowed considerably, which has contributed to rebalance the market. With construction of new units still extremely weak and, therefore, bringing fewer homes onto the market, better balanced conditions are likely to persist and put a floor under prices in coming months.

Alberta — Affordability restored
Declining mortgage rates and sinking home prices throughout 2008 and early 2009 worked their magic towards restoring homeownership affordability in Alberta. Following record quarterly declines in the first quarter of this year – ranging from 3.3 to 6.1 percentage points – RBC’s affordability measures for the province were broadly back to their long-term averages. This has sparked renewed interest from buyers, who have made a welcome return to the market recently. Sales of existing  homes have rebounded smartly this spring from their lowest point at the turn of the year since 1996. Market conditions have tightened as a result of the effect of
stronger buying interest and more restraint on the part of sellers. With less supply hitting the market — housing starts have been at a 14-year low since the start of this year — and an economic backdrop that is expected to show increasing signs of recovery, Alberta’s housing market is likely at the point of turning the corner.

Metro Markets – Vancouver & Calgary

Vancouver — Reviving at last
Significant improvement in affordability during the last year seems to be reviving Vancouver’s housing market. Despite a soft economy and surging unemployment, greater affordability has helped resale activity rebound smartly in the last few months, retracing about one-half of the earlier dramatic 60% drop from the peak in
mid-2007. The year-over-year drops in RBC’s affordability measures for the city in the first quarter — ranging from 8.9 (condominiums) to 14.7 percentage points (two-storey homes) — were among the steepest in Canada. Renewed interest in the market has yet to stop the price slide, but there are signs that a bottom might be
near. Extremely poor balance between supply and demand is being quickly repaired as rising demand faces fewer homes up for sale and fewer new units being built. Construction of new housing has been in a deep freeze since the start of the year in Vancouver. While the market is not out of the woods yet because the rebound came off particularly depressed levels, it does look to be on its way to finally turn the corner.

Calgary — Recovery in the making
Calgary is another battleground of the housing downturn that is showing signs of turning the corner. While its economic backdrop, too, remains tenuous – Calgary’s unemployment rate surged to a 12-year high this spring – the market is benefitting from a huge drop in the cost of homeownership since the middle of 2007. The
combination of lower mortgage rates and home prices has driven down RBC’s affordability measures for the city by 7.6 (condominiums) to 11.9 percentage points (two-storey homes) in the last year alone (ended in the first quarter), which brought levels below long-term averages for most housing types. Greater affordability
contributed to a sharp upswing in sales of existing homes during the spring after collapsing to 14-year lows earlier in the winter. Although encouraging, renewed activity is still shy of where it was before the housing boom began and has yet to stem the decline in prices. However, the recent sharp rise in the sales-to-new
listings ratio suggests that such a development might not be very far off into the future.

Improved affordability lifts Canada’s housing markets

Housing affordability greatly improved in the first quarter of this year; RBC’s affordability measures for all housing types recorded some of their biggest quarterly declines on record (the lower the measure, the more affordable homeownership is). At the national level, the improvement ranged from 2.8 percentage points for standard condominiums to five percentage points for two-storey homes. At the major city level, the decline was as large as 8.6 percentage points (for Vancouver’s twostorey homes). This third consecutive quarterly improvement in affordability has reversed much — although not all — of the deterioration that occurred during 2006-2007 when Canada’s housing markets reached a boiling point. In most areas of the country, RBC’s affordability measures have now returned to, or near, longterm averages, which is consistent with more solid market fundamentals.

Aggressive policy action to shore up confidence in financial markets and jump start the economy are behind much of the improvement in affordability in the past year. The Bank of Canada’s rate cutting campaign and the federal government’s active support of the mortgage securities market have resulted in meaningfully reducing the cost of homeownership. The decline was accelerated by softening housing prices, especially in the western part of the country, which retraced some of the large gains made during the boom. Monthly payments in the first quarter on a typical detached bungalow (based on the going market value) had fallen by close to 17% from a year earlier in Canada. Among the major cities, the decline was as much as 24% in Calgary, 22% in Vancouver and 20% in Edmonton.

Such hefty “discounts” on the cost of homeownership provided powerful incentives for buyers to step back into the game. Home resale activity, based on Canadian Real Estate Association data, had plunged during the final quarter of last year and early months of this year as the violent bout of financial flu knocked the broad economy off its feet. With the turmoil in financial markets subsiding (at least partially) and the flow of credit picking up, buyers have indeed returned to the market. Home resale activity has rallied impressively since late winter, erasing more than one-half of the previous decline at the national level (more in some cities). Even more remarkable has been how widespread across all major Canadian cities the rebound has been – every single one of them has enjoyed a resurgence. Property values — which had come under heavy pressure — have recently shown signs of stabilizing in many parts of the country.

While housing markets appear to be generally on the mend in Canada, the road to full recovery still has obstacles. The rise in some mortgage rates in June is a reminder that the sizable improvement in affordability attributable to lower rates is likely behind us and, with home prices stabilizing or perhaps beginning to rise in some areas, further improvement depends on greater gains in family income, which should be supported by an improving economy in the second half of this year.

Check in tomorrow and see more details on how the BC and Alberta markets are doing…