Archive for February 25, 2010

Laurin Jeffrey | February 27, 2010
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January home sales slip from previous month

‘We do think the lull will be brief,’ TD strategist says

Garry Marr, Financial Post

Existing home sales declined on a monthly basis for the first time in more than a year but it may only be a temporary decline as new government regulations are expected to boost the spring market.

The Canadian Real Estate Association said yesterday January sales nationally were down 2.8% on a seasonally adjusted basis from December, the first time activity has fallen in 13 months. Despite the decline, January 2010 sales were 58% higher than a year earlier.

“January results suggest that the national resale housing market may be past the recent peak,” said Gregory Klump, chief economist with CREA.

“One car doesn’t make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade. It could take until the second half of the year before a cooling trend becomes evident since home buying activity may continue to be accelerated in the first half of 2010 by expected interest rate increases, and by the introduction of the [Harmonized Sales Tax] in Ontario and British Columbia on Canada Day.”

Prices across the country continue to climb: Year-over-year gains are more impressive because of the dismal housing market a year ago.

CREA said the average sale price last month was $328,537, a 19.6% increase from a year ago. However, January 2009 prices were almost at a three-year low.

Supply across the country continues to be constrained. CREA said there were 179,199 homes listed for sale on the Multiple Listing Service at the end of January, an 18% decline from the same month a year ago.

CREA said there was only 4.4 months of inventory in the system based on the present paces of sales. That’s up from 4.2 months in December.

Some economists and observers are predicting the market will get even hotter in coming months ahead of new government regulations designed to make it harder for a home-buyer to borrow.

The federal government is introducing new rules that will force homebuyers to qualify for mortgages based on the five-year fixed rate, as opposed to the variable rate.

The gap between the two is expected to mean buyers will have to show more income to get a loan. The government is also only going to allow homeowners to refinance their homes for 90% of their value.

A third measure, demanding investors seeking government-backed mortgage default insurance have 20% of their down payment before they purchase an investment property, is expected to have more of an impact on the new-home market and condominiums.

Millan Mulraine, an economics strategist with TD Securities, sees the decline in sales in January as an exception.

“We do think the lull will be brief considering the regulatory changes. Homebuyers affected by this are going to jump in while the going is good,” said Mr. Mulraine.

By the second half the year, most commentators predict a more balanced market as the combination of higher interest rates, the new HST and regulatory changes kick in.

The realtors association is calling for sales to drop by 7.1% in 2011 and prices to fall by 1.5%.

“All signs suggest that the market will start to simmer down later this year, although likely only after another burst of activity this spring,” said Doug Porter, an economist with Bank of Montreal who agrees the market should slow in the second half of 2010.

“By then, the bubble chatter should fade,” Mr. Porter said.

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Contact the Jeffrey Team for more information  -  416-388-1960

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Category: Ajax Real Estate, Buying Real Estate, General Real Estate, Mortgages, Pickering Real Estate | Tags: , , , , , , , ,
Laurin Jeffrey | February 26, 2010
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Home reno activity to slow

Tax credit brought in $4.43-billion last year but strength came from borrowed demand, report says

Roma Luciw – Globe and Mail

The government’s home renovation tax credit gave the industry a $4.3-billion shot in the arm last year, but renovation activity will now start to cool because most of that strength came from demand borrowed from the future, a report released Wednesday showed.

Ottawa’s home reno program, which allowed taxpayers to get up to $1,350 in tax relief for projects worth between $1,000 and $10,000, was introduced as a limited-time measure in the 2009 federal budget. It was available for a year and expired last month.

Toronto-Dominion Bank economist Diana Petramala calculated that the program bolstered renovation activity by between $4- and 4.3-billion and provided a 0.3-per-cent lift to Canada’s real gross domestic product.

“We believe that the stimulus measure likely borrowed $3-billion of demand from the future – as those with future plans for renovations undertook the spending in 2009, rather than waiting until later years,” she said in a report.

Because the economic benefits of home reno projects often lag over time, especially those last-minute ones started by people scrambling to take advanatge of the credit before it expired, activity will likely drive a 1-per-cent annual gain in renovation investment this year. However, Ms. Petramala expects “the pace of growth will diminish over the course of the year and into 2011 as payback from the tax credit occurs.”

Higher interest rates, a cooling housing market and more moderate household spending will also slow renovation activity in Canada next year, she said.

There are other signs that Canada’s housing market is finally slowing down. The Canadian Real Estate Association said Wednesday that Canada’s housing market may have peaked in December, as its January statistics show a slight pullback in resale activity.

The news comes one day after Mr. Flaherty unveiled new mortgage rules to dampen Canada’s roaring housing market. The new measures, designed to keep people from taking on too much debt and to rein in speculators from buying houses solely as investments, were introduced as policy makers are warning borrowers and lenders to get ready for higher interest rates, as early as this summer.

A Tuesday report from the Vanier Institute of the Family warned that with interest rates set to rise, many families – especially first-time buyers who took advantage of record low rates to enter the market – “may not fully realize” what an increase in mortgage rates by several per cent will mean for their monthly payments.

Higher interest rates could likewise hurt Canadians who have taken on debt to fund their home renovations, overextending them further as they struggle to make heftier repayments.

A tally from the Canada Revenue Agency shows that 3.5 million people, or about 10 per cent of Canada’s population, inquired about the home reno tax credit. Encouraged by both the limited time tax credit and low borrowing costs, some Canadians clearly decided to undertake renovations in 2009 that might otherwise have been put off for a few more years.

Robert Katzer had a contractor redo both bathrooms in his Victoria condo, putting in marble sinks and faucets, along with a new bathtub with marble wall linings. Not done there, he upgraded most of the lighting in the unit, replaced the carpets, painted, caulked the windows and retiled the fireplace. “It wasn’t cheap but I love the end result,” he told the Globe & Mail last month.

“We estimate that the combination of the tax credit and low interest rates has made the cost of $10,000 in renovation spending in 2009 16 to 19 per cent lower when compared to the projected cost in 2010 and 2011,” Ms. Petramala said. The final price tag could have been further lowered by home building and supply stores that offered incentives alongside the fiscal tax credit.

“The decrease in current costs relative to future spending gives households an incentive to bring forward such expenditures rather than wait until next year. The latter steals from future demand, and would cause a drop-off in demand as the tax credit expires,” she said.

Had the tax credit not been introduced, renovation investment may have declined almost 9.4 per cent last year, instead of likely growing 1.8 per cent, Ms. Petramala said. With most of the future payback from the tax credit expected to take place this year, she expects renovation investment will grow a tepid 1.5 per cent in 2010. Without the tax credit, it would have grown 3 per cent, she noted.

Canadian households have accumulated large debt loads, with household indebtedness reaching a historical high of 140 per cent of income in 2009. The TD report noted that in the last year, personal lines of credit – which are often used for renovations – have increased at almost double the annual growth rate of the five years leading up to the recession.

Looking further into the future, Ms. Petramala concluded that “an expected rise in short term interest rates of a full 3 percentage points from their current level by the end of 2011 will likely result in a broad-based moderation in household spending and investment – renovations included.”

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Contact the Jeffrey Team for more information  -  416-388-1960

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Category: Pickering Real Estate | Tags: , , , , , , , , , , , , ,
Laurin Jeffrey | February 25, 2010
One comment

Flaherty tightens mortgage taps

Federal finance Minister Jim Flaherty has announced new rules aimed at preventing homebuyers from getting in over their heads with mortgage debt

CBC News

Federal finance Minister Jim Flaherty announced new rules Tuesday aimed at preventing homebuyers from getting into financial difficulty when mortgage rates rise.

After consulting with major Canadian lenders, Flaherty outlined the latest weapons at Ottawa’s disposal aimed at removing some of the speculative froth in the housing market.

“There is no evidence of a housing bubble, but we’re taking prudent steps today to prevent one,” he said at a news conference in Ottawa. “If some lenders aren’t willing to act themselves, we will act.”

Broadly speaking, the plan unveiled has three components.

First, Ottawa will require that all borrowers meet the standards for a five-year fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.

“This will guard against higher rates in the future,” Flaherty said.

Second, the rules would lower the maximum Canadians can withdraw when refinancing their mortgages to 90 per cent of the value of their home, from 95 per cent.

And finally, Ottawa will now require a minimum 20 per cent down payment to qualify for CMHC insurance for non-owner-occupied properties purchased as an investment.

The last rule is aimed at reining in would-be real estate speculators who own multiple properties beyond their primary residence.

“We want to discourage the tendency some people have to use a home as an ATM, or buy three or four condos on speculation,” Flaherty said.

Minimum down payment unchanged

There had been speculation the Department of Finance might implement legislation raising the minimum down payment from five to 10 per cent of a home’s value, or reduce the maximum amortization period from 35 years to 30 years.

Those measures were not part of Flaherty’s announcement Tuesday, but all options are still on the table should circumstances change, Flaherty said.

The adjustments to the mortgage insurance guarantee framework, to be implemented as of April 19, 2010, are not likely to revolutionize the industry. Indeed, current policies at some large Canadian lenders are similar to the first peg of Flaherty’s plan.

After Tuesday’s announcement, the Bank of Montreal noted that it already requires its high-ratio borrowers to be able to qualify using the five-year rate. And all banks currently test all mortgage applicants on a three-year fixed-rate mortgage rule, Toronto-Dominion bank says.

“While we do not believe that Canada faces a housing bubble, we fully support the minister’s actions,” Bank of Montreal said in a release. “Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent.”

“This is a little bit late in telling Canadians we need to be more cautious in taking out a mortgage,” RBC Global Asset Management chief economist Patricia Croft said in reaction to Flaherty’s announcement.

Though she stopped short of calling Canadian real estate in bubble territory already, she said the April 19 date for implementation is actually likely to cause more short-term stimulation of the market, as people scramble to get in under the deadline.

“If you wanted to buy a house, wouldn’t you now do it before April?” Croft asked. “It’s even more evidence that house prices are going to cool down later this year.”

In terms of the impact on real estate buyers, the policy change will have an effect on a large portion of new buyers, TD Bank deputy chief economist Craig Alexander said in a report Tuesday. “Perhaps a quarter of all new mortgage originations might be influenced,” he said.

The requirement that all buyers are held to the five-year fixed-rate standards will be particularly important, Alexander said. Based on the average home price of $337,000, a buyer with only five per cent down would require roughly $9,200 more in annual income to qualify under the new rules, he estimated.

For its part, the Canadian Association of Accredited Mortgage Professionals says it supports the amendments, calling them preventative measures against possible future risk.

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Contact the Jeffrey Team for more information  -  416-388-1960

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Category: Buying Real Estate, First Time Buyers, General Real Estate, Mortgages | Tags: , , , , , , , , , , , , , ,
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