THE B WORD

Dupuis: Is the 'hot' housing market a boom, bust or bubble?
November 21, 2009
Stephen Dupuis

I can't believe how often I have heard the B-word of late. No, I'm not talking about "B" as in housing "boom," I'm talking about "B" as in housing "bubble."

Considering that we are barely six months out of what was looking like a prolonged housing "bust," it's hard to fathom how the "experts" can already be warning that the housing market is too hot for its own good.

I'll be the first to admit surprise at just how buoyant the resale market has been. Then again, should there be any surprise that after six months of paralysis during the height of the global economic crisis, homebuyers would react to a reprieve by rushing back into the market.

Frankly, I'm delighted the resale market is doing so well because a healthy resale market drives renovation as well as new home sales as all boats rise with the tide. That said, I have a lot of empathy for the homebuyers who are getting caught up in bidding wars. That's a situation that will be resolved when listings increase, as they always do.

To the homebuyers that find resale bidding wars distasteful, I would note that at least with new homes and condos, the price is the price and right now, new home prices are extremely competitive.

Although it took a little longer than the resale market to recover, the lowrise new housing market picked up in late spring while the highrise market came back to life this fall. On an overall basis, it looks like total new home sales in 2009 will end up just slightly ahead of 2008, with last year ending on a down note and this year ending on an up note.

Is the new housing market booming? Far from it! So where are the "bubble" theorists coming from? For the most part it seems they are concerned with the extent of mortgage insurance in the market as well as the potential impact of higher interest rates down the road.

The concern with the prevalence of mortgage insurance ignores the fact that it has always been a major and important part of our housing finance system. Frankly, so long as banks are prevented from lending to anyone with less than 20 per cent down, mortgage insurance will continue to be a growth industry.

The irony is that we have mortgage insurance to thank for the fact that our banks are lending to homebuyers, enabling the recovery we have been experiencing in our housing markets.

That said, homebuyers still have to qualify for mortgage insurance and if anything, that's become more difficult since federal finance Minister Jim Flaherty clamped down on mortgage insurers.

In July 2008, Flaherty imposed a number of restrictions on mortgage insurers including a prohibition on insuring mortgages with amortizations longer than 35 years, a minimum 5 per cent downpayment, minimum credit score requirements, maximum debt ratios and new loan documentation standards, all good things as far as I'm concerned.

As for low mortgage rates, it seems the experts are concerned that homebuyers might have difficulty carrying their mortgages should interest rates be higher at renewal time. This ignores the reality that most homebuyers these days are smartly locking in their mortgages for five years during which they will increase the equity in their homes and/or enjoy income growth.

To be on the safe side, homebuyers that pay down as much as they can during those all-important first five years will be in a far better position to ignore the experts as well as the columnists.

Stephen Dupuis is president and CEO of the Building Industry and Land Development Association. The views expressed are those of the president.

AFFORDABILITY & COMPETITION

Canadian home ownership more expensive, RBC says
November 25, 2009
THE CANADIAN PRESS

The cost of homeownership in Canada became more expensive in the third quarter, according to a report by RBC Economics Research.

The bank says this hasn't happened since the spring of 2008 and was due to a slight rise in mortgage rates and higher property values.

The RBC index measures the proportion of pre-tax household income needed to service the costs of owning a home.

During the third quarter, the benchmark detached bungalow moved up by one per cent to 40.2 per cent and the standard townhouse rose by 0.7 per cent to 32.3 per cent.

The standard condo climbed by 0.5 per cent up to 27.6 per cent and a standard two-storey home increased 1.2 per cent to 45.8 per cent.

RBC says housing demand has outgrown supply, leading to a more competitive market and widespread increases in home values.

"With such strong momentum in the housing market and the cyclical low in mortgage rates behind us, it seems unlikely that affordability will improve in the near future," said RBC senior economist Robert Hogue.

"The housing market still faces obstacles, as mortgages have become more difficult to handle for many Canadians amid challenging labour conditions. This is likely to persist until the economic recovery is well established and job creation is sustained next year."

Photo: justmakeit

OPTIMISM IN MARKET...LEAVE THE LIGHTS ON FOR BUYERS

Housing market confidence builds
By Mario Toneguzzi

Herald News Services

Calgary Herald

November 18, 2009

Canadians are emerging from the recession confident their homes' value is rising and optimistic about their local housing markets, says a new report.

The Canadian mortgage market is also rebounding and will surpass the $1-trillion mark in 2010, says the Canadian Association of Accredited Mortgage Professionals.

The association said the survey, conducted by maritz research canada in October, indicated the majority of those surveyed (40 per cent), expect house prices to go up, more than double the opinion of those surveyed in the spring (18 per cent).

"Mortgage consumers have been busy and have effectively capitalized on low interest rates to shop and renegotiate," said Jim Murphy, president and CEO of the organization

BUBBLES, BUBBLES, BUBBLES

HOUSING BUBBLES UP
But analysts not ready to push panic button
Garry Marr, Financial Post
Published: Tuesday, November 17, 2009

Canadian existing-home prices are now rising at a pace not seen in 20 years, fuelling talk that a bubble may be forming in the market.

The national average price of a home sold last month was $341,079, a 20.7% increase from a year ago, the Ottawabased Canadian Real Estate Association said yesterday. Sales also continued to climb with 42,288 units trading hands, a 41.5% jump from October 2008.

But at the same time that demand surges and interest rates stay at historic lows, supply remains critically low. New listings last month in the country's 25 largest markets were off 16% from a year ago.

"I don't think it's a bubble yet," said Doug Porter, an economist at Bank of Montreal. "The rapid-fire rebound in Canadian housing is showing no sign of letting up. While that may be causing some sweaty palms among bubble-phobes, the quick turn is a vivid illustration that monetary policy still works in this country."

Mr. Porter says large markets are skewing average prices, creating a national picture that might seem more buoyant than it is in reality.

Toronto, the largest market in the country, showed a 20% price increase last month from a year ago. In Vancouver, the most expensive market in the country, sales were up 170.8% from a year ago.

"There is a little bit of magic in the way they put these numbers together," said Mr. Porter.

Derek Holt, senior vice-president of economics at Scotia Capital, called what's happening in the marketplace today a once-in-a-lifetime situation. He said yesterday record low interest rates, tight supply, a favourable lending environment and a government stimulus program have all helped stir the housing pot.

"It's more the medium term, two-three years, where we could get into headaches potentially," said Mr. Holt. questioning whether consumers buying today are ready for interest rates that could be three to four percentage points higher by 2011.

Real estate author Garth Turner said the latest figures prove his thesis that Canada is now in a real-estate bubble. "We got this type of growth in sales and prices in the middle of a recession," he said.

"The latest [gross domestic product] numbers show the economy actually contracted," Mr. Turner said.

A new study from the Canadian Association of Accredited Mortgage Professionals released yesterday shows Canadians are benefiting from the lower interest rates. The average mortgage rate negotiated in the past year was 4.55%, a decline from 5.41% a year ago.

"Clearly people are thinking the worst is behind us and that comes as we have record low rates," said Jim Murphy, president of CAAMP. "If rates were to spike dramatically there could be some concern, but we just don't see that."

Gregory Klump, CREA chief economist, said the latest numbers must be kept in context.

"Activity in the early part of 2009 had fallen to a decade low. With improvement in consumer confidence and interest rates, sales activity was expected to respond."

Mr. Klump suggested prices will ease as sellers start to take advantage of higher prices. However, CREA is now predicting prices will rise 4.2% this year after suggesting they would increase by only 1.5%.

Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada Inc., said he has been expecting these type of price increases. "Last year at this time, everything just stopped.... Now we are just back to kind of normal. You are going to see these type of numbers continue into the spring because we are comparing them to last year."

CAN MANUFACTURING NEWS

Strong rise in Canadian manufacturing sales good news

Paul Ferley
Assistant Chief Economist
RBC Economics Research

Manufacturing sales rose a solid 1.4% in September, slightly less than the 1.6% gain expected going into the report. The decline in August was revised down to 1.8% from the -2.1% originally estimated. The increase on a constant dollar basis was even higher, rising 1.8%, although this followed a 2.1% drop in August (and a 5.1% surge in July).
The increase in September was led by 16.4% jump in the motor vehicle component and a 13.7% surge in motor vehicle parts. StatsCan commented that, eliminating the impact of motor vehicles, part and accessories, sales were down a disappointing 0.4%. However, much of this weakness reflected a sizeable 28.6% drop in the aerospace component. After declining 34.2% in August, we had expected about one-half of the decline to be retraced in September. Eliminating both motor vehicles and aerospace, manufacturing sales rose a solid 0.5% following no change in August. This reflected broad-based gains with a majority of manufacturing sub-sectors rising in September.
In terms of other components in the report, unfilled orders fell 0.6%; new orders soared 8.3%; and inventories continued to decline, dropping 1.9%, thus pushing the inventory-to-sales measure down to 1.44 from 1.49 in August and a recent peak in May of 1.63.
The solid 1.4% rise in September manufacturing sales is encouraging both because the gains were relatively broadly based and because it almost fully offset the sizeable 1.8% drop in August. As well, the gain augurs well for September GDP to increase following disappointing numbers in the previous two months, with GDP unchanged in July and down 0.1% in August.
A recovery in activity in September is key for the Canadian economy to return to positive growth in the third quarter. Our current forecast assumes that this will barely be the case, with the economy eking out an annualized gain of only 1%. This would represent a marked improvement from declines of 6.1% and 3.4% in the first and second quarters, respectively, but it is still indicative of weak economic conditions.
With this pace of growth not sufficient to put sustained downward pressure on the unemployment rate, the Bank of Canada will be in no rush to start tightening policy. We expect that the central bank will be able to adhere to its conditional commitment of leaving the overnight rate unchanged at 0.25% through the end of the second quarter of 2010.

FENG SHUI & FRONT DOORS

Feng Shui and Front Doors
(Written by Sallie Tsui Sien)

Ch'i (energy) enters the house through doors and windows. However, the front door of your house is where the major part of Ch'i enters and therefore this door plays an important role in determining the quality of Feng Shui experienced by the household. Its location within the house is very important.

Most homes have two main doors. One that was built originally by the architect (front door) and the other, which could be a kitchen, garage or side door, that is more preferred by the occupants due, for example, to the convenience of its location.

Decide on which door to use and use this one door only. Having two main entry doors can often cause unnecessary bickering and arguing amongst occupants, that it is why it is important to just one door to enter and leave, it is OK to use the other door if it leads to the garden and you want to access it or throw your rubbish away.
Make sure the size of the door is in proportion to the size of the property. If the front door is too big, opportunities will slip you by and if it is too small, it can cause disharmony within the household. If you feel your door is too big or small hang a faceted crystal sphere inside the door.
A solid front door is always preferable to a glass-panelled one. If you have a glass door do not worry just hang muslin or a similar cloth over the glass.
Generally speaking, a front door must be bigger than the back door encouraging Ch'i to enter through this aspect. Again if you have a larger rear door hang a crystal sphere here.
A front door needs to open inwards to allow beneficial Ch'i to enter. There is no cure for this one it must open inwards.
It is important that the front door opens easily without obstacles or difficulties. Broken door furniture must be replaced. Hinges should be oiled regularly. The front door must be well maintained and clean.
Make certain that the name or number of your house is clearly visible by day and night in order to maintain harmonious relationships with callers.
The most vital thing to do is to make very certain that this door is not being hit by anything sharp or angled. This is what is considered 'exterior poison arrows'. These structures can transform quality energy into a bad one and you would not want this transformation at your front door. If you feel you have poison arrows directed at your home place a Ba Gua mirror above the door.
Make sure the front door bell is easily located and works at all time. It should also have a nice ringing tone to it. I have stood waiting outside many front doors and had to use my mobile phone to call in.
The colours of the door should reflect the compass direction it faces according to the Five Elements and/or be in balance with the elemental properties of the energies of the sector where the door is located. I have listed associated colours below.

South (Fire) = Reds, pink, burgundy.
Southwest (Earth) = Yellows or browns.
West (Metal) = White, silver, copper or gold.
Northwest (Metal) = White, silver, copper or gold.
North (Water) = Blacks or blues.
Northeast (Earth) = Yellows or browns.
East (Wood) = Greens.
Southeast (Wood) = Greens.

Note: If you have had an authentic consultation, the recommended colour may well be different from above, as your Practitioner will know which elements are needed to weaken or enhance this area.

Do not keep shoes near your front door; they constitute clutter and create stagnant energy. If you have another door, apart from the front door that is used on a frequent basis including by friends and visitors, the path leading to it must be clear, unobstructed and clean. This will be the path 'chi' would take to enter your house and therefore make sure this source is coming from a favourable direction.

"He who asks may be a fool for five minutes,
but he who does not ask remains a fool forever."

GET UP & GO LIFESTYLE

Why choose a condo?
Lifestyle a prime motivator as market perks up
By Marty Hope
Edmonton Journal
November 7, 2009

Condo living is a lifestyle choice--it reflects how the owners use their time, or how they want to use it.

They don't want to shovel snow, cut grass or tend gardens. They want to be able to get up and go, enjoy leisure time, or pack up and go on vacation without the security worries that go with a house.

Baby boomers, empty nesters and young people make up the bulk of the condo demographic.

For Kathi and Rob McAuley, the decision to go condo had definite implications for their work and leisure time. The 50-something professionals had been shopping the condo market off and on for a year before taking ownership of a resale townhouse in west Calgary.

Demand for condominiums in Calgary and Edmonton has been growing for more than a decade.

On the new side, despite the slowdown that has put a severe crimp in construction activity, work continues on mid-and highrise buildings in the two cities' downtowns. In the suburbs, foundations are being dug and framing is underway on semi-detached homes and townhouses.

While the economy has battered the multifamily sector, there are signs of recovery. In September, the City of Edmonton issued building permits for 218 multi-family units, compared with 193 for the same month last year.

On the resale side, there has been a decided increase in sales. But the growth in condominium appeal has been going on for years.

While condos accounted for just 15 per cent of total resales 15 years ago, it's now almost double that.

"Indeed, we have seen a slowdown in the number of condos being built, but this is a form of ownership that is here to stay," says Bonnie Wegerich, Calgary Real Estate Board president.

"Condo resales are rebounding in a trend similar to single-family homes.

Home prices in Edmonton have remained relatively stable despite the robust activity in the market. Prices for single-family homes in October were $363,694, down 2.2 per cent from September, but up 0.12 per cent from the same time last year.

Edmonton condos sold for an average of $237,601 in October, down 3.2 per cent from September, but unchanged from a year earlier.

Overall, the average residential price in October was$318,969, down 2.5 per cent from last month and up 0.33 per cent from October 2008.

Wegerich says the McAuleys fit one of the demographic models for condo ownership. The couple spends a lot of time at a second home in Invermere, B.C., and felt they didn't want to continue with the maintenance needed for their house and property.

"We wanted a place that more reflected our present phase of life," says Kathi, who owns a learning and development consulting company called Management DevelopMentors Inc. and also teaches at the University of Calgary.

But there was much more than that to their decision to buy a condo. "We love trees and back onto a treed green space, so this was very important to us," Kathi says. "Even though we are in a condo, it doesn't have a restricted feel to it."

They bought a three-level, 5,000-square-foot condo for $880,000. Their previous home covered 2,000 square feet.

The other target demographic for condo ownership is the millennial generation -- people born between the late 1970s and the early 1990s. "They are both at a stage where they want similar things," Wegerich says.

For many of the millennials, condominium living is their first taste of home ownership, but likely not their last.

Devon Wolfe and Priscilla Naber, both 20, are looking for their first home.

CHOICE

"We primarily chose a condo because of the lifestyle," says Wolfe, a full-time architecture student at the University of Calgary. Maintenance was a turnoff.

"Also, we were looking for more of a stepping stone than a final home and condos seem to fit that," he says.

As they continue their search, they've established some limits: They want a condo that's 700 to 1,000 square feet, and costs from$220,000 to $260,000.

Wendy Jabusch, general manager of Hawthorne Homes, the multi-family building division of Carma Developers, says it's typically young singles and couples who are buying the company's units.

Affordability is a big part of the buying decision, Jabusch says. "Our buyer demographic-- singles and couples in their late 20s and early 30s--are very cognizant of affordability and quality, so we have to work with our trades and suppliers to reduce the number of deficiencies, and thereby save money.

"Young buyers are smart, well-informed and have a clear idea of what they can afford and are willing to spend."

Photos by: Marc Curtis

HOUSING STARTS UPTREND

Canadian housing starts resume uptrend
Paul Ferley
Assistant Chief Economist
RBC Economics Research
November 9, 2009

Canadian housing starts rose 5.4% in October to an annualized level of 157,300 that more than offset the 3.9% drop recorded in September. Expectations had been for a slightly stronger increase to an annualized 159,300. However, the rise did re-establish the upward trend in this series that had previously been in train through August, with starts steadily rising from a cyclical trough in April of 118,500.
The 8,000 increase in the level of October starts from September’s 149,300 mainly reflected strength in the urban multiples component, which rose 8,800 (13.8%). The more stable urban singles component disappointingly fell by 1,900 (2.7%), although this represented only a partial retracement from the 10,200 (17.3%) surge recorded in September. Rural starts also rose, but by a more modest 1,100 (6.8%).
The strength was relatively broadly based across the country, led by a 15% increase in British Columbia closely followed by a 14.8% rise in Ontario. More modest increases were recorded in the Prairies (6.5%) and in the Atlantic provinces (1.2%). Quebec was the only region to see activity fall, dropping 11.6% in the month.
The increase in starts to 157,300 in October is encouraging as it re-establishes the upward trend from the cyclical trough in April of 118,500. As well, the gain in October was broadly based across most regions of the country. The increase in new construction is consistent with indications of rising housing sales activity. The recovery in residential investment is being fuelled by low interest rates and rising confidence that the worst of the economic downturn is over.
Although the pace of improvement in starts has been halting in recent months, our forecast assumes a more sustained improvement going forward. Housing start activity is expected to average 176,000 in 2010, which will be up from an expected 143,000 this year but down from the 211,000 recorded in 2008.

THAT'S BANKS AND REAL ESTATE

Where to invest in the strong loonie era
Reuters
Published: Monday, November 02, 2009

Buyers of Canadian banks, utilities, property firms and some retailers look set to become long-term winners if the country's currency -- as many predict -- resumes its recent rally to top the U.S. dollar in value.

But manufacturers, including auto parts makers, forestry companies, and other export-reliant industries, are expected to feel further pain as the soaring currency cools sales and slices into profit margins.

Strategists and money managers said the export sector's woes will force the Bank of Canada to keep interest-rate policy easy for a long time, ensuring a strong performance by the stocks most sensitive to rates.

"Deflation is more a risk than inflation, so rates are going to stay low. The dollar is putting tremendous pressure on the inflation rate," said Paul Gardner, portfolio manager at Avenue Investment Management, which manages about $130-million.

"People are going to go up the risk curve and buy dividends, companies that have stability to them, and that's banks and real estate."

The fund manager, who warns Canada could enter "a Japan situation" where a strong currency, aging population and overcapacity all drag on growth, also likes the prospects for utilities and dominant telecom players such as Rogers Communications Inc.

The Canadian dollar reached parity with the greenback for the first time in decades in 2007, powered by soaring commodity and energy prices. It has not traded there since July 2008, when the financial crisis spurred a safe-haven flight back into the U.S. dollar.

The loonie, nicknamed for the bird depicted on the one dollar coin, hit a four-year low in March then rallied 28% to a 2009 high of 97.97 U.S. cents on Oct. 15.

It retreated after aggressive warnings by the central bank that its flight threatens economic recovery. It closed at 92.43 U.S. cents on Friday.

BOOST FOR CONSUMERS

George Vasic, head of research at UBS Securities Canada, said it is only a matter of time before the currency returns to parity with the U.S. dollar, boosted by Canada's much stronger fiscal performance and ongoing commodity price support.

The equity strategist said that would increase the purchasing power of Canadian consumers and should support stocks geared to them.

"They can spend more, so what you're looking for is effectively the more domestically focused organizations, which would include a lot of names that are in the consumer staples, consumer discretionary sectors," he said.

"I would also include the banks in general. They do have U.S. operations. But they benefit from the fact that rates will be low."

Vasic said there is less currency correlation for resource stocks, a huge component of the Canadian stock markets. He noted that while many have U.S. dollar revenues and Canadian dollar costs, the Canadian currency is typically strongest when underlying commodity prices are rising.

He saw export-oriented industrial companies as the biggest potential losers, a widely shared view.

AGF Funds Inc Chief Investment Officer Martin Hubbes, who helps manage more than $4-billion in Canadian equities, noted the fund house had largely shunned the auto parts sector partly because of concern about the rising currency.

"We, for a number of years now, have kind of avoided light manufacturing companies that have a very close ties to the U.S.," he said.

"Even though we've got some very good companies, I would say that (auto parts makers) Magna and Linamar are probably decent companies, it's just unfortunate that they find themselves in a tough situation."

NEAR-TERM PULLBACK DUE

But Hubbes, who also thinks a stronger currency will benefit retailers, said the Canadian dollar could be due for a near-term pullback even though long-term prospects are healthy, a view shared by several fund managers.

"We're actually a bit bearish on the Canadian dollar in the short to medium term. We actually believe the U.S. dollar is probably going to strengthen in the three to six months and think that's going to have a huge impact on the market," said Youssef Zohny, associate portfolio manager at Vancouver-based Van Arbor Asset Management Ltd.

He added the firm is bullish on the Canadian dollar and commodity and energy plays in the long term. But for now, it's lightening up on resource stocks, and moving more into underowned sectors like telecom firms and utilities.

HOUSING DEMAND

CMHC expects housing rebound to continue
Financial Post
Published: Monday, November 02, 2009

Home construction is expected to continue rebounding in the second half this year and into 2010 as demand increases and inventories decline, according to Canada Mortgage and Housing Corp.

Housing starts are forecast to reach 141,900 in 2009 and rise to 164,900 next year, the federal agency said Monday in its quarterly outlook.

"We expect housing markets across Canada to strengthen leading into and over the course of 2010 as economic conditions improve," said CMHC chief economist Bob Dugan.

"Demand for existing homes has rebounded since the beginning of the year. In addition, lower inventory levels characterize both the new and existing home markets. As a result, stronger housing demand will be reflected in higher levels of housing starts in 2010," Dugan said.

Existing home sales are expected to reach 441,300 units this year and increase to 445,150 units in 2010, CMHC said in its report.

The average price is forecasts to be $312,950 in 2009 and $324,500 next year, it said.