SIXTEEN TONS

Are you house rich or house poor?

By Jason Heath  

Financial Post September 17, 2013

According to Statistics Canada, about one-quarter of Canadians are spending too much on housing costs. “Too much” is defined by Canada Mortgage and Housing Corporation (CMHC) as 30% or more of household income. Are you house rich and cash poor?

First off, it’s important to understand what CMHC’s “household income” refers to in order to measure if you are over or under the suggested 30% threshold. They define household income as pre-tax household income, which is a questionable metric due to our tax code.

We have a graduated tax system in Canada where every taxpayer files their own tax return, so there can be a big difference in after-tax income between two households with identical household incomes. A household where two people are earning $50,000 each in Ontario, for example, has after-tax income of about $75,840. A household where one person is earning $100,000 – the same gross income as the $50,000 times 2 household – has only $69,841 of after-tax income. That’s a difference of about 8%, so not immaterial.First off, it’s important to understand what CMHC’s “household income” refers to in order to measure if you are over or under the suggested 30% threshold. They define household income as pre-tax household income, which is a questionable metric due to our tax code.

What are “housing costs”? According to CMHC, these costs include rent and utilities for renters. For homeowners, included are mortgage payments, property taxes, condo fees and utilities.

Several factors are ignored by the 30% rule of thumb. What if a couple has two cars and they drive long distances to work, so transportation costs are higher than a couple with no cars? What if they have kids? They’re not cheap either.

As a financial planner, I can say a common topic of discussion with clients relates to their current house or their next one.

With young couples, they’re often wondering if they can afford their dream home – without breaking the bank. Taking on a bigger house and a bigger mortgage can limit other things which may or may not be important. Retirement savings might need to be scaled back, but what about living for today? Big mortgage payments might make a family think twice about a vacation they might otherwise enjoy (or need).

Not surprisingly, a lot of Baby Boomers are considering a downsize of their home. In some cases, it’s because people have more house than they need once the kids grow up and move out. In others, it’s because they live in an expensive city like Vancouver and a move outside the city can help pad retirement savings.

Either way, young or old, upsize or downsize, housing costs represent a large component of household spending and a large proportion of household net worth. It’s important to evaluate the pros and cons of moving up or cashing out.

One thing I always emphasize is that rules of thumb need to be taken with a grain of salt. They can be quite deceiving and lead people to make imprudent decisions. Just because a bank approves you for a mortgage, it doesn’t mean you’re wise to take it on. And just because CMHC suggests a 30% target for your housing costs as a proportion of your household income, it doesn’t necessarily constitute sound personal financial planning – especially when today’s interest rates and the resulting mortgage payments are artificially low.

CALGARY TOPS IN GROWTH

Calgary leads country in housing market price growth
Prices up nearly 7% from last year
By Mario Toneguzzi
Calgary Herald August 15, 2013

CALGARY — Calgary led the country in July with the best year-over-year price growth in the resale housing market.

The Canadian Real Estate Association’s MLS Home Price Index, released Thursday, indicated prices in Calgary were up 6.79 per cent — more than doubling the national aggregate of 2.66 per cent price growth.

The index measures the rate at which housing prices change over time taking into account the type of homes sold. Nine major Canadian centres are surveyed.

“Our market is trending towards a selling market. Listing inventory is 20 per cent lower than this time last year and pricing is approximately seven per cent higher overall,” said Tanya Eklund, with RE/MAX Real Estate (Central) in Calgary. “The Calgary floods created a short-term surge in house purchases in certain areas. People who could afford to buy have purchased, so their families were not displaced. Due to the very low vacancy rate, rental inflation and difficulty in finding rental accommodation, this made some consumers turn to purchasing instead of renting.

“We are seeing many inner-city communities flourish with sales, however I am seeing certain suburb markets higher in inventory in the plus $1 million, so sales have not been as abundant as other communities closer to the interior of the city. Overall, it appears to be a great time to sell. Buyers have less time to think about their purchases with hopes of not losing out on their ideal home. I am confident we will continue to see a stable real estate market as we enter into the fall.”

CREA stats indicated Calgary MLS sales in July of 2,976 were up 18.9 per cent from last year while the average sale price jumped by 7.0 per cent to $438,192.

Across Canada, sales were up by 9.4 per cent to 44,829 units and the average price rose by 8.4 per cent to $382,373.

In Alberta, transactions increased by 17.8 per cent to 6,853 units while the average price was up by 4.3 per cent to $379,696.

“Canadian home sales have staged a bit of a recovery in recent months after having declined in the wake of tightened mortgage rules and lending guidelines last year, but the numbers for July suggest that national activity is levelling off at what might best be described as average levels,” said Gregory Klump, CREA’s chief economist. “Sales dropped sharply in August last year, so we may see some year-over-year increases in sales and average prices next month that would reflect weakness in the rear view mirror.”

Sales and prices in Calgary are continuing their upward trend in August. According to the Calgary Real Estate Board, month-to-date until Wednesday, total MLS sales of 945 were 32.17 per cent higher than the same period last year and the average sale price was up 13 per cent to $455,688.
In another report released Thursday, Canada Mortgage and Housing Corp. forecast MLS sales in the Calgary census metropolitan area to rise to 27,800 transactions this year from 26,634 in 2012. Sales are expected to jump to 28,300 in 2014.

The agency forecast the average MLS sale price in the Calgary region to rise from $412,315 in 2012 to $435,000 in 2013 and to $445,000 in 2014.

Nationally, the CMHC’s point forecast is for MLS sales across Canada to decline from 453,372 in 2012 to 448,900 this year and then rise to 467,600 in 2014.

The national average sale price is expected to see year-over-year growth of 2.7 per cent this year to $374,800 followed by an increase of 2.1 per cent in 2014 to $382,800.

KEEP CALM AND BOOM

‘It’s boom time in Alberta’: New home construction at a five-year high (graphic)
By Mario Toneguzzi
Calgary Herald June 10, 2013

CALGARY — New home construction picked up in the Calgary region in May with Alberta’s level at a five-year high.

It’s a sign that the housing market is heating up.

Canada Mortgage and Housing Corp. reported Monday that total starts in the Calgary census metropolitan area reached 1,078 units during the month, which was an increase from 949 in May 2012.

“The trend of total housing starts increased slightly in May, due to strong construction in both the single-detached and multi-family markets,” said Richard Cho, CMHC’s senior market analyst for Calgary.

Multi-family starts rose to 519 in May from 466 a year ago while the single-detached market saw starts jump to 559 from 483 last year.

“While softer energy prices may be moderating overall economic growth this year, it appears that home builders didn’t receive the memo. Judging by the most recent statistics, it’s boom time in Alberta,” said Todd Hirsch, chief economist at ATB Financial.

Builders started construction on 41,438 new homes in Alberta in May — the highest this year and the first time since early 2008 that the figure has risen above the 40,000 mark.

“What’s more, the trend over the last several months clearly suggests that the housing market is heating up,” added Hirsch. “Between May 2012 and May of this year, housing starts are 14.1 per cent higher than they were in the previous 12-month period.

“What’s causing this boom in home construction isn’t any big mystery: population growth. Even if overall economic growth has slowed somewhat, the inflow of people into our province hasn’t.”

The latest Labour Force Survey, released last week, points to a surge in the labour force, which has grown by 59,400, or 2.6 per cent, over the last 12-months.

“Interprovincial and international migration to Alberta is driving some of the demand for new homes. High wages, low unemployment and a younger population are also contributing factors,” said Hirsch.

“The strong housing starts number ... is supported by another figure from Friday’s employment report — the number of construction jobs is also rising. Even if jobs in the energy patch and manufacturing have eased back a bit, employment in construction continues to provide some great work opportunities.”

Robert Kavcic, senior economist with BMO Capital Markets, said multi-unit housing starts in Canada came storming back in May “after falling precipitously through the winter months.”

“Still, the six-month trend in overall Canadian housing starts sits very close to demographic demand, further hinting at a soft landing,” he said.

Total Canadian housing starts rose by 13.8 per cent in May to 200,178 annualized units, the strongest pace in six months, added Kavcic.

The multi-unit segment rose by 22 per cent.

He said Alberta posted a modest gain, and activity in the province now sits at the highest level in five years.

“With the six-month moving average now more in line with the rate of household formation, May’s sharp jump in the pace of new home construction is unlikely to be sustained,” said Dina Ignjatovic, economist with TD Economics, about the national picture. “Indeed, slower price growth in the housing market could lead to lower homebuilding activity in the coming quarters. Moreover, the overbuilding that has taken place over the last 10 years could lead to new home construction falling below this demographic need for a period of time. This should, however, help to prevent further overbuilding and a consequential sharp correction in the housing market.

“Overall, we expect new home starts to gradually trend down over the next 12-18 months, suggesting that the Canadian economy will not be able to count on residential investment to prop up growth over that time frame.”

For Graphs:
http://www.calgaryherald.com/business/Calgary+region+housing+starts+trend+upwards/8503723/story.html

LUXURY HOME MECCA

Report finds Calgary a luxury home mecca
Baseline entry point is $2M for upscale residence
By Mario Toneguzzi
Calgary Herald April 22, 2013

Calgary is one of Canada's most robust markets for luxury homes, says a report by Sotheby's International Realty Canada.

The baseline entry point for a luxury single-family home in Calgary is $2 million - in line with the Toronto market - says Sotheby's Top Tier Trends Report.

As Calgary's market for top-tier homes continues to outpace most of Canada, Sotheby's survey findings reveal demand is predominantly driven by younger buyers, age 35 to 40, who have a skew in preference toward inner-city and Beltline living.

The report lists the most desirable neighbourhoods as Mount Royal, Brittania, Bel-Aire, Aspen, Springbank Hill, Elbow Park/Elbow Valley, and Inner City Southwest/ Westside

"According to agents surveyed, top-tier single-family homes start at $2 million dollars with a minimum of 3,500 square feet," the report states. "According to experts surveyed, over 80 per cent of these homebuyers earn an income of $500,000 or higher.

"They are predominantly employed within the finance and investment banking (mining, oil and gas) or medical sectors, or are entrepreneurs," the report continues.

According to the survey, 85 per cent of luxury home purchases in Calgary are made by Canadians - the highest rate among the markets Sotheby's surveyed.

"According to agents surveyed, top-tier single-family homes start at $2 million dollars with a minimum of 3,500 square feet," said the report. "'Must-have' features include access to schools and shopping, views of downtown, park, river or mountains," the report says.

"Most buyers own multiple homes and mortgages are commonly used within this segment of the market."

According to the Calgary Real Estate Board, there have been 204 MLS sales over $1 million in Calgary this year to April 17.

The city set a record for luxury home sales during 2012, with 544 sales. The previous record was 458, set in 2007.

Richard Cho, senior market analyst in Calgary for Canada Mortgage and Housing Corp., said that demand for luxury homes has been robust.

"Low mortgage rates combined with a healthy selection of higher-priced homes have also helped luxury homebuyers."

OUT-PERFORMING IN AB

Calgary listed as an “out-performer” in Canadian real estate market
Pace predicted to be moderately lower for Canada
By Mario Toneguzzi
Calgary Herald March 11, 2013

CALGARY — Canada is expected to embark on a gradual, modest, downward housing market adjustment over the next three years with a “measly” two per cent annual price gain over the next decade, says a study released Monday by TD Economics.

But the bank has also listed Calgary as an “out-performer” in Canada for the long-run rate of return on Canadian real estate. Compared with the national picture, Edmonton, Vancouver, Victoria and Toronto were also listed as out-performers for the future.

“With the slowdown in the Canadian housing market well entrenched, many are worried about the future value of their homes. This is not surprising as real estate is the largest financial asset most Canadians have in their possession,” said TD Economics.

“The housing market is prone to cyclical ups and downs and we should embark on a gradual, modest, downward adjustment over the next three years. We project a 3.5 per cent annual rate of return on real estate to prevail beyond 2015 – this is the long-run rate of increase for home prices in Canada. However, this pace will be moderately lower than they have been historically (5.4 per cent).”

Derek Burleton, vice-president and deputy chief economist with TD Economics, said Calgary had a run-up in prices before the recession and then a sharp decline during the recession.

“I guess prices didn’t come back too much but certainly sales fell back and now you’re getting a bit of a cyclical bounce,” he said, adding a long-term forecast takes into account key economic drivers like population growth and the potential of the economy to generate income.

“Based on some of the key drivers of growth, Calgary ranks right up there at the top and that should stand the housing market good stead. At least continue to drive above average price gains over the long run.”

The average MLS sale price in Calgary was $180,420 in 2000. That climbed to a peak of $423,770 in 2007 before dipping to $394,064 in 2009. From then, it has steadily climbed, reaching an all-time record of $428,644 in 2012.

Becky Walters, president of the Calgary Real Estate Board, said the Calgary market is really strong this year due to the in-migration it has been getting over the past 12 months.

“It’s not maybe as strong this year as it was last year but it’s certainly strong,” said Walters. “We’re seeing a nice steady growth. We’re seeing prices starting to come up a little bit not tons.”

For example, according to CREB, year-to-date until March 10, there have been 3,595 MLS sales in the city, up 4.66 per cent from the same period a year ago, and the average sale price has jumped by 9.23 per cent to $451,189.

However, at the national level, TD said a string of lacklustre performances over the next few years will mean that the annual rate of return for real estate in nominal terms will be a “measly” two per cent over the next decade, meaning home price gains should simply match the pace of inflation.

“Our research at REIN Canada is showing that for the coming five years, outperforming markets will be those based not in speculation or foreign investment, they will be those markets supported by underlying economics,” said Don Campbell, senior analyst and founding partner of the Real Estate Investment Network. “The Canadian real estate market is too broad and too diverse to paint with one story or byline and will become an increasingly regional story. Supporting economics such as increasing jobs, increasing population through migration — especially those areas which are attracting a younger, working age cohort — and increasing incomes will play a larger role in market demand and value than it has in the last five years.

“Despite Calgary and Edmonton’s value moves already experienced, they are both rated in the most affordable major centres in the country because average incomes are also higher than in most other regions. This, along with the younger age of in-migrants to these cities from other parts of the country, will be strong and supporting factors for these market for the coming years.”

Richard Cho, senior market analyst in Calgary for Canada Mortgage and Housing Corp., said in the Calgary region the average price in 2013 is expected to reach $423,000, up 2.6 per cent from 2012.

“The rate of growth is anticipated to be higher here than in many other areas of the country as the average resale price in Canada is forecast to increase by only one per cent in 2013,” he said. “Supply of homes in Calgary’s resale market has come down from a year earlier while sales have been fairly stable. The resale price in 2014 is forecast to continuing rising in Calgary, averaging $434,000.”

Calgary region to see MLS sales and prices rising for next two years

CMHC report says average price to hit $434,000 in 2014

CALGARY — The Calgary region can expect to see increases in both sales and average MLS prices for the next two years, according to a housing forecast released Friday by Canada Mortgage and Housing Corp.

The agency said sales in the Calgary census metropolitan area will grow by 1.37 per cent this year to 27,000 units followed by another 2.59 per cent growth in 2014 to 27,700 transactions.

The average sale price is expected to rise by 2.59 per cent this year to $423,000 and by another 2.6 per cent in 2014 to $434,000.

Christina Hagerty, a realtor with Sotheby’s International Realty Canada in Calgary, said she has had a very busy start so far to the year.

“With Calgary’s industries continuing to hire, I see many people coming from other Canadian centres and the U.S,” said Hagerty. “Specializing in the inner-city market, most of the people we meet are either job transfers and want no commute to work, first-time buyers and empty nesters.”

She said rental vacancy rates are at an all-time low and interest rates have remained historically low as well which have been factors in increasing housing demand.

“All the indicators are continuing to confirm our projections last year that Calgary will be leading the nation,” she said. “Affordable mortgages, record low vacancy rates, continued inward migration and low inventory going into the Spring market makes for a year of healthy growth ahead.”

According to the Calgary Real Estate Board, year-to-date until February 21, total MLS sales in the city of 2,498 are up 11.57 per cent compared with the same period last year and the average sale price has risen by 10.63 per cent to $448,635.

For Alberta, the CMHC is forecasting MLS sales to increase from 60,369 in 2012 to 61,000 in 2013 and to 62,400 in 2014.

In the province, the average MLS sale price is forecast to increase from $363,208 in 2012 to $371,200 this year and to $380,700 next year.

The CMHC report also forecast that housing starts in Alberta will fall from 33,396 in 2012 to 31,800 in 2013 but then rise to 32,200 in 2014.

In Calgary, starts are expected to fall from 12,841 in 2012 to 11,800 in 2013 and then rise slightly to 11,900 in 2014.

“The resale market in Calgary is anticipated to remain in balanced territory over the forecast horizon,” said Richard Cho, senior market analyst in Calgary for the CMHC. “Sales in 2013 are forecast to rise for the third consecutive year but at a more tempered pace compared to the previous year. Low mortgage rates, rising incomes and employment growth will continue to help support housing demand. Some sales will also come from renters who migrated to Calgary in the last couple of years.

“The average price has been gradually trending up, and is expected to continue in 2013. Active listings have declined, lowering the selection of available homes and putting pressure on prices.”

FAMILY SIZE & THE CONDO MARKET

Shrinking family sizes bode well for Canada’s condo sector
Garry Marr
Financial Post Sep 19, 2012

Maybe the condo industry knew something revealed to the rest of us only Wednesday — family sizes are shrinking.

Statistics Canada’s census data showed a dramatic increase in one-person households, up 10.4% from 2006 to 2011. For the first-time, more households were comprised of couples without children than with children. Family size also shrunk, with the average number of children dropping from 2.7 in 1961 to 1.9 in 2011.

All of this seems to bode well for a condominium sector which demands its occupants accept smaller quarters than they are historically used to.

“I think the housing stock has already responded,” said Don Lawby, chief executive of Century 21 Canada. “I think the major cities are the ones that reacted the fastest. There is a movement that has been forced by economics to smaller accommodation.”

Mr. Lawby notes if you’ve made the decision not to have children, as the statistics show some have, that means you are living a very different life and your housing needs are not the same.

“Of course, this all plays into the condo’s hand,” he says. “But there still will be people who desire to have a single family detached home where they are the king of the castle.”

The evidence already points to huge demand for high-rise units, both from buyers who want to live in the units and investors who rent them out. Canada Mortgage and Housing Corp. said it expects 207,200 new housing starts with 123,700 in the multiple-unit category, predominantly made up of condominiums.

And while there are forecasts that the housing market is slowing, the Crown corporation is still predicting 193,100 starts next year with 109,000 coming from the multiple category. Condominium projects in Vancouver, Montreal and Toronto have driven the demand, CMHC says.

Brian Johnston, chief operating officer of Mattamy Corp., said the industry has been responding rather than leading. “I think there has been demand for smaller housing,” he said.

All of this might just confirm what the real estate industry has been saying all along — they were just giving the people what they want. “I see these comments that builders are building too many houses — builders don’t create new houses because it’s a good idea, they do it because there is demand,” says Mr. Johnston, noting bank financing requires high pre-sale levels.

Doug Norris, chief demographer at Environics Analytics, predicts the impact on real estate of the country’s changing demographics is just starting. “Part of the condo boom is driven by Boomers starting to downsize and move into new types of housing,” he said. “[Living in] the single family [home] starts to dwindle after 50.”

Though the impact of the Baby Boomers has yet to be seen, Mr. Norris said they will probably downsize more than their predecessors.

Craig Alexander, chief economist with Toronto-Dominion Bank, says while there definitely is more demand for condo-style living, the overall amount of housing stock being built is still above household formation.

“We can tell from the census numbers that we are building too many houses,” says Mr. Alexander, noting there were 189,000 net new households per year from 2006 to 2011. “Yet when we look at the pace of home construction it has been well over 200,000 and in fact it was 218,000 annualized starts so far in 2012.”

He says you can build past demographic requirements for a short period, perhaps catching up with a previous lag, but it has to stop at some point.

“On the one hand I am concerned about the condo market because when we look at the current pace of construction and compare it to a generally sustainable rate, it’s way too fast but over the long haul there is long-term strong demand for condos,” says Mr. Alexander.

LESS WILD, MORE URBAN

Alberta housing leads nation: CMHC
Latest forecast predicts more construction in Western Canada
By Lewis Kelly
Edmonton Journal August 15, 2012

The Canada Mortgage and Housing Corporation forecast Tuesday that housing construction and sales will increase modestly in 2013 in Alberta while activity in most of the country slows down.

The Crown corporation's latest housing market outlook predicts 400 more housing starts in 2013 in Alberta than 2012. That represents just 1.25-per-cent growth, but CMHC predicts national construction activity to decline 6.8 per cent over the same period.

"The economy in Alberta has been improving and is expected to be one of the leaders in economic growth," said Richard Cho, senior market analyst with CMHC's prairie division. "That will naturally support the housing market."

Cho said CMHC's forecast for Alberta hinges on continued job production, international and interprovincial immigration boosting population growth, and the price of oil staying high enough to encourage continued investment in the province's energy sector.

Oil has been trading around $90 a barrel since early August after reaching a yearly low of $79.69 in June. CMHC forecasts employment growth of 2.5 per cent in Edmonton and 2.9 per cent in Calgary in 2013, and net migration growth of 28 per cent to 57,800 in the coming year.

Tuesday's edition of the corporation's outlook, released four times a year, predicts just over 32,000 housing starts in the coming year for the province, 11,000 of those in Edmonton. The forecast calls for the resale market to also grow, reaching 59,800 by the end of this year and 61,000 in 2013.

Cho said the market has favoured buyers until recently and should move to a balanced state, boosting price growth in the process. The CMHC's forecast calls for prices to rise 2.5 per cent this year and 2.8 per cent in 2013 across Alberta, bringing the average home sale to $372,300.

The provincial picture differs from the national numbers. CMHC predicted 193,100 units of housing will get built across Canada in 2013 - down around seven per cent both from previous forecasts and 2012's forecast numbers.

Cho said the new federal mortgage rules introduced in July, which knock five years off the maximum amortization period, will soften demand for housing, but other factors ultimately carry more weight in real estate.

"The rules will certainly have an impact on housing demand, but it isn't the only factor" he said. "Housing demand is also supported by growth in employment and earnings as well as migration flows and relatively low mortgage rates."

MORTGAGE INSURANCE NEWS

CMHC could be pulled out of mortgage insurance business, Flaherty says
By Garry Marr
Financial Post Apr 27, 2012

Finance Minister Jim Flaherty would consider taking Canada Mortgage Housing Corp. out of the mortgage default insurance business he told the National Post’s editorial board.

“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”

He offered no timetable on when the government could get out of mortgage default insurance business, just offering it up as a possibility. “We have a list of Crowns, Crown agencies that are being reviewed,” said Mr. Flaherty.

In a wide-ranging discussion on the housing market, he said he has no plans to increase CMHC’s current $600-billion loan limit, ruled out any possibility of regulating foreign real estate investment and made it clear his focus is on the governance of Crown corp. which controls about 75% of the mortgage default insurance business in the country.

“For some time now I’ve had concerns about the large commercial role that CMHC now plays. CMHC has become a significant Canadian financial institution. As you know, historically it was created with a mandate post-war to advance housing in Canada. It’s become much more that.”

The finance minister moved this week to tighten control of CMHC, placing it under the authority of the country’s banking regulator, the Office of the Superintendent of Financial Institutions. Previously, it fell under the watch of the Department of Human Resources and Skills Development.

The shift comes with CMHC closing in on the $600-billion limit the government has for how much of its portfolio will be backstopped by the taxpayer. Three years ago it was $450-billion.

By law, consumers must buy mortgage default insurance if they have less than a 20% down payment on a home and are borrowing from a federally regulated financial institution.

But CMHC has not been insuring just those loans, it has agreed to step in and insure loans — with the premiums paid by financial institutions — for lower-ratio mortgages, or what is called “portfolio” or “bulk insurance.”

He said the head of OFSI will now have the power to look at the books of CMHC the way she looks at the books of other private financial institutions in Canada. Already, the government has placed the deputy minister of finance on the board of CMHC.

“We have quite a bit of information about what the banks do and don’t do. [Superintendent] Julie Dickson had to go to some of them in the last year and say ‘you must ensure that your board policies on residential lending mortgages are carried through,” he said. “She’s quite a strict supervisor which is good for our country.”

OSFI has already been looking into CMHC and established one of the key issues for the organization is governance. “OFSI are certainly of the view there are necessary governance improvements we can do,” said Mr. Flaherty.

He made it clear there are no plans to extend CMHC’s $600-billion limit. “For a while,” said Mr. Flaherty, about how long the Crown corporation would have to exist under that limit. It was at $541-billion at the end of the third quarter of last year but business has slowed as the agency culled its portfolio business.

Mr. Flaherty’s own opinion on the housing market is that has been fuelled by low interest rates which he says he does not control. “Cheap money,” he said, noting he did talk to the banks about being unhappy about their mortgage rate wars earlier this year which had reduced the rate on a five-year closed mortgage to below 3% — an all-time low.

As to whether the market has been in part fueled by foreign buyers, as many in the real estate industry have suggested, Mr. Flaherty said his government will not get involved in that aspect of the market. “No,” he said, pausing to emphasize the point. “I don’t think there is [a role]. They key in housing from my point of view is to get the best information on housing.”

HOUSE SALES SURGE

Calgary house sales surge in March
Total MLS residential sales in the city up 12.63%
By Mario Toneguzzi
Calgary Herald April 2, 2012

CALGARY — Calgary’s housing market picked up steam in March as MLS sales surged compared with a year ago — led by stunning growth in the single-family category.

According to the Calgary Real Estate Board, total residential MLS sales in the city for the month was 2,167, up 12.63 per cent from March 2011. Also, the average MLS sale price increased by 3.69 per cent to $422,256.

In the single-family market, sales soared to 1,576, up 17.26 per cent from a year ago while the average sale price jumped by 2.36 per cent to $472,464 — that’s the highest it’s been since June 2011 when it was $479,580.

Christina Hagerty, a realtor with RE/MAX Realty Professionals in Calgary, said the market has been extremely active recently.

“Calgary seems to present the land of opportunity right now and people need homes. Renting does not seem like a reasonable option with the low interest rates. They also feel that the property values will be increasing so they want to secure an investment here,” said Hagerty.

She said employment and net migration growth in the city have boosted the real estate market. Also, a mild winter effected buyers with more of them starting to look in the market earlier in the year.

Industry officials have cited low mortgage rates as a reason for the surge in market activity in the city.

In March in Calgary, the condo apartment market saw year-over-year sales increase by 7.23 per cent to 356 while the average sale price rose by 4.56 per cent to $271,724.

The condo townhouse category experienced a year-over-year sales decline of 5.24 per cent to 235 but the average sale price increased by 1.21 per cent to $313,581.

Doug Koop, broker/owner of RE/MAX Realty Professionals in Calgary, said the market is very active due to a number of reasons.

In-migration into Calgary is a factor, creating a pool of new buyers.

“We’re expecting 20,000 new jobs in Calgary,” he said.

Other factors include low interest rates, increasing consumer confidence, a housing market that is considered very affordable, and “our average wage is higher than most other major cities,” said Koop.

Richard Cho, senior market analyst in Calgary for Canada Mortgage and Housing Corp., said a number of factors are contributing to the sales activity in the resale market.

“Some prospective buyers are taking advantage of the favourable mortgage rates that are being offered while some other buyers, who have been on the fence, have started to move ahead with their buying decision,” he said. “A number of people have been benefiting from the economic growth in Calgary and this has put many of them in a position to buy a home.

“Sales in Calgary are forecast to rise above 2011 levels. With activity in the energy sector expected to continue moving forward, growth in employment, income and migration will support demand for housing.”

He said some price pressures are returning to the market as demand picks up and active listings trend lower but the CMHC is forecasting a modest increase in prices in 2012 and 2013.

“The rise in activity is related to the continued improvement of our economy and consumer confidence, as some concerns regarding the global economy have eased,” said Ann-Marie Lurie, CREB’s chief economist.

CREB said its benchmark price for its Home Price Index, reached $433,500 for single-family homes, up 4.53 per cent compared with last year.

The condominium apartment and townhouse benchmark prices for March were $247,800 and $293,600, respectively. While the apartment index price has remained relatively stable compared to last year with an increase of 1.39 per cent, the condominium townhouse index recorded an improvement of 4.34 per cent over last year, said the board.

CREB says its new home price index measures how typical properties are valued in the market rather than relying on average and median prices.

It is calculated using a statistical model that estimates prices based on several factors.

“The single-family market continues to lead the housing growth in both sales activity and pricing, and the condominium market appears to have turned the corner as well,” said Bob Jablonski, CREB’s president. “Overall, the Calgary real estate market continues to move in the right direction, with all indicators pointing towards stable growth and a move towards typical levels of activity.”

RESULTS IN VICTORY?

Low-rate mortgage wars are on
John Greenwood
Financial Post Mar 9, 2012

After a string of warnings from policymakers about the perilous state of household debt in this country, it hardly seemed like a good idea.

But this week the big banks launched the latest round in the mortgage war, with Bank of Montreal rolling out its rock-bottom 2.99% five-year home loan, one of the lowest rates on such a product. BMO’s peers quickly followed suit, breathlessly unveiling their cut-price mortgages, available for a limited time.

In public comments the banks wrapped themselves in the maple leaf, claiming the special rates are aimed at bolstering the finances of consumers, since the new products come with fixed rates and shorter amortizations designed to allow borrowers to pay down debt faster. “We think this is totally consistent with the debate about stability of [household finances],” said Frank Techar, head of BMO’s domestic retail bank.

“Canadians have identified effective debt management as their primary focus this year, and these special offers will help new homebuyers and existing mortgage holders reduce interest costs and pay down their mortgage sooner,” said Colette Delaney, executive vice-president at Canadian Imperial Bank of Commerce’s retail bank.

But here’s the thing. Canadian household debt has been steadily rising for more than a decade and it’s now sitting about same the level it was in the United States just before the housing collapse, precursor to one of the biggest waves of consumer defaults since the Depression.

Thanks to low interest rates and a stable economy, Canadians are managing their burden. But Bank of Canada Governor Mark Carney has warned repeatedly that elevated borrowing is the biggest domestic threat to health of the financial system.

But don’t “special offer” mortgage deals encourage people to borrow more, and doesn’t that exacerbate the problem?

Or maybe problem is the wrong word, because from the banks’ perspective it’s not so much a problem as a potential earnings headwind, according Peter Routledge, an analyst at National Bank Financial.

.Residential mortgages are hugely important for the banks, a key business in domestic retail lending which is traditionally one of the most important earnings drivers. At a time of heightened competition, profit margins are razor thin but players are making up for that by hiking the volume of loans they write.

Canadians have about $1.1-trillion of mortgages outstanding, by far the lion’s share of total consumer debt, according to the Bank of Canada.

But the bank’s are mostly protected from risk of default through insurance provided by the Canada Mortgage and Housing Corp.

On average, at least 50% of mortgages held by the banks are covered by insurance, all but the safest, low ratio loans to highly credit-worthy customers.

So in a worst-case scenario — a collapse in the housing market — the banks would have minimal direct exposure to loan losses.

But they would experience a drop in profits since a housing correction would almost certainly result in a consumer pull-back in loan demand, not just for mortgages but across the board, and the banks are very cognizant of that.

“I think banks recognize that scenario would be very bad for earnings, and why would they want to hurt their franchise?” said Mr. Routledge.

When the U.S. market started to turn, lenders responded by bringing out ever more risky products that enabled people to lever up even more because their role in the economy had become distorted.

“But that’s very unlikely to happen here because of the [more healthy] structure of the mortgage market,” he said.

Another reason for Canadian banks to be cautious is that CMHC has been fundamental not just to their business models but also to their funding. Last year the big six issued more than $25-billion of covered bonds, mostly backed by CMHC insured mortgages. Thanks to the CMHC, the interest rate on the bonds is only marginally above Canadian government bonds, and significantly lower than the funding costs of even the strongest foreign banks.

The last thing the banks want to do is anything that might cause the federal government to change the rules around CMHC insurance.

With this in mind, we can ask the question again: Are the banks increasing risk in the system with their special low-rate mortgage offers?

Bank officials suggest the main target is customers of other banks along with new customers with solid jobs and a genuine need to own homes.

Rob Mclister, editor of industry newsletter Canadian Mortgage Trends, says such offers typically result in only a small amount of business from new borrowers. Instead what they do is raise the level of market interest in mortgages and home buying generally, he said.

Not surprisingly, the banks continue to grow home loan volumes at mid single digits, a healthy clip given the weak economy.

HOME FOR CANADIANS

CMHC backing fewer loans
By Garry Marr
National Post Jan 30, 2012

Canada Mortgage and Housing Corp. is cutting back on mortgages it insures as the Crown corporation edges closer to a $600-billion cap imposed on it by the federal government, the Financial Post has learned.

A CMHC spokesman confirmed that it had approached a number of lenders at the end of 2011 about reducing its “bulk or portfolio insurance” after third-quarter results showed the agency had committed to back $541-billion in mortgages. CMHC, which guarantees mortgages held by financial institutions, is ultimately backed by the federal government and needs approval to go over the $600-billion limit — something that would create greater risk for taxpayers should the housing market collapse.

“CMHC has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance.” said Charles Sauriol, a spokesman for the Crown corporation, in an email.

“To ensure equitable access to portfolio insurance within CMHC’s annual limits, an allocation process is being established which has caused some delays. Portfolio insurance provides lenders with the ability to purchase insurance on pools of previously uninsured low ratio mortgages and does not impact CMHC’s transactional business.”

Financial institutions are required to have mortgage-default insurance when a consumer has less than 20% equity. However, the banks have been seeking insurance on loans with even high downpayments — something not required by law — so they can securitize those bulk lending loans, thereby getting them off their balance sheets and reducing their capital requirements. In those cases in which the loans to value is less than 80%, the bank pays the insurance charge instead of the consumer.

“One of the things that has got them [to the limit] faster than expected is they are doing a lot of conventional insurance for lenders,” said one source. Just three years ago, CMHC had $450-billion in loans it was backstopping and had to go to the government to get that increased to $600-billion.

“I think as a taxpayer you should care. The policy question is why should the Canadian taxpayer take that type of meltdown risk within CMHC,” the source said.

The risk to the taxpayer would be a collapse in the market leading to a defaults like the U.S. saw. If CMHC couldn’t cover those defaults, Ottawa is on the hook for 100% of any shortfall.

On the surface, insuring conventional loans may not appear as risky as traditional mortgage default insurance because it comes with more equity. The banks have been demanding ultra low fees on the conventional mortgages, arguing the equity position makes them a lower risk. However, lenders are skimming their portfolio to load up mortgages that are 70% to 80% debt to equity and may also have other problems, said a source.

With mortgage defaults well below 1%, some might argue the risk to CMHC is negligible. “If you look at what is backing [CMHC’s] guarantee, it should be more than enough to cover any downturn in the market,” said one banking source, who asked not to be identified, about CMHC’s cash reserves. “Besides, what will the government do, not increase their limit? This could kill the entire housing market.”

CMHC gave no indication it would seek an increase in its limit.

“CMHC’s mortgage loan insurance limit in force is $600-billion. CMHC manages its mortgage loan insurance business in accordance with this limit,” said Mr. Sauriol.

The Crown corporation would be going to the government looking for an increase in its limit at a time when both Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have been casting a wary eye at the housing market.

“We watch the housing market carefully and we are prepared to intervene if necessary. Having said that, we’re not about to intervene in the housing market now,” said Mr. Flaherty this month. For his part, Mr. Carney said “we see that in a number of real estate markets in Canada, valuations are at a minimum, firm; in others, they’re probably overvalued. So there are risks there.”

Sources have indicated the government is already considering tough new measures for calculating how the self-employed qualify for loans and tightening regulations for condominium buyers, so there is probably little appetite for backstopping even more debt from CMHC. In addition to CMHC, the government has a $300-billion limit for private mortgage default insurers.

PAID, STAMPED, FILED!

Canadians paying off mortgages early: CMHC
Financial Post Staff  
Nov 29, 2011

OTTAWA — Canadian homeowners are doing a good job of paying off their mortgages early, according to the Canada Mortgage and Housing Corp., which released its third-quarter results Tuesday.

While mortgage repayments can be spread out over 30 years, the CMHC reports that the average amortization period for mortgages insured by the national housing agency is under 25 years, and the loan-to-value ratio of those homes was 80% or less. As of Sept. 30, the outstanding loan amount per household for all homeowner loans was $159,740, slightly above the figure for the previous year.

“CMHC analysis shows that a substantial percentage of CMHC-insured high ratio borrowers are ahead of their scheduled amortization,” the agency said in its report. “Accelerated payments shorten the overall amortization period, reduce interest costs, increase equity in the home at a faster rate and lower risk over time.”

The agency says its mortgage arrears rate is 0.42%, in line with industry trends.

Rules brought in by the federal government in March, in response to historic levels of household debt, which reduced amortization periods on certain mortgages, and limited the amount that can be borrowed when a house is refinanced, cut refinancing activity by 31% from last year, the CMHC said. The agency’s homeowner purchase mortgage insurance showed a year-over-year decrease of 12%.

“The level of household debt remains a concern but there are encouraging signals,” it says. “There has been a significant deceleration in the growth of mortgage credit since March, particularly in recent months, impacting the growth rate of total household credit. Growth in personal loans, lines of credit and credit cards has levelled off in recent months.”

The agency notes general economic conditions have been favourable in 2011, with stable mortgage rates, a healthy housing market and a declining unemployment rate.

“Overall arrears levels and arrears rates have been improving and (mortgage insurance) claims volumes have been lower than expected,” it said. “Given current economic forecasts, it is expected that trends will improve moderately going forward, although both downside and upside risks remain.”

While housing sales have slowed since January, the CMHC expects sales for the year to fall within a range of 423,600 to 470,100 units, and next year’s sales to be somewhere between 406,100 and 509,000 units. Prices should “modestly grow as market conditions are expected to remain in the balanced market range,” it said.

The agency notes it keeps an eye out for bubbles, but so far it sees “little evidence of over-valuation” in the Canadian housing market.

Photo By: *_Abhi_*

RESALE NEWS

Calgary sees more home resales as average price drops
By Mario Toneguzzi
Calgary Herald  November 30, 2011

Calgary's resale housing sales grew in October, but the average price dipped, according to the Conference Board of Canada.

In a report published Tuesday, the board said the seasonally adjusted annualized rate of sales in Calgary was 22,572 during the month, up from 22,344 in September and an increase from 19,524 in October 2010.

But the average price fell in October to $402,561 from $408,466 in September. A year ago it was $396,041.

As for new listings, the annualized rate in October decreased to 43,656 from 44,664 the previous month, but up from 42,960 in October 2010.

In October, the sales-to-new listings ratio in Calgary was 0.512. It was 0.471 in September and 0.455 a year ago. The conference board said Calgary can expect short-term year-over-year annual price growth of between five and seven per cent.

According to the latest Canada Mortgage and Housing Corp. market outlook report, MLS sales in the Calgary region are forecast to increase by 2.3 per cent in 2012 to 22,700, while new listings are expected to decrease by 1.1. per cent to 43,700. The average MLS sales price is forecast to jump by 2.2 per cent in 2012 to $411,000 in the Calgary census metropolitan area.

The CMHC housing market outlook says despite many positive factors for real estate, "competing factors such as uncertainty in the global economy has kept some prospective buyers on the fence and will continue to temper any large increases in sales."

Photo By: Where To Willie

BLAZING AHEAD

Canada’s housing market steams ahead
Reuters  Oct 11, 2011

TORONTO — Canadian housing starts jumped much more than expected in September, helped by a surge in the condominium sector, suggesting Canada’s property boom stayed intact last month and should help the economy avert recession.

Canada Mortgage and Housing Corp. said on Tuesday that starts rose to seasonally adjusted annualized rate of 205,900 units last month. August starts were revised up to 191,900 from 184,700.

September starts far exceeded the consensus expectation of analysts, who had called for 188,000.

Driving the gains were a jump in construction of multi-residential buildings such as condominiums.

“Housing starts picked up in September due to an increase in multiple starts in the Atlantic region, Quebec and in British Columbia,” Mathieu Laberge, a deputy chief economist with CMHC said in a statement.

“Multiple housing starts are expected to move back toward levels consistent with demographic fundamentals in the near term.”

The agency said urban starts increased by 8% to 185,900 units in September, with multiple urban starts up by 14.2% to 118,000 units. Single family housing starts in urban areas decreased by 1.5% in September to 67,900 units.

Rural starts were estimated at 20,000 units.

CIBC World Markets economist Emanuella Enenajor said in a note to clients that while multiple starts are widely expected to scale down in the months ahead, residential construction could be a plus for GDP in the third quarter.

Canada’s economy contracted marginally in the second quarter, partly due to the supply chain impact of Japan’s earthquake and tsunami. There had been fear the economy could shrink again in the third quarter, meeting the textbook definition of a recession.

But recent data has been encouraging. A report on Friday showed Canada created six times as many jobs as expected in September, helped by an economy that is largely humming along even as other rich nations struggle with debt and slumping confidence.

Canada’s housing sector has played a major role in the recovery. The country avoided the subprime housing boom that drove the United States into recession and helped trigger the global financial crisis.

Property prices and sales briefly weakened after the crisis. But the Bank of Canada’s decision to cut interest rates to a record low, which pulled mortgage rates lower, fueled a fresh boom.

The housing boom was helped along by the fact Canada’s conservative banks escaped the crisis largely unscathed and were able to keep lending.

The fear now for many policymakers is a fresh asset bubble could be in the works.

STATS ON STARTS

Housing starts jump in February
Ka Yan Ng, Reuters
Tuesday, Mar. 8, 2011

TORONTO - Canadian housing starts rose a better than expected 6.6% in February from January, thanks to a jump in condominium construction, though analysts warned the strength is unlikely to carry into coming months and could be a mild drag on overall economic growth.

Housing starts climbed to a seasonally adjusted annualized rate of 181,900 units in February from a revised 170,600 units in January, Canada Mortgage and Housing Corp said on Tuesday. January starts were revised up slightly from 170,400.

Analysts, on average, had forecast 173,000 starts in February.

“The details reflected somewhat of a lack of breadth, so we discount the strength on volatility concerns and are not convinced this is a sustainable break from a lower trend,” wrote Scotia Capital economists Derek Holt and Gorica Djeric.

Urban starts rose by 9.4% to 161,000 units, CMHC said, driven by a 14.5% rise in construction of multiple-unit buildings, mainly condominiums, accounting for 94,900 units.

Analysts said strength in the condo market may not continue as there has been a recent drop in building permits issued for the sector.

The closely watched single-family homes segment edged 3.0% higher to 66,100 units in February.

Despite the month-to-month swings in the volatile multi-unit group, the underlying trend suggests housing starts are averaging 176,000 units a month.

“Activity appears to be stabilizing around a level consistent with demographic demand,” said Robert Kavcic, economist at BMO Capital Markets.

Compared with global trends in the face of the financial crisis, Canada’s housing market has been resilient, due mainly to a strong banking system and low interest rates. After a brief retreat during the crisis, the residential housing sector was able to post double-digit price gains in late 2009 and early 2010.

But Canada’s economic recovery is now seen depending less on consumer-driven growth and more on business and export growth. Analysts expect that a rise in interest rates later this year and tighter mortgage rules will combine slow the housing sector.

“We continue to expect a softening in overall housing starts, particularly with the anticipated higher interest rates and a slower second half of the year, keeping home prices under wraps,” said Krishen Rangasamy, an economist at CIBC World Markets.

Atlantic Canada saw the biggest decline in urban housing starts in February with a 24.7% drop, CMHC said, while Quebec followed with a 7.1% fall. British Columbia was down 5.9%.

Urban starts increased by 29.3% in Ontario and by 26.1% in the Prairie provinces.

Rural starts were estimated at a seasonally adjusted annual rate of 20,900 units in February.

TANKING CMHC RULES?

Think Tank: Time to leash the CMHC
John Greenwood 
FPPOSTED, January 31, 2011

The federal government should limit tax payer exposure to potential problems in the housing market by winding back the role of the Canada Mortgage and Housing Corp. in the provision of mortgage insurance, according to a new report by the CD Howe Institute.

The CMHC has a pervasive presence in the domestic mortgage market, potentially resulting in “unmanageably large risks in financial markets” that are ultimately borne by the Canadian public, says the report.

Under current rules, people who borrow more than 80% of the value of the home they want to buy must also take out insurance, and the CMHC is by far the most dominant player in that market.

According to the report by Finn Poschmann, vice president of research at the CD Howe Institute, the CMHC now backstops mortgages equivalent to more than 30% of Canada’s gross domestic product.

As a result, Canadians are exposed to “large, ill-defined risks,” says the report, which argues that Ottawa should crank back the CMHCs presence in mortgage insurance and allow more room for private sector insurers.

Originally conceived as a mechanism for executing public policy, the CHMC has expanded dramatically, especially in the wake of the financial crisis as the government encouraged banks to boost lending by allowing them to securitize more home loans.

But critics worry that the unintended consequence was that mortgages became too easy to get, pushing up real estate prices across much of the country to unsustainable levels.

The CD Howe report comes on the heels repeated warnings from the Bank of Canada that Canadians have become over leveraged and need to start paying down debt.

One of the main concerns about the CMHC is the lack of disclosure about the quality of its mortgages and details of the types of loans it insures. For instance, when the government announced earlier this month that home equity lines of credit, or HELOCs, would no longer qualify for CMHC insurance, many analysts expressed surprised that such loans were ever allowed to be part of the CMHC program in the first place.

WHEN WILL YOU SAVE?

Low interest rates to power Calgary housing market
By Mario Toneguzzi
Calgary Herald
March 3, 2010

Low mortgage rates will continue to fuel activity this year in the local housing market.

A forecast by Canada Mortgage and Housing Corp. released on Tuesday said sales in both the new home and resale housing markets are expected to increase this year and next year in Calgary and for Alberta.

As well, average MLS sale prices will climb over the next two years.

"Calgary housing markets will benefit from a stronger economic outlook and historically low mortgage rates," said Richard Cho, senior market analyst in Calgary for the CMHC.

"We are expecting to see more activity this year compared to 2009. This momentum is expected to carry through into 2011 as the economy strengthens."

In releasing its 2010 housing market outlook report, CMHC said the Calgary census metropolitan area will see total housing starts rise by 20.3 per cent this year to 7,600 units, followed by a 21.1 per cent hike in 2011 to 9,200 units.

MLS sales in the Calgary area are expected to climb by 10.9 per cent to 27,600 this year and another 3.3 per cent in 2011 to 28,500.

The average MLS sales price in the Calgary region is forecast to jump by 5.5 per cent this year to $407,000 and by another 3.9 per cent next year to $423,000.

Low interest rates continue to drive Canadian housing markets, something that could continue for much of 2010, said Dan Sumner, economist with ATB Financial in Calgary.

"Although interest rates are certainly going to go up eventually, they are rising from a very low level and will probably not be back to neutral levels until 2011," he said.

"However, with home prices near the top edge of some affordability metrics, there could be little room for significant price increases in the near term."

The government of Canada announced recently a number of measures to support the stability in the housing market, said Cho.

"These changes for government-backed mortgage insurance will moderate housing activity," he added. "Changing the qualifying mortgage rate will help ensure homebuyers have a cushion to protect against the risk of increased payments when their mortgage is up for renewal. Some prospective buyers may postpone their purchase while they save for a larger down payment, while others may consider purchasing a less expensive home."

Housing Market Outlook

2010 Y/Y change 2011 Y/Y

Alberta housing starts 24,500 20.7% 29,900 22%

Calgary housing starts 7,600 20.3% 9,200 21.1%

Alberta MLS sales 64,000 10.8% 66,500 3.9%

Calgary MLS sales 27,600 10.9% 28,500 3.3%

Alberta MLS avg. price $358,500 5.1% $372,500 3.9%

Calgary MLS avg. price $407,000 5.5% $423,000 3.9%

Source: Canada Mortgage and Housing Corp.

Photo By: Nikkinoguer