Monthly Archives: September 2010

House Price Index (HPI): July 2010

Calgary home prices were up 0.4% in July from the previous month, and up 7.7% from a year earlier according to the Teranet-National Bank National Composite House Price Index™ released today.

Canadian home prices in July were up 0.5% month-over-month, and up 12.4% from July 2009. It was the smallest 12-month gain in 4 months. It was the 15th monthly rise, making this run of increases the longest since October 2006.

For the first time in 4 months, prices did not rise from the month before in all 6 markets. Vancouver was the exception – down 0.3% from June.

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For those comparing July’s MLS® figures and Teranet’s House Price Index, Scotiabank’s report earlier in September sheds some light:

Teranet is reported on a three month moving average basis, versus the spot reports produced by CREA. Further, Teranet is based on land registry figures and there may be between a one- and two-month lag in reporting sales transactions to public land registry offices. Indeed, when we correlate monthly percentage changes in the Teranet and CREA measures, the best correlation arises from comparing current Teranet readings to CREA from four months prior.

That said, the correlation is modest, and thus leaves open the possibility that CREA has begun to show price declines since May because it is impacted by compositional shifts that do not affect Teranet since the latter is based on repeat sales data.

RBC: Calgary Affordable But Buyers Sit Out

RBC released their quarterly housing affordability report today detailing that none of the 4 classes tracked showed an increase in affordability on an annual basis in Calgary.  However, affordability increased from the first quarter for all except detached bungalows.

“Buyers appear to be circling the wagons as favourable housing affordability has failed to spur sales following the fairly subdued rebound in activity which ran its course at the start of the year,” said Robert Hogue, senior economist, with RBC. “However, it might just be a question of time before they spring into action. Sustained economic recovery will eventually dissipate any lingering doubts about the attractiveness of home ownership in the city.” (Source)

Here is the excerpt for Calgary from the report::

Still favourable housing affordability failed to attract new buyers into the Calgary market once the fairly subdued rebound in activity ran its course earlier this year. Home resales fell significantly in the city during the spring and summer, reaching levels only moderately higher than the low points reached at the end of 2008, during the worst of the housing downturn.

Renewed weakness in demand has maintained downward pressure on home prices. In the second quarter, prices actually fell for most housing types. The upside has been a further lowering in the costs of homeownership in the city. Bucking the general Canadian trend, housing affordability in Calgary showed some slight improvement in the second quarter.

RBC Housing Affordability Measures edged lower in all but one housing category, down between 0.1 and 0.5 percentage points, except for bungalows, which showed a rise of 0.9 percentage points.

The numbers for Calgary:

  • Detached bungalow (1,200 sq ft)
    Average Price: $420,000 (+4.6% YoY)
    Qualifying income required: $89,200
    RBC Housing Affordability Measure: 39.2%
  • Standard Two-Storey (1,500 sq ft)
    Average Price: $422,100 (+5.5% YoY)
    Qualifying income required: $91,600
    RBC Housing Affordability Measure: 40.2%
  • Standard Townhome (1,000 sq ft)
    Average Price: $335,800 (+8.4% YoY)
    Qualifying income required: $71,200
    RBC Housing Affordability Measure: 31.3%
  • Standard Condominium (900 sq ft)
    Average Price: $251,800 (-0.2% YoY)
    Qualifying income required: $54,400
    RBC Housing Affordability Measure: 23.9%

The higher the measure, the more difficult it is to afford a house. For example, an affordability measure of 50% means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household’s pre-tax income.

Qualifying income is the minimum annual income used by lenders to measure the ability of a borrower to make mortgage payments. Typically, no more than 32% of a borrower’s gross annual income should go to ‘mortgage expenses’ — principal, interest, property taxes and heating costs (plus maintenance fees for condos).

The RBC Housing Affordability Measures show the proportion of median pre-tax household income required to service the cost of mortgage payments (principal and interest), property taxes and utilities on a detached bungalow, a standard two-storey home, a standard town house and a standard condo (excluding maintenance fees).

The measures are based on a 25% down payment and a 25-year mortgage loan at a five-year fixed rate and are estimated on a quarterly basis.

The measures use household income rather than family income to account for the growing number of unattached individuals in the housing market. The measure is based on quarterly estimates of this annual income, created by annualizing and weighting average weekly earnings by province and by urban area.

To read the entire report, click here

Market Update for Sellers (September 2010)

If you’re planning on selling before the end of the year, your window of opportunity is here.   Sales this past week were the highest since the beginning of June with 242 transactions.

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Pending sales are above July & August levels showing that buyer intention has increased in recent weeks.

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Nearly 20% of the homes that have sold thus far in September had been on the market under 30 days.  This shows that properly priced homes can and do sell quickly even in these slower market conditions.

Although sales activity has increased, sellers need to be aware that conditions are different than previously.  Take a look at how sales and pending sales compare to last year:

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Even while sales are down, inventory is up over this time last year : up 56% in fact.    This means that if you’re fortunate enough to receive an offer in this market  – any offer – if  it’s handled poorly buyers have plenty of other homes to choose from.

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For a recent example, read Bob Truman’s entire post here.    The other agent handled the situation shabbily and Bob and his clients simply moved on to another home they liked and bought it instead.   By the time the sellers wished to reopen negotiations again a couple days later, it was already too late.

Your agent should be helping you by providing all relevant and current information so you can make the proper decision based on present market conditions.

Canada 2011: The Hangover

CIBC World Markets released a report today warning that Canadian house prices and consumer credit are “revisiting recessionary trends,” which will dampen consumer spending that is so key to the economic recovery.

Not surprisingly, the Canadian recovery didn’t play out as advertised. While we did see a spike late last year and early 2010, the momentum has faded lately, largely as a result of a strong C$ and a softening US economy. Growth in the second half of the year will be only a fraction of the Bank of Canada’s July Monetary Policy Report forecast. Early 2011 doesn’t look promising either, which should prompt major revisions in October’s MPR, forcing the Bank of Canada to defer further tightening.

It’s no secret that house prices have been falling recently, but less noted is that the performance of the housing market is already approaching levels seen during the recession. Even a modest 5% additional drop in average price in 2011, on top of the 6% it already shed from its peak, will lead to a negative wealth effect of $10 bn, stripping growth in consumer spending by more than a full percentage point.

With fiscal withdrawal, and the housing market losing ground, the economy will be unable to replace that sizable contribution from public sector and construction jobs. And it’s unlikely that the new jobs created in 2011 would be of the same high quality—limiting the upside potential in personal income.

Two years after the recession, Canada is facing a global economy that still has a hangover from past excesses, and its local economy has already used up much of the juice from stimulus. The Bank of Canada will, at some point, resume normalizing interest rates next year, but at a very slow pace, given the slow growth, soft inflation picture.

You can read the entire report here which also focuses on the US and overseas markets.

What Else You Should Know About Foreclosures

The following is taken from the article entitled “Representing Buyers of Foreclosed Properties” by Lubos K. Pesta, Q.C., Walsh Wilkins Creighton LLP. (I have edited out portions that relate directly to agents only)


Modifications to contract

[Of great concern to the buyer] will be the modifications to the standard Residential Real Estate Purchase Contract that will be required by the court or the lender, depending on the circumstances. As most industry members will be aware, a Schedule “A” (or “B” depending on the lawyer and bank involved) will be attached and many provisions of the standard agreement, including most warranties, crossed out of the contract used for the transaction.

While the Schedule is not standardized, in most cases the bank or the court will contract out of most normal obligations that exist in a regular sale.

This includes the obligation of the seller:

• to provide a Real Property Report, where applicable;

• to address any building location problems;

• to ensure that appliances and fixtures are in normal working order; (In fact, the ownership of appliances is not warranted and the buyer could see them repossessed by a leasing company post closing.)

• to provide vacant possession on the Completion Day; (The prior owners may need to be evicted.)

• to take responsibility for any damage to the property between the time of acceptance of the offer and possession being granted; (Property is “as is, where is”.)

• to pay any applicable GST; (This will become the responsibility of the buyer if, for example, it is discovered post closing that the prior owner substantially renovated the property.)

• in condominium transactions, to provide an Estoppel Certificate (or any other condominium documents) and to take responsibility for the payment of any special assessment due after acceptance of the offer.

I have even encountered situations where the bank’s lawyers crossed out clause 5.1, which normally provides that the property remains at the risk of the seller until Completion Day! To me, this really goes too far as the buyer will not have an insurable interest in the property and will not be able to secure insurance for the risk of loss until the purchase price is paid. We have seen circumstances where the bank’s lawyers reversed their position and reinserted clause 5.1 where they were taken to task on this issue.

Conditions

In addition to unusual amendments to the Purchase Contract, in many foreclosure transactions (particularly early in a judicial listing process) the court and/or the lender will be unwilling to consider offers to purchase that contain normal conditions such as financing, property inspection and condominium document review.

Needless to say, where the buyer will be relying on mortgage financing to complete the purchase, the buyer should secure whatever reassurance that the buyer requires and is available from a mortgage lender before an offer to purchase is drawn up. In addition, a term should be inserted in paragraph 7.6 of the Contract to indicate that a portion of the purchase price will be paid by way of mortgage financing. This obligates the seller to accommodate the financing on closing.

Foreclosed properties attract buyers looking for a bargain. As you can see from this article, however, the purchase of a foreclosed property involves navigating through a minefield of potential problems. While many foreclosure transactions close smoothly and successfully, occasionally foreclosure purchases end up being a buyer’s worst nightmare. If you are not comfortable with the process or the inherent risks, then I would recommend that you simply not get involved in these types of transactions.

Lubos K. Pesta, Q.C.
Walsh Wilkins Creighton LLP
Phone: 403.267.8432
Fax: 403.264.9400
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The comments expressed in this article are for information purposes only and serve to highlight general principles. Each situation is different and you should seek legal counsel before pursuing any particular course of action. These articles do not create a client/lawyer relationship and do not constitute legal advice. The opinions expressed herein are those of the author and not of AREA.

Reprinted with permission. AREA makes no guarantee as to the accuracy or completeness of this information.