The price of a new house in Canada rose 0.1% in October according to the New Housing Price Index (NHPI) released by StatsCan today. Year-over-year, prices were up 2.5%
In Calgary, new home prices decreased 0.6% in October from the previous month. This marked the largest monthly drop in all the cities tracked by the index. The report states that a few Calgary builders offered discounts in order to spur sales. Year-over-year, new home prices were up 1.1%.
Calgary was only 1 of 4 cities that registered declines between September and October, with 9 showing no % change, and 8 with increases of up to 0.8%.
The largest year-over-year increase was recorded in Regina with 6.0%. Regina has been posting the largest 12-month increase since May 2010. Charlottetown recorded the largest annual drop at -1.6%.
NHPI October 2010. Source: StatsCan (Click to enlarge)
Here are previous NHPI reports:
Also released today was CMHC’s Rental Market Survey.
Calgary had the 3rd highest average rent in Canada at $1,069 – behind Vancouver ($1,195) and Toronto ($1,123).
Changes in vacancy levels in Calgary were a mixed bag depending on the type of property.
You can browse the entire report here
TD has revised their Canadian housing forecast for 2011…upwards. While sales and prices are expected to be lower in 2011 than this year, the outlook has improved.
Compared to the previous (September) forecast, annual home sales for 2011 have been revised up by 8% to 420K units, a 3% decline from the unchanged 2010 forecast of 450K units.
On the flipside, sales for 2012 have been downgraded from 437K units to 400K.
They now forecast the annual average price for 2011 to remain essentially unchanged, slipping by less than 1%.
Why the upward revision?
This quote caught my eye as well:
You can read the entire TD report here
In light of elevated consumer debt, more banks are asking for the Dept. of Finance to tighten mortgage regulations even further.
Statistics Canada finds 42% of all new mortgages are for amortization periods of more than 25 years.
Read more in today’s Financial Post: Bankers Sound Alarm on Loans
It’s interesting to see the amount of attention given to consumer debt in general. With the big banks and government now more openly stating that there may indeed be problems, it will be interesting to see if this will result in any significant regulation changes in the near future. I doubt it – but it’s an interesting development nonetheless.
I’d like to know if anyone can shed some light on why the banks might be issuing statements like this independently of governmental regulation. The banks make less interest income off of the consumer with shorter amortizations, yes? Sometimes significantly so. I totally agree with the sentiment that mortgage regulations should be tightened to pre-2006 levels, by the way.
Is this a reaction to a future assessment of risk? A butt-covering move? I’m genuinely curious.
What I find bizarre is that on one hand bankers request elimination of 35/5 and return to 25/?, however on the other hand basically they offer %0 down mortgages and all kind of other questionable mortgage/loan products.
Record low interest rates call for record high debt levels, this is how it works. Are the debt levels are too high? IMO is going to take several years to get the answer to that question.
December day
Can your imagine how many people beleive for the interest rate will stay
0-1% for 5-7 years!!!!!! and no move…. a lot!!!!
Unfortunately, I don’t have time right now to look for the City of Calgary report referenced in the article below. If someone could find and link to it, it would be greatly appreciated! I’m quite interested in reading the report in its entirety to see how they came to their conclusions:
Is it just me, or does the portion cited by Mike defy logic. I’ll paraphrase:
The lack of jobs is putting a lot of upward pressure on house prices. Oh sure, they’re not going up now but the pressure is there in abundance and, the longer the jobs are gone, the more that pressure will build. Don’t you get it people? The lack of jobs is great for real estate in Calgary.
Please tell me this report was produced in the ‘special needs’ department at city hall.
Spence – I think identifying the ‘special needs’ department at City Hall is being a bit redundant.
So what happens when the real economy actually starts to recover and interest rates head towards normal levels again? I guess rising mortgage rates will have no effect on the real estate market…
I haven’t been able to find that specific report referenced above, but I did stumble across a different one. Here are some highlights:
Calgary Residential and Commercial Real Estate Markets
Briefing Note #6 (September 2010)
You can read the entire report here
“Our analysis of CMHC rule changes on Calgary prices indicates that for every year that insured mortgage terms were extended beyond 25 years Calgary house prices rose by between $6,000 and $10,000. Between 40% and 70% of residential price changes in Calgary between 2004 and 2009 can be attributed to CMHC amortization rule changes.”
Wow. Do they mean every year of the amortization past 25 years, or every year since the policies changed? If I’m reading this correctly and the former is correct, then are they saying that the increase in amortizations by 10 years (to 35 years) added 60-100K on to Calgary house prices? That prior to their abolition 40 year ams blasted prices up by 90-150K?
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Mike Fotiou says: I’ve emailed them to ask for clarification. If that’s the case, public policy had a huge impact on prices. CMHC offering to insure amortizations over 25 years was probably the worst thing to happen to housing affordability in Canada – and ironically, CMHC’s mission is to provide Canadians with affordable, quality choice in housing. It may have helped new home buyers initially, but then it pushed prices even higher. Here’s a graph showing changes to CMHC and Calgary house prices: click to view
Thanks for posting this report, Mike. I’ll be very interested in hearing what they have to say. If the influence of increasing amortization periods on the housing market is correct, it would indeed be an astounding policy failure. One can only imagine what the effect of increased amortizations *and* lower down payments has been.
There’s of course no reason to believe that these effects have been confined to just Calgary, either.
Mike
You should build a graph that uses Alberta net migration, and not just interprovincial, to average price. If you could find Calgary only net migration that would even be better. I would think migration had more to do with the increase in prices than low interest rates or extending ammortizaion.
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Mike Fotiou says: This influx may have perpetuated the increase in house prices, but I don’t believe it was the underlying cause of it.
Some economists are starting to fret and want Mr. Carney to clarify his position on the state of Canada’s housing market.
From Scotia Capitals daily report:
You can read the entire release here.
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In other report released this morning, Statistics Canada said that the ratio of household credit market debt-to-personal disposable income hit a record 148.1% in the 3rd QTR, up from 143.4% in the previous QTR. (The current rate is the highest since record-keeping began for that series in 1990, and was then at 87%)
Mark Carney said last week that the growth of household debt, which has outpaced incomes, has deepened the vulnerability of the household sector. He’ll probably face more questions about this at his meeting later this morning.
Mike
This influx may have perpetuated the increase in house prices, but I don’t believe it was the underlying cause of it.
If that was the case then why didn’t we see the same with other markets? Look at this graph from plunge O’meter. Alberta is the only market that breaks sharply from trend begin early 2006, which is when net migration really picked up.
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Mike Fotiou says: When you factor in the highest average wages in Canada & a booming Oil&Gas/housing sector, some of the lowest taxes and no PST, it’s inevitable that more people wanted to move to Calgary. Everyone that moved here was also able to purchase a home immediately regardless of their net worth or employment history (or lack of): Lax lending standards, longer amorts, and the only province to still offer no qualifying assumable mortgages. Think about it. 0% down, no qualifying assumable mortages. Speculation was rampant, and anyone could buy a home. The housing boom was made possible and ignited by government policy. In-migration just fueled it further.
A net migration gain doesn’t mean much if those arriving aren’t able to afford or qualify to buy a home.
“Living on Low for Long” was the title of Mark Carney’s speech that he delivered this morning in Toronto.
Mr. Carney and central bank officials have suggested on several occasions that regulatory changes, such as the tightening of mortgage rules earlier this year, are the most effective tools for reining in household borrowing. He continues to tell households to be “prudent,” but it’s apparent that earlier calls for “prudence” have fallen on deaf ears.
You can read the entire “Living on Low for Long” here (PDF)
Mike’s response to DaBull describes exactly what I witnessed during my years in the industry. It also explains my bearish position on RE. It is incredible to me how many intelligent people still fail to recognize the serious nature of the problems created by rampant speculation and loose lending. They are either blind, or they have a vested interest in the party going on. Remember, this is not just about housing. If inflated house prices/mortgages were our only problem, I would not be this concerned. The fact is, we are over-leveraged on everything. We’ve abused easy credit for too long and there will be tough times ahead for a lot of people because of it. That being said, I can’t think of anywhere else I would rather live. Interesting times.
Mike
In spring 2008 I sold one of my properties (a house) for $353,000 (paid $86,000 in 1984). It was bought by a immigrant Asian Indian family that had been here slightly less than 2 years. They put down $55,000 in cash and mortgaged the rest. I purposely hired an Asian Indian staging company (lots of reds) to focus on this market segment, (I couldn’t market to the Chinese because there were 8′s in the address). So I think net migration is very relevant, the Asian and Eastern European Immigrants are very different from the average Canadian. They hoard cash very quickly and then use it to buy property. Why? That’s the way they were brought up.
And I agree with you when you wrote “Speculation was rampant”. It was WAS rampant back in 2006-2007, but now it’s almost 2011.
The housing boom was made possible and ignited by government policy.
If Alberta didn’t have natural resources our house price graph would have looked very close to the flat line markets of Montreal or Ottawa. How can these 2 markets be immune to Government policy changes, while Alberta wasn’t? There has to be something else.
Spence
Credit is the new normal in the Western World, better get use to it. Do I think it’s right, NO, but that’s the way it is and will be for a long time into the future if not for ever. If you can’t except this as the new normal, you most likely will be left behind. Things they are a changing. BRIC countries will be the economic powerhouse of the future, not North America or even Europe. Thank God Canada still has lots of the natural resources left. Hopefully we can adapt fast enough and refocus trade on the BRIC countries instead of the US.
Mike
Your statement “Think about it. 0% down, no qualifying assumable mortages.” is not really correct. Even though most mortgages in Alberta are written as assumable, there’s this dang little “due on sale” clause that the banks are using.
From a real estate lawyer.
http://richardshunter.com/site/dbpage.asp?page_id=140005021&sec_id=140004751
The last paragraph is about who is responsible for default on a less than 20% equity assumable mortgage.
PS: My wife has been a real estate paralegal for 25+ years, so through her I’ve learned a little about real estate law. Almost all high ratio assumable mortgages in Alberta have long since gone the way of the Dodo bird. No more dollar dealing, like in the 80′s. Now a days, in almost all cases, you actually have to qualify, even if it’s assumable.
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Mike Fotiou says: No qualifying assumable mortgages were very much available in Alberta until 2008. In fact, I used to keep track of all the no qualifying assumables on my webpage until July 2008.
Here’s a quick search I did for them: click to view. There are many more, but I think that sufficiently proves no qualifying assumable mortgages were everywhere until just a couple years ago.
Your list includes 1326 units going back to at least 1985, if not further.
From page 117 of 221.
# 206 1033 15 AV SW 206
LOW DWNPYMNT! NO QUALIFYING! NO CMHC INS. PREM.!20 YRS LEFT ON MRTG,VENDOR MOTIVATED. BRIGHT, SPACIOUS & CLEAN. CLS TO DOWNTOWN,TRANSPORTATIONSHOPPING & ENTERTAINMENT. TENANT MOVING 07.01.85VENDOR SAYS SELL! NEW MRTG RATE IN AUG/85
I never stated assumable mortgages didn’t existed in past or for that matter don’t exist now, they still do, but they are few. I’m just stating that there hasn’t be enough of them since 2005 to have any real influence on market price.
My real estate paralegal wife started seeing lenders use the “due on sale” clause in 2005, which followed a large drop off in the number of assumable mortgages going through that law office (which specializes in real estate). And then there is the CMHC rules about assuming insured mortgages. If vendors don’t understand them, they may be in for some really hurt if their buyer defaults.
Here is a good explanation on CMHC rules on assumable mortgages.
http://www.mnk.ca/main.jsp?p2=fullnews.jsp&new=1109621940000&tofu=
Question: Of those in your list posted above, how many were actually assumed? Also, could you post a list of them since Sept 2005 to the end of 2008? Just so I could see if there was any influence on the market or not.
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Mike Fotiou says: I can only link up to 1500 properties at a time, so I adjusted the search parameters to show just how prevalent they’ve been over the past 3 decades, especially between 2005-2008. I saw firsthand the impact this had on the market during the boom years. Buyers took advantage of this provision, often paying much more than market value because they didn’t need to qualify and they just wanted to “get in” since prices were skyrocketing. In turn, these sales were used as comparables, pushing other home prices in the neighborhood even higher. It only takes a few sales to create a ripple effect.
A banker I know had a great little RE scheme using assumables to build up an empire (gross exaggeration, but it sounds cool). He would qualify for mortgages and then his friend would assume them. All the friend would have to do was take over the payment, which he did with the help of renters. They set up a holding company and I think they had around 15 houses when I was last associating with him in ’07. I know dozens of people just like him that helped drive the demand that fuelled our boom. I met very few wealthy and hard working immigrant families ready to throw the $50k they had scraped together at a particle board shack in Canada. Actually, I did sell one house to some immigrants from Vancouver that turned the basement into a grow op (they were so excited about the unfinished basement). I know the industrious and frugal type are out there, but most of the eager buyers I knew were 23 year old males who turned their equity into F350s and ATVs…..you know, the smart type.
Thanks for your words of wisdom DaBull,
“Credit is the new normal in the Western World, better get use to it. Do I think it’s right, NO, but that’s the way it is and will be for a long time into the future if not for ever. If you can’t except this as the new normal, you most likely will be left behind.”
The inability to manage credit has crippled societies in cycles for hundreds of years. Wake up. The “new normal” is not new at all. I understand how credit works. I leveraged myself through the roof and ended up paying off my house in 5 years. I wouldn’t exactly say I got left behind. The last kid I sold a house to was 27 and had just had a baby with his girlfriend. He made $22/hour and put down $16k on the $320k bilevel. He originally offered me $10k over asking because he thought that was what he had to do to get the deal done (too many stories of bidding wars). I told him that was not necessary. The house is now worth about $270k. I could see it settling around the $200k range in the next couple of years. I may have ended up the winner, but I feel like a loser some days. I think my speculator’s remorse is what drives me to preach on these blogs. I don’t want anyone else to end up like the last guy I sold to. He’ll be dragging his ball and chain for many, many years.
Mike
Ok, I give up. I’m not going to change your mind and your not going to change mine.
Spence
The inability to manage credit has crippled societies in cycles for hundreds of years. Wake up. The “new normal” is not new at all.
The Western World Government response to this credit cycle and the timing of said response is new, so get use to it. BRIC Countries new economic clout is new, get use to it.
And WOW! How many 23 yr old’s own property with any equity that they could borrow against? I would bet almost none. Back then as now, you don’t need to use your home equity to a F-350, you still can and vack then could buy a F-350′s for an inflated price when you take out a 0% – 60/72 month loan.
PS: Years back, we had a Chinese immigrant family 2 doors down that had their house raided for a grow-op. They weren’t home at the time so the Cops just busted the door down and took all the plants and equipment and left a note to appear in court. This family still lives there to this day. No one went to jail. This happens everyday, so what.
“Personal debt not as bad as it looks”
Quick on the heels of yesterday’s warnings from Mark Carney & StatsCan’s report that personal debt has reached historic highs for Canadian households, chief economist Douglas Porter with BMO Nesbitt Burns countered:
You can read the entire article in the Globe & Mail here
Jen, I just heard back regarding the City of Calgary briefing note:
So, yes – you had read it correctly.
DaBull,
Every 23 year old that bought a house between 2004 to 2006 had equity to draw on for stuff. I did not have one friend with a job that did not buy a house. Why wait and save for a down payment when you don’t even need one and houses are going up $5k/ month. Some of my student friends were even qualifying. One used his student loan as a down payment. Classic! It was so easy. I had 30K equity in 2004 when I was 23 and $300k equity in 2007…….just from flipping a few houses. TD was gracious enough to grant me up to 90% of my equity to do whatever I chose. I moved it into additional properties. Other people bought cars and trips. The advantage to using HELOC money at a low rate rather than dealer financing was that you could often get “cash” purchase prices. I admit, I did buy a new Camry with home equity once. Anyway, there are plenty of 20 somethings who thought like they were rich because of their homes. Drive through any new development and look at all of the new homes with new cars on the drive way. Then look at the young people who occupy the places. We 20 somethings are trying to start out like our parents left off……..not good.
ps. The home I sold that was turned into a grow op was condemned due to high moisture levels and resulting mold growth. It had to be completely gutted to the framing and redone. It sold for $260k to a contractor. The market value would have been over $400k were it not for the grow op related issues.
Spence (and to all)
A little late to contribute to the party here, but regarding the comment that “Credit is the new normal for the western world”, i had to contribute.
If you are that interested in the history of Credit, please read “The Ascent of Money” by Niall Ferguson. Great book.
He does an historical overview of the basic financial markets and how they formed. most of it is interesting, some of it a little dry. Anyways, in one section of his book, he writes that there was a Global expansion of credit that helped fuel speculation (due to low interest rates) on investments, business growth and construction (homes). needless to say, this was one of the catalysts he claims to have brought the depression. What lengthened the depression for so long, was the resulting freezing of the credit markets due to banks insolvencies and lack of liquidity (people doing a bank run and holding cash). thus business’s and consumers could not function properly and the market froze and then shrunk.
what impacted me the most when reading his book, was how similar his analysis of the GLOBAL market back in the 20′s and 30′s was to the period between the 2000′s and 2011+, we are in today.
Big Ben in the US is throwing everything, including the kitchen sink, to keep the credit flowing and prevent a long depression. Only time will tell if he is correct… or letting the market correct itself would have been better. US style decade long Japanese deflation is not good for anyone else either.
long story short: Globally fueled credit driven economies is nothing new
“Personal debt not as bad as it looks”
Quick on the heels of yesterday’s warnings from Mark Carney & StatsCan’s report that personal debt has reached historic highs for Canadian households, chief economist Douglas Porter with BMO Nesbitt Burns countered:
“While debt has risen to record heights, so too have financial assets, due to a rebound in equities and an underlying rise in savings.
Taking these factors into account, as well as the recovery in Canadian full-time employment, leads to the conclusion that household finances are not nearly as weakened as the dire headlines would suggest.”
You can read the entire article in the Globe & Mail her
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Watch CNN’s clip to hear Carney’s reply to this comment
http://watch.bnn.ca/#clip389239
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Mike Fotiou says: Thanks for the link. The part where Mr. Carney refutes Douglas Porter’s claims begins in part 1 of the interview at around the 7 minute mark, here
Mr. Carney actually laughed, thinking the interviewer took Mr. Porter’s quote out of context
KOZ
Thanks for posting, but about your comment “long story short: Globally fueled credit driven economies is nothing new”
I think everyone knows that Globally fueled credit driven economies are nothing new , but the response and timing of said response is. ie. goosing the credit system early in the cycle, which wasn’t done back then. Plus there was the horrible fiscal and monetary policies adopted back then, those policies more or less stuck a knife in the heart of any semblance of a recovery. This time around they are doing the exact opposite of what they did back then. And like you wrote “Only time will tell if he is correct… “. Time will surely tell. With this latest credit cycle, hopefully we won’t need a Great Depression to correct it, only a Great recession, which so far is all we had and now looks to be over.
DaBull,
In my previous post, i was trying to keep my comments as short as possible…so all my comments couldn’t be explained properly.
Great Depression:
I agree from a “hindsight is 20/20″ perspective and post research basis, we can conclude that the Fed not adopting Keynesian Economics immediately was disastrous, and that when the “New Deal” was adopted in around 1933 we had absolute improvement. But what is general not discussed, is that the natural market prior to Gov’t intervention weeded out the weakest Banks and most inefficient big businesses, Then the New Deal was struck. What would have happened during the growth phase of 1933-1939 if those weak banks/businesses were still existing under suspect management or business practices? again we will never know.
Great Recession:
I personally do not think we are out of the water yet. Certain indicators certainly look promising (GPD growth, industrial capacity utilization, consumerism, Equity markets, etc). But as i am sure you know, there are a couple of key Structural issues that have not yet been addressed. namely Ontario deficit and california/Illinois/Nevada deficits for example (and obviously SS and Heathcare). these gov’t are not allowed to carry debt and have to go to the open market for Bond issuance (which will eventually be carried by the both countries Fed Gov’t for many years.). These states/provinces can bascially only generate revenue from Income Tax, property taxes and Business Taxes. If there is not heavy heavy spending cuts, how can these Gov’t climb out of the hole with no growth and high unemployment and without the political will to increase taxes?
Last comment: National Banks buying debt to keep the interest rates low can only work for so long, before the market turns and yields spike, think Greece here…the EU is buying their 10 year bonds at 5%? while the open market will only accept a return yield of 11%. Greece can not exist without EU help.
Personally, i think the only way out of the great recession is to give a 80-90 cent to the dollar haircut on some governmental debt. This may punish some banks and pension funds whom own the funds, but its the only way to allow revenue = spending, without betting on <5% GDP growth/year like Canada is Claiming.
Russia did it, Argentina did it, all came out ok eventually. Japan did not and they are still suffering….
anyways, i think this will be the most impacting decade since the 1930's, and we are not done yet. Obviously, i wish we were.
KOZ
Russia did it, Argentina did it You mean were forced to do it. At this point in time no one forces the US to do anything.
As far as Japan goes there is a lot more to it than just fiscal or monetary policy, culture and honor played a big roll and now it’s demographic and the lack of immigration. Japan still is a very closed honorable society and that’s what is killing them.
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