New Housing Price Index (August 2009)

newconstructionIn Calgary, contractors’ selling prices edged up ever so slightly between July & August  – up 0.2%.  Year over year prices were down 6.3%.   Other cities that were down from August 2008 were:

Cities included in the survey that were up year over year were:

  • St. John’s (+7.5%)
  • Quebec (+6.3%)
  • Fredericton & Moncton (+2.2%)
  • Regina (+1.8%)
  • Charlottetown (+1.7%)
  • Winnipeg (+1.6%)

In Canada as a whole, contractors’ selling prices increased 0.1% in August, but was down 3.1% from a year earlier.

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Source: Statistics Canada.  (Click to Enlarge)

Source: Statistics Canada. (Click to Enlarge)

Source: Statistics Canada

28 responses to “New Housing Price Index (August 2009)

  1. Questions for Mike F:

    What are the foreclosure numbers in Calgary like now? You were reporting them this summer and they were surprisingly low then – is that still the case (I would expect them to be increasing a bit)

    Thanks for the ongoing supply of top notch info!

  2. Jimmy, for foreclosures listed on MLS the number isn’t currently much different – actually I think its less. It’s not in the best interests of the banks/court to list them all en masse anyways.

    Under the same search criteria I was using to calculate them earlier, there are 54 SFH and 49 Condo. (There are many different ways to categorize Foreclosures in our system, so I have several searches looking for different criteria)

    I’ll be looking into getting actual foreclosure numbers in the next little while.

  3. Fotiou,

    Interesting figures for new HPI, quite the dramatic drop for 2009. It looks as though that number peaked early in 2008, any insight as to why? Is it the lag of new home purchases and possession dates? This is the only logical reason I can think of.

  4. Mortgage rates are on the raise (again)…

    As of last night a 5 year fixed mortgage is up .35% which is greater than what we paid in 2004 (4.65%) to put it into a new perspective.

    Why are mortgage rates going up so often now? Because fixed mortgage rates are based on bonds rates and bond rates are going up quite fast in the USA and in Canada now.

    Variable rates are based on the prime rate, and then set by the lender (bank). Thus, you don’t see any -X% prime mortgages and .25% mortgage (even though prime is .25% right now in Canada)

    So what I’ve been talking about now on here for a week (raising interest rates) has happend and with MUCH faster speed than I anticipated.

    Expect more increases in mortgage rates as we move to the end of this month.

    Mike

  5. Mike why are you comparing mortgage rates to 2004 which was a very low time for mortgages as opposed to the historical average of 6%?

    I remember what happened to the real estate market after 2004 in Calgary – interest rates climbed up and our market was so devastated that prices rose about 50% or so.

    I don’t pretend to think that will happen again – just things aren’t always so simple.

    I think rates will rise but the crash so many are hoping for has come and gone. We’re in a slow and steady balanced market with hills and valleys along the way

  6. Pingback: Saskatoon new home prices up from July but down from August of last year

  7. CoffeeTims,

    Not sure why you are saying the “crash” has come and gone, we are still experiencing year-over-year declines in new home prices. Month-over-month is not a trend.

    Mike makes good mention of the bond market, it will be interesting to see how this transpires through the rest of the year.

  8. It would have been interesting to see if the ‘crash’ would have continued spiraling into spring if the rates had stayed where they were.

    Personally, I don’t think 18% from peak was quite enough to return to fundamentals. 30% from peak was what every fundamental calculation kept coming back to in my books.

    That’s why I continue to rent and watch 🙂

  9. Jones:

    “Not sure why you are saying the “crash” has come and gone, we are still experiencing year-over-year declines in new home prices.”

    You’re talking about what we experienced in August and also ignoring most of the sales. Including resales which is the vast majority, home prices are up Year on year for August, September and will be in October.

    Three months of Y-o-Y price increases on all homes and 60% reduction in Y-o-Y inventory means this crash is over in my book until the next crash which is god knows when.

    How many months could this go on before you call an end to the crash? If the new home price index rises year on year would you say it was over then?

    Free advice:

    I get the feeling from lots of folks on this blog that they don’t want the crash to be over. That can mess up your thinking guys. You might miss opportunities… Try to pretend you are arguing the other side sometime.

    Just sayin…

  10. Currently October’s SFH avg is down ~1.3% y-o-y. If sales volume continues at the current pace, sales volume may be up ~50% vs 2008 although Oct 2008 was the 3rd lowest sales volume month in the last 5 years trumped only by Nov 08 – 670 and Dec 08 – 449.

    August was the first y-o-y increase in SFH avg in 16months.

  11. CoffeeTims – You gotta lay off the caffine there or reduce the rage a little. People are allowed to have different opinions and just because they are different than you own doesn’t mean you can’t repect them.

    You need to ask Mike F for a house price chart for the last Calgary crash in the 80’s to understand the house price/mortgage rate relationship there. Then it will be clear as a greasy timbit on wax paper.

    IMO, we do not have good sales at all, just good sales vs the inventory. If we have historical sales we wouldn’t have ANY inventory at all (it would be all sold). So we have historically low sales right now and low inventory.

    On the other side of the coin, I wouldn’t buy now in a “normal market” either, I’d wait till January. But with rates going up (HSBC just raised their rate of 5yr to 5.8% today!) it can only errode “pentup demand”, “first time buyers” and “fence sitters”, so… my guess is…

    A. Inventory won’t charge or will go up as fence sitting sellers realise this might be the last hurrah before 6-8% rates.

    B. Sales will raise this month if there is anyone left who didn’t buy (rush to buy before rates go really up) then prices drop.

    I don’t want to see a “RE Crash”, just a return to historic prices (say 1998 prices adjusted for inflation to 2009 prices) and a normal, balanced, boring market forever after.

    Mike

  12. Jones
    SFH Median and price per sqft are higher so far this month than Oct 2008. I’ll admit SFH mean is not there but have a look at the pending numbers.

    Sales volume is way up Y-o-Y but I agree I wouldn’t get too excited about it (I bet the Herald will).

    Condos don’t look as good now.

    Mike
    I thought prices would go down over this year. They haven’t and I was wrong. I think I now understand why but first I had to appreciate that I was wrong. I’ve learned a lot along the way. I will be wrong again one day.

    If it makes you feel better to label my argument as rage, that’s fine. I’m only trying to add balance and insight.

    Why should 1998 prices be fair value? Will you be sitting on the sidelines till we get there? By my estimate thats a median of about $220,000 (a drop of 45% from today).

    And I won’t stop drinking coffee… ever 🙂
    There’s grease in timbits? OMG it’s curtains for me then.

  13. “Why should 1998 prices be fair value? Will you be sitting on the sidelines till we get there? By my estimate thats a median of about $220,000 (a drop of 45% from today).”

    @CoffeeTims: I believe what Mike was saying was 1998 prices + the long term average of price increases in Calgary.

    Here in Calgary, for the last 40 years or so, prices have increased at 1.2% above inflation, which has been approximately 4.5%, for a total of 5.7% per year.

    Based on historical pace, and had the boom/bubble not occured, house price increases would have looked like this:

    2001 – 192,365
    2002 – 203,406
    2003 – 215,082
    2004 – 227,428
    2005 – 240,482
    2006 – 254,286
    2007 – 268,882
    2008 – 284,315
    2009 – 300,635
    2010 – 317,771

    Of course, we all know what happened, in 2006 the house prices jumped from year 2006 prices to year 2019 prices in a short period of time.

    It’s entirely possible that prices could stay where they are and the years catch up. Or the prices could drop back down to historical pace.

    One thing is for sure, in every bubble, valuations do eventually return to their historical norms.

  14. CM

    Mike said “inflation adjusted”, not “increasing at 5.7% per year”. Look at this graph – I think this is what he is getting at:

    http://runningofthebulls.typepad.com/.a/6a00d83451986b69e20120a5527df0970c-450wi

    I think your argument is better than his but you’re still assuming that graphs must follow a straight line.

    Is there an actual study on historical major city real estate markets that shows that somewhere because I would be interested in reading that.

    I think most cities run out of useful land at some point and then your linear graph turns into an exponential one.

    But.. I could be wrong…

  15. @CoffeeTims: Ah I see, thanks for the link.

    “I think most cities run out of useful land at some point and then your linear graph turns into an exponential one. ”

    It’s an interesting thought but somehow I don’t think that would be the case (and definitely not in Calgary 🙂

    If it were true, I would think a great example would be Manhattan.

    I couldn’t find anything about historical residential prices in Manhattan but I found this study:

    100 Years of Commercial Real Estate Prices in Manhattan

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1395427

    “Our conclusions are two fold. First, adjusting for inflation, commercial office property values were 30% lower in 1999 than they were in 1899. Second, within any decade values often rise and fall by 20-50% in real terms. With these results, the long-term historic return to New York commercial property must mostly comprise yield with capital gains limited to general inflation. Other historical studies consistent with this conclusion are reviewed. ”

    http://www.nydailynews.com/money/2009/10/02/2009-10-02_manhattan_real_estate_sales_stabilizing.html

    Whether the surge in deal closings means Manhattan home prices are nearing a bottom remains to be seen. Prices are down about 25% from their peak in the spring of last year, according to Corcoran.

    “We’ve turned the corner, but we’re not done yet,” said Jonathan Miller, CEO of Miller Samuel. “Employment is still declining and mortgage underwriting has not eased.”

    “We are stabilizing,” said Bill Staniford, CEO of PropertyShark.com, which prepared Corcoran’s report. “I am getting very close to calling the bottom.”

  16. Fixed mortgage rates are headed up now, probably a bet that the overall global economy is recovering and the disaster has passed. I don’t expect us to hear about folks getting 3-4% fixed again. Variable rates will probably be low until next summer (Carney won’t go back on his “promise”). The government is saying a lot of bearish things about a high dollar – we’ll see if they walk the walk…

    I disagree rates will head towards even 8% (and 20% umm.. no) Mike as the national RE market would be reined in by then, taking away an argument for raising rates further. The conundrum facing the central bank is to raise rates, calming down the RE market but jeopardizing the export market at a delicate time, or to keep them low, inflating RE prices but “keeping our jobs”. Bond traders are betting on the former now probably based on employment numbers. Inflation just doesn’t seem to be on the US central bank radar and until it is, rates will be low.

    Here’s the kicker…

    It’s possible Canadian unemployment rates didn’t drop in September. They do an adjustment every year for college kids going back to school and that probably made things look better than they are this year. If that happened, then October unemployment will be surprisingly high and rates will go back to where they were a few weeks ago. We’ll see if that happens.

    Mike I actually agree with your points about the real estate market response. Inventory might get driven right down as panicked fence sitters jump in while they can lock in rates. This will purge the market of some of the first time buyers next spring and summer. On the other hand sellers this fall will be buyers in the new year.

    Inventory is still too low to get much of a price drop now and in fact prices seem to be being driven up at inventory less than 3400. House starts are still too low to make much difference to inventory next year (they are coming up though)

    So if rates rise, I doubt we’ll see them get too high in this environment. Next year real estate will be reined in but we won’t see a crash. We will see more people pile into variable rate mortgages until banks raise the differential (ie prime + 2 or 3) and then it will level off.

    Wow the banks will make a killing on spreads next year…

  17. CoffeeTims;
    You are correct that Median is tracking up y-o-y by ~3.27%, Avg is tracking down y-o-y ~3.76%. Both are important to consider, as the avg drops and the median increases likely what is happening is the upper levels of the market are experiencing downward pressure on price.

    Avg price per square foot is up y-o-y as well (~1.7%).

    Not looking for a crash, just waiting to see some normalcy restored to the market place. It’s like when oil dropped from ~$145/bbl to $33/bbl, I told co-workers the worst thing that could happen is if oil jumped right back up to $100. Why? It does not instill confidence in the direction of the market. I am sure you would not make an investment if the prices yo-yo’d like that.

    I cannot remember who posted it, maybe Fotiou, there were stats on mortgages by type as a percentage of overall mortgages. This is an important piece of information when considering Mike’s comment about fixed rate mortgage rates going up because, if I remember correctly, 5yr fixed rate mortgages are the most popular. Somebody correct me if I am wrong, or if you have those stats please post them.

  18. Jimmy,

    Good point on seasonally adjusted unemployment figures. There is also the possibility that some of those peoples ran out of their EI coverage.

    Anyone have comments or input on Stelmach’s address?

    I’m not sure how he plans on recovering from recession by cutting government spending and putting more pressure on the private sector by cutting health and education budgets. Seems he has things backwards.

  19. CM @CoffeeTims: I believe what Mike was saying was 1998 prices + the long term average of price increases in Calgary.

    2001 – 192,365
    2002 – 203,406
    2003 – 215,082
    2004 – 227,428
    2005 – 240,482
    2006 – 254,286
    2007 – 268,882
    2008 – 284,315
    2009 – 300,635
    2010 – 317,771″

    That is EXACTLY what I meant to say (Thanks CM). Around $300-317k for the average home if we didn’t have a boom and bust is what an accurate number (I fell anyways makes sence) is.

    1998 I felt was the year we really began with the boom BTW.

    Jimmy – Mortgage rates have average 8% over the past 20 years (or so I heard on other bloggers data), do you think then we won’t have 8% rates again? HSBC just posted 5.8% with record low prime and low bond rates), 8% is just 2.2% away…

    Mike

  20. Mike

    See this link for historic mortgage rates – don’t automatically trust “other bloggers data”:

    http://www.mississauga4sale.com/rates-historic-mortgage-interest-1951.htm

    I don’t what the calculation for average is and its probably between 7 and 8 somewhere going back to 1950. We were above twenty once in the last 60 years or so as you can see. The last 10 years or so we have almost always been under 8%.

    Boom and busts happen and affect real estate prices. There’s nothing you and I can do about that.

    I’m still not sure what makes 1998 so special?

    Also inflation rose significantly when rates were high (5-12%) in the 80s – thats why rates were high. According to your theory, that should increase house prices (since they should follow inflation), not reduce them.

    But I could be wrong…

  21. Just a note last year (end of Q2) I was inquiring about mortgage rates with my mortgage broker and she advised that projections for the end of the year were 7-8% for the 5yr fixed rate mortgages. I agree with Mike that 8% mortgages aren’t too far off, much like people professed we would never reach 10% unemployment…we’ll see.

  22. I realize the rates go up but my question is, what is more important? The price of the property or the rate you are buying it at? You will pay the same at 4 % as something that is thousands cheaper but with a higher rate. So what is the difference? Is your investment worth less if you are saving hundreds of dollars a month?

  23. Speaking on rates, there is a huge difference (1-2%) between posted rates and actual rates that people get. You should be getting a lower rate than the posted rate. If you don’t know this then you either have very poor credit (and shouldn’t be buying a house) or you were “had” by your broker.

    As well, I do not understand those who refuse to “lock in” an interest rate. Unless you want a completely open mortgage, it is not unreasonable to have locked in a few months ago for 5 years at 3.7%. What people don’t get is that the variable rate is based on the BOC rate… but fixed mortgages are based on the bond markets. Thus, the ability to lock in at a low rate is not always directly related to the rate the BOC sets. Bank prime is still 2.25% but fixed rates have gone up.

    And now that we are at record low 0.25% BOC rate, there is NO WHERE to go but up. Lock it in.

  24. Ok, my question wasn’t about the interest rate aside from wondering which is better (please see question again). My credit is fabulous and my broker is fine and we are locked in until the end of January when the rates will most assuredly be up. I think you might have thought I was being rhetorical. I am not. I am seriously asking which road is better.

  25. Lina I think you’re asking basically if it’s better to put more money into the value of the house at a low rate or buy a less expensive house at a higher rate.

    Since your home value will appreciate over a long time (and it almost always does), you would be better having more in the value of the house because you don’t pay tax on capital gains if its your home.

    If you bought a cheaper house, and put your savings in cash or bonds or stocks etc then you would have to pay capital gains which is significant. Holding onto cash might seem look a good idea for 2008 but probably not in a couple of years…

    If you wait to see if prices drop and you could buy a nicer house well thats a market timing decision that’s difficult to make now! The answer would have been obvious last year.

    Also if your downpayment is less than 20% I would not suggest buying a house regardless of the rate.

  26. worldclass” As well, I do not understand those who refuse to “lock in” an interest rate.”

    Well said. Yesterday was the time to lock in 5 or even 10 year rates. Since yesterday is gone, today is the next best time, not tomorrow. Mortgagers won’t see these rates again for many a moon.

    Jones “Just a note last year (end of Q2) I was inquiring about mortgage rates with my mortgage broker and she advised that projections for the end of the year were 7-8% for the 5yr fixed rate mortgages. I agree with Mike that 8% mortgages aren’t too far off, much like people professed we would never reach 10% unemployment…we’ll see.”

    7-8% mortgages are pretty much a “sure thing” with the current economic path we are on. Too little cash available (savers/investors) wanted by debtors (banks, companies, gov’ts) = higher bond rates = higher mortgages. Cash is becoming the very “HOT” asset to have today. To put it into RE terms, it’s a hot “Buyers Market” for those with cash to those who want it.

    Lina “I realize the rates go up but my question is, what is more important? The price of the property or the rate you are buying it at? ?”

    The winner is the person who saves up the highest amount of downpayment. You pay as much in interest in 25 years as the house is worth with a low downpayment, so if you can save up 25%, that is hugely in your favour.

  27. Thanks, the down payment I have is up to 50% off the purchase price I am looking at. I have the cash, I just want a super low mortgage as well.

    How long does it take for the houses prices to drop once the mortgage rates rise?

    Also, does it seem like everything on the market right now is priced about10% higher than they were 5 months ago?

  28. Lina:
    “I am seriously asking which road is better.”

    HWY to hell, AC/DC !!!!!

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