February 2011 Mid-month Update

TD Bank economist Diana Petramala noted that a pick-up in sales had been expected as buyers rush to beat new rules that come into effect on March 18th.

“The growth spurt will likely be short-lived, and come at the expense of future sales,”  Diana Petramala said. “As was the case the last time the federal government made mortgage insurance rules more restrictive, the strength in sales will likely be followed by a short period of weak housing data.”

The sales increase was also anticipated by CREA with president George Pahud saying, “If last year can be used as any guide sales activity may heat up further as we get closer to the date on which mortgage regulations come into effect.” (Source)

And heat up they have. Calgary single family home sales are up over 14% from February 1-14 of last year.

SFH Sales (click to enlarge)

Pending sales remain elevated above 2010’s levels.

SFH Pending (click to enlarge)

While sales and pendings are up, the amount of homes for sale in Metro-Calgary are also up 17% year-over-year. Currently sitting at 3339, up from 2855 on Feb 14, 2010.

It seems Calgarians are preferring SFH ownership as condo sales continue to lag.  The 231 sales recorded in the first half of February is down 17.5% from last year.

Condo Sales (click to enlarge)

A bright spot is that pending sales have steadily kept climbing and this week overtook 2010’s levels.   If this continues, it should help narrow the year-over-year difference in sales going forward.

Condo Pending Sales (click to enlarge)

As is the case with SFH, inventory is up from 1589 last year to 1748 today – a 10% increase.

Stay Out.  Unless We Like What You’re Doing

CREA recently cautioned the federal government to stay out of the mortgage market until the effects of recent changes can be gauged.

“It will take some time before the longer term impact of the latest mortgage regulations on the housing market can be known,” CREA president George Pahud said. “For that reason, further action shouldn’t be taken until the impact can be measured.

Mind you, when 25 year amortizations were increased in a haphazard experiment a few years ago there was no prudence or cautionary oversight. Amortization lengths were increased 60% practically overnight to 40 years.   As if that wasn’t rash enough, the minimum downpayment required was reduced to nothing.

Part of CMHC’s purpose is to “provide policymakers with the information and analysis they need to sustain a vibrant housing market in Canada.”

Where was the cautionary advise then?

Now we get to watch a volatile housing market fluctuate as they backpedal, reining in the amortization length 5 years at a time and slowly tightening the rules that should never been loosed in the first place.

2 responses to “February 2011 Mid-month Update

  1. Here’s a couple 2006 backgrounders from CMHC regarding the 40 year amorts and 100% financing.

    You have to appreciate this part:

    CMHC continues to be prepared to assess the overall merit of all applications, even those that do not meet recommended credit score guidelines, when the lender feels it is warranted.

  2. When CMHC was pumping out these “innovative” products like interest-only 35-year mortgages, there were voices of reason back then, particularly David Dodge, then Governor of the Bank of Canada.

    A tart letter of reprimand from the Governor of the Bank of Canada back in 2006 suggests there had been rocky relations between the bank and embattled Canada Mortgage and Housing Corp. The released letter from David Dodge to Karen Kinsley, president and CEO of the housing corporation, uses unusually strong language to criticize new lending policies announced by the federal corporation over the summer.

    “I read with interest and dismay your press release of June 28 which indicated that CMHC would offer mortgage insurance for interest-only loans and for amortizations of up to 35 years,” the two-page letter says.

    “Particularly disturbing to me is the rationale you gave that ‘these innovative solutions will allow more Canadians to buy homes and to do so sooner.’ ” The corporation’s actions are likely to drive up house prices and make homes less affordable, not more, Mr. Dodge says in the blunt missive, uncharacteristic of the usually tempered language of the central bank.

    CMHC assured him however that CMHC’s interest-only mortgage product included no change in mortgage qualification criteria and as such would not be of significant concern to the bank. (Source)

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