Lethbridge Real Estate and Mortgage Info

OTTAWA – February 8, 2010 – The Canadian Real Estate Association has revised its forecast for home sales via the MLS® Systems of Canadian real estate boards in 2010, and extended the forecast to 2011.

With Canadian economic growth rebounding from the recession, the unusually severe decline in sales activity in early 2009 is not expected to recur in 2010.  Annual activity in 2010 is forecast to be well above the previous year’s level as a result.

CREA forecasts national activity will reach 527,300 units in 2010, up 13.3 per cent from 2009. This would represent a new annual record, standing 1.2 per cent above the previous peak in 2007. Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario.

National home sales activity is expected to remain strong in the first half of 2010, fuelled by low interest rates and homebuyers motivated to avoid the HST before it comes into effect in Ontario and British Columbia.  Over the second half of the year, national activity is expected to trend downward as the last of pent-up demand is exhausted, interest rates begin rising, and the HST comes into effect in Ontario and British Columbia.

Interest rate increases will contribute to weaker national sales activity in 2011.  National home sales activity is forecast to decline 7.1 per cent to 490,100 units in 2011, putting it on par with annual levels reported in 2005 and 2006.

“Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand,” said CREA President Dale Ripplinger.

The national average home price is forecast to climb 5.4 per cent in 2010, reaching a record $337,500, with average price gains forecast in all provinces. The national average price increase will continue to reflect upward skewing from the rebound in activity among Canada’s priciest markets, particularly in British Columbia and Ontario.

The national average price is forecast to ease by 1.5 per cent in 2011. Modest average price gains are forecast for all provinces except British Columbia and Ontario, whose share of national activity is expected to ease. The shift in the contribution made by provinces toward national activity will continue skewing the annual comparison in the national average price in 2011.

The price trend is similar but less dramatic for the weighted national average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. The weighted national average price is forecast to climb 4.8 per cent in 2010, and remain stable in 2011.

“Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009,” said Chief Economist Gregory Klump.

“Fiscal restraint, a strong Canadian dollar and a subdued inflation outlook point to marginal interest rate increases over the next couple of years, especially if the U.S. economic recovery proves to be weak and protracted,” said Klump.

“The Bank of Canada will need time to gauge the effect of interest rate increases on Canadian economic growth,” Klump said.  “It recognizes that consumer debt burdens are running high, so it will want to gauge the impact of interest rate hikes on domestic demand and overall economic growth. Changes in interest rates impact the economy with a lag, so the timing and magnitude of interest rate hikes will be tricky, given that the Bank expects the private sector to lead economic growth once temporary government stimulus spending expires,” he added.

“The decline and subsequent rebound in sales activity for homes in the upper price spectrum in some of Canada’s priciest markets skewed average prices upward in the second half of 2009 and into 2010. This segment of housing activity in Ontario and British Columbia is expected to ease beginning in the second half of 2010, causing average prices to moderate in those provinces,” said Klump.

“A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S.”

CREA Residential Market Forecast:

NOTE: All statistics contained in this release are obtained through analysis of the MLS® Systems of real estate Boards across Canada.

MLS® Systems are co-operative marketing systems used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.

More statistics on the Canadian real estate market.  You will notice that despite the economic down turn across the globe and the global credit crunch, the average resale price in EVERY marketplace was up.  Not only UP, but some of them were UP dramatically.

If you are a global investor and are not invested in this market, you are missing the boat.  While the US continues to decline another 20 or 30 percent in the coming year, our market will contine to eclipse them and grow.  There is no more solid investment globally right now than Canadian real estate.

Average MLS resale price for local markets

Source: Canadian Real Estate Association

Lethbridge Real Estate Statistics Series - New House Starts across Canada

This is a boring post, except for those of you who love stats.  Just wanted to post some updated numbers on what is going on across the country.  The one thing of note and interest to me is that Alberta once again continues to be one of the strongest markets in the entire world.

If you are a smart real estate investor, you should be here in Alberta already.  There are some big things happening and the next couple years are going to be amazingly progressive.

Total New Housing Starts (Seasonable adjusted and annualized)

Source: CMHC Housing Now – December 2009 and December 2008.
This seasonally adjusted data goes through stages of revision at different times of the year.

end

Let's just take a second and compare these 2 products.

We start with the attractive low interest rate of Prime for 3 years.  Next, consider the change in ARM pricing over the past 6 months and the likelihood of this continuing.  Why would you want to lock in a customer to a 5 year ARM when there is a downward trend in ARM rates?  Instead, offer them a shorter ARM term - say, 3 years - which would allow them to renew into another ARM sooner (and at better pricing).  The financial benefit for your customer could be huge.  A hypothetical example follows:

Mortgage amount $300,000, 25 year amortization.  Assume Prime is constant

Current 5 year ARM Rate: Prime + .10%.  Current 3 year ARM Rate: Prime.  Hypothetical ARM Rate 3 years from now: Prime - .50%

-          Taking a 5 year term now, the customer would pay $32,438 in interest over the 5 years.

-          Taking a 3 year term now, the customer would pay $19,259 in interest over the 3 years.  Plus, they would pay an additional $9,150 for the next two years, for a total of $28,409.  That’s a savings of $4,029 or 12%.

There are a lot variables in a variable rate

Garry Marr, Family Man, Financial Post 
He has a landmark study on mortgages, but York University professor Moshe Milevsky says he never anticipated the credit markets of the last year.

The 2001 paper examined the previous 50 years to determine whether consumers benefitted from locking into a fixed-rate mortgage or going with a variable-rate product linked to prime. Consumers did better 88% of the time by going with the variable-rate option. The study has been used by banks to lure consumers into variable rate products. Currently, about 25% of mortgage holders have gone with floating rates.

"I've written seven books and 100 research articles and that's the one I'm known for," says Mr. Milevsky, with a laugh. "I just wish some of these banks would mention the author."

He says the study results still hold true. If you factor in the past nine years, the variable rate probably does better about 96% of the time.

But that doesn't mean if you are looking for a mortgage today you should float, he says. "There is another element of risk to analyze," says Mr. Milevsky.

He's refering to the volatility in the mortgage market for variable-rate products. The variable rate is still tied to prime, but the discounts and premiums being offered are moving up and down wildly.

A year ago, consumers were being offered discounts as much as 90 basis points below prime, meaning those people who took it are now borrowing at 1.35% based on the current prime rate of 2.25%. When credit markets tanked a year ago, variable products were being sold at 100 basis points above prime.

Credit markets have calmed since. Bank of Montreal announced a week ago that its variable rate was down to 2.25%, with no discount or premium.

The Bank of Canada may have pledged to not touch the rate until next June, but consumers getting into variable rate products are facing the risk that the discounts they negotiate today will look pretty ugly in a few months.

Worse yet, the variable products being sold by the banks are generally closed mortgages, so they cannot be paid off immediately without penalty.

An open mortgage can be paid off at any time, but you pay a higher rate for the privilege. At Bank of Montreal, for instance, an open three-year mortgage costs 3.05%, so you are paying an 80-basis point premium.

"It's important to understand what kind of flexibility features you have in your mortgage," says John Turner, director of mortgages with Bank of Montreal.

With such confusion in the marketplace, these days even Prof. Milevsky is leaning somewhat in favour of the five-year closed fixed-rate mortgage. On a discounted basis, some banks are offering rates as low 3.69%.

"At some point, people have to ask themselves if they can afford the fact that eventually these things are going to go up, whether it's in one year, two years or five years," he says.

gmarr@nationalpost.com

Read more: http://www.financialpost.com/news-sectors/story.html?id=2059901#ixzz0T3opKCUa

Exchange Rate $CDN($US)

Source: Bank of Canada

Total New Housing Starts (Seasonable adjusted and annualized)

Source: CMHC Housing Now - September 2009 and September 2008.
This seasonally adjusted data goes through stages of revision at different times of the year.

Average MLS resale price for local markets