This weeks top stories include how signs of a housing downturn in Canada keep growing daily, how a housing market downturn in Canada is not expected to affect any of the major Canadian banks, how the average first time home buyer expects to spend at least $300,000 on their first home purchase, how Scotiabank’s chief executive stated that the Canadian housing market is in for a “soft landing”, how Toronto condo developers are re-evaluating the Toronto condo market, how Canadians are buying up properties in Florida and how new home prices have raised in major urban centers mainly on the basis of the west.
Signs of a market slow down in Canada seem to be becoming more apparent every day. National home sales have declined 2.1% from January to February, according to the Canadian Real Estate Association (CREA). When looking at actual activity, it was 15.8% below the previous year.
At the same time we witnessed over 80% of local markets post declines year over year in home sales. New home listings had declined 60% in the same period with Toronto, Montreal, Vancouver and Saskatoon taking most of the brunt. Many feel that the market correction is already under way in Toronto’s overpriced, overbuilt, condo market and in places like Vancouver where home prices have declined 20% year over year.
The government has done all it can to try and cool an overheated housing market but Canada stands along side China, Finland and Denmark, who are the countries with the largest questionable asset bubbles in the world at this moment. Ben Rabidoux, analyst at M Hanson Advisers commented, “It’s going to be very difficult for policymakers to orchestrate a soft landing without inflicting significant collateral damage. We’re in store for something between a U.S.-style crash and a soft landing.” What do you think of his remarks? Please comment below.
There are numerous conversations happening right now about the health of the Canadian real estate sector. The biggest conversation is how will the bank react if the market has a downward shift. Banks have had healthier than expected earnings and near record profits this year. Capital levels at banks are at all time highs so the question becomes, do we have anything to worry about?
Many analysts feel that the slowdown in the Canadian real estate market is already underway. Banks have already been making amends to ensure that they are protected with many banks valuing properties lower than expected when they are not insured through Canada Mortgage & Housing Corporation (CMHC). CHMHC is mandatory on any home purchase with less than a 20% downpayment. This insures the banks against a client defaulting on their mortgage. When the mortgage isn’t insured, they low ball the value to create an added cushion in the event that the client defaults.
Financial analysts feel that the market is prepared for the slowdown and that it will be manageable for all banks with minimal risk to earnings. The banks now have high exposure to quality mortgages and low exposure to the condo market, condo developers and commercial real estate. Although I feel that the condo market has it’s risks, I don’t see much risk in our commercial market as commercial properties tend to hold more value and vacancy rates for commercial properties are at an all time low. What do you think? Please comment below.
Buying your first home is always a daunting task. The costs involved can be quite large for your first investment. The question is, what does a first time home buyer in Canada expect to spend when purchasing their first home and are they prepared for the largest purchase of their life in most cases.
The average first time home buyer in Canada expects to put a downpayment of $48,000 on a $300,000 home. The average first time home buyer is 29 years of age and most likely has been at their job long enough to feel secure in buying a home. This was the latest release of a poll conducted by BMO.
These numbers tend to vary depending on where the buyer is actually looking for the home. In Atlantic Canada, first time home buyers expect to spend an average of $224,000 on their first home and in B.C. they expect to spend an average of $454,000. This is even greater when you look at Vancouver inside B.C., where the average first time home buyer expects to spend $539,000.
The problem with many people is that they are not realistically prepared for a purchase of this stature. Some don’t have their down payment in order, some don’t have their credit in order and some don’t even have their work in order. The best advice is to contact a mortgage broker early and make sure that you are ready to go for your purchase. If there are problems, this gives the mortgage broker time to help fix those problems so that you can purchase without a worry.
Many people have been questioning the state of the Canadian housing market this year but Scotiabank chief executive Rick Waugh seems to have an answer. He stated on Wednesday that the Canadian housing market will not have a crash and that it will be in for a soft landing later this year. He noted that delinquency rates with Scotiabank clients have risen slightly but are still under control.
He anticipates that the bank will see any significant losses this year from unpaid mortgages. The market has already begun to show signs of slowing after a tightening of mortgage rules that started a few summers ago where the Finance Minister decided to cut back amortizations and change the structure for gross debt service ratio’s (GDS) and total debt service ratio’s (TDS). There are already less homes changing hands this year than last year and construction of new homes have also been cut back. What do you think of his statement? Please comment below.
Toronto condo builders are calming development in downtown Toronto to help avoid a market crash in the sector. Condo development in Toronto has been on a rampage for the past ten years, which lead to 159 condo developments currently under construction. This year has witnessed only 13 new developments announced. This is the smallest number of new developments on record since the 2009 recession when there were only 16 new developments that year. During the first quarter of last year there were 29 new condo development projects announced.
Toronto leads the world in condo development and currently is at a near record supply of units. Even with such low mortgage interest rates available, it’s not enough to entice many into the housing market. A slow economy, tighter mortgage guidelines and record consumer debt seem to be offsetting any interest in mortgage rates below 3%. Sales of high rise homes in Toronto have declined a significant 34% since 2011. During the past 10 years, we have seen sales of high rise homes increase 64% until last year. Prices have also declined by 5.5% over the past two years. What do you think about the current state of the Toronto condo market? Please comment below.
Florida real estate has been on the rise for the last two years but this can be partially accredited to Canadians. Florida has witnessed a 12% increase in real estate for the past two years with over 500,000 Canadians now owning property in the state.
Most that have purchased homes in Florida are taking advantage of low home prices and low mortgage interest rates and renting the properties until they are ready to retire or ready to take a vacation. Sarasota, Bradenton and Venice are still listed as the most desirable locations for Canadians with 17% of Canadian purchasers buying in this region.
Jack Ablin, chief investment officer at BMO Private Bank commented, “Beyond the obvious attraction of great weather and beautiful beaches, there are two factors that are making Florida real estate an especially good value for Canadians. The first is that Florida properties are a bargain compared to real estate in Canada. The median priced home in Florida is nearly half than that in Canada. At the same time, the Canadian dollar is trading nearly 10 per cent above ‘fair’ value versus the U.S. dollar, arming Snowbird shoppers with extra buying power.”
Canadians accounted for roughly 40% of all real estate purchases in Florida in the 2010 year. 16% of Canadians are now considering purchasing properties in Florida with 29% looking at it as an investment opportunity and 56% for their own personal leisure. What do you think of these numbers? Please comment below.
Calgary has been heading home price increases in Canada for some time now. New home prices in Canada were up 0.2% in the month of February, which was the 23rd consecutive month on month increase on record. This was mainly attributed to Calgary according to Statistics Canada.
Calgary home prices were up 1% from January to February of this year. This was the largest month over month increase on record since May of 2007. This was on the basis of higher material and labour costs. Calgary continues to be the center of Canada’s energy industry which continues to drive the housing market in the area.
Prices rose in 10 cities in Canada with numbers in nine cities remaining unchanged and two cities seeing prices decline. When looking at a year over year basis, new home prices in Canada increased 2.1% in the month of February but were down 2.2% from the previous month. Toronto home prices flat lined after six months of consecutive gains. What do you think of the data? Please comment below.
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