Friday, March 09, 2007

This Week's Canadian Housing News

Scotiabank's Economics department released a report on the state of the Canadian and US housing markets on Wednesday. The highlights were:
  • Expected continuing relative strength in Canada versus the US housing market
  • Some softening of demand as "pent up demand" has been met and prices are unaffordable
  • The differential between the typical monthly mortgage payment on a new home and the average rent on a two-bedroom apartment is close to $800, its highest level since the early 1990s.
  • Affordability will likely be a constraining factor on first-time buyer activity in four of the 23 centres: Victoria, Vancouver, Calgary and Toronto. In each of these cities, the buy-versus-rent premium approaches or exceeds $1000.
Notable quote:

At this late stage in the cycle, affordability favours lower-priced multiple-unit housing such a condominiums over single-detached homes. “Move up” buyers who have already built up equity in their homes will likely be more active than first-time purchasers. Renovation activity should outpace new construction and sales, sustained by the record number of existing home sales in recent years.
TD Economics released their analysis of the Canadian Housing Starts release on Thursday. The highlights were:

  • After January’s surge, retreat was expected
  • Decline is broad-based across singles, multiples, and regions
  • Annualized rate of building starts is trending below 200,000 units now after two years of record high starts.
  • YOY price gains for new construction are trending above 10% over last year.
RBC Economics will release their Affordability report later this month. I expect we will see a continued erosion of affordability across the country with the most unaffordable being - - you guessed it - - world class Vancouver - - where incomes are low and prices are high!


rentah said...

Thanks for all this, mohican.

The net-worth of US households has been increasing at an annual rate of at least 7.5% for at least the last 3 years. This includes stock and RE appreciation; and is occuring despite low saving and high spending.

Any comments, mohican?

Warren said...

Hey rentah,

That's paper wealth that can be quickly wiped out. Too bad they can't isolate net worth changes with RE factored in and without.

Another OT, when we hear about savings rate I'm never sure what is included and what is not. I assumed that negative savings rate meant that people were taking out HELOCs on their increasing home value to buy things like plasma TVs.

Jim said...

I have been reading this blog for a while now, and you appear to be becoming a real estate "bear" blog,perhaps to attract VHB's old readership. Not sure how that jibes with your Financial Planning and Personal Sanity tag line?

mohican said...

rentah - good find with that article - I would point out that the rich have been getting richer and the poor are getting much poorer through these last few years. So to generalize the comment - net worth of US households has been increasing - is quite inaccurate since it really only applies to the top 20-25% of US households.

Check out this article at iTulip.

The chart that is halfway down the page sort of describes the wide and growing gap between rich and poor.

warren - check out this site for a fairly hefty definition of savings rate.

mohican said...

jim - fair comment there - when I started this blog it was intended to be a venue for me to selfishly vent my frustrations with the state of most people's personal finances plus hopefully be somewhat informative in a unique way regarding personal finance.

I still do all of that but with VHB's departure I felt it would be appropriate for me to include the RE graphs and analysis that he previously provided. I don't feel this is in conflict with the title of my blog since, for most people, buying a home is the single largest transaction, debt, and investment they will ever make.

I will continue to provide segments on personal finance and investing since those are personal passions of mine and I hope it is of significant value to many. You can rest assured that this will not become an 'exclusively real estate' blog.

patriotz said...

So to generalize the comment - net worth of US households has been increasing - is quite inaccurate since it really only applies to the top 20-25% of US households.

No it doesn't, since the net worth of anyone who bought a home more than a couple of years ago, and hasn't borrowed against all the gains, has increased.

But as warren said these are paper gains which can and will (IMHO) be wiped out when housing corrects. End result will be the middle class will have a smaller piece of the pie and the rich more, since many of the former have spent a lot of those paper gains.

investah said...

Although I try to keep an open mind, I'm obviously biased, as I cannot for the life of me understand how a few unfortunate souls can be so misguided to honestly believe that this market can continue to charge forward unabated.

By looking at the broad picture, it is obvious that the US market will be unable to shrug off the sudden fears of the faltering economy and the collapse of subprime lending. These fears will lead to panic by mid summer.

I'm truly amazed how anyone can think that the disease will not spread to Vancouver.

I can barely contain myself over the loomong opportunities.

AndrewJ said...

It looks like the unemployment rate went from 3.2 to 4.2 percent in Vancouver since last month according to the Globes top story today. (Canada as a whole is doing well but I noticed this blip on the interactive chart). I also noted a 37 percent decrease in housing starts recently as well. Could this be eveidence of our strong employment being directly tied to construction?

I find this an interesting stat considering the housing market blipped up in Feb. Maybe things can still implode as we all feel they will and maybe sooner than anyone thinks.

chip said...

mohican said:

"the poor are getting much poorer through these last few years."

Not true. The poor are less poor, but income inequality is growing. And that only matters if envy and resentment matter.

mohican said...

chip - how about i rephrase my statement to make it more pallatable?

"The poor have less discretionary spending money available than in the past."

The poor's net worth may have increased if they owned a home or investments but did not tranlate into actual money in their pocket unless they borrowed against it, which would result in long-term less discretionary finances because of their increased interest expenses.

I don't think this is about envy or resentment for most working class people, its simply a function of having less money to do what they need/want to do while the most affluent have even more discretionary finances than ever before.


Asun said...

How much of mortgage fraud is happening around here? Apparently these cases aren't exclusive to our neighbour down South.

manafromheaven said...

Not sure if it was on this blog or one of the others, but a couple of weeks ago there was a comment about the previous crashes of 81, 90, and 95 having started in the spring. I'm looking at a graph that not only confirms this, but shows a brief false start after it looked like the limit had been reached....deja-vu???

I don't have a scanner but any verification would be appreciated.

The market dropped 44% in 81, 25% in 90, and 23% in much this time?
I would like to be ready.

mohican said...

manafromheaven - you are correct - all three of the previous price corrections in the Greater Vancouver and Fraser Valley real estate markets happened after the first 2-4 months of the year witnessed big price increases. 1981, 1990, and 1995 were all the same in this respect.

We could be witnessing the same thing for 2007 but we won't know until its over. Right now demand still looks strong.

Jesse said...

"all three of the previous price corrections [...] happened after the first 2-4 months of the year witnessed big price increases."

Interesting. But why is this? Were there shocks that causally instigated the appreciation halt or was it something fundamental about the nature of the market?

Drilling into the latter, we know there is an inherent delay between subject agreements and actual sales. It could be this delay precipitates a break point in price movements. Other potential culprits with regular frequencies are tax filing dates and weather.

I would surmise, if the previous crashes started predictably > 4 months into a year, there is something structural going on.

freako said...

OT The trusty Bubble Tracking Blog just released new inventory numbers. You may recall that inventory shrank substantially in the late fall. Well, now some of the speculative areas are adding huge again. Phoenix will hit all time highs in the next few days.

How about Las Vegas over the past ine days?

02/28: 24,068
03/09: 26,059

That is almost 10 percent. Unbelievable. And don't forget the foreclosure time bomb. Many of those are not even on the market yet, as the "owners" enjoy the free "rent" while the multimonth foreclosure process chugs away.

San Diego is still well below record levels, but they are increasing slowly.

manafromheaven said...

Thanks for the charts moh.
The ones I mentioned yesterday are a little more detailed as they actually show a short revival after apparently running out of steam (similar to our recent February glitch)

Those who might underestimate the significance of the sub-prime mortgage fiasco should check out Michael Campbells article in todays Sun.

Having been fortunate to profit from all 3 of those previous crashes, this one looks more ovious than any of the others....a perfect storm.

I can barely contain myself over those upcoming bargains.