Wednesday, December 03, 2014

An In-depth Look at the Canadian Housing Market

by Tom Bradley, Steadyhand Investment Funds
In the last couple of weeks, there has been two excellent reports published on the Canadian housing market – one by the Canada Mortgage and Housing Corporation (CMHC) and the other by RBC Global Asset Management. Both are good reads for people who want to dig into the detail and get a better understanding of the many factors that drive housing prices and activity.
Both reports draw conclusions that are consistent with what the real estate industry and banks are saying – there are some signs of strain in the market, but the risks are more benign than what the doomsayers like me are suggesting.
CMHC’s fourth quarter assessment provides an overview of where we are today (price trends, sales to listings ratios, unabsorbed inventory levels and vacancy rates on rental units). Overall, the report concludes that the Canadian market is not overbuilt and overheated, and only moderately overpriced.
Despite the conclusion, I find the CMHC report less useful in addressing what lies ahead. It uses some sophisticated modeling to measure current valuation, but the interest rate cycle is not discussed. Given that house prices are highly geared to changes in interest rates, some sensitivity analysis would have been useful.
The RBC report is very thorough and attempts to address all of the doomsayers’ concerns. There are many interesting charts, including the scorecard below:

I find the author’s conclusion (Chief Economist Eric Lascelles) to be surprising in light of this scorecard. He says, “Broadly, the near-term outlook appears benign, tilting only slightly in a negative direction.” Yes, the near-term is holding up OK, but there’s nothing benign about his 1-5 year outlook.
I learned a lot from both reports, but they didn’t change my view. There are a number of factors that weren’t discussed or need more emphasis:
  • House prices hinge on mortgage rates that are, by any measure, well below normal levels. Basing the price of an asset on another asset that is overpriced (bonds) is a scary proposition.
  • Pricing and market psychology will not be determined by the 72% of homeowners who have more than 25% equity in their house. Rather, it will be driven by the 5% who have less than 10% equity. The mistake forecasters made in the U.S. a decade ago was taking comfort from the majority instead of being wary of the weak minority.
  • What is bothersome is the number of factors that are in negative territory. It’s possible to explain away one or two ratios that are off trend (which Eric does well), but when there’s a wall of them, it gets to be a stretch.
  • Even the most positive of analysts have trouble pointing to any factors that are highly positive. The best either report can do is ‘neutral’. In my mind, it’s hard to make a case for investment when there are no positive indicators to offset the risks.
  • There’s little recognition in either report of how good the environment has been. These are not normal times. Housing prices have had a howling tailwind at their back – subsidized mortgage rates, abundant credit, a growth spurt in the buying cohort (25-34 year olds), rising home ownership and foreign buying. In a few years, we’ll look back and marvel at how good everything was.
  • And the one I feel most confident about – extreme cycles don’t end with ‘benign’ corrections. It just doesn’t happen.

Copyright © Steadyhand Investment Funds

Tuesday, November 18, 2014

Annual State of the Residential Mortgage Market in Canada - CAAMP


Annual State of the Residential Mortgage Market in Canada

Significant Statistics – November 2014
  • During 2014, 31% of Canadians obtained their mortgage from a mortgage broker, 61% directly from a bank.
  • For mortgage holders who renewed their mortgage in the last 12 months, 78% saw a reduction in their rate.
  • Mortgage discounting remains prevalent across Canada, for a 5-year fixed mortgage the average discount was 1.85%.
  • 69% of all outstanding mortgages are fixed rate, 24% variable and 6% combination. For the past 12 months 76% are fixed rate.
  • In the past year, 38% of mortgage holders either increased their amount of payment, made a lump sum payment or increased their frequency of payments.
  • 85% of all homeowners in Canada have 25% or more equity in their homes.
  • Mortgage credit growth will continue to slow, averaging 4.5% by end of 2015. Mortgage credit growth has averaged 8.1% per year during the past decade.
  • 70% of homeowners see their home as a place to live, 30% see it as an investment.
  • 11% of all homeowners took out equity from their property last year with an average take-out amount of $58,000. Debt consolidation and renovation are the top two areas where money was used.
  • The average mortgage interest rate in Canada is 3.24%.
  • Among homeowners who purchased during 2014, the average mortgage interest rate is 2.89%.

Friday, August 01, 2014

Canadian Real Estate - A Crack in the Tree

by Tom Bradley, Steadyhand Investment Funds

The Full Article

“It’s like if the tree in the backyard has a crack in it, you worry it’s vulnerable to a storm. But if no storm happens, it goes on and on, and maybe eventually strengthens through growth. If the right storm comes along and knocks it onto your neighbour’s house you’ve got a problem.”

This analogy for the Canadian residential real estate market is from our Bank Governor, Stephen Poloz. It prompted me to pull together a number of observations that were building up in my real estate file. In the attached piece (it’s too long for a blog), I point out that:
  • Being too early is tantamount to being wrong.
  • Real estate is a cyclical asset, cycles have a symmetry to them and therefore, extremely good cycles don’t end with a little pause or modest slowdown.
  • There’s a strong consensus that interest rates will stay low and house prices will stay high.
  • Fundamental measures are on balance negative. The most important ones are extremely negative.
  • Foreign buying, inter-generational transfer and the loonie are wild cards in the analysis.
  • Canadians are focused on the ‘Income Statement’ impact of buying a home (i.e. carrying cost), but are overlooking the ‘balance sheet’ impact.
  • We’ve been in an ideal environment for rising real estate prices. It’s been a ‘virtuous circle’. If a few of the variables turn, a downward spiral is equally possible.
  • A few other items that will make real estate bulls mad.
In true Steadyhand fashion, I’m not suggesting you make a big asset shift by selling your home and moving the family into a rental. But I am suggesting that it’s time for added caution. If possible, you should to be subtracting from this asset class, not adding.

Copyright © Steadyhand Investment Funds

Sunday, June 15, 2014

April 2014 Residential Construction Activity - Vancouver CMA

Below are CMHC starts, completions and under construction for Vancouver CMA to April 2014. Starts and completions are displayed as 12 month sums (included May preliminary housing starts):
No signs of a downturn...


Thursday, June 12, 2014

Teranet House Price Index - May 2014

HOME PRICES UP 0.8% IN MAY

In May the Teranet-National Bank National Composite House Price Index™ was up 0.8% from the previous month. This increase, though substantial in itself, was the fifth smallest for May in the 16 years covered by the index. The countrywide composite index rose to an all-time high, but only three of the 11 metropolitan markets surveyed did the same. Prices were up from the previous month in seven markets and by more than the national average in five. The 3.1% monthly gain in Halifax was the largest in the history of that market. Prices rose 2.0% in Hamilton, 1.6% in Quebec City, 1.3% in Toronto, 1.1% in Calgary, 0.6% in Edmonton and 0.5% in Montreal. Calgary's advance was the fourth in a row exceeding 1%, taking prices to a new high. New records were also reached in Hamilton and Toronto. Prices were unchanged from the month before in Ottawa-Gatineau and Vancouver. The reading for Vancouver ended 12 consecutive months of rising prices. Prices were down from the previous month in Victoria (−0.1%) and Winnipeg (−0.3%).

Teranet – National Bank National Composite House Price Index™

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info@housepriceindex.ca

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514 879-5379
Since in May 2013 the monthly rise of the composite index was 1.1%, this May's 0.8% rise meant that 12 month home price inflation decelerated 0.3 percentage points to 4.6%, where it was in March. For the third month in a row, prices were down from a year earlier in all four markets east of Toronto: Quebec City (−1.6%), Ottawa-Gatineau (−1.4%), Montreal (−1.2%) and Halifax (−0.4%). In Victoria prices were flat from a year earlier. The 12-month rise trailed the countrywide average in Winnipeg (+1.0%) and Edmonton (+2.6%) and led it in Hamilton (+5.9%), Toronto (+6.0%), Vancouver (+8.2%) and Calgary (+8.7%). The softness of prices east of Toronto is consistent with the excess supply prevailing in the resale markets of these metropolitan areas. That being said, market conditions are generally balanced elsewhere, and are even tight in Calgary.

Teranet – National Bank House Price Index™



The historical data of the Teranet – National Bank House Price Index™ is available at www.housepriceindex.ca.
Metropolitan areaIndex level
May
% change m/m% change y/y
Calgary181.291.1 %8.7 %
Edmonton175.850.6 %2.6 %
Halifax142.073.1 %-0.4 %
Hamilton148.802.0 %5.9 %
Montreal149.160.5 %-1.2 %
Ottawa139.500.0 %-1.4 %
Quebec175.541.6 %-1.6 %
Toronto157.161.3 %6.0 %
Vancouver180.470.0 %8.2 %
Victoria133.79-0.1 %0.0 %
Winnipeg195.51-0.3 %1.0 %
National Composite 6162.160.8 %5.1 %
National Composite 11162.500.8 %4.6 %
The Teranet–National Bank House Price Index™ is estimated by tracking observed or registered home prices over time using data collected from public land registries. All dwellings that have been sold at least twice are considered in the calculation of the index. This is known as the repeat sales method; a complete description of the method is given atwww.housepriceindex.ca

The Teranet–National Bank House Price Index™ is an independently developed representation of average home price changes in six metropolitan areas: Ottawa, Toronto, Calgary, Vancouver, Montreal and Halifax. The national composite index is the weighted average of the six metropolitan areas. The weights are based on aggregate value of dwellings as retrieved from the 2006 Statistics Canada Census. According to that census1, the aggregate value of occupied dwellings in the metropolitan areas covered by the indices was $1.168 trillion, or 53% of the Canadian aggregate value of $2.207 trillion.

All indices have a base value of 100 in June 2005. For example, an index value of 130 means that home prices have increased 30% since June 2005.
By:
Marc Pinsonneault
Senior Economist
Economics and Strategy Group
National Bank of Canada
Teranet - National Bank House Price Index™ thanks the author for their special collaboration on this report.
1 Value of Dwelling for the Owner-occupied Non-farm, Non-reserve Private Dwellings of Canada.

Wednesday, May 14, 2014

Teranet House Price Index - April 2014

HOME PRICES UP 0.5% IN APRIL

In April the Teranet-National Bank National Composite House Price Index™ was up 0.5% from the previous month, following a flat March. Though the gain might appear robust, it must be said that apart from the recession in 2009, the composite index always advanced in April, the average monthly increase having been 0.9%. Last month's advance is indeed the third weakest for April outside a recession since 1999. Though the countrywide composite index rose to an all-time high, only four of the 11 metropolitan markets surveyed did the same. Prices were up from the previous month in nine markets. Calgary's 1.5% advance was the third in a row exceeding 1%, taking that market to a new high. Montreal's monthly gain of 0.8% was far from making up the ground lost in March. Prices in Hamilton, Halifax and Ottawa-Gatineau were up 0.7% on the month. The rise in the national capital region ended a run of seven monthly retreats. The rise in Halifax left its index still below the January reading. The monthly gain was 0.6% in Edmonton, 0.5% in Vancouver (the only city whose prices have risen for 12 consecutive months, also to a new high), 0.4% in Winnipeg and 0.3% in Toronto. These last two markets reached new highs although their advances trailed the countrywide average. Two markets were down from the previous month, Quebec City (−0.5%) and Victoria (−1.0%).

Teranet – National Bank National Composite House Price Index™

Contact Us

For general enquiries:

info@housepriceindex.ca

For licenses covering all index-linked products, please contact:

Simon Côté
514 879-5379
Since in April 2013 the monthly rise of the composite index was the smallest on record (+0.2%), the rather modest advance of April 2014 resulted in an acceleration of 12 month home price inflation to 4.9% from 4.6%. However, for the first time since October 2010, prices were down from a year earlier in five of the 11 markets, including all four of those east of Toronto: Halifax (−3.5%), Quebec City (−2.4%) and Montreal and Ottawa-Gatineau (−0.4%). The fifth market with 12-month deflation was Victoria (−0.7%). In striking contrast were 12-month gains of 10.0% in Calgary and 9.0% in Vancouver. Toronto (+5.8%) and Hamilton (+5.3%) also pulled the cross-country average higher. Trailing the average were Edmonton (+4.0%) and Winnipeg (+2.5%). The softness of prices east of Toronto is consistent with the excess supply prevailing in the resale markets of these metropolitan areas.

Teranet – National Bank House Price Index™



The historical data of the Teranet – National Bank House Price Index™ is available at www.housepriceindex.ca.
Metropolitan areaIndex level
April
% change m/m% change y/y
Calgary179.391.5 %10.0 %
Edmonton174.880.6 %4.0 %
Halifax137.750.7 %-3.5 %
Hamilton145.920.7 %5.3 %
Montreal148.370.8 %-0.4 %
Ottawa139.490.7 %-0.4 %
Quebec172.74-0.5 %-2.4 %
Toronto155.150.3 %5.8 %
Vancouver180.520.5 %9.0 %
Victoria133.88-1.0 %-0.7 %
Winnipeg196.000.4 %2.5 %
National Composite 6160.940.6 %5.5 %
National Composite 11161.280.5 %4.9 %
The Teranet–National Bank House Price Index™ is estimated by tracking observed or registered home prices over time using data collected from public land registries. All dwellings that have been sold at least twice are considered in the calculation of the index. This is known as the repeat sales method; a complete description of the method is given atwww.housepriceindex.ca

The Teranet–National Bank House Price Index™ is an independently developed representation of average home price changes in six metropolitan areas: Ottawa, Toronto, Calgary, Vancouver, Montreal and Halifax. The national composite index is the weighted average of the six metropolitan areas. The weights are based on aggregate value of dwellings as retrieved from the 2006 Statistics Canada Census. According to that census1, the aggregate value of occupied dwellings in the metropolitan areas covered by the indices was $1.168 trillion, or 53% of the Canadian aggregate value of $2.207 trillion.

All indices have a base value of 100 in June 2005. For example, an index value of 130 means that home prices have increased 30% since June 2005.
By:
Marc Pinsonneault
Senior Economist
Economics and Strategy Group
National Bank of Canada

Thursday, April 03, 2014

Greater Vancouver Market Snapshot March 2014

Below are updated sales, inventory, months of inventory, and sell-newlist ratio graphs for Greater Vancouver to March 2014. (See REBGV news releases.) (Click on images to enlarge.)

My estimates for March were for inventory of 14565 (actual 14472) and sales of 3127 (actual 2641) based on estimating average changes from February of years 2005-2013. Using the same technique estimates inventory and sales for April of 15620 and 2785 respectively (MOI=5.6).

Friday, March 14, 2014

Teranet HPI - February 2014

HOME PRICES UP 0.3% IN FEBRUARY

In February the Teranet-National Bank National Composite House Price Index™ was up 0.3% from January. For the second month in a row, prices for Canada as a whole rose to an all-time high, though new records were set in only two of the 11 metropolitan markets surveyed - Vancouver (for a fourth straight month) and Calgary (for the first time since September 2007). Since in February 2013 the index was down 0.2% from the month before, the increase of February 2014 resulted in an acceleration of 12 month home price inflation to 5.0% from 4.5%. The gain from a year earlier was well above the cross-country average in two of the 11 markets, Calgary (9.6%) and Vancouver (7.7%). It was slightly above the average in Toronto (6.1%) and Edmonton (5.3%), equal to the average in Hamilton (5.0%) and below it in Winnipeg (3.5%) and Montreal (1.9%). In Halifax (−4.7%) and Ottawa-Gatineau (−0.6%), prices were down from a year earlier for a second consecutive month. In Victoria (−3.4%), home prices have been down from a year earlier for 12 months now. Quebec City posted its first 12 month deflation in 15 years (−2.0%). It is the first time since October 2009 that there is price deflation in at leat four of the regions covered.

Teranet – National Bank National Composite House Price Index™

Contact Us

For general enquiries:

info@housepriceindex.ca

For licenses covering all index-linked products, please contact:

Simon Côté
514 879-5379
In February the east-west dichotomy became more pronounced than ever. Home prices were up from the month before in all five markets of Western Canada - Calgary (1.1%), Vancouver and Victoria (0.9%), Edmonton (0.6%) and Winnipeg (0.5%). The rise in Victoria ended a run of four consecutive monthly declines. For Vancouver it was the 10th consecutive monthly increase. In the six markets of central and eastern Canada, the only monthly rise was in Montreal (0.7%), the second advance after six months of flat or declining prices. Prices were down 0.1% in Toronto, making February the fourth month without a gain in the last six. For Ottawa-Gatineau (−0.8%) it was the sixth decline in a row, for Quebec City (−1.7%) the sixth in seven months. For Halifax (−1.7%) it was the third decline in a row.

Teranet – National Bank House Price Index™



The historical data of the Teranet – National Bank House Price Index™ is available at www.housepriceindex.ca.
Metropolitan areaIndex level
February
% change m/m% change y/y
Calgary174.341.1 %9.6 %
Edmonton173.180.6 %5.4 %
Halifax135.69-1.7 %-4.7 %
Hamilton145.97-0.5 %5.0 %
Montreal149.970.7 %1.9 %
Ottawa139.29-0.8 %-0.6 %
Quebec173.53-1.7 %-2.0 %
Toronto154.67-0.1 %6.1 %
Vancouver178.470.9 %7.7 %
Victoria134.700.9 %-3.4 %
Winnipeg194.840.5 %3.5 %
National Composite 6159.990.3 %5.6 %
National Composite 11160.410.3 %5.0 %
The Teranet–National Bank House Price Index™ is estimated by tracking observed or registered home prices over time using data collected from public land registries. All dwellings that have been sold at least twice are considered in the calculation of the index. This is known as the repeat sales method; a complete description of the method is given atwww.housepriceindex.ca

The Teranet–National Bank House Price Index™ is an independently developed representation of average home price changes in six metropolitan areas: Ottawa, Toronto, Calgary, Vancouver, Montreal and Halifax. The national composite index is the weighted average of the six metropolitan areas. The weights are based on aggregate value of dwellings as retrieved from the 2006 Statistics Canada Census. According to that census1, the aggregate value of occupied dwellings in the metropolitan areas covered by the indices was $1.168 trillion, or 53% of the Canadian aggregate value of $2.207 trillion.

All indices have a base value of 100 in June 2005. For example, an index value of 130 means that home prices have increased 30% since June 2005.
By:
Marc Pinsonneault
Senior Economist
Economy & Strategy Group
National Bank of Canada
Teranet - National Bank House Price Index™ thanks the author for their special collaboration on this report.

Monday, March 10, 2014

January 2014 Residential Construction Activity - Vancouver CMA

Below are CMHC starts, completions and under construction for Vancouver CMA to January 2014. Starts and completions are displayed as 12 month sums (included February preliminary housing starts):
Here is single detached under a microscope, including completed but unabsorbed units:
While single detached starts and completions are below levels seen before the recession, units under construction and unabsorbed inventory are both higher. These datasets do not indicate where single detached units are being built, but many if not most will be on previously unoccupied land, the remainder will be infill. Rumours of "strength" in "single family" house prices in certain areas do not align well with these data.

Another point to make is that CMHC-reported "single detached" will include houses with secondary suites. Houses with occupied secondary suites that were counted as "single detached" by CMHC and municipalities are counted as multifamily by Statistics Canada when performing census dwelling counts. Interestingly those same dwelling counts will count laneway houses as "single detached" (which of course they are since they share no walls, ceilings or floors with anyone but the mice).

Wednesday, March 05, 2014

Price Changes, Sales and Inventory

A recent foray of activity in recent business news feeds has uncovered a slightly revised outlook on Canadian housing from investment shop PIMCO. Articles can be traced through Luke Kawa's article. What it seems to have boiled down to is an expectation that national prices could fall -20% to -10% in real terms (I'm assuming a 2% inflation rate) over about five years, though this could possibly happen faster. Taking the view that such a correction is going to occur over five years we can infer what this will mean for sales and inventory.

In Vancouver, sales and inventory have a relationship to price changes. Here is a graph showing annualized price changes versus the ratio of for-sale inventory to monthly sales (months of inventory AKA MOI) since 2005:
The relationship between MOI and price changes is clear however the variance is substantial. Using a baseline assumption of MOI of 7 leading to flat nominal prices and an MOI of 10 leading to -5% nominal annualized price changes, we can determine what level of increased inventory and decrease in sales is required to elicit the price drops conducive to PIMCO's -20% to -10% real call. (This is not to say that Vancouver will be in-line with the national average but the analysis is here as an example.) I have colour coded the results. Results are based on changes from current sales and inventory levels (that are around MOI=6.5).

MOI resultant from changes in sales and inventory from current levels:

Nominal annualized price changes based on inventory and sales changes

Real price changes over five years based on inventory and sales changes


The above charts are concentrating on the scenarios discussed by PIMCO. This is not to suggest that their estimates are realistic; price increases are certainly possible but not considered in the charts.

We can use the charts as follows:
To get a -10% real drop over five years, that would require:
  • an average increase in inventory of 10% with a 0% change in average sales
  • an average increase in inventory of 5% with a 5% change in average sales
  • an average increase in inventory of 0% with a -10% change in average sales
To get a -20% real drop over five years, that would require:
  • an average increase in inventory of 30% with a 0% change in average sales
  • an average increase in inventory of 15% with a -10% change in average sales
  • an average increase in inventory of 0% with a -25% change in average sales

An interesting observation is how little sales and inventory need to move (inventory up 15% and sales down 10%, say, albeit for a prolonged five year duration)  to change a slightly-increasing market (the current scenario) to one that will be down -20% in five years.

Tuesday, March 04, 2014

Greater Vancouver Market Snapshot February 2014

Below are updated sales, inventory, months of inventory, and sell-newlist ratio graphs for Greater Vancouver to February 2014. (See REBGV news releases.) (Click on images to enlarge.)

The scatterplot of 6 month price changes and months of inventory is below. The most recent datum is the orange dot at about (MOI=6.2,price_change=5%) . The trend is roughly in line with past years.

My estimates for February were for inventory of 13637 (actual 13412) and sales of 2527 (actual 2530) based on estimating average changes from January of years 2005-2013. Using the same technique estimates inventory and sales for March of 14565 and 3127 respectively (MOI=4.7).

Thursday, February 20, 2014

Canadians increasingly regard home as retirement nest egg

I guess this isn't really a shock but the number of people counting on their home to fund their retirement is a lot higher than I would have guessed and I am not so sure it will work out the way most people expect.

Canadians increasingly regard home as retirement nest egg

Doing some quick math:


  • Sell home in Surrey: $500,000 
  • Buy Condo or Townhouse: $300,000 
  • Invest or purchase annuity with remainder: $200,000 gets a lifetime monthly payment of $1,100 for a 65 year old male 

I'm not sure that is exactly the kind of retirement that they were expecting.  I fully expect many retirees to return to work or stay at work.

Tuesday, February 18, 2014

Landcor Data Report - Q4 2013

From Landcor.

Deep breath, stay calm. Sometimes, maybe it’s better to simply sit back and wait for things to settle out . . . but the wisdom of ‘masterful inactivity’ is usually only recognized after the cunning plan has gone
sideways.

Sure, ‘hindsight is 20-20’ but according to a guy we know, it was on four stumpy legs, bloody big and when it spots our guy coming up the driveway, it panics, turns wrong, shows its own hind end as it bolts into
his big two-door garage which (cleverly) was left open. The North American skunk; this two-tone roly-poly, waddling gait, myopic gaze, is one of Mother Nature’s more effective WMD (wielders of mass dismay). Our guy has a dilemma: How to gently shoosh the agitated eau-natural bomb outside, without having it go off inside? Somewhere in the house there’s an old can of bear spray. So ease open the garage side door, slide in the big aerosol can set on continuous discharge. Our guy learns something new and wonderful: bear spray has a ‘shelf life’ and after so many years the chemical formulation degrades . . .and what it loses in potency, it gains in colour.  Red . . . old bear spray basically turns into smelly red paint . . . hisssss . . . walls, floor, stuff . . . everywhere, everything is now thinly filmed in sticky red .

So what’s this got to do with the the really big garage in which we live – the province of BC? In general, the state of the economy and specifically, the real estate markets within?

Basically, when an inviting door is left open or unattended and for bad, good or inevitable (depending on the viewpoint) all manner of interesting things and situations can – and will -- scurry inside. Witness the ever-rising Lower Mainland house prices to cheer the homeowners and further dismay those trying to get inside the markets; the political and societal conrumdrum of ‘affordability’ versus many politicos’ seeming inability or unwillingness (or perhaps it’s simple pragmatism) to recognize ‘the allure that dares not speak its name (i.e. the stealth effect of foreign investment on these housing markets). Meanwhile, there’s the rising consumer debt loads and ever-higher mortgages predicated on the low (for now) interest rates; erratic provincial employment figures versus the slowly improving resource sectors; and the usual contentious (LNG/bitumen) pipeline dreams, schemes and government projections . . . there’s lots going on in the big garage but where it’s all going is about as clear as a crimson fog.

Lots of potential, more than a few problems and whether there are proactive ‘solutions’ to be had, or better to accept the inevitable, try to mitigate what you can and learn to live with what you can’t, is still up in the air.

Numbers Gain, Splain, Pain, Retain

As always, the regional housing markets show great diversity on the quarterly and year-over-year basis. And again, Metro Vancouver has the greatest clout, now accounting for 11,383 or more than 50 percent of the 22,706 sales posted province wide in Q4/13 and 68.47 percent – or $8.08 billion – of the $11.80 billion in total sales. On the quarterly and year-over-year comparables, Metro Vancouver continues ‘faster, higher, stronger’ but only to a point. Metro Vancouver did post a double-digit slippage in volume and values in Q4/13 versus the Q3/13 rally, the year-over-year bound in values and volume is up a remarkable 53 and almost 40 percent respectively. Last quarter, average and median SFD prices posted double-digit gains, with the average SFD abode priced at $934,482 (and far more in select neighbourhoods) and although condo and detached product price rises aren’t stellar, they are keeping up with inflation . . . which can’t be said in most all other market regions.

However, remove Metro Vancouver from the mix and for most part the regional markets continue to slide in volume and values on the year over year and quarterly comparables with Q3/14 figures showing an almost uniform peak vis-à-vis the last quarter, albeit with some strong spots too.

The Vancouver Island market is not one of them. Although volume and value are up y-o-y, Q4/13 was well below the preceding and most active Q3/14. (This year-end quarterly drop off is common to most all the other regions too, some more than others.) Average and median prices for Vancouver Island SFD and condo have slipped with only attached showing a modest 1.85 percent y-o-y gain in average price.

Neither is the Fraser Valley matrix. Year-over-year or quarter over quarter, average and median prices continue to slip for condo and attached, all negative figures, aside from average SFD prices which managed a bare 0.53-percent gain y-o-y.

The Kootenay market shows a similar strong Q3/13 values and volume, falling in Q4 but y-o-y, solid 17-percent plus gains. On the y-o-y average and median sales price comparable, SFD and condo product is ahead of inflation, attached is not.

In the Okanagan, Q3/14 had the Realtors smiling. The next quarter, not so much. Average and median prices slid in all product classes. However, on the y-o-y comparable SFD did manage, barely, to technically remain positive albeit below the inflation rate.

BC North/NW mostly mirrors its southern brethren. Strong Q3/14, comparatively quieter Q4/14 and with SFD managing to stay positive on the y-o-y average and median price comparbles. As always, northern attached and condo showed a hefty appreciation but as always, these gains are more reflective of the extreme scarcity of these types of housing in the historically SFD-dominant market. Simple rarity and not necessarily overweening market demand.

As always, average regional markets don’t reflect specific submarkets, especially in the big regions and specific towns that could be positively affected by the global recovery in resource and commodity prices.

For example, on January 13, the Kitimat LNG project hit a milestone when the Engineering/Procurement and Construction (EPC) contract was awarded to joint-venture partners Texas-based Fluor Corporation and JGC Corporation of Japan. Apache Canada and Chevron Canada are co-partners of the Kitimat LNG facility and its Pacific Trail pipeline project. In expectation of the proposed LNG project getting the okay,
the site is being cleared, roads put in and a 2,100-bed work camp is in the offing. Call it telling but back in 2010, Kitimat posted 86 residential sales. Average price: $158,127. Cheapest sale: $25,000. Most expensive: $414,000. In 2013, sales activity more than tripled to 224 properties, averaging $241,256 per, the cheapest for $70,100 with the top at $829,700. (FYI but the Metro Vancouver SFD median price is
$838,000.) Average price gain over four years: 65 percent and it appears to be accelerating.

Opinion, Opinions, Options

It’s been a long, hot run but Metro Vancouver the ‘hot house’ volatility has cooled but opines the pundits, don’t expect it to go cold and dead either; steady as it goes and into 2014. Based on persistently low mortgage rates, the steadily improving US economy and the expectation of reasonable employment growth on both sides of the line, Central 1 Credit Union forecasts that in 2014, Metro Vancouver property volume and average prices will increase by six percent and1.5 percent respectively. Not big but modest and solid.
Or as Central I economist Bryan Yu told The Vancouver Sun: “There’s no real catalyst in terms of [spurring] a big pickup in activity.”

BC Real Estate Association,chief economist Cameron Muir told The Sun to expect Metro Van price gains of one to two percent in 2014. Market conditions are “fairly balanced” with “fairly limited upward pressure on prices” which makes it unlikely that “prices are going to accelerate in any significant way.” In turn, the Real Estate Board of Greater Vancouver (REBGV) says that although sales on the realtor controlled MLS “quietly improved” in 2013 by 14 percent to 28,524 sales versus 2012’s lackluster 25,032 deals, 2013 was also the third lowest sales year in the last decade.

On a more optimistic note (depending on what side of the sales contract you’re on), the latest quarterly Royal LePage national house-price survey says “confidence crept back” in the Vancouver market with
“moderate growth” in all product types. Detached bungalows prices were up four percent year-over-year to $1.04 million, standard two storey up 3.3 percent to $1.14 million, condos up 2.3 percent to $492,500. (Note: Royal LePage includes non-MLS data in its survey.) Opines LePage: “Talk of a ‘soft landing’ for Canada’s real estate market in the new year is misguided. We expect no landing, no slowdown and no correction in the near-term.”

Buyers who held off awaiting that major correction which never came even as the mini-correction rebounded to new highs will exchange pent-up frustration with action; Royal LePage expects average prices will climb by 3.7 percent nationally, albeit with the caveat CEO Phil Soper calls “the absence of some calamitous event or material increase in mortgage financing costs.” Prediction: the first half of 2014 will be a sellers’ market, easing to a balanced steady state.

Specific to Metro Vancouver, Royal LePage believes the market faces some “instability” over the next two years as sales drop off from the booming peak and starts outstrip demand. Still, the “moderate” price growth of 2013 is likely to continue through 2014 with average prices projected to rise by 4.4 percent . . . . . . or maybe not.

The Cry of the Loonie

Five years ago the Canadian dollar was at parity or above the US dollar. Canadian exporters fretted,  Canadian shoppers grabbed up ‘cheap’ American wares and thanks to the sub-prime mortgage mess and subsequent flood of foreclosures and discounted prices, we Canucks bought up a fair bit of American real estate.

Things have changed. Today, the loonie is taking it on the beak. In late January it fell below 90 cents US, down by more than 10 percent. It’s been shedding feathers eve since. Some predictions have the Canuck
buck sliding to 82 cents US within the next year or so for what will be an almost 20-percent discount.
Despite Ottawa’s brave face (and the Bank of Canada’s seemingly tacit agreement to hold rates down and let the dollar slid as it may) the general view is that Canada’s economy is comparatively weaker than a few of its G7 peers and competitors and that the year(s) immediately ahead will be ‘lackluster’ at best.

For exporters of Canadian-dollar denominated resources and manufactured goods, the plucked loonie adds a sorely needed competitive edge. Ditto for holders of US dollars or other foreign currencies ‘pegged’ to the US dollar, whether actually or nominally (e.g. the Hong Kong dollar, the yuan/renminbi) and/or foreign buyers looking at Canadian real estate with an eye to live and work as true homeowners, long term if not forever.

For those not yet in, gather up the US dollars, watch and wait and as the loonie slides and bottoms out, buy more Canada, for less. However, those who converted their money and bought just prior to the loonie’s slide and into what in are now flagging property classes and regions, the 10-percent (and growing) ‘currency loss’ far outweighs the low single-digit appreciation of the asset.

In an exclusive story recently published in The South China Morning Post and presented by The Vancouver Sun, Vancouver immigration lawyer/researcher Richard Kurland and Ian Young, whom the The Sun calls “an intrepid ethnic Chinese journalist”, found that of January 2013, more than 45,000 wealthy mainland Chinese alone are awaiting processing under Canada’s federal ‘investor immigrant’ program, more than six times the annual applications from what Young calls “all other English-speaking countries with investor programs combined” and with Vancouver the landing city of choice. Estimated minimum combined wealth of these candidates: HK$90 billion or $12.9 billion.

Given Ottawa’s promise the backlog will be addressed and that, says Young, “few are typically rejected . . . . the queue could sustain the current pace of millionaire migration to the city [Vancouver] for a decade to come, even if applications remain frozen.” Continues The Sun: “Given that 95 percent of all Chinese migrants
to British Columbia end up in Metro Vancouver,Young writes that the upward impact of so many wealthy newcomers on the city’s housing prices could be devastating, making homes even more unaffordable
for the young.”

The federal investor/immigrant program was launched in 1986 by the Progressive Conservative government under Brian Mulroney. In 2012 the federal Conservative government under Stephen Harper stopped accepting applications. In the 2014 federal budget and a follow through to what it terms “Canadians of convenience’ who seek citizenship while continuing to live aboard, Ottawa scrapped the ‘investor’ program entirely and will instead focus on newer economic/immigrant programs such as skilled workers. Meanwhile,
those waiting on the the defunct investor/immigrant roster, say the feds, will have to apply via the other entry programs.

Borrowing a Cup of Sour

Consider the latest RE/MAX trans-national Upper-End market trends survey of luxury-home market, luxury defined as homes listed at $2 million plus Specific to Greater Vancouver, in 2013 and what was the  second best sales year to date, 1,609 properties sold, with high-end condos and SFD sales up 18 and 38 percent respectively for a cumulative 36-percent gain and thoroughly outperforming the overall market.

RE/MAX credits this activity to continuing low interest rates, market confidence and immigration/foreign investment with the market “particularly strong” for properties under $6 million but slows once beyond the $7-million price point.

Further to sweet spots, older SFD homes in the ‘right’ neighbourhoods and priced under $3 million are being bought by builders for lot value alone, with these older (and doubtlessly designated as non-heritage) homes demolished and replaced with new construction priced between $5 million and $10 million.

Notes RE/MAX: “The tear down trend is changing the face of entire communities and pushing up average prices in tandem” with the rip out/replace activity now spreading to “areas on the periphery of Vancouver’s blue chip neighbourhoods, blurring the boundaries of the city’s high-end pockets.”

Don’t forget high-end condos; In 2013 Metro Van had 138 condo sales of $2-million plus, with more to come, predicts RE/MAX: “The [condo] appeal is rather natural to some of Vancouver’s high-end buyers, who have previously resided in high-density centres throughout Asia, the Middle East and Europe.”

In fact, Metro Vancouver’s most expensive sale in 2013 was a condo in tower-heavy Coal Harbour. Sale price: $25 million or well above the paltry $18.6 million paid for a SFD in the University Area. Meanwhile,
RE/MAX notes the University Area SFD offered for $23.8 million and (get them while you can) a $35-million double-duplex condo. If the current pace continues, RE/MAX predicts that 2014 could be a record breaker for Metro Vancouver’s high-end wares, overshadowing the 2011 peak of 1,726 luxury SFD and 154 condos sold to new owners “from both home and aboard [who] invest in tangibility and stability for the long term.”

In other words, high-end home buyers who seek personal homes and as such, these properties are not ‘pure’ investments and certainly not ‘commodity condos’ and/or rental assets.

Follow the High Flying Bids to Victoria?

Physically, the Capital Regional District (CRD) and its core, the City of Victoria aren’t that far apart, even with the Salish Sea (nee Strait of Georgia), ever-increasing BC Ferry costs and other bothers. However, in terms of luxury home sales, Metro Vancouver and the CRD are different worlds, different draws and lower entry points. In the CRD, the RE/MAX high-end survey classifies ‘luxury’ at $1 million and up, with most activity in SFD at “upper end starter price points” of $1 million to $1.25 million. In 2013 the CRD saw a measly 200 luxury sales, off by more than 10 percent over the 227 sales posted the previous years. The 2013 top sales: $6.6 million for a “large, oceanfront estate” and $1.45 million for a very large view condo in a prime established downtown locale.

Aside from relative low prices, the ‘luxury buyer’ profile is also different. Buttressed by lower interest rates and softer prices at the top end of the market, RE/MAX says “local purchasers” are trading up to higher-end properties. Still, there is an outside element but it’s mostly from Albertans riding in “after an extended hiatus” and Americans, courtesy the stronger US dollar, rising economic confidence in the United State and the “attractive pricing” of CRD properties. In turn, “foreign investment has also been noted in Victoria, but activity is sporadic. “ (Which begs the question: Are the Americans ‘foreigners’? Albertans? Your call.)

Despite the CRD’s so-so 2013 survey figures, “cautious optimism” prevails, buttressed by what RE/MAX sees as improving economic conditions in BC. Coupled with Victoria’s balmy appeal, upper-end demand will, predicts RE/MAX, climb in 2014 with up to 220 sales and in keeping with the historic five-year and steady average of 200 to 240 luxury sales per annum. Even so, this segment isn’t expected to fully recover until the “overall market is on firm ground.”

Jobs, Jobs, Jobs?

In January, 2014, Stats Canada has Canada gaining 29,400 jobs, somewhat mitigating the 45,900 pay cheques that had vanished in December, 2013. Not great but a relief from what BMO Capital
Markets chief economist Doug Porter called “the ugliness” that rang out the year.

Specific to BC, in January 2014, the unemployment rate fell to 6.4 percent (6.6 percent in December); 2,000 part-time jobs were lost but more than balanced out by the 9,100 gain in full-time employment. In December, 2013, BC gained 13,000 jobs, says StatsCan. According to Victoria, BC is on the plus side in terms of annual employment. However, Canadian Centre for Policy Alternatives (CCPA) says it’s largely due to the creation of some 20,000 new public-sector jobs, full time and temporary, even as the private sector lost 12,000 jobs in the first 10 months of 2013. Translation: bigger government and so much for the BC Liberal government’s flagship economic initiative, the BC Jobs Plan which the CCPA claims “is failing to deliver”.

Up, Down, All Around

In its latest look at Canadian housing prices, the Teranet-National Bank House Price Index found that when averaged out nationally, Canuck home prices “ticked back up” to a record high in December which itself saw a 0.1-percent monthly increase, reversing November’s 0.1-percent decrease “and returned the index to its all time high.” On a year-over-year basis, Canuck house prices are 3.8 percent above last December’s comparable with 2013 accelerating as the new year approached, up from November’s 3.4 percent y-o-y and far ahead of the 3.1-percent increase posted in 2012. In the other seven of the eight cities on the Teranet-National radar and although the year-over-year prices are still largely in the black, prices have edged down in recent months. Halifax, Quebec City, Montreal, Ottawa/Gatineau, Hamilton, Winnipeg and Victoria are all
on the ‘wrong’ side of the peak, some more than others. And then there’s Metro Vancouver. For two years previous, the market was ‘correcting’ but the not to the depth nor extent predicted. Prices did fall, grudgingly but not very far, stabilized, and largely recovered. Not hot, not cold but coolish, balanced. Even as certain other regions rebounded to new highs and although not exactly rocketing upward, there’s little sign (so far) the overall and specific markets are losing much kinetic energy.

Metro Vancouver, the Greater Toronto Area and Calgary are the heated spots in what otherwise are largely stable and cooling national residential real estate markets. Calgary has the oil and influx of job seekers, Toronto has its head offices, long-established industries and influx of investors . . .

And then there’s the anomaly called Metro Vancouver. Sans head offices, no hydrocarbons, so-so economy and yet still the average prices continue to rise ever farther beyond the reach of the average incomes. If the money isn’t coming from within, it’s logical to assume it’s from without. Call it supply and demand, the natural evolution of any thing or any place or product of finite supply in an environment of ever increasing demand.

The Allure That Dares Not Speak Its Name

In early January The Globe and Mail reporter Kerry Gold took a close look at the affordability and foreign investment question. Among other sources, Gold interviewed UBC geography professor and Millionaire Migrants book author Dr. David Ley who studies housing bubbles in various global cities and who believes that Vancouver has “an astonishing apathy to the various serious issue of inequality and affordability.”
Whereas cities such as Sydney, Australia -- also deemed a target for the “global investor class who park their money in cities that are desirable and safe” – are making a government and public issue of the resulting ripple/stealth tsunami effects of such outside investment on local affordability, Dr. Levy believes that although “there’s a flutter of interest” in BC and Canada when the Royal Bank updates its stats on seemingly ever-declining affordability in certain select Canadian cities but beyond that flutter, nothing much else follows.

This apparent apathy can partially be blamed on the lack of statistics on foreign investment in Canadian residential. Whether deliberately or through simple inattention or inability, the hard running-total numbers aren’t there and aren’t being gathered. Based on data by tax filer, in 2009 the average income was $41,176
in Metro Vancouver and $39,745 province wide. The StatsCanada 2011 Housing Survey puts the Metro Vancouver household median income at $68,900 (‘census families’ include couple families, with or
without children and lone-parent families), well below the Canadian household median income of $72,240 and where living is a lot easier (and cheaper).

Gold cites Vancouver-based demographic research firm Urban Futures which notes that a mere 0.56 percent of British Colombians have declared annual incomes of $250,000 plus. With the average price of SFD in Vancouver broaching the $1-million mark and with average and median individual and household incomes bumping along in one of the world’s most expensive cities and in a province where the income-to-personal debt ratio is the highest in Canada . . . the question is obvious: Who’s buying all these increasingly expensive
homes?

If the money isn’t coming from the overstretched locals, logic assumes the money is coming from the outside.
In turn, the long and seemingly steady inflow of outside capital into the high-end SFD and condo-investment markets could do much to explain why the Metro Vancouver ‘bubble’ doesn't really exist. The classic bubble arises when local housing prices decouple and lose connection with local achievable incomes. Prices swell to unrealistic and unsustainable levels, the local buyers quail and evaporate, the music stops and the market either pops or deflates. However, if the buyers keep coming, what appeared to be a bubble becomes a multi-celled air mattress afloat on a rising tide of interest. Which is fine for those firmly aboard the mattress, less fine for those treading water and just to carry the analogy, not good for those now left left in the wake. So-so incomes in an ever more expensive area. Grimly endure or get out of town, either to the outlying regions or beyond.

Yet others counter argue that unlike ‘true’ homeowners who by definition (if not in actuality) put down roots and thus help grow the local economy in a manageable way, investor/buyers unnaturally drive up prices, distort the markets and economies and, if and when the markets cool, outside money is fickle and will sell off asap and get out of town, precipitating a general collapse in overall prices, imploding equity and thus aggravating the long-term systemic distress.

Here in BC, there seems to be an underlying attitude that before one makes any move to restrict or limit foreign investment in Canadian domestic housing markets, the extent of that investment must beyond
dispute, buttressed with hard numbers and not based on knee-jerk emotions or anecdotal ‘evidence’ . . . and yet there are no efforts made to compile these numbers . . . ostrich reasoning, Catch 22, ignore what you don’t want to or can’t admit.

The Fifth Estate, Somewhere

Unfortunately, open debate of the obvious while linking the rapid retreat of affordability with the onset of foreign investors/home buyers, is regarded as either xenophobia or uncomfortable and Catch 22 again, is largely avoided by those job is to explore similar questions and query the people involved. Or so says  observers such as The Vancouver Sun columnist Douglas Todd who writes on diversity and spiritually.
Interviewed by Young, the award-winning and well respected journalist said “it’s mostly a mystery to me” why the Canadian media typically avoids any real examination of the interplay between high immigration/foreign ownership and local property markets. It doesn’t help, opines Todd, that Canadian journalists “are like most ‘nice’ Canadians and are very fearful of offending any ethnic or immigrant
group.”

In turn, Todd says he has occasionally been accused of writing articles “in which hyper-vigilant people say they detect an ‘undercurrant of racism’. They say ‘undercurrent of racism’ because they can’t find any actual racism, because it’s not there.” But not everyone is painfully sensitive or discreetly mute. In a recent BUILDEX convention panel discussion on affordability in Greater Vancouver, urban consultant and former Vancouver director of planning Brent Toderian said that foreign ownership isn’t just the ‘elephant in the room . . . . it’s the elephant crushing the table.” No great fan of City Hall’s current government which, opines Torderian, says it’s focused on affordability but won’t take a hard look at how these well-heeled and interested outside forces affect affordability. High demand, unlimited and unrestrained deep pocketbooks, limited supply equals higher prices and in the competition between “external demand and local demand – that’s the nicest way I can put it,” Toderian told the audience, the deep pockets invariably win. “Barring
a collapse and a crash, we’re going to remain a very expensive city to own in.”
The Landcor Report - Q4 2013 Sales Summary February 17, 2014

Sound real estate decisions are made using the best possible information. Incorporated in 1987, Landcor Data Corporation has grown to be one of the most trusted providers of objective real estate data and  analysis in British Columbia. During the past two decades we’ve helped hundreds of clients achieve their goals by offering the most comprehensive real estate data, analysis and insight available. From real estate valuation and analysis to land economics research and systems development, our staff of highly qualified experts are here to help you find solutions to your real estate analysis and data needs. Landcor maintains the largest, most comprehensive database of historical sales and current information on BC residential and commercial real estate.

Whether Go the Markets?

With sales softened in the last quarter, many predict 2014 will bump along well into the year, balanced, with demand having largely depleted itself last summer when long-term interest rates rose unexpectedly (although not by that much) and wannabe buyers panicked and grabbed hold of the comparatively cheap mortgages
while they could. (Of course, if and when housing prices decline, it’s arguably better better to pay a higher interest rate on a smaller principal loan. It all depends on the math. Wait and see? Or assume that prices won’t decline so grab what you can, while you can and when interest rates do rise (and they will).

Everyone has an opinion, learned or otherwise but true to form, the housing markets’ true direction remains a guessing game. Many analysts and economists note that sales have cooled in the last quarter and demand will stay soft and steady well into 2014 in the aftermath of the stampede of buyers who, spooked by the unexpected (albeit relatively modest) rise in long-term interest rates, grabbed what they could.

On the other hand, others believe that there is a ‘next wave’ of buyers who, after waiting patiently for the markets and prices to fall as per the predictions, are getting frustrated, increasingly antsy as those
prices continue to rise and in turn are getting ready to jump in, while they think they still can.
Average prices have dipped in recent years but those brief dips are now more than erased by record prices across most product classes with the usual suspects and locales garnering most of the attention.
When the next round of interest-rates takes hold (ETA maybe late 2014 but with with the usual and ever shifting political/geo-financial/ economic caveats), there will be another surge to buy, albeit mostly
in certain select areas and what are deemed ‘more affordable’ product classes and locales in what still is (and we’re talking Lower Mainland/City of Vancouver) remains among the world’s top three
most expensive cities.

As housing prices climb, the buyers’ pool shrinks as those on the fringes of affordability are pushed out of the market. As sales volumes subsequently shrink, inventories of unsold properties grow. At a certain point, the ‘hot’ market cools and some time after that, in the pause that distresses, vendors’ now-out-of-sync  expectations gives way to pragmatism vis-à-vis achievable prices. ‘Motivation’ sets in and prices stall and then slip.

If and when financial calamity (e.g. wide scale job losses, rising mortgage-interest rates etc) pushes a whole whack of homeowners to the edge, prices really come down in either a ‘soft landing’ or ‘hard crash’ or somewhere in between.

Which now begs the question: Are BC residential real estate markets . . . normal? Short answer: In most ‘outer’ regions of BC, a qualified yes. Give and take, ask and offer. Falling volumes have engendered lower prices as the markets fall back into natural, normal equilibrium. Stay calm and carry on.

For established longer-hold vendors, the price slippage is at worse, a ‘missed’ opportunity for anyone entertaining thoughts of soon selling out and retiring to, say, bucolic Vancouver Island where prices have
also slipped. No big deal, it all works out in the wash, especially if the abode was bought prior to the latest peak and as a ‘home’ and not necessarily as an ‘investment’ with the expectation of a hefty and seemingly eternal appreciation.

However, for newbie homeowners who as buyers got spooked, fearing that the then-rising markets will forever elude them and so they jumped in, bought at or near the peak . . . the ongoing fall in average prices and lower assessed values don’t make for glad reading.

About Landcor Data Corporation

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