24 Jan

PropertyWire.Ca Forecast For The Canadian Property Industry In 2011


Posted by: Drummond Team

Friday, 21 January 2011 09:58 Editorial Team

PropertyWire,Ca’s journalist, Heather Wright, has conducted exclusive interviews with Phil Soper, President of Royal LePage, Robert Hogue, Senior Economist with RBC and Jeffrey Schwartz, Executive Director of Consolidated Credit Counseling Services of Canada. Read their predictions for the 2011 Housing Market in Canada here:

Balance and stability, two words that recently seemed foreign and unlikely, at least in reference to the Canadian Housing Industry. Now that the economic downturn is fading in our rear view mirror, Canadians are beginning to rebuild their financial situations- and are finding themselves in new territory- in an economy that holds some muted promise, if not cautious optimism. Financial wounds are healing, but frail.

What is noteworthy though, is that it is not just the economy that has changed. Canadians and the Real Estate and Mortgage industries are also different post recession; in terms of economic expectations, consumer confidence and attitudes towards debt, from both a consumer, lending institution and policy maker standpoint.

Looking forward to 2011, with conservative promises of growth, expectations for price appreciation brought back to earth, and aggressive mortgage provisions being rolled out, how is buying and selling a house in this country different than it was pre-recession? How have Canadians and our government’s attitudes changed toward debt and spending?  What regions will expect growth in their market this year, and why?   And how does this impact professionals in the Real Estate and Mortgage industries?

According to many, there will be modest growth through 2011. Robert Hogue, Senior Economist with the Royal Bank of Canada agrees, telling PropertyWire.Ca; “As an upwards force, we expect economic recovery to continue and generate more jobs- so that means more income available to households. Overall, we think that those forces on the housing market will be mostly offsetting—if anything, it might be a little more on the upside.  We are expecting a very slight increase over the year, taking into account some volatility, around the trend- modest increase in resales in Canada. Probably around 1% or less.”

Royal Lepage also predicts good things in the pipeline for the housing industry, adjusting their 2011 forecast at the eleventh hour to reflect the positive trends they saw towards the end of 2010. Phil Soper, President of Royal LePage, told PropertyWire.Ca; “The change in our forecast from Q3 2010 to Q1 2011 was driven almost entirely by a combination of the global economy and prospect of continued inexpensive mortgage funding. Both improved from Q3 2010 to the end of 2010. That allowed us to take a more optimistic view with transaction levels and their impact on home prices in the next year.”

Soper believes that this positive trend for the housing market will spread across the country; “In general,   the entire country is getting a lift from improved economic conditions. Employment levels, just general government revenues and corporate profits are rising right across the country. As a result, everywhere in Canada will see an improvement.  That said, we don’t believe that the improvement will be entirely equal. We believe that, for example in Alberta, the housing slump that pre-dates the global recession is finally going to see some light at the end of the tunnel. Our forecast for Alberta is based upon those handsome corporate profits in the energy sector spreading to other sectors and that translating to increased hiring and the classic labour shortages and net migration that causes a housing shortage that puts upward pressure both on prices and unit sales- more people want to get in and sell their properties.”

Value = Stability

The challenge for Real Estate and Mortgage professionals may very well be changing clients’ perceptions and expectations in the new economic order.  The concept of value has changed perhaps as well and homebuyers will need to shed their hopes of price appreciation that shot up unmanageably pre-recession.

The new reality, as the housing market returns to stability, is that slow and steady will be the order of the day, and people will have to be satisfied will more gradual movement in price appreciation.  Says Soper; “Post- recession, the level of general price appreciation for the next few years will be less than people previously expected.  Inflation is low, and real price increases are going to be in the low single digits. We will see a prolonged period where we see price appreciation on average (and there will be exceptions) of 5% or less vs. home appreciation that was more in the 2000’s. That lower house appreciation will bring with it a calmer housing market, because the rapid increase in housing prices brings about a number of unexpected and unwanted  side impacts like runs on prices, bidding wars. I see less of that in the coming years.”

There is no question that there are fundamental  elements present in Canada that will drive the housing industry forwards and upward over time- and this is perhaps the root of the cautious optimism being expressed by many, when predictions are being made for the coming year and beyond.

Soper says; “All things being equal we should expect housing sales activity to increase over time in Canada. We’ve got one of the most enviable immigration  records in the developed world.  Household formation is fairly healthy in Canada. We should see a gradual improvement and expansion of the housing market overall.”

Interest Rates, Will They Or Won’t They?

There is no question that this sustained period of low interest rates that Canadians have enjoyed recently has encouraged spending and returned vitality to a sagging economy. But there are many fears that we have gone too far in the other direction. 
Household debt is surging in Canada, to levels that are causing alarm bells to sound all the way to Parliament Hill, where fears of a U.S .style collapse of the housing market. Coupled with the knowledge that a rise in interest rates is an eventual certainty, these alarm bells launched policymakers into action to cut this swell of debt.

Adopting this slow and steady economic mantra for 2011, Jim Flaherty, Minister of Finance, has put forth lending restrictions for both mortgages and home equity lines of credits. What this move reflects is not just how the Government views debt- but is also a commentary on how Canadians and lending institutions view debt.  It is the fiscal equivalent of binge eating at every opportunity during the holidays, and recognizing the error in excess, seizing the New Year to get back in shape.
Flaherty’s moves have been well received by many, mostly from a messaging standpoint, as it seems that the actual impact that they will have on the economy, lending and in turn, on the housing market itself will be negligible.

Spend Yes- Just Not Too Much

Jeffrey Schwartz, Executive Director of Consolidated Credit Counseling Services of Canada, applauds the changes, telling PropertyWire.Ca;  “They are trying to prevent Canadians from going further and further into debt, especially as it relates to their mortgages. They want to make sure that Canadians take on about as much mortgage as they can handle and not push that envelope too much. Some of the changes will lead to that. Do they have a huge over arching impact? Probably not.  But I think from the perception standpoint, the government is encouraging people not to take on more than they can handle.”

And in fact, it seems that despite the swell in consumer debt, Canadians are not only listening, but are responding to the message. Commenting an a recently released report from RBC that examines attitudes and financial priorities for the younger generations (18-34), which indicates that that group is focusing on paying down current debt and saving for home ownership instead of saving for retirement, Schwartz said; “An argument can be made on both sides of that, but I think it is an excellent idea when someone in that generation is saying ‘you know what, let’ pay down our debt, because it is too high.’ That signals to me that maybe some of the messages are getting through.”

What material impact will these changes have on the industry? Very little as it turns out. Hogue told PropertyWire.Ca; “Of course, Flaherty’s announcement Monday put a bit more downward pressure on the market. We think it is going to hit first-time buyers more. But generally, the forces at play right now are mostly offsetting.”

Similarly, Soper feels that the changes will not drag the housing market significantly; “The changes are tweaks; they should not have a material impact on their own in terms of slowing or removing a significant number of transactions from the 2011 forecast. The change just wasn’t that dramatic.”

“Policy makers are less worried about indebtedness that is tied to real property. They believe forecasters like us, who say that the real property in Canada will either not decline at all, or at least not very significantly.  It is highly unlikely that property values in Canada will suffer large declines. Most trading areas in Canada, price values will continue to appreciate, as the beneficial factors such as an improving job picture, increasing wages and salaries will strengthen the housing market at the same time, eroding affordability that will play out in the natural cycle of expansion and back off periods that will play itself out.”

Even the real fears of rising interest rates may not have the doom and gloom effect that many are predicting for mortgage holders. 

The Canadian Association of Accredited Mortgage Professionals recently released a report which examined the effects of a possible interest rate rise on homeowners who took out mortgages in 2010. Says Hogue: “Higher interest rates would put just a minority of recent mortgage holders in trouble. Their comment was that the lending practices of the last year have been prudent. Debt levels have gone up for a number of reasons, but not because financial institutions in Canada have loosened up their lending standards too much.  If anything, over the last two years, they have tightened them- part of which was mandated federally.”

Confident Consumer

There are many indications too that consumer confidence and the willingness to spend is on its’ way up, and that unemployment- albeit slightly, is on its’ way down.

There are some that fear that looming interest rate hikes and Flaherty’s new mortgage and HELOC restrictions could stall an economy that is just revving up, but the numbers seem to indicate that will not be the case.

Hogue is encouraged by what they’ve seen recently; “As a reflection of the overall economic performance in Canada, we expect it to trend slightly higher. The unemployment rate, which is probably a good indicator of confidence, is going to trend down modestly through the year. That is seen as the positive prop to confidence going forward. We are expecting by the end of next year in Canada, unemployment rate to be at 7.4%, which is not that much lower than it is now- but certainly is heading in a direction that should be reflected positively on confidence.”

So then, it seems like 2011 will not be a year of fireworks and frenetic pace in the housing industry; rather it will be a slow, steady climb back to higher ground- which is more appropriate really, for a country that has been trying to find its’ feet again.

Hogue says; “We are on path towards a more stable and sustainable housing market in Canada. The 2000’s have seen very strong growth. 2008 was a wild ride. Now I think we are in a new part of the cycle which is going to be more sustainable and stable.”

21 Jan

The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada’s Housing Market


Posted by: Drummond Team

Department of Finance Canada – www.fin.gc.ca

Ottawa, January 17, 2011

The Honourable Jim Flaherty, Minister of Finance, and the Honourable Christian Paradis, Minister of Natural Resources, today announced prudent adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada’s housing market and support hard-working Canadian families saving through home ownership.

“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” said Minister Flaherty. “The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”

“The economy continues to be our Government’s top priority,” continued Minister Paradis. “Our Government will continue to take the necessary actions to ensure stability and economic certainty in Canada’s housing market.”

The new measures:

– Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.

– Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.  

– Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

Our Government’s ongoing monitoring and sound underlying supervisory regime, along with the traditionally cautious approach taken by Canadian financial institutions to mortgage lending, have allowed Canada to maintain strong and secure housing and mortgage markets.

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

17 Jan

Ottawa tightens mortgage lending rules


Posted by: Drummond Team

Article from www.moneyville.ca

OTTAWA—Finance Minister Jim Flaherty took preventative measures Monday to tackle consumer debt and make it more difficult to buy a home.

“We are seeing people borrow to the max,” he said.

The measures put new restrictions on borrowing against the value of a home and reduced amortization allowing Canadians to pay off their homes more quickly.

“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” Flaherty said.

“The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future,” he said.

Ottawa moved to reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortages with loan-to-value ratios of more than 80 per cent.

It also lowered the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.

“This will prevent Canadians from taking on excessive debt,” Flaherty told a news conference, noting that Canadians in some cases are remortgaging their homes to buy boats and other large ticket items instead of reinvesting in their homes.

The Finance Minister also withdrew government insurance backing on lines of credit secured by homes, such as home equity lines of credit.

He explained this will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

12 Jan

Bank of Canada Deputy Governor Speaks About Household Finances and Economic Growth


Posted by: Drummond Team

Canada has been able to boast a moderate economic recovery in the face of many other countries, who continue to struggle—and Cote attributes the engine behind this to be household spending.

Household spending, while a positive injection to the economy, is not without its’ pitfalls- and the continuing low-interest rate environment  creates and additional set of risks by allowing consumers to perhaps falsely perceive that they can manage more debt than they actually can.

A dramatic statistic supports this picture. In the last ten years, Home-equity lines of credit surged 170% – which doubles the rate of mortgage growth- also sending household debt levels skyward as well.  These Home Equity Lines of Credit (HELOC) now comprise 12% of household debt.

According to their data, roughly one-third of the financing made available from HELOCs are used to pay off outstanding debt, while another 20% is used for stock-market investments. The roughly 50% of financing remaining is utilized on current consumption, and renovating or purchasing other properties.

There is hope that this consumer spending will trigger more economic growth : “ On the upside, household spending could be stronger than expected if growth in incomes were to rebound more rapidly than the Bank projects, or if borrowing continues to exceed income growth. In our projection, we expect slow growth in personal disposable income owing to the withdrawal of fiscal stimulus, announced compensation restraints by governments and a slow recovery in average hours worked. “

Seemingly, consumers have been taking advantage of the low interest rate environment, and the equity in their homes, contributing to this spike in borrowing. Says Cote:  “Such expenditures can accelerate the increase in house prices, reinforcing the growth in collateral values and access to additional borrowing, thus leading to a rise in household spending. Of course, this accelerator effect can also work in reverse: a decrease in house prices tends to reduce household borrowing capacity, and amplify the decline in spending. “

Similarly, there is fear, that growth in the rate of borrowing is outpaced growth in income to sustain debt- and is a cause for concern, says Cote:  “If there were a sudden weakening in the Canadian housing sector, it could have sizable spill over effects on other areas of the economy, such as consumption, given the high debt loads of some Canadian households. While residential investment declined in the second half of 2010, it still remains near historically high levels. The Bank expects some further weakening into 2011, reflecting subdued income growth and declining affordability, but not a major correction.“