Real Estate Information

The Canadian economy grew at the exceptional pace of 6.1% in the first quarter of 2010, propelled by a booming housing market, strong consumer spending and the rebuilding of private sector inventories. Moreover, growth in the second quarter of 2010, while not expected to register the sizzling pace of the previous six months, should be a robust 3%-4%.

However there are signs that the economy, if not stalling out, may be slowing down. April’s monthly GDP print was disappointingly flat as consumers moved to the sidelines, sending retail sales lower by almost 2%. 

Even if Canadian consumers are beginning to tire out, economic growth should be supported in coming months by projects initiated under the federal government’s infrastructure stimulus plan. This stimulus will provide a needed boost to the economy through the remainder of 2010, with projected impacts peaking in the third quarter, but will create a drag on growth in 2011 as the stimulus is withdrawn from government expenditure.

The strength of the Canadian economic recovery over the past six months is evidenced by the over 300,000 jobs created in the Canadian economy since the beginning of the year. While this exceptional rate of job creation stands in stark contrast to the gloomy employment situation of our southern neighbour, it also re-affirms the need for the Bank of Canada to begin withdrawing its emergency level of monetary stimulus by raising interest rates, particularly given the proximity of core inflation to its 2% target rate.

The withdrawal of monetary and fiscal stimulus from the Canadian economy in coming months will result in slower growth in both the second half of 2010 and into 2011. This growth slowdown may be further exacerbated by weaker than currently anticipated US and global economic growth as well as a higher Canadian dollar resulting from a rise in Canadian interest rates relative to the United States.

In all, slower economic growth and inflation that is within the Bank of Canada’s comfort zone should mean that, while interest rates are certain to rise, the pace of interest rate increases should be orderly and the level of interest rates will remain near historic lows through the remainder of the year.

By Cameron Muir, Chief Economist and Brendon Ogmundson, Economist, British Columbia Real Estate Association.

Home sales activity in Greater Vancouver was quieter last month than most Julys over the past decade, with residential sales, prices, and the number of homes listed for sale trending downward in recent months.

The Real Estate Board of Greater Vancouver (REBGV) reports that the number of residential property sales in Greater Vancouver totalled 2,255 in July 2010. This represents a 45.2 per cent decline from the 4,114 sales in July 2009, the highest selling July ever recorded, and a 24.1 per cent decline compared to June 2010.

Looking back further, last month’s residential sales represent a 3.7 per cent increase over the 2,174 residential sales in July 2008, a 41.8 per cent decline compared to July 2007’s 3,873 sales, and a 17.5 per cent decline compared to July 2006’s 2,732 sales.

“With the pace of home sales and listings easing off in our market, we’ve begun to see a levelling of home prices from the record highs seen in the spring, creating greater affordability,” Jake Moldowan, REBGV president said. “Activity in today’s marketplace is clearly trending in favour of buyers.”

The number of properties listed for sale on the market has been trending downward since spring, with 4,138 new listings in July compared to April’s peak of 7,648. New listings for detached, attached and apartment properties in Greater Vancouver on the Multiple Listing Service® (MLS®) declined 17.9 per cent in July 2010 compared to July 2009, when 5,041 properties were listed for sale.

At 16,431, the total number of property listings on the MLS® in July declined 6.5 per cent compared to last month and increased 33 per cent compared to July 2009.

“It’s currently taking home sellers who work with a REALTOR®, on average, 45 days to sell their property, which is a historically healthy timeframe for people on both sides of a transaction,” Moldowan said.

Since spring, housing prices have decreased 2.8 per cent compared to the all-time high reached in April when the residential benchmark price was $593,419. Over the last 12 months, the MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver increased 9.1 per cent to $577,074 in July 2010 from $528,821 in July 2009.

Sales of detached properties in July 2010 reached 908, a decrease of 43.7 per cent from the 1,614 detached sales recorded in July 2009 and a 9.8 per cent increase from the 827 units sold in July 2008. The benchmark price for detached properties increased 11.5 per cent from July 2009 to $793,193.

Sales of apartment properties reached 979 in July 2010, a decline of 42.7 per cent compared to the 1,708 sales in July 2009 and an increase of 1.3 per cent compared to the 966 sales in July 2008.The benchmark price of an apartment property increased 6.2 per cent from July 2009 to $387,879.

Attached property sales in July 2010 totalled 368, a decline of 53.5 per cent compared to the 792 sales in July 2009 and a 3.4 per cent decline from the 381 attached properties sold in July 2008. The benchmark price of an attached unit increased 8.6 per cent between July 2009 and 2010 to $490,995.

There may have been good reasons to raise interest rates this week but the Bank of Canada has not told us what they were.

In fact, its Monetary Policy Report, released Thursday, made a compelling case for leaving the benchmark overnight rate where it was rather than increasing it by a quarter of a percentage point to 0.75 per cent.

Here's some of what the central bank said:

Economic growth in Canada will be weaker than expected. Gross domestic product is projected to grow by 3.5 per cent this year, 2.9 per cent in 2011 and 2.2 per cent in 2012.

Consumer spending will slow to a pace consistent with income growth. (Statistics Canada reported Thursday that retail sales dropped 0.2 per cent in May.)

Business fixed investment has been more subdued than expected and its level is still depressed.

Inflation has been in line with the bank's projection -near two per cent for both core inflation and the consumer price index.

Economic recovery in the United States is weaker than anticipated due to fallout from Europe's sovereign debt crisis and little recovery in household demand.

The policy response to the debt crisis will slow global recovery, with growth forecast to average less than four per cent through 2012.

The bank acknowledged that risks to even this sluggish forecast are considerable.

Global private demand may be insufficient to sustain the recovery, it said.

None of this suggests monetary tightening is necessary.

Not discussed in the report, but clear from the data that accompany it, is the fact that roughly a quarter of Canada's productive capacity is idle.  Capacity utilization in the first quarter was 74.2 per cent, far below the rate at which inflation becomes a concern.  The average rate from 1987 to 2001 was 83.4 per cent.

The output gap, an economic measure of actual GDP against potential GDP, is negative 1.9 per cent, meaning there is slack in the economy due to weak demand.

The June unemployment rate of 7.9 per cent is still well above the pre-recession level of 6.1 per cent. And employment insurance claims are on the rise again.

In the bank's regional office survey, 95 per cent of firms said they expect consumer price inflation over the next two years to range between one and three per cent.

Defenders of the rate hike argue that the central bank hopes to avert a housing bubble, but the real estate market was already softening before the increase, with the harmonized sales tax in Ontario and British Columbia putting a chill on new-home sales.

Others suggest the bank raised rates to send a message to Canadians to rein in household debt.  But making that debt more expensive will only deepen their financial malaise. A better approach to deleveraging would be to encourage financial institutions to restrict personal interest-only revolving credit lines.

While the bank is to be commended for its vigilance against any resurgence of inflation, an insidious destroyer of value, this latest rate hike defies logic.  It may even have to backpedal given that the U.S. Federal Reserve is keeping its key rate at 0.25 per cent. Indeed, the only benefit to be realized from higher rates may be that it offers some flexibility if the U.S. drags Canada back into recession.

The bank could respond by cutting rates -and it can't lower rates if they are already near zero.

The rate increase could add $100 to the cost of servicing a mortgage for some households.  That's a high price to pay for a little monetary breathing room.

The Bank of Canada raised its benchmark interest rate by 25 basis points this morning for the second time in two months, even as households and governments in the developed world continue to cut back on spending.

This means that the charter banks will be moving the Prime Rate from 2.50 to 2.75 per cent. The central bank said any further increases “would have to be weighed carefully against domestic and global economic developments.”

The central bank became the only one in the Group of Seven to hike its key lending rate after keeping it at unprecedented lows during the recession.

While economic growth in Canada has largely relied on consumer spending, the bank now projects that business and trade will make up a larger part of the country’s gross domestic product, but overall growth won’t be as large as the bank previously thought.

The bank now estimates that Canadian GDP will expand 3.5 per cent in 2010 and 2.9 per cent in 2011, down from the previous projection of 3.7 per cent and 3.1 per cent respectively.

Given the above and Prime moving to 2.75%, it means that for every $100,000 of mortgage the average increase will be approximately $15 per month using an amortization of 35 years and from the above comment by the Bank of Canada, the expectations are that Prime may remain at 2.75% for a period of time until we have more economic stability. The next central bank review is on September 8, 2010.

Please also note that while the bank rate has increased 50 basis points over the past 2 months, discounts on variable mortgages have also been improving with the best today at Prime minus 0.70 or 2.05%. If we go back one year when prime was at 2.25%, variable mortgages were available at Prime + 0.20 which means that clients had a rate of 2.45%, therefore in real terms clients are better off today with rates at Prime minus 0.70 even though the Prime has increased. Great time to PURCHASE!

The Greater Vancouver housing market experienced steady activity to begin the summer season. The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver totalled 2,972 in June 2010, a decline of 30.2 per cent compared to the 4,259 sales in June 2009, which was the second highest selling June on record.

“Activity in June marked a healthy balance between the near record setting pace of June 2009 and the considerably slower activity witnessed in June 2008, a period of recession as we all know,” Jake Moldowan, REBGV president said.

Compared to June 2008, last month’s sales represent a 22.6 per cent increase over the 2,425 sales recorded that month, but are 30 per cent less than the 4,244 sales in June 2007. June 2010 sales also represent a 5.8 per cent decline compared to the previous month’s sales totals.

“We didn’t experience any record-breaking activity in June, but we did see a stable summer market,” Moldowan said. “The number of new listings coming on the market is not as dramatic as we saw over the previous three months and demand remains at a healthy level for this traditionally quieter time of year.”

New listings for detached, attached and apartment properties totalled 5,544 in June 2010, a 3.2 per cent increase
compared to June 2009 when 5,372 new units were listed, and a 21 per cent decline compared to May 2010 when 7,014 properties were added to the MLS®.

At 17,564, the total number of property listings on the MLS® increased 1.2 per cent in June compared to last month, and is up 32 per cent compared to this time last year.

“There has been less upward pressure on prices in our market the last few months, which has allowed prices to ease back from the record high numbers seen in April,” Moldowan said.

Over the last 12 months, the overall MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver increased 11.8 per cent to $580,237 from $518,855 in June 2009.

Sales of detached properties in June 2010 reached 1,139, a decrease of 31.7 per cent from the 1,667 detached sales recorded in June 2009 and a 24.1 per cent increase from the 918 units sold in June 2008. The benchmark price for detached properties increased 13.4 per cent from June 2009 to $795,025.

Sales of apartment properties reached 1,258 in June 2010, a decline of 29.7 per cent compared to the 1,790 sales in June 2009 and an increase of 19 per cent compared to the 1,057 sales in June 2008.The benchmark price of an apartment property increased 9.7 per cent from June 2009 to $391,528.

Attached property sales in June 2010 totalled 575, a decline of 28.3 per cent compared to the 802 sales in June 2009 and a 27.8 per cent increase from the 450 attached properties sold in June 2008. The benchmark price of an attached unit increased 11.6 per cent between June 2009 and 2010 to $492,861.

The number of properties listed for sale in Greater Vancouver continued to rise in May, while the number of sales showed a year-over-year decrease.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouve totalled 3,156 in May 2010, a decline of 10.4 per cent compared to the 3,524 sales in May 2009; 5.1 per cent more than the 3,002 sales in May 2008; and 27.1 per cent less than the 4,331 sales in May 2007. May 2010 sales also represent a 10.1 per cent decline compared to last month’s sales.

In terms of number of property listings, last month marked the third consecutive month during which more than 7,000 homes were listed for sale on the Multiple Listing Service (MLS®) in Greater Vancouver.

New listings for detached, attached and apartment properties totalled 7,014 in May 2010, a 48.2 per cent increase compared to May 2009 when 4,733 new units were listed, and an 8.3 per cent decline compared to April 2010 when 7,648 properties were added to the MLS®.

At 17,492, the total number of property listings on the MLS® increased 10 per cent in May compared to last month, and is up 28.2 per cent compared to this time last year.

“Prospective home buyers in today’s market have a broad selection to choose from in every property type. REALTORS® are telling us they’re working with buyers who are not feeling as rushed to make a decision as they did late last year and earlier in the year,” Jake Moldowan, REBGV president said.

Over the last 12 months, the overall MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver increased 16.7 per cent to $590,662 from $506,201 in May 2009.

“It’s important for those looking to buy or sell a home to remember that real estate is local and wise real estate decisions are made by those who understand current market conditions at the neighbourhood level,” Moldowan said.

Sales of detached properties in May 2010 reached 1,256, a decrease of 10.4 per cent from the 1,402 detached sales recorded in May 2009 and a 4.4 per cent increase from the 1,203 units sold in May 2008. The benchmark price for detached properties increased 19.1 per cent from May 2009 to $810,175.

Sales of apartment properties reached 1,354 in May 2010, a decline of 7.1 per cent compared to the 1,458 sales in May 2009 and an increase of 8.8 per cent compared to the 1,244 sales in May 2008.The benchmark price of an apartment property increased 13.9 per cent from May 2009 to $398,783.

Attached property sales in May 2010 totalled 546, a decline of 17.8 per cent compared to the 664 sales in May 2009 and a 1.6 per cent decline from the 555 attached properties sold in May 2008. The benchmark price of an attached unit increased 14.8 per cent between May 2009 and 2010 to $500,339.

Calgary is the best place in Canada to invest in the residential real estate market, according to a report released Friday.

The Real Estate Investment Network's report said Calgary experienced one of its best economic and real estate periods in Canadian history a couple of years ago but then entered a strong, and needed correction.

"During the economic downturn, Calgary's market is making a predictable correction resulting in slightly more affordable housing compared to recent years passed," said the report. "It was economically impossible for the market to continue at the pace at which it was heading and now finds itself adjusting to market realities.

"This adjustment period, as the market searches for its new foundation from which to build, should continue in 2010 as the provincial economy is poised for another growth spurt."

The report said migration to the city continuing to lead the country combined with the "renewed affordability" will help propel the local market over the coming years.

"We, fortunately, should not see the massive over-boom situation we previously witnessed as the market remains more in line with the fundamentals," said the report.

Following Calgary as the top Canadian real estate investment cities are Kitchener-Waterloo-Cambridge, Edmonton, Surrey, Maple Ridge, Hamilton, St. Albert, Simcoe Shores (Barrie-Orillia), Red Deer, Winnipeg and Saskatoon.

"Successful real estate investing is all about identifying a town or neighbourhood that has a future, not a past," said the report. "Sadly, many investors like to invest based on past performance; thus, they are constantly chasing the market."

As seen in the Calgary Post.

New figures show the real estate market is cooling off across Canada, including the previously hot markets in B.C. and Metro Vancouver.

A Canadian Real Estate Association survey released Wednesday says sales are lower than expected, and predicts prices will remain flat for the rest of 2010.

"Today, home sales are down more than 30 per cent from that very high [winter] level," said Cameron Muir, an economist with the B.C. Real Estate Association.

Disincentives to buyers include higher interest rates, tighter credit and high housing prices, the association said in a release.

The survey results have prompted the Canadian Real Estate Association to revise its housing market predictions. The national forecast of just over 527,300 sales for 2010 has been reduced by 40,000.

The predicted number of sales in B.C. will drop by about 22,000 to about 80,000, the association said.

The record high B.C. home prices reached earlier this year also are forecast to ease off in 2011, dropping about 3.5 per cent.

"Our numbers tell us very clearly right now that prices have basically levelled at this point," said Jake Moldowan, President of the Real Estate Board of Greater Vancouver.

The province — and Metro Vancouver in particular — are heading toward a buyers' market, said Moldowan.

"We do know that our inventory levels are rising, which is going to create more choice for buyers and it'll give buyers more time to find a home," he said.

On July 1^st 2010 the Provincial Sales Tax in BC is being replaced and harmonized with the GST to create a single 12% tax. The new HST will have impact to those people who are building or purchasing a newly constructed homes or substantially renovated homes,  but will not impact those who are purchasing resale homes.

Purchasers of newly built homes will be eligible to apply for additional rebates up to a maximum of $26,250 as a result of the HST. If new home construction spans the July 1, 2010 HST implementation date, further rebates may be available.  The aforementioned rebates will largely offset the additional tax that is payable on homes costing less than $525,000.  However, the costs will be greater for those who have contracted to build or are purchasing a newly constructed home with a value greater than $525,000.

Many homebuilders have included the costs of HST and the associated rebates under the plan directly into the purchase price. In these cases, the rebates normally available to a homebuyer are assigned to the developer.  Information about whether the HST and rebates are included in the purchase price is included in the agreement of purchase and sale.

If the developer has not included the HST and associated rebates into the price of the home being built, homebuyers must apply to the federal government for the rebates and wait for the forms to be reviewed and approved.  As a result, these amounts must be financed by homebuyers during the intervening period.

Certain costs associated with buying and selling of homes will also be impacted.  Such items as legal fees and real estate commissions will now be subject to HST.

For further information about how the new harmonized sales tax may affect new home purchases can be found at this BC Government website link.  Included on the website is a new home purchase HST calculator

http://hst.blog.gov.bc.ca/faqs/new-housing-rebate/

Of course the best way to understand the impacts of the HST on homebuying plans is to contact a knowledgeable real estate lawyer who will be able to provide advice relevant to specific situations.

I'm often asked if this is a good time to buy a home. Some clients are concerned that home prices may fall further than they have already. They are assuming that the best course of action is to wait for the bottom in the market and then buy. The problem with this approach is that you don't know where the bottom is until you see it in the rear view mirror, meaning until you've missed it!

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have gone up in the last six months, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.