A Pre-Existing Over-Exuberance
The Montreal Gazette reports from Canada. “In hockey-crazed Montreal, the Habs brand has been used to sell everything from school lunch boxes, to home insurance. But even with ownership perks like the chance to skate once a year at the Bell Centre, are Habs fans really willing to pay more than $500 per square foot – exact price yet to be determined – on a place to live? ‘I think you’d be surprised,’ said Riz Dhanji, the Toronto-based VP for real estate developer Canderel Property Management. ‘I think there will be more interest among hockey fans in Montreal than there was at (the Maple Leaf Square condo project) in Toronto.’”
“Condos at Maple Leaf Square, marketed in 2005 at a then jaw-dropping $475 per square foot, are now worth north of $700 per square foot – an appreciation in price that’s likely to be noticed by real estate investors in Toronto and other Canadian cities. ‘There’s some speculation that this (Bell Centre) project will follow suit. And that’s the speculation I expect the developer is going to try and drive,’ said Brian Persaud, a Toronto real estate broker and author of Profitable Investing in Condominiums.”
The Star Phoenix. “Toronto’s Maple Leaf Square has two towers of 50 and 54 storeys, respectively. At more than $450 per square foot, people in the industry were shocked at the prices the developers were charging when they went up for sale in 2006, said Ben Myers of Urbanation, a condo-market research firm in Toronto. But all the units were sold and now command resale prices upward of $650 per square foot. So what did Toronto hockey fans get for their real estate investment other than proximity to their favourite team? After all, condo owners had access to a private box at games but still had to pay for the privilege.”
“Maybe simply being at the centre of the action, which doesn’t necessarily have any measurable value. ‘Let’s face it: Hockey is king in this country,’ said Ben Myers of Urbanation, a condo-market research firm in Toronto. ‘People here want to buy into anything that’s associated with the Toronto Maple Leafs.’”
“Cadillac’s announcement comes amid a significant expansion in condo apartment construction overall in Quebec, which is raising concerns that prices are set to drop if demand slows. Economists at Desjardins said in a July 10 report that while the existing market in Montreal is balanced overall, there is already a surplus of units priced over $800,000.”
“‘The situation is relatively healthy,’ the economists said. ‘There are several signs, however, that construction has already reached excessive proportions in downtown Montreal, on Nun’s Island, in a sector in Laval and a zone on the south shore. If housing starts in these areas do not slow down, the risk of a local price decline is very real.’”
The National Post. “Canada’s housing stock is drifting toward the ‘European model,’ said McGill architecture professor Avi Friedman. ‘If you take the typical Canadian home and take out all the wasted space, you have a European home,’ said Mr. Friedman. ‘They’ll have the same number of rooms, the same uses, but they will all be smaller.’”
“Luckily, two decades of condo building have already steeled Canadians for the realities of tiny spaces. Last year, a slate of new Vancouver developments offering condos as small as 400 square feet. ‘In 2006, the market peaked and everybody got back to the idea of ‘We’ve got to make houses smaller and we’ve got to make them more affordable,’ said Brian Johnston, COO of Mattamy Corp., Canada’s largest builder of new homes. ‘I don’t think it’s a matter of personal preference, people just can’t afford to live in those big houses anymore.’”
“Except, of course, in Alberta. In the land of $85,000 median wages and dirt-cheap housing lots, young families are still snapping up giant, single-family homes like it’s still 1985.”
“Trying to sell a three-bedroom condominium in downtown Toronto is harder than selling milk to a cow, local developers say. A sample by Urbanation of new condominium projects shows developers sold an average of 1.4 three-bedroom units per month in the downtown core in the first quarter. The average condo project sold 23.9 units per month.”
“Space and cost are cited as the main reason why many families choose to live elsewhere. A 1,000-square-foot apartment can cost a family as much as $700,000. ‘For $700,000 you can buy a house [elsewhere] that’s 18,000-square-feet, that’s got a parking space, maybe a little bit of a backyard, [and] a basement,’ Urbanation VP Ben Myers said.”
“‘Developers would rather do what’s easy and not necessarily what’s right,’ said Councillor Adam Vaughan said. But developer Brian Johnston said condo designs are not solely based on what developers find easy. ‘Builders don’t have a bias against three-bedroom units,’ Mr. Johnston said. ‘It’s about what the market is telling me.’”
The Toronto Sun. “Deputy Mayor Doug Holyday said personally he wouldn’t want to raise kids in the downtown core and it was ‘certainly not the ideal place’ for families. Left-leaning councillors made political hay with Holyday’s comments Thursday, accusing him of trying to ban children in the downtown core and joking he’d soon try to ban sex too. Holyday stressed he was merely speaking out against ’social engineering’ and a requirement in a development application for an Entertainment District condo building to have 10% of its residential units as three-bedroom units.”
“‘If you look at condos in the downtown they are a lot smaller,’ said Councillor Denzil Minnan-Wong. ‘You don’t have as much room to live in the small condo because it is so expensive.’”
The Globe & Mail. “Vancouver’s housing market is cooling to the point that the balance appears to be shifting in favour of buyers for the first time in years. The average price of a home in Vancouver rose 90 per cent from 2002 to 2007, compared with 40 per cent in Toronto, according to TD. But Toronto has seen prices increase more quickly since the financial crisis, adding to the view that Toronto is lagging its western cousin.”
“Vancouver’s slowdown is ’striking, because nothing has really fundamentally changed in the market. It’s hard to pinpoint. Something has affected the psychology,’ said Toronto-Dominion Bank deputy chief economist Derek Burleton.”
“CIBC deputy chief economist Benjamin Tal agreed that the slowdown that’s underway in Vancouver will soon begin in Toronto. ‘We see less investment activity in Vancouver, and less Chinese money entering the city,’ he said. ‘This is just the beginning of a downward trend in Vancouver.’”
“Economists also say that the recent round of mortgage insurance changes that Finance Minister Jim Flaherty unveiled last month will accelerate softening in real estate markets across the country. The new rules, which kick in on Monday, will, among other things, cut the maximum length of insured mortgages from 30 years to 25. Eugen Klein, president of Vancouver’s real estate board, said he expected to see indications of a rush in activity prior to the changes taking effect, but hasn’t seen any so far.”
“‘We thought that people would see a fervour of activity from people trying to get in under the line of the due date, but members haven’t been telling us that that’s the case,’ he said.”
From Canada.com. “Did the Harper government blunder into overstimulating a housing market that it’s now in the process of squeezing at just the wrong time? The question springs to mind now that new numbers show that Canada’s housing market showed signs of significant softness in June. Warns economist Robert Hogue at the Royal Bank, ‘the risks are higher now than they were before.’ Hogue thought markets were cooling nicely even before the stricter rules came in. Now, he worries, ‘this may give a push beyond what the market needs.’”
“Douglas Porter, deputy chief economist at BMO Capital Markets, thinks the market will probably adjust without too much trouble — but acknowledges that he too feels a little tug of concern. ‘This may have been one turn of the screw too many,’ he says.”
“The irony is that it was under this same Harper government that Canada loosened its mortgage rules so much that by late 2006, you could borrow for 40 years with nothing down. The then-governor of the Bank of Canada, David Dodge saw this as so irresponsible that he broke the central bank’s usual rule against criticizing government policy.”
“It’s what foolish governments often do: curry favour by loosening policy too much in good times, only to have to tighten as conditions worsen.”
The Canadian Press.”Under the new mortgage rules, borrowers will be allowed to use up to 80 per cent of their property’s value as collateral for home-equity loans, down from 85 per cent. In addition, the maximum amortization period dropped to 25 years from 30 years for government insured mortgages. Flaherty also said government-backed mortgage insurance will be limited to homes with a purchase price of less than $1 million.”
“BMO deputy chief economist Douglas Porter questioned whether the lower home sales in June could be the ’start of the Big Sleep.’ ‘Even before the new mortgage rules kicked in, all signs suggest that the Canadian housing market was already cooling — the new rules will simply pull hard on a closing door,’ Porter said in a research note.”
“Porter noted that despite the drop in prices, about 70 per cent of Canada’s cities were still reporting price increases.”
“Early indications in June of a slowing market in some cities do not necessarily presage a U.S.-style plunge in housing prices. Forecasters have talked about declines of 10 to 15 per cent being possible, or just a period of drifting sideways. Without a surge in unemployment, it’s hard to see a real crash. Also, there are some good reasons why a decline in houses prices won’t be so bad.”
“Too many people are in the housing market today because they fear that if they don’t buy now, rising prices will keep them out of the market forever. And so they push themselves to do things that aren’t sensible or comfortable, like upping their offer to win a bidding war or borrowing close to the limit of what the bank will offer. An overheated housing market produces an auction mentality, where people almost think they’re in a competition to buy homes. Falling house prices take the adrenalin out of housing decisions. Buyers have a chance to reflect, and that means more rational buying.”
“Let’s not overstate the impact of condo and home buying by wealthy investors outside Canada, because definitive statistics are lacking. But there’s no doubt that in cities such as Vancouver and Toronto, money from offshore has helped bid up prices. We welcome foreign investment here in Canada, but in the case of the housing market that money has fed a pre-existing over-exuberance. It’s healthy for the market if that $1.2-million bungalow falls in price and makes other investors pause.”
“Don’t torture yourself by measuring your house price gains from purchase to the high-water-mark price, which in some cities may have been already been reached. This happens with stocks all the time. The national average resale house price 10 years ago was $205,333 and the most recent tally was $375,605. That’s an annualized increase of 6.2 per cent. If house prices fall 10 per cent to $338,044, then that drags the 10-year gain down to 5.1 per cent. You’re still doing well here when you consider that the average inflation rate for the past 10 years has been 2.1 per cent.”
“If you only bought your home in the past few years, why do you care what housing prices do?”
The Daily Mail. “Americans may enjoy teasing and taunting their neighbours to the north but now the jokes on them. For the first time in recent history, the average Canadian is richer than the average American. The net worth of the average Canadian household in 2011 was $363,202 compared to the average American household’s $319,970 worth, according to data published in Canada’s Globe and Mail.”
“Before setting out his argument for Canada’s triumph,Stephen Marche, a Canadian novelist, simply states: ‘The Canadian system is working; the American system is not.’ He boils down Canada’s success: ‘the stability of Canadian banks and the concomitant stability in the housing market provide the clearest explanation for why Canadians are richer than Americans today.’”
“The Globe and Mail pinpoint Canada’s triumph on 2008’s economic crisis largely destroying the U.S. housing market making Canadian’s real estate more valuable by an average of $140,000. ‘Canadians hold more than twice as much real estate as Americans and, once mortgages are factored in, have almost four times as much remaining equity in their real estate. Americans’ liquid (non-real estate) assets are still greater than Canadians,’ they reported.”
