February 24, 2015

Declines From Levels That Were Inflated

The Edmonton Journal reports from Canada. “Home sales fell nearly 26 per cent year-over-year in January, the Realtors Association of Edmonton reported. The 666 homes that changed hands marked the lowest January number in five years. New listings increased nearly 30 per cent — a five year high. Ryan Henry wants to buy a house in Edmonton, but he’s not sure he should. The exercise physiologist has been looking since 2013 to invest in a rental property, but oil prices have plunged more than 50 per cent since June. In Alberta, that’s enough to rattle a homebuyer’s nerves. He worries about housing values and demand for rental accommodation. ‘I wouldn’t say I’m confident in the real estate market,’ he said. ‘I have no idea what’s going to happen.’”

The Wall Street Journal. “Concern about the effect of lower oil prices has contributed to a selloff in Canadian bank stocks in recent weeks. For the six biggest banks, a particular risk lies in their uninsured home loans, which account for 44% of the $187 billion of mortgages in Alberta, the province where Calgary is located, and aren’t backstopped by the Canadian government in cases of default. Although the numbers vary by bank, big lenders have on average 20% of their total Canadian loans, including credit cards and mortgages, in Alberta and other prairie provinces.”

“Property developers snapped up more of the city’s ubiquitous bungalows built for a mushrooming postwar middle class, demolishing them and building luxury homes priced at between 700,000 and 1 million Canadian dollars (US$558,530 to US$797,900) in their stead. Once a rich vein for developers, inner-city infills are sitting unsold. ‘There is a lot of that inventory, and I don’t know if there’ll be as many people moving up into that price range,’ said Glenn Herring, a real-estate agent in Calgary.”

From Bloomberg. “The pain of crude’s collapse is beginning to bite in Alberta. Sam Corea was the No. 4 Re/Max Holdings Inc. realtor in Canada by commissions in 2013, and 14th globally, selling about C$100 million worth of properties as oil riches helped fuel a luxury housing boom. That market is now rapidly reversing. ‘I haven’t seen this much inventory ever. There are so many more people who want to sell. They feel the market is dropping,’ said Corea, who has sold about 3,000 houses in Calgary since the early 1990s.”

“The two-story home his interior-designer wife outfitted with four sub-zero refrigerators and electronics to control security cameras and media in swank Altadore, sold for C$2 million last summer. If he sold it now, he’d be lucky to get C$1.75 million, he says. ‘Now we’re seeing a decrease in sales and prices,’ he said.”

Business News Network. “Clearly, it’s a bad time to sell your home in Calgary, yet those looking to sell are still clinging to hopes that oil will rebound. Sherry Cooper, the former chief economist at BMO, now at Dominion Lending Centres, says sellers in Calgary’s real estate market will be in for a rude awakening if they sit on the bench. She says 10 and even 20 percent price declines are on their way, but those deep cuts need to be contrasted against Calgary’s juggernaut gains. ‘Declines from what level? Declines from levels that were already inflated. The average price of a house in Calgary had increased dramatically. In fact, it was the strongest housing market in the country from that perspective,’ said Cooper.”

The Globe & Mail. “Stuart Ridgway isn’t suffering from buyer’s remorse, having purchased his Chestermere, Alta., house in January, right after the once hot real estate market took a hit due to a drop in oil prices. In fact, he sounds remarkably blasé. He and his wife purchased the large Chestermere house for their family for $560,000, and he got ‘a reasonable deal,’ he says.”

“They haven’t yet sold their 3,400 square-foot Calgary home that has been on the market for two weeks, listed at $440,000. But Mr. Ridgway is optimistic that once it gets close to the spring market, he’ll sell it off. ‘The house in Calgary won’t go anywhere till the end of the month. But people are looking,’ says Mr. Ridgway, an engineer who builds gas plants. ‘Nobody in Calgary, particularly in oil patch times, is going to want to shell out $600,000 when they don’t know next week if they will have a job. It’s very much a feast or famine type of thing.’”

Mortgage Broker News. “Brokers are already feeling the effects of tighter lending in one major market. The first to act was an insurer and now at least one major lender has followed suit by announcing it will tighten its lending standards in Alberta due to the effects the faltering oil industry are expected to have on the housing market. According to the Globe and Mail, Genworth will take a closer look at mortgages originated in Alberta. The insurer is also raising the target for its loss ratio, upping it to 20-30 per cent from the previous target of 15-25 per cent, in anticipation of possible losses.”

“‘I have just recently had a deal in Calgary that would have been a slam dunk six months ago get declined by both CMHC, and Genworth due to market risk and only 10 per cent down,’ one broker wrote on MortgageBrokerNews.ca.”

Bits Bucket for February 24, 2015

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