May 6, 2015

A Defining Act Of The Housing Crisis

CTV Vancouver reports from Canada. “Metro Vancouver’s April real estate numbers point to a red-hot housing market that’s having trouble keeping up with demand. Despite soaring sales both Metro Vancouver and the Fraser Valley last month, excessive inventory in areas like the Township of Langley’s Willoughby community has actually seen some prices drop. Solon Bucholtz of Royal Lepage said condos that would have cost around $300,000 before tax a couple years ago are now being offered at $275,000 – taxes included.”

“‘I’ve been licensed for eight years, I haven’t seen prices this low for condominiums in the Langley area,’ Bucholtz said.”

The Edmonton Sun. “While the number of housing sales in Edmonton in April dropped by 13% compared to last year, the average sale price climbed 3%, show the latest numbers. ‘If inventory keeps increasing, I think it’s reasonable to expect that we would see a little bit of a decrease in price at some point in the year, but so far the spring market has been maintaining,’ said Geneva Tetreault, president of the Realtors Association of Edmonton.”

“The total residential listings in Edmonton jumped to 3,298 in April, up from 2,977 in April of last year, the highest number of listings for this period over the last five years. ‘We’ve always felt and maintained for quite a long time that we are not on the verge of a bubble popping in the housing market, and I think the report is just reinforcing what we’ve been saying all along,’ said Tetreault.”

The Globe and Mail. “Altus Group Ltd., which tracks the Alberta condo market, said in a report this week that sales of new condominiums in Calgary were down 61 per cent in the first three months of this year compared with the same time last year, and 53 per cent lower than the average of the last five years. It was the same story in Edmonton, where first-quarter sales were down 60.5 per cent year over year and 41.5 per cent below the five-year average.”

“Avi Urban, a builder-developer of low-rise condominiums, says that since last December, there has been a ‘marked’ decline in absorption numbers, particularly among investors. ‘Sales budgets were revised down by 30 per cent in March and will likely end closer to 50 per cent off initial projections by year-end if there isn’t a significant increase in market interest,’ says Avi Urban president Charron Ungar. Despite a decline in consumer interest, Mr. Ungar says sales prices are holding steady, although the company, unlike a year ago, is now relying on buyer-incentive programs.”

From CBC News. “Calgary house sales in the first three months of 2015 dropped by 33 per cent. At the same time, there was a flood of new listings as Calgarians tried to sell properties before the impact of low oil prices took hold. Those conditions are creating a buyer’s market, according to the Calgary Real Estate Board. ‘With fewer buyers making purchase decisions and improved selection for resale, new home and rental property, sellers have been either adjusting their expectations on price or delaying their plans about when to list their home,’ CREB president Corinne Lyall said in a news release.”

“Particularly hard to sell were higher-priced homes, with far more on the market than buyers interested in them, CREB said. ‘This does not come as a surprise as many of the job losses in recent months have occurred in the higher paying sectors,’ said CREB chief economist Ann-Marie Lurie.”

The Regina Leader Post. “Saskatchewan’s economy is being ‘tripped up by the slide in oil prices,’ with real GDP expected to grow at a tepid one per cent in 2015, according BMO Capital Markets. Housing demand has also weakened, with home sales down more than 12 per cent year over year in the first quarter. In the resale market, the months’ supply of homes for sale has shot up to more than nine per cent, the highest in at least a decade. As a result, prices are correcting with Regina’s benchmark price down more than six per cent since its late-2013 high.”

“Robert Kavcic, senior economist with BMO Capital Markets, noted the labourmarket performance has weakened in recent months, with employment growth slowing to 0.4 per cent year over year in the first quarter alongside a drop in private sector jobs. ‘Population growth remains historically high at 1.5 per cent year over year, but those inflows are facing a higher unemployment rate; the jobless rate is still relatively low at just under five per cent, but that’s up from just 3.4 per cent as recently as November.’”

The Financial Post. “Francis, a 34-year-old welder from the mining town of Grande Cache, Alberta, says he wishes he could get out of the townhouse he bought four years ago. ‘At the time it seemed cheaper. I didn’t want to spend money on rent. But now I think I can find something cheaper to rent,’ says Francis, who asked that his last name not be used.”

“He bought the home for $175,000 with a five per cent downpayment but still owes $150,000 on his mortgage. He says the market for his home has collapsed in his town and a realtor just told him the best price he could expect is $75,000. ‘This town is mostly about mines and now the price is down. The town is dead,’ he said, frustrated about his situation. He’s also out of luck, if he wants to walk away, because his loan is backed by Canada Mortgage and Housing Corp., the Crown corporation that controls a majority of the mortgage default insurance market.”

“Since the loan is ‘under water,’ his bank would be left with a shortfall that CMHC would have to cover. The Crown corporation would likely sue him for any losses it has to cover, so if he has any assets, CMHC will go after him.”

“Handing over the keys to the house and walking away from your mortgage, called ‘jingle mail,’ was a defining act of the American housing crisis and helped send the market south of the border into a deeper tailspin. It can’t happen here, we’re told. So-called non-recourse mortgages are the rule in at least 10 U.S. states where consumers jumped at the opportunity to escape a mortgage that was more than the actual value of their house once the market started to fall.”

“The problem is it can happen here, namely in Saskatchewan and Alberta – the only two provinces that have similar rules. Considering how much listings have spiked in Alberta as people test the market, there is clearly concern among homeowners about whether the value of their property will hold. And guess what? Albertans did take advantage of the rule in 1983 and 1984 when home prices fell more than 30 per cent and mortgage delinquency rates rose sharply.”

Bits Bucket for May 6, 2015

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