The Housing Bubble

The Vancouver Sun reports from Canada. “Metro Vancouver’s real estate market remained in a slump in July, with home sales volumes down 18.4 per cent compared to the same month a year earlier. That contrasts with market conditions 18 months ago when the price of detached homes was jumping $100,000 a month in some markets including Richmond. ‘Where we have seen some shift is a drop-off in [the volume] of the investors into residential real estate. The investor class has sort of moved away,’ said Real Estate Board of Greater Vancouver president, Eugen Klein.”

Global Edmonton. “The number of homes in Edmonton selling for over $1 million is up significantly since 2011. ‘We saw this in 2006 and 2007 and it’s taken us a while to get back to those levels, says Sally Munro of Century 21 Platinum Realty. ‘A lot of it is fueled by interest rates. A million dollars today is like 500-thousand was years ago,’ says Munro.”

The Edmonton Journal. “Housing sales were up in July but average prices for resale homes dropped during the month compared with June, the Realtors Association of Edmonton said. The average single family detached price declined from $342,014 in June to $335,501 in July. ‘We have had good activity in sales of homes over $1 million, and that was a bit surprising,’ said association president Doug Singleton. ‘The current very low mortgage rates are positive for real estate. I think they are really trying to encourage people to buy with these rates.’”

The Financial Post. “Ratesupermarket.ca says the fixed rate on a five-year mortgage has dropped to 2.94%, below the 2.99% rate that caused a furor earlier this year with Finance Minister Jim Flaherty warning banks not to get too aggressive with pricing. But how do you say no to these rates, especially if you have a mountain of debt? This may be the best time ever to consolidate debt, if you can tame your spending at the same time.”

“It’s not clear consumers are doing that. Vince Gaetano, a principal at monstermortgage.ca reports a rush to refinance, with many consumers pushing their home-equity lines of credit to 80% of their home’s value ahead of new rules from the Office of the Superintendent of Financial Institutions that limit that percentage to 65% for HELOCs. ‘I truly believe [the real estate] market has softened and the banks want to make more margin,’ Mr. Gaetano says. ‘The volume is just not going to give them their profits.’”

“‘The level of yields don’t make any sense,’ says Craig Alexander, chief economist at Toronto-Dominion Bank. ‘Traditionally, five-year mortgage rates have a tight correlation with government bond yields. We are in an atypical environment, the level of bond yield is so exceptionally low it doesn’t appear to be sustainable. If you think about it, after you strip out inflation, investors are getting a negative return.’”

The Calgary Herald. “On July 9, Finance Minister Jim Flaherty rolled out changes to government-insured, high-ratio mortgages that included a drop from 30-to 25-year mortgages, limiting refinancing to 80 per cent of the loan-to-value ratio, down from 85 per cent, as well as limiting the gross debt service ratio to 39 per cent and the total debt service ratio to 44 per cent.”

“Chris Stewart a mortgage associate with Mortgage Alliance said part of the debt problem was created when purchasers could buy homes with 40-year mortgages, no down payments and a higher interest rate, a practice that reached the height of its popularity during the housing boom about five years ago. Now many of those mortgages need to be refinanced as their terms end and many people are finding themselves in a negative equity situation because house values have fallen and not much of the principal is paid down.”

“‘Those clients got 40-year mortgages with zero down with the four per cent lending fee tacked on. That’s 104 per cent financing,’ he said. ‘If you have a 25-year amortization rate with 4.5 per cent interest, you’ll be paying at least three times the actual cost of the house. So at 40 years, it’s crazy.’”

The National Post. “‘On a $500,000 mortgage, which is not unreasonable for a typical middle-class home in downtown Toronto, the difference between a 30-year amortization and a 25-year amortization amounts to about $263 a month. For many families, daycare is a significant expense that goes away after, say, five years, when many of them would be renewing anyway and in a position to make higher payments. The new rules basically eliminate these buyers, or make it a lot more difficult for them — unnecessarily, I believe,’ explains Kathryn Kotris, principal broker of Mortgage Architects in Toronto.”

“Ms. Kotris would like to see more attention paid to unsecured debt, such as credit cards and unsecured lines of credit, which has boomed in recent years and may be the real financial elephant in the room.”

From Bloomberg. “Standard & Poor’s cut its outlook to negative from stable on seven Canadian banks Friday, citing a prolonged increase in housing prices and consumer indebtedness. The debt of Canadian financial companies is the second-worst performer this month after Japan among 35 global peers, according to Bank of America Merrill Lynch data. ‘Were house prices to drop materially and over a prolonged period of time, then households would start to de-lever,’ Peter Routledge, an analyst in Toronto at National Bank Financial, said in an email. ‘We’re not there yet, but that issue is the elephant in the room.’”

The Winnepeg Free Press. “Canada’s two hottest housing markets may finally be cooling, but industry officials insist the chill hasn’t descended on Winnipeg, in spite of two consecutive monthly declines in MLS sales. On the contrary, Canada Mortgage and Housing Corp. is still predicting Winnipeg will set a record for MLS sales this year. WR president Shirley Przybyl said bidding wars are also still occurring on some properties, and 43.5 per cent of the homes that sold last month went for more than the asking price — both signs of a vibrant market. ‘If it is (cooling down), we would say it is because that would mean some relief for buyers. But I just don’t see that.’”

“CMHC regional economist Lai Sing Louie doesn’t see it either. ‘Overall, we’re still projecting demand will remain elevated and sales will hit a record high this year,’ Louie said.”

The Chronicle Herald. “Soaring property assessments and a crippling property tax bill forced Chris Reardon to sell his cavernous 6,800-square-foot, single-storey building. According to Service Nova Scotia and Municipal Relations online property records, a mortgage registered for the Agricola Street property in 2000 with Reardon as the guarantor was for the sum of $144,500. If he sold the property at the most recent assessed value of $364,000, it’s possible Reardon more than doubled his investment.”

“But Reardon said he took issue with the sudden dramatic spikes in property valuation, rather than gradual and predictable increases in assessed value and taxes that small businesses can budget for. Although Reardon tried to pass on some of the added costs — he occasionally rented out a section of the building to production companies or other ventures — he was forced to absorb most of the increases.”

“‘The neighbourhood is not exactly a high-rent district so I could only charge so much for (renting) the property. I get people approaching me telling me their taxes have gone up 100 or 200 per cent a year. If you’ve owned a small barbershop in the north end for 30 years, for example, you can’t just double the cost of a haircut to make up for it,’ he said. ‘The only alternative for small-business owners is to sell their property. But what kind of a community is Halifax becoming if small businesses can’t afford to operate?’”

From Durham Region. “Durham’s housing market may be a steal compared to Toronto — but prices are inching up here too. Durham’s average selling price in June was $344,907. That’s compared with $553,923 in Toronto, $595,212 in York and $440,026 in Peel. Larry Hummel, chief assessor at MPAC, says it’s good news for homeowners. ‘A home is the single largest asset for most families, if prices are increasing at a reasonable rate it is an indication of some strength in the economy,’ he said.”

“However, the steady climb makes things tougher for home buyers looking to break into the market, especially in Durham where single-family homes make up about 70 per cent of the housing stock. ‘House prices are going up and up, my pay has gone up zero per cent. It’s the same for a lot of people,’ says Matt Clifford, a 26-year-old father of two from Oshawa. ‘We need more places here that someone average can afford.’”

The Toronto Star. “A friend was recently lamenting that there was ‘no place for him in Toronto’ because he’d likely never be able to buy a home in the city he loves. Like a lot of people, he feels renting is tenuous and temporary, as if the floorboards could be pulled out from under him at any moment. For over a decade the city has been in an obsessive frenzy over real estate where our identity as citizens is hooked to buying something: a chunk of one’s own, on the ground or in the sky.”

‘Somewhere in its DNA Toronto still thinks of itself as a small provincial town, where home ownership is right and renting is, well, something only poor people and students do. The frenzy has cranked that feeling up, making people who rent feel bad about their lot in life, when instead they should feel good. Friends who were once social beings, always up for something, suddenly go missing when they become homeowners. There’s that bathroom to retile and baseboards to refinish. Or they’re simply house poor and have had to clip their mojito budget.”

“They occasionally invite you over to their homes, but their flat screens are perpetually on HGTV and they discuss strange things like duct cleaning, interest rates and sometimes proudly show off their new attic insulation. So many good people have been lost and we just get glimpses of them now and then, covered in paint, on Facebook. Alas, we knew them once.”