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U.S. home prices down 18%
Home values in the 20 largest metropolitan areas in the U.S. dropped at a record pace in October as the fallout from the financial collapse reverberated through the housing market, according to data released yesterday. The price of single-family homes fell 18 per cent in October from a year earlier, according to the closely watched Standard & Poor's/Case Shiller Housing Index.
All 20 cities reported annual price declines in October; prices in 14 of the 20 metropolitan areas surveyed fell at a record rate as the financial crisis reached a critical point.
"October was clearly the free-fall month," said David Blitzer, chair of the index committee at Standard & Poor's. "Everything was going against us in October."
Home prices have fallen every month since January 2007, their slide accelerating as troubles in the housing market infected the broader economy and brought down financial firms. Prices are falling at their fastest pace on record, a sign the U.S. housing market is a long way from recovery.
"It is unlikely that we are anywhere near a bottom in nationwide home prices," Joshua Shapiro, chief U.S. economist at research firm MFR, wrote in a note.
The 10-city index dropped 19.1 per cent in October, its largest decline in its 21-year history, and the new numbers show the cities that hosted the greatest excesses of the housing boom are suffering the deepest drops.
Prices in Las Vegas and Phoenix, Ariz., where developers built subdivisions stretching into the desert, fell by nearly a third in October. Home prices fell 31 per cent in San Francisco and 29 per cent in Miami. Prices in New York declined 7.5 per cent in October over the same month a year ago.
Fourteen of the 20 cities in the Case-Shiller survey posted double-digit declines for the year.
The relative winner was Dallas, which had the smallest yearly decline of 3 per cent. The value of a single-family house in Detroit, which has been pummelled by closing plants and the implosion of the auto industry, was less in October than it was in October 1998.
The Case-Shiller numbers were the latest round of bleak news for the U.S. housing sector, which is at the centre of the country's broader economic troubles. Foreclosures, bad loans and collapsing housing prices contributed to the financial crisis earlier this year, and now the widening recession is dragging housing down even more.
Last week, the U.S. National Association of Realtors reported that previously owned homes, which dominate the market, suffered their sharpest drop in more than 40 years. Home values tumbled 13 per cent in November from a year earlier, the industry group reported.
Housing is likely to deteriorate further in 2009 as the jobs picture continues to weaken. The U.S. unemployment rate is now at 6.7 per cent, its highest point in a decade, and economists predict it will rise to 8 or 10 per cent next year.
"People who think they're going to lose their job don't buy a home," said Steven Ricchiuto, chief economist at Mizuho Securities.
Source: The New York Times
December 31, 2008 in World View [of real estate] | Permalink | Comments (3) | TrackBack
Real estate prediction of the year
Former Liberal and Conservative MP Garth Turner deserves the honour of best real estate prediction of the year for his book Greater Fool: The Troubled History of Real Estate (Key Porter Books, $21.95), which was released last March, less than a month after the Vancouver housing market peaked. Turner, who is also a broadcaster and financial columnist, forecast a big correction in housing markets across the country.
That's exactly what happened.
“Few people in Boston, where home values doubled between 1997 and 2007, would have then expected, without warning, the worst market decline since 1958,” Turner wrote. “I trust nobody in Vancouver, Kelowna, Saskatoon or Toronto expects that either.”
See more on Garth Turner's blog »
December 30, 2008 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack
Real estate outlook for 2009
Latest CMHC and CREA Data on Home Starts and Sales
Canada Mortgage and Housing Corporation (CMHC) says that housing starts plunged in November to only 172,000 units on a seasonally-adjusted annual basis, versus 212,000 units the month before. According to the Canadian Real Estate Association, the number of existing homes sold in November was the lowest since January 2001 and the national average price of homes sold was off by 10% versus a year ago.
Existing home sales more often than not tie in with new home data, since the former is often a necessary step for someone wanting to move up to the latter. Home buying confidence generally has been sent into a tailspin since the late-September crash in stock markets that weakened individuals’ and families’ financial position.
Interest Rates, Affordability and Other Leading Indicators
Interest rates are not a problem in Canada - the Bank of Canada’s overnight rate is only 1.50% - and mortgages are available for those with reasonable credit ratings. The long-term higher-risk mortgage market has been shut down by the federal government in a delayed response to the problems that have overwhelmed the U.S. housing market.
Affordability is coming back into line as a result of new and existing homes either stabilizing or coming down in price. But the major impediment to a buying commitment is growing worries about employment and incomes. Another factor that will slow starts next year has been the buildup in unsold inventories. While this is apparent in the singles market, it is even more dramatically evident in multiples. Toronto’s condo market, for example, appears to be way overcommitted. Projects are in danger of being cancelled.
Canadian City Forecast
By major city, Toronto will see a marked decline in its new condo market next year. Ottawa will hang in relatively well, since it is the epitome of a government town and employment is relatively assured. Montréal is the major urban centre in a regional economy that is suffering along with the U.S. recession.
Edmonton has recorded a greater than 50% drop in starts in 2008 and should level out next year. Calgary’s new housing market will be held back by an energy sector that is struggling with oil prices at only one-third of their peak value. Vancouver is the major player in a provincial economy that, through its forestry sector, will pick up in activity faster than any other region in Canada, once U.S. housing starts show some signs of life.
December 29, 2008 in Canadian Market Forecast | Permalink | Comments (1) | TrackBack
The Big Flip ... Flops
Real estate shows need a reno — focus now on home enjoyment
Canadian TV shows about home improvement and real estate are undergoing renovations as the economic crisis hits the housing market. Networks plan to swing the wrecking ball at house-flipping shows in 2009. Instead, they'll focus on programs that help people sell or maintain their homes, cope with their mortgages and add value - not frills - to their property in cost-efficient ways.
Shows are also being made for renters who wish to stay out of the rocky real-estate market altogether. "We've moved a little bit away from being kind of aspirational about your home and looking at it as a commodity that can kind of be bought and sold and used for profit, to really looking at the home as the heart of your life," says Anna Gecan, vice-president of content for HGTV Canada.
The network started asking TV production companies to focus on the theme of "loving the home you're in" back in the fall of 2007, says Gecan, after seeing the subprime mortgage crisis grip the U.S. housing market.
"We also noticed that some of the most popular property shows and property blocks on the network were kind of flattening out," she says. "We sensed that the market and our viewers were telling us really the kinds of show that they were more interested in seeing."
To that end, two new Canadian home-related series suiting the tough economic times debuted on HGTV Canada in 2008: "The Unsellables," which spruces up homes to entice buyers, and "Income Property," which pays for half the cost of renovating a house's rental space so first-time homeowners can bring in tenants to help pay down the mortgage.
"I think putting in an apartment might be one of the only renovations that people would be thinking: 'This is something I should do now, this is a great time for this,"' says "Income Property" host Scott McGillivray, a real-estate investor who owns 18 properties with 30 rental units in Ontario.
"It's a way of ... paying those high mortgages that they have on these houses that are losing value." And losing value they are.
In early December, the ReMax real estate franchiser predicted that Canada's average house price had retreated from 2007's record high and would fall three per cent in 2008 and another two per cent in 2009.
"I'm getting very desperate people - people who are going to get kicked out of their homes," McGillivray says of the applicants they're getting for the show, filmed in the Toronto area.
Other related programs hitting HGTV Canada include "For Rent," which helps young couples who aren't ready to buy a home find the ideal rental space to live in (it debuts Dec. 29), and "House Poor" (to debut in fall 2009), which helps homeowners cope with their household finances.
Over at W Network and the Viva channel, both properties of Corus Entertainment, executives say they're looking at ways to help viewers "get more for their money, and how to use money wisely."
Touching on that theme is "Love It or List It," which debuted on W Network in September and offers tips on how to buy and sell a home, as well as how to renovate one. As production gets underway for Season 2, producer/director Maria Armstrong says they plan to do more episodes featuring lower-budget renos "that would make a big difference in a home."
"A lot of people want to downsize as well but they want to get more for their house so that they can actually move into another house and actually have a much lower mortgage," she says.
"So we're trying to attract people like that to come on the show as well. It's not all about going bigger and better. It's about people who don't need as much room and want to get the most out of their home."
It's the same sentiment on Citytv's "CityLine," where the focus for the home-improvement segments is "to bring people very cost-effective ideas and ways of achieving a look on a wiser budget," says Ramsin Khachi, a contractor and frequent guest expert on the show.
"What's changed in the past four months, I'd say, is that people are putting aside the non-essential upgrades," says Khachi, who runs Khachi Design Group Ltd. and Khachi Interiors Inc.
Chris Hyndman, co-host of CBC's daytime lifestyles series "Steven & Chris," says many of the show's viewers are writing in for advice on smaller-scale home renos. "I have noticed a difference in how many people are saying, 'I'd love to do something with my space but I'm not ready to invest a lot of money in it. I want to do that later in time,"' he says, adding they now make over spaces using a home's existing furniture as much as possible.
Despite the economic slump, TV viewers still want to be entertained when they watch lifestyles programming and won't shun home and real-estate offerings that are unrelatable, says Armstrong: "They want to have a lot of fun."
That may explain why the Canadian series "Home to Flip" - which debuted in October at a time when stock markets were crashing and when flipping homes was becoming a distant memory - was among the top-five most-watched programs on the network in 2008.
HGTV Canada says that while "Home to Flip" and "The Really Big Flip," which launches December 31, may be outdated (they were filmed a year ago when real-estate bidding wars were still common in the Toronto area) they do show viewers how to add value to a home and feature hosts that are engaging. Still, the network doesn't plan to offer any other home-flipping shows once "The Really Big Flip" ends.
"We're probably not going to do those for a while unless there's a massive rebound in the market," says Gecan. "I think the shift is towards nesting, towards maintaining your home. It is looking inward a little more rather than looking outward and seeing your home as just something to be bought and sold."
December 25, 2008 in Home Maintenance Matters | Permalink | Comments (5) | TrackBack
Slump no reason for valuation appeals
'Just because everyone gets an assessment rise, doesn't mean taxes will increase,' Toronto's budget chief says.
The economic down-turn that is pummelling Toronto's real estate prices provides no grounds for home owners to appeal their latest valuations, the Municipal Property Assessment Corporation says. The good news, however, is that any discrepancy is unlikely to affect the bulk of property taxes in Toronto. The assessments are based on property values at January 1, 2008, long before the real estate market woes hit.
Premier Dalton McGuinty has called on municipal governments to "act reasonably and responsibly" and recognize that residents are receiving "perhaps ... an unrealistic assessment."
See the full story in the Toronto Globe and Mail »
December 20, 2008 in Toronto Real Estate Taxes | Permalink | Comments (0) | TrackBack
New condos rise as market falls
Toronto's condominium boom is heading for a bust.
The record number of condo units set for completion in 2009 and beyond will drive down Toronto housing prices and cause vacancy rates to go up as some condos sit empty. By the end of September, there were 33,919 condos under construction in the Toronto metropolitan area – more than three times the city's annual average – said housing economist Will Dunning in a report on the rental and condo markets. "This very large pending inventory is setting the stage for a substantial correction," Dunning said.
The warning comes on the heels of figures yesterday showing sales of existing homes in Canada continued to slide in the year's fourth quarter. Declines were steep amid the lowest level of monthly activity in almost eight years as investors worry about the faltering Canadian economy.
"In the short term, condos are the most vulnerable aspect of the market," said CIBC World Markets senior economist Benjamin Tal. "I think there is a lot of oversupply, especially in cities such as Toronto and Vancouver."
Already, some prominent developers have warned some condo projects being marketed may not make it to completion. In a tight credit market, as falling sales hit the new home market, speculators and investors take cover.
Toronto condominium starts are normally in the 10,000 to 12,000 range annually, but a bottleneck in construction from record sales in prior years has a significant number of units still to be completed, Dunning said.
Many of those units were bought by finicky investors who are quick to exit the market if they don't get the returns they expected. Analysts say 30 per cent to 50 per cent of sales in certain buildings were to such investors, with some already set to exit the market.
As a result, the number of condos listed for sale in central Toronto is already up a stunning 75 per cent in November from those on sale a year earlier, according to Dunning. "It appears that this process – excess supply in the condo sector and owners acting to sell the units – may be underway already."
The large supply of condos will affect the apartment rental market, Dunning said, as units now under construction become available for occupancy; in effect, "With the weaker economy, the supply will exceed the need."
The Canada Mortgage and Housing Corporation reported last week the vacancy rate in the Toronto area fell sharply to 2 per cent from 3.2 per cent a year earlier, but Dunning said the supply of new condos in the coming year will keep rates from dropping further, and will likely cause vacancy rates to rise.
So far there haven't been any catastrophic failures in the Toronto area, although one key project, MintoUrban Communities Inc.'s 300-unit Minto King West site, is on hold because of slow sales.
Before the advent of the economic meltdown in the United States at the beginning of the fourth quarter, new condo prices in the Toronto area were holding up well.
Prices for new condos in the third quarter were up by 2.5 per cent over the prior quarter, or about $406 per square foot, according to market research firm Urbanation. Since then, many developers have slashed prices off their suites and added incentives such as free televisions and even a new car over the past few months.
In 2006 the average condo price in Toronto was $239,816.
Meanwhile, there was more dismal news for the national real estate market as seasonally adjusted sales for November numbered 27,743 units, according to figures released by the Canadian Real Estate Association.
Sales were down 12.3 per cent on a seasonally adjusted month over month basis, and a far steeper 42 per cent unadjusted compared with November 2007.
The national average price of a home was down 9.8 per cent to $280,880, or more than $30,000 less than a year ago.
"The report underscores that the Canadian housing correction continued in earnest," said Millan Mulraine, economics strategist for TD Securities.
British Columbia, Alberta and Ontario were the three provinces reflecting the greatest decreases, said the realtor association.
"National sales activity and price trends will continue reflecting increased cautiousness on the part of lenders and buyers as the economy works its way through and out of the recession," said the real estate association's chief economist Gregory Klump.
In cities such as Toronto, sales of existing homes plunged by 50 per cent in November, the biggest decline since April 1989 when sales dropped to 54 per cent.
Source: Tony Wong, the Toronto Star
December 19, 2008 in Toronto Real Estate Update | Permalink | Comments (2) | TrackBack
Toronto Real Estate Board Reports:
Greater Toronto Home Resales at 1,500 in Mid December — down 50%.
Greater Toronto Realtors reported 1,487 resale transactions during the first half of December, down from 2,868 sales recorded in the same period a year ago, the Toronto Real Estate Board President Maureen O'Neill announced today.
The average price of a home in the Greater Toronto Area is currently $360,652. This compares to an average of $404,707 recorded during the first half of December 2007 and to an average of $343,048 recorded during the same period in 2006.
"Keeping today's market statistics in perspective, MLS® statistics confirm that over the last 10 years the price of homes has increased in value. What this means for the consumer is that real estate continues to hold its value and is a solid choice for long-term investments," said Ms. O'Neill.
In the 416 area, 619 transactions were recorded during the first half of this month, from 1,402 sales that took place during the same timeframe a year ago.
The average price in the 416 area is currently $382,759, from an average of $450,731 a year ago, and $367,650 recorded in the first half of December 2006.
In the 905 region 868 homes changed hands in the first two weeks of this month, from 1,466 transactions that took place in the first half of December 2007.
The 905 region's current average price is $344,887 from an average of $360,691 recorded during the same timeframe a year ago and $325,477 recorded at mid-December 2006.
"The recent C.D. Howe land transfer tax study confirms Realtors concerns that the second LTT imposed on homebuyers in the City of Toronto has indeed contributed to the economic conditions in the GTA," added Ms. O'Neill.
There are currently 24,708 listings on the TorontoMLS system, from 17,027 a year ago. The average number of days a home now remains on the market is 43, as compared to 33 days a year ago. Sellers are achieving 96 per cent of their listing price, as compared to 98 per cent a year ago.
"Location, price and your own personal financial and family situation all play an important role when considering a purchase," said Ms. O'Neill. "Realtors can provide you with information about neighbourhoods, school districts and realistic pricing because of their vast knowledge of the local community."
This mid month release does not provide a year in review analysis. A summary of activity for all of 2008 including the month of December will be provided in the January 2009 Market Watch Report.
December 17, 2008 in Toronto Real Estate Update | Permalink | Comments (6) | TrackBack
Prices down 10% across Canada: CREA
And sales fall 42 per cent in November
House prices across Canada fell nearly 10 per cent and sales slipped 42 per cent in November compared with the same month last year, a drop the Canadian Real Estate Association says it hasn't seen since the last housing recession nearly two decades ago. "What struck me, with the exception of a couple of markets, is that there has been a very sharp decline in sales activity over the last couple of months," said Gregory Klump, chief economist at the Ottawa-based association also known as CREA.
CREA said 27,743 homes were sold last month across Canada, a drop of 12.3 per cent compared to October and "the lowest level for monthly activity since January 2001." That follows a 14-per-cent sales drop in October, compared to the previous month.
Klump said he hasn't seen this type of month-to-month dropoff since 1989, "as we entered the last housing recession."
Housing and commercial real estate prices plunged in the late 1980s after a runup of several years when the economy was booming. The housing decline led to a price drop of up to 20 per cent in many markets and was triggered by rising mortgage rates and the lingering impact of the 1987 stock market crash Klump cites the current recession and tighter credit markets as reasons for the latest sales slump.
"What we are seeing is a broad trend across Canada of very cautious buyers, and very cautious lenders," Klump said. Part of the problem is that few people are able to secure mortgages. Klump said he is hearing a "growing body of anecdotal evidence" that buyers who received pre-approved mortgages are no longer approved when it comes time to close the sale of their home.
"The last time I heard about such things happening ... would have been at the last housing recession," he said. The biggest year-over-year sales decline was in British Columbia, where sales fell 62 per cent year over year. "It is one of the markets that had a big run up in price. They are also one of the first provinces where buyers became cautious in recent months," he said. Klump estimates the drop in sales translates into at least $2.8 billion less in spinoff consumer spending, which includes everything from new furniture and appliances to renovations.
November home sales totalled $7.9 billion, down 11.7 per cent from the previous month and the lowest level since January 2004, CREA said.
Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals, said there's no question lenders are being more thorough in reviewing their borrowing customers in the current economic environment.
"However, if you have steady employment, a good income and a healthy credit score you shouldn't have any difficulty in securing a mortgage," Murphy said. Scotiabank economist Adrienne Warren agrees there is more scrutiny from lenders today. She also pointed to Ottawa cancellation of the 40-year mortgage product in October, which has resulted in some "buyers at the margin being unable to get credit."
Warren said the sales drop is due to many home buyers putting off the purchase in the current recessionary environment, where layoffs are being announced across all industries.
"It's understandable buyers are nervous," Warren said. "Stock market declines are also pushing people to the sidelines for the time being."
TD Bank economist Millan Mulraine said in a note to clients that the new housing report "underscores that the Canadian housing correction continued in earnest in November ... . However, the deceleration in the pace of home price depreciation does offer a silver-lining in this report - albeit marginal."
The Bank of Canada warned last week that mortgage and consumer debt defaults could rise "significantly" if the global financial crisis deteriorates. It said the number of "vulnerable households" - the three per cent with a debt-to-income ratio above 40 per cent - could double by the end of next year under this pessimistic scenario.
The central bank notes that this would be a worst-case scenario. It said the "most likely outcome" is for global markets and credit conditions in Canada to gradually improve.
Merrill Lynch Canada economist David Wolf said while the percentage of mortgage delinquencies in Canada is low, at 0.29 per cent of about 3.9 million mortgages as of September, it's a 17 per cent year-over-year increase.
Wolf said that is the biggest rise since 1996, and that delinquencies in Alberta, where house prices started falling first, were up 130 per cent. He said the delinquency rate should in fact be lower, noting that in January 1990, "right around the peak in house prices and just after the cyclical trough in unemployment" mortgage arrears in Canada were at 0.18 per cent. He notes they nearly quadrupled over the following two years.
"The current relatively low level of delinquencies has masked a disturbingly large recent uptrend again, even before things really fell apart this autumn," Wolf said in a note to clients late last week.
He also cited a Bank of Canada study released a year ago that said mortgage default rates would rise to 2.25 per cent under a "very extreme" scenario of a 23 per cent aggregate drop in house prices.
"In sum, the relatively low level of mortgage arrears in Canada is of no comfort to us. Delinquencies are a lagging indicator. Relying on them as a forecasting tool is like driving while looking in the rear-view mirror. It's a good way to crash," wrote Wolf, who in recent reports has has turned bearish on the Canadian housing market.
A few months ago, he predicted Canada's housing market is following the same troubled path that eventually led the United States market into a major downturn, but with a two-year lag.
He noted that U.S. resale home prices accelerated through 2005, peaked in early 2006 and have declined ever since. Meanwhile, Canadian resale home prices accelerated through 2007, peaked in early 2008 and have been falling.
He has also challenged the prevailing view that Canada's housing and mortgage markets are more stable than their U.S. counterparts, warning that households in this country are so indebted that it's only a matter of time before we see a major downturn here as well.
December 15, 2008 in Canadian Real Estate Market | Permalink | Comments (2) | TrackBack
Can't sell it. Then rent it.
There are less homes and apartments available for rental in Toronto because of economic jitters and a weak real estate market which resulted in a sharp drop in rental vacancy rates in the city. According to the Canada Mortgage and Housing Corporation, Toronto's vacancy rate slipped down to 2.1 percent in 2008 from 3.2 percent in 2007.
Vacancy rates between 2 to 3 percent are indicators that the area has a balanced market. Given the latest figure of 2.1 percent, it points to Toronto moving towards a landlord's market.
When it was the other way around due to a large number of newly built condominium buildings, landlords had to offer renovated units and other freebies like a free TV set to get tenants.
With the change, the cost of renting a two-bedroom unit in Toronto went up 1.7 percent in 2008 to an average of $1,095 a month. Along with the increase in rental was a decline in new housing starts which tumbled down 19 percent in November. In the condo sector, which accounts for almost half of new home construction in Toronto, the decrease was a larger 29% in November.
December 13, 2008 in Toronto Real Estate Trends | Permalink | Comments (1) | TrackBack
RBC real estate market predictions
Canadians have watched with amazement for nearly two years now at the collapse of the housing sector in the United States, the United Kingdom and other countries that experienced overvalued housing prices with the sense that markets in this country stand on much more solid ground. After all, the sub-prime business never represented more than a marginal phenomenon here; Canadian households, while carrying heavier debt loads than in the past, were not financially overstretched; Canadian banks emerged islands of stability amid the global financial storm; incomes remained well supported by steady job creation and a strong domestic economy; and the influence of speculation — especially on new construction — was deemed to be subdued.
Then, late in 2007, red-hot Alberta markets began to slide, followed earlier this year by British Columbia’s markets. Most recently, Saskatchewan, last year’s hotspot, and areas in Ontario joined the weakening trend. All of a sudden, Canada no longer appeared immune to a generalized housing downturn. In fact, the souring of economic conditions, eroding consumer confidence and, in some instances, past excesses are creating a downdraft that the majority of Canada’s housing markets will be hard-pressed to resist.
In about two months, market sentiment turned on a dime in the Greater Toronto Area this fall. Until the end of the summer, the feeling was that the GTA was successfully negotiating a landing to a slower, more sustainable pace of activity since home resales had been gracefully trending lower since peaking in the middle of 2007 at never-before-seen levels. However, reports of notable declines in prices and activity in many Toronto communities during September and October suddenly challenged that view. While there is no cause to panic at this stage, the GTA market has undoubtedly entered a phase of consolidation. Earlier tightness has eased and buyers now hold more sway. The area’s economy is facing serious headwinds, which will undermine household confidence. Affordability generally remains an obstacle to would-be buyers, although it has improved modestly in the past few quarters.
December 9, 2008 in Canadian Market Forecast | Permalink | Comments (4) | TrackBack
