Top 2012 housing stories, from crash warnings to rent vs. buy – From your Vancouver Mortgage Broker

Consumers must be getting tired of hearing the experts cry wolf about rising interest rates and a housing crash.

Rates haven’t moved much if at all for most terms, if anything they’ve fallen and stayed put. Mortgages still hover around 3% for anyone willing to lock in for five years and consumers have been doing that more than ever — some even opting for a 10-year commitment.

As for the crash, is it happening? Sales have dropped sharply in some markets, Vancouver notably. But prices have remained relatively firm with the 25% drop predicted by many still not materializing. But even the real estate industry says price gains will be limited.

Not surprisingly, the real estate industry blames the government for the slowdown because of tough new mortgage rules that made it harder to borrow. Meanwhile, Finance Minister Jim Flaherty seemed more than content to create a so-called soft landing for real estate.

Will it lead to more people renting? It’s hard to imagine even more households buying as close to 70% of Canadians now own, but that’s what the real estate industry will be up against in 2013.

Following is a list of the 10 most-read real estate stories on Financialpost.com over the past year:

1. Why it’s better to rent than buy

Sept.14: Unless you need the security blanket of owning your home, it is nearly always a better financial move from an investing standpoint to rent rather than buy. The reason: People rarely consider three major costs of owning a home.Continue reading

2. Canada braces as housing slowdown takes hold

Nov.5: Signs are everywhere that Canada’s long run-up in house prices is over, hit by a combination of tighter mortgage lending rules and growing consumer reluctance to take on more debt. Continue reading

3. What Canadians need to know about buying U.S. real estate

Mar.16: Although mortgages [in the U.S.] are cheaper than ever, you may not qualify for a mortgage from an American lender. Having to come up with the full purchase price will significantly lower your long-term returns. Continue reading

4. Ottawa tightens mortgage rules to avert household debt crisis

June 21: The federal government is moving once again to tighten mortgage-lending rules amid lingering concerns about an overheated housing market and rising household debt levels. Continue reading

5. The 10-year versus 5-year mortgage: Which is better? 

Mar.24: Mortgage debates used to centre around whether to go fixed or variable but the discussion these days is not whether to lock in a rate but for how long?Continue reading

6. Low mortgage rates not an invitation to ratchet up debt

July 31: Don’t tell anyone — it seems we’re not supposed to talk about it too loudly — but mortgage rates have come crashing down again. Continue reading

7. Home ownership in Canada reaching new heights

Aug. 17: With home-ownership rates headed for record levels and the federal government tightening lending rules to cool the market, the question now is whether we have reached the saturation point. Continue reading

8. Are we worrying ourselves into a housing crash?  

Oct.20: Just sit back and do nothing. It doesn’t sound like the most proactive advice when it comes to the housing market, but it might just be what everybody needs to hear. Continue reading

9. Boomers warned using home sale to fund retirement could backfire

Oct. 31: Bank of Montreal is warning Boomers not to count on that nest egg, while other observers suggest that even if prices don’t plunge, big increases in property values are a thing of the past. Continue reading

10. As housing market slows, industry scrambles to paint positive picture

Oct.3: Organized real estate is unable, it seems, to admit the glory days may be behind it. Sales plummet in major markets and the industry comes up with a new explanation for the decline, draping its comments with a sense that everything is just fine. The excuses are piling up. 

 

Organized real estate is unable, it seems, to admit the glory days may be behind it.

Sales plummet in major markets and the industry comes up with a new explanation for the decline, draping its comments with a sense that everything is just fine. The excuses are piling up.

This month’s gem comes from the Toronto Real Estate Board: It complained September didn’t have enough working days — too many weekends.

I always thought people bought homes on weekends, but it seems the transactions are registered during the week.

 

“The number of transactions was down 21% in comparison to September 2011,” said TREB in a release. “However, it is important to note that there were two fewer working days in September 2012.”

Related

• New mortgage rules puts brakes on housing market

• Vancouver showing ‘clear reduction in buyer demand’, real estate board says

• More stories on Canada’s housing market

This logic has produced a new measure from TREB: Sales were down only 12.5% — not the actual 21% — from a year ago on a “working-day basis.”

This will only make the conspiratorially minded angrier — most of them convinced that the so-called benchmark indices produced by organized real estate are covering up a major decline.

Vancouver’s real estate board likes to tout what it calls the MLS HPI (home price index) composite benchmark price for all residential properties. It was down 0.8% to $606,100 in September from a year ago and off 2.3% over the past three months.

Doesn’t sound too bad. But when you pull out actual sales data, you find year-over-year prices in August in Canada’s most expensive housing market were off 6.9%. For the first two-thirds of the year, prices fell 7.3%. The decline is happening; it’s the severity that seems to be under dispute.

Ignore what they are saying. Sales are plummeting in Toronto and Vancouver

The industry will tell you the benchmark is a more realistic measure because it is not skewed by, say, a sudden swing in sales in one segment of the market.

“The HPI takes into consideration what averages and medians do not — items such as lot size, age, number of rooms, etc. These features become the composite of the ‘typical house’ in a given area,” says Vancouver’s board on its website.

David Madani, an economist at Capital Economics, chuckles at some of the language used in real estate circles.

“It’s a bit lame,” says the notorious bear on the housing market. 
“The answer is to ignore what they are saying. Sales are plummeting in Toronto and Vancouver. I say get used to this because this is going to go on for a couple of years. Our view is a 25% price decline.”

The normal course in any cycle is for sales to correct first and then for prices to follow, he adds. “There is a time lag, that’s what happened in the United States. There’s a time lag as sellers hold on, refusing to drop their asking price, eventually they acknowledge the market has shifted under them.”

Real estate’s other complaint these days is that Ottawa’s mortgage rules, introduced July 9, savaged the market. One of the main changes was the dropping of amortization lengths from 30 years to 25 years, which has the impact of handing the consumer a larger monthly payment.

All of [the rule changes] have layered on top of each other. It’s a cash flow crunch. I think the reality is real estate is slowing down

Andrew Barr/National Post

Vince Gaetano, a principal at monstermortgage.ca says a tightening of lending requirements which affected the self-employed might be the bigger factor. But still, he wonders whether the housing market just needs a break.

“I think the market is tired,” says Mr. Gaetano, adding the impact of amortization changes is probably cumulative. The maximum amortization length for a government-backed insured mortgage has declined from 40 years in 2008.

“Every five-year drop represented a 1% interest rate hike in cash flow,” says Mr. Gaetano. “All of [the rule changes] have layered on top of each other. It’s a cash flow crunch. I think the reality is real estate is slowing down.”

Even Phil Soper, chief executive of Royal LePage Real Estate Services Inc., is feeling the heat to promote real estate after his company’s release yesterday suggested a decline is to be expected after a long expansion. “I got a hate email from someone in the industry saying ‘how could you talk about negative things in the housing industry.’ Well it’s a cyclical industry,” says Mr. Soper.

It’s not like his release didn’t have any positive spin: “The dream of home ownership is very much alive among young Canadians,” the CEO said in his release.

Maybe that’s not good enough. Perhaps no U.S. style housing nightmare is coming but the dream of home ownership is fading for some Canadians.