CMHC denies a mortgage - Super star agent! and more...

CMHC Denies a Mortgage

The builders of London at Heritage Station condos are suing buyers who won't or can't complete due to a drop in condo values. In one case a buyer with 5% down had financing denied by CMHC and now needs to come up with $84,000 more to close. From the Calgary Herald.

In 2007, Dany Cote put down $20,000 on a condo at London at Heritage Station. He also signed a presale contract to buy the property for $420,000.

Cote was pre-approved for the money and Canada Mortgage and Housing Corporation (CMHC) agreed to insure the loan.

But in the two-and-a-half years Cote had to wait for the condo to be built, the economy and the real estate market tumbled.

According to a recent appraisal, Cote's condo is only worth $335,000 and the CMHC will only insure a loan of up to $313,000.

"Typically, when a property is approved for CMHC insurance, CMHC does tend to honour that agreement during that period. However, there are times when an application is reassessed," says Richard Cho, a spokesperson for CMHC.

...
On Tuesday, the builder sued Cote for breach of contract seeking both the $20,000 deposit and the difference between the presale contract price and the condo's current market value.

I feel bad for this guy because there is no way he can live up to his end of the agreement while the developers are trying to extract as much money as legally possible from him regardless. But I'm mostly surprised that CMHC denied a mortgage.

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Super Star Agent


From The Edmonton Sun:

Real estate spiking upward

The “tipping point” in Edmonton real estate prices may just have arrived.

A friend in the home inspection business says multiple offers within days of listing are suddenly happening.

Re/Max’s Terry Paranych, just named the fourth-most-successful Re/Max realtor in the world at the company’s annual convention, says he’s coming off his most successful February sales in 18 years.

The Edmonton Real Estate "turnaround" happened last summer after the financial crisis and appears to have eased considerably. This report is anecdotal evidence from a super star agent and does not reflect recent market trends. Here is what the same reporter wrote in August 2007 (see previous post):

Even with huge slowdowns, at least half those projects will happen. The bitumen upgraders in Strathcona and Sturgeon counties are just starting. Nine proposed upgraders are listed on that website.
....
House prices will go nowhere but up.

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And More...


on Mike(Authentic). see previous post.

We have a slew of oil stocks, purchased in March 2009 (the low of the market) that have made very little returns. We made the same in a high interest savings account without risk vs the market (to date).
March 24, 2010

I just can’t seem to “get into” the market even reading Money Road. I want to as I feel like “I’m missing out” with just collecting a very secure 0.8% bank account interest that I could be collecting 3-5% easily. Preferred shares, corp bonds, safe stuff. But it feels like the risk the market will go down again isn’t worth the rewards.
Feb 22, 2010

I’m all in 1yr GICs Cash, no RE, no gold and no stocks. Just waiting on the sidelines in a safe, very liquidable position.
March 19, 2009

More on February sales

In the Edmonton Journal there was an article discussing the sales increase in February.

Alberta house sales buck national slide
Resales up 1.6 per cent provincially, versus 1.5-per-cent decline Canada-wide

The reference here is to seasonally adjusted gain from January to February. As I pointed out in this previous post the sharp slowdown in January on a seasonally adjusted basis contributed to elevated February comparison. Even with this increase factored in home sales in Calgary and Edmonton are still relatively slow.

It appears for March the rate of sales will still be low historically. From Mike Fotiou's stats the first 17 days of March had 705 SFH and 308 condo sales. Extrapolating this to the end of the month gives an estimated 1285 SFH and 561 condo sales. This will be above the rate of sales during the financial crisis but below 2008 and well below boom years.

Bob Truman has also commented on sales for the beginning of March. SFH sales are below the 9 year average, while listings are above.

Stats to Obsess Over

For the period Mar 1 - 12, 2010:

	SFH
	Sales	New listings
2010	517	1318
2009	396	931
Historic Avg(9 yrs)	595	1008
2010 compared to historic avg	-13%	+31%

The Edmonton Real Estate Blog reported some dismal sales and listings numbers last week (emphasis mine). They should report this weeks numbers today on their blog.

Here is our update on the Edmonton real estate market. (Previous week's numbers are in brackets). For the past 7 days:

New listings: 580 (541, 477, 420)
# Sales: 220 (264, 255, 231)
Ratio: 38% (49%, 53%, 55%)
# Price changes: 189 (194, 159, 152)
# Expired/Off Market Listings: 91 (196, 66, 78)
Net loss/gain in listings this week: 269 (81, 156, 111)
Active listings for single family homes: 1947 (1794, 1731, 1641)
Active listings for condos: 1559 (1440, 1391, 1366)

Perspective

Consider the Calgary Herald Article "Housing Bubble Talk dismissed by board". In the article they cite some numbers which imply market strength.

A strong February market could mark the beginning of what could be a return to a more traditionally active spring market.

Last month, the board reported 1,035 detached, single-family homes changed hands within the resale housing market in Calgary's city limits -- an increase of 36 per cent compared to January.

There was also a 43-per-cent jump in the number of resale condos sold.

February is described as a strong month because of an increase of sales, even though this increase follows a normal historical pattern.

Contrary to this pattern, January actually decreased from December, therefore an increase from these levels is not surprising.

This is why I believe it is important to look at seasonally adjusted data to clearly see market trends. I would describe sales in February as "fairly weak" but not as terrible as the rate of sales during the financial crisis.

Although the number of new listings moved up by nearly five per cent last month, the two-month total for January to February is still down nearly four per cent compared to the same period last year.

Here they are compare listings to the previous year. My take is that listings are increasing at a faster rate this year than last.

SFH Listings Jan-Feb (CREB)
2009: 2068-2057
2010: 1822-2154

"The market is tightening and we are seeing a moderate rise in the number of competing offers, but Calgary's market remains in a healthy, stable position," says Scott. The average price of detached homes hit $458,254 in February, an increase of four per cent from the previous month and up 10 per cent from a year ago.

On the condo side, the average selling price was nearly unchanged from January at $282,880 -- and up five per cent compared to last year.

"There is a spring in the step of Calgary homebuyers as we get ready for the spring market," says Scott.

The market has gone from "fragile to fervent" in 12 months, she says -- adding she foresees strong activity in the spring as consumers continue to take advantage of low mortgage rates and overall afford-ability prior to expected rate hikes in the second half of this year.

The market went from fragile to fervent and has now moved back down according the seasonally adjusted sales/listing ratio.



A few things the article failed to mention about the increase of sales due to higher rates. If people are buying earlier than they would have otherwise to beat rate increases then one would expect a similar decrease in sales afterwards. There was no mention of the temprary nature of these low interest rates (standard term of 5 years) and their effect on asset valuations.

Borrowers will need to qualify for 5-year posted rate

From Canadian Mortgage Trends

For all variable-rate mortgages and fixed terms under five years, the new qualifying interest rate will be the greater of:

• the chartered bank 5-year posted rate (5.39% today), and
• the contract rate.

The posted qualifying rate will be published by the Bank of Canada each Monday at approximately 12:01am Eastern Time. Here’s the link: Posted Mortgage Rate (Look for series V121764.)

Previously when the Finance department tightened mortgage rules for CMHC loans, I thought they would be limited because of how low discount 5-year rates were. Now that it is the posted rate I think it will be successful limiting the amount of risk*** borrowers are capable of taking past April 19th. There is a concern of what impact this will have to the overall market but If the recent market strength was solely due to people stretching into 3% mortgages than a downturn was inevitable anyway.


***I misunderstood this rule - it actually only applies to those taking out terms under 5-year fixed. So the chance of rate shock occurring in 5 years to those stretching into the discount rate still exists. See previous post. At least this forces marginal buyers into 5-year terms.

Edmonton February Stats

The REALTORS Association of Edmonton released the February stats today. The trend is similar to that of Calgary I covered in the previous post. The pace of sales has declined from the 2nd half of 2009 (green line) and listings increased slightly.

The seasonally adjusted sales to listing is at 50%, about the same as last month (unadjusted is 47%).

The chart of the raw historical data shows this year has been a little slow on the sales side.



Thats all I have to say for Edmonton numbers.... Here are some other items that caught my attention recently.

Statscan reported GDP grew at an annualized pace of 5% in the 4th quarter of 2009. Some of those gains are due to government stimulus and investment in residential structures but nonetheless growth in December relatively broad based.

I am not sure if this is the case in Canada but in the US a large component of the increase was transitory. Calculated risk estimates that GDP growth would be 1.9% absent one time boosts that occur after the end of a recession of replenishing inventories.

BMO is offering a 5-year fixed rate of 3.75%, which is fairly competitive for a big bank. (source Canada Mortgage Trends)

Calgary February Stats - More Listings

Bob Truman posted Old Criteria stats for February which means it's time to crunch some numbers.

Sales increased at a rate faster than previous years moving slightly farther away from the "scorched earth" benchmark. Sales are fairly weak, but not nearly as bad as they were during the financial crisis.

Listings are more interesting now moving above the benchmark representing the last half of 2009.

Seasonally adjusted the increase in new listings was more significant than that of sales resulting in a sales/listings ratio of 45% down from 51% last month. (unadjusted the ratio is 47%). A ratio under 50% indicates a market with falling prices.

This chart shows cyclical pattern of sales and listing increasing each spring. So far this year sales have lagged, especially when compared to boom years.

The chart of seasonally adjusted sales and listings also highlight this trend.