Quote of the day

“If we have 10-per cent-unemployment, that means 90 per cent of people are employed,” he said. “People are re-entering the market – they have the confidence to take advantage of bargain-basement prices. There's been a release of pent-up demand, and that has a long time to play out. Prices have gone as low as they are going to go.”

Gregory Klump
CREA economist
Canada housing rebound sparks fear of a Bubble
Nov 16, 2009

First consider the scenario where headline unemployment is 20% you could make the case that it's not so bad because 80% of people* are employed. Well if you did you would be wrong because that case is called a depression.

*Actually, if using the headline number it would be 80% of people in the labour force and not include discouraged workers. Also employed would include people who are forced to take part-time positions because they are unable to find full-time work. That is why 8.5 or 10% headline unemployment is really bad.

Next, what bargain-basement prices? Nationally, the Canadian housing market has reached new highs so its simply false to imply that buyers are taking advantage of any serious price discount. I would expect a chief economist to know where prices are.

A final point, while I believe some of the increase in sales this year was the result of pent-up demand I disagree it has a long time to play out. The Canadian housing market was experiencing strong sales into 2008, and achieved high home ownership rates. The downturn in sales started the second half of 2008 until spring 2009. So we had at most one year of below demographic sales from which pent up demand could accumulate, I would expect this to be consumed shortly, if it hasn't been already.

Quotes

Our government will be looking for ways to get you to spend money to stimulate the economy and they will be spending your tax dollars to stimulate the economy, so be a good Canadian and buy a home!!

Richard, Red Deer realtor

For a $300,000 home, a family would need an annual income of slightly less than $50,000. Monthly principal and interest payments would be $887 and $1,330 respectively. "At Jayman, we have lowered prices substantially as we move through our excess inventory," he says.

"We are selling home at close to cost and below replacement value," says Westman.

Jay Westment, President of Jayman

Quote of the day

"Buyers are a lot more cautious," said Palibroda, who's been in the business for 28 years, "and they're not a lot of fun to deal with. We can't push them around anymore."

Ed Jensen on 40-year mortgages

The Canada Mortgage and Housing Corporation, the Crown corporation providing mortgage insurance on behalf of the government, eased the rules in 2006 to encourage homebuying.

That change, Jensen said, had little impact at the time.

"We didn't notice it in the market place," he said.

"So I believe in reverse, I don't think we're going to see a large impact on sales."

Stunning remarks from Ed Jensen appearing in the Calgary Sun's article - Mortgage Rule Change Dismissed. I don't expect Ed Jensen to go Housing Panic on us, but it would be nice to at least recognized basic realities when forming arguments. Don't take it from me, a bitter renter, that the statement is absurd, rather look to the financial industry. There is a broad consensus that these now defunct mortgages were popular among first time borrowers and helped stoke demand in real estate.

Longer payback loan fuels housing market:

"About 60 per cent of first-time buyers are opting for a 40-year mortgage," says Craig Alexander, deputy chief economist at TD Bank.

"If these longer amortization mortgages hadn't been around, the housing market would have cooled down a lot sooner."
....

There's a "huge adoption" of 40-year mortgages in Toronto, Calgary and Vancouver, where people stretch for affordability, says Catherine Adams, vice-president of home equity financing at Royal Bank of Canada. "I think it's given the housing market a boost and allowed prices to go up further than they would have otherwise."
...

Mortgages with longer amortizations grew to 37 per cent of new home loans – and 9 per cent of outstanding mortgages.

"That's phenomenal, considering they have been around for only the last two to three years," says association president Jim Murphy.

Stretched buyers fuel boom in housing:

Legions of first-timers are adding years of extra mortgage payments so they can buy a house, or putting little or no money into a down payment, a Re/Max survey revealed yesterday. Nearly two-thirds of buyers in major centres now favour extended amortization periods of up to 40 years, while putting little or no money down was prevalent in 38 per cent of regional markets surveyed across Canada.
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"The reason we think the market has been staying hotter much longer than anyone anticipated was because of these newer amortization mortgages," said Craig Alexander at Toronto-Dominion Bank.
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Longer amortization mortgages "have had a very profound impact on the Canadian housing market since they were introduced" in 2006, he added.

Dodge warns of inflated housing market

Bank of Canada Governor David Dodge is raising a red flag about housing prices in Canada, saying that increasingly loose lending rules may be helping overheat the country's real estate market.

‘Innovations’ in lending minimize drop in new-home construction

Lofty prices in the country’s hottest markets, particularly Western Canada, would likely take a much bigger bite out of new construction if it weren’t for longer-term mortgage products, said Derek Holt, assistant chief economist at Royal Bank of Canada.

Last year, the federal government extended the maximum amortization period for mortgages from 25 years to up to 40 years.

Consumers have embraced these products, which raise the cost of a mortgage over time but lower the entry hurdle to buying a home because the longer payment period allows for smaller monthly payments.

“It’s my belief we would be 10 to 20 per cent below 200,000 housing starts next year if it wasn’t for the impact of these mortgage innovations,” Mr. Holt said.

Bleak house outlook? Not in Canada

Economist Derek Holt does warn, however, that the increasing popularity of long-duration mortgages to reduce monthly expenses could cause problems later on.

"Alberta, and then Ontario, lead the country on the take-up rates for new mortgage products introduced over the past two years," he said yesterday. "In fact, the 40-year mortgage is now only about 15 months old and already dominating mortgage purchase applications."

Homes in Edmonton, Saskatoon most overvalued

A rise in the number of extended-amortization mortgages, which lengthen the time it takes to repay a home loan to 30, 35 or 40 years from the traditional 25, have bolstered the recent strength of Canada's housing market, Ms. Warren said. These mortgages are stretching affordability for first-time home buyers, but because they are seldom combined with zero-down or interest-only structures, she does not seen them as particularly risky.

“I don't think this is a major risk, though it is supporting the housing boom more and we probably would have seen things level off this year instead of reaching a new peak,” Ms. Warren said.

Canadian housing boom over, says RBC

"The delayed arrival of softer housing markets can be partly attributed to recent mortgage innovation that has seeped into the Canadian market during the last two years," it said, citing higher loan-to-value ratios and longer amortization periods of up to 40 years, which opened the market to a wider range of buyers and prolonged the boom.

The mortgage-market innovations, which make housing more affordable in the short term, also heighten the risk of default in the long term, it said.

Markets in the West, which have risen the furthest above their underlying values, are the most at risk of an increase in defaults as a result of recent mortgage innovations, the report's author, RBC economist Amy Goldbloom, said in an interview.

Credit squeeze hits 40-year mortgages

Feisal Panjwani, a senior mortgage consultant with Invis in Cloverdale estimates that 85 to 90 per cent of his first-time buyers have chosen the 40-year option.
...
"That zero-down program has been quite popular," Panjwani said.