CMHC Market Outlook

I am puzzled by CMHC's Alberta reseale price forecasts released in the latest Housing Maket Outlook. They list several downward pressures yet forecast appreciation of 6.8% for Alberta in 2008.

A strong first half of 2007 will push existing home sales in Alberta toward last year's record, totalling 74,000 transactions. In the summer, a surge in listings has slowed the rate of price growth considerably and buyers have become increasingly resistant to the recent run up in prices. Consequently, sales are now on a downward trend. In the face of weaker migration, this trend will continue in 2008 with sales falling five per cent to 70,000 units. Following a 24 per cent gain in average price in 2007, a flurry of listings and weaker sales will limit price growth in Alberta to seven per cent in 2008, the weakest annual gain in four years.

CMHC appears to use a downward sloping supply curve in their models where higher prices will lead to less supply:

In Alberta, weaker migration, higher resale selection, and rapid price growth will lead to a slower rate of new home construction this year and next.

Note that the CMHC had the same price appreciation forecast for Alberta in the forth quarter in 2005. Up to $235,000 in 2006! This is with "oil price at nearly $70 US a barrel" and "$70
billion in oil sands spending is planned in the Wood Buffalo-Athabasca region over the next decade" factored in.

CMHC Q4 2005 Housing Market Outlook
2004 194,769 6.5%
2005(F) 220,00 13.0%
2006(F) 235,000 6.8%

CMHC Q4 2006 Housing Market Outlook
2005 218,266 12.1%
2006(F) 282,500 29.4%
2007(F) 318,000 12.6%

CMHC Q4 2007 Housing Market Outlook (Prairies)
2006 285,383 30.7%
2007(F) 355,000 24.4%
2008(F) 379,000 6.8%

CREB: The glass is full

The Calgary Real Estate Board reports on October sales. Their interpretation of the monthly 4.3% increase is quite the stretch.

“As we move through the fourth quarter of 2007, we are seeing a normal amount of market activity. The good news is that our October sales have increased somewhat over September sales, showing consumer confidence in the real estate market as well as in Calgary’s over all strong economy,” remarked CREB® President Ron Stanners. “This is also a reflection of Albertan’s belief in the strength of our energy industry. With the broad selection of properties available today, buyers can select their dream home through the MLS®. Home owners, by pricing their homes competitively with the guidance of their REALTOR®, can anticipate a quicker sale,” Stanners continued.

However sales are down 9.1% when compared to last October. Those October 2006 sales were down 19.7% when compared to 2005.

Here is the data:

Oct 2007
SFH: 1113
Condo: 501
Total: 1614
MOM: 4.3%
YOY: -9.1%

Sept 2007
SFH: 1064
Condo: 483
Total: 1547

Oct 2006
SFH: 1241*
Condo: 535*
Total: 1776
YOY: -19.7%

Oct 2005
SFH: 1512
Condo: 699
Total: 2211

*These number in the October 2006 under 'City' report were 1245 and 537. The 2005 stats are from this report as well.

Update: The Balanced Market label is still outside the range as covered in an earlier post.

I became a landlord thanks to the CMHC!

I'm like totally a savvy investor! All i had to do was pick a crib and post the goods on the craiglists. CMHC hooked me up with the money stash.

I gots me some deposit and the rents right away. I just can't wait until the "equity" starts rolling in.

The ladies dig it when I tell them about my bizness. Sweeeeeeet!

Home or Lottery Ticket?

I took this in front of a condo conversion in March. Hopefully this stage of the real estate cycle has passed and one day people will buy condos and houses for the shelter they provide.

Foward Looking Statements

A Calgary REALTOR posted about what to expect in terms of appreciation:

A client recently asked me about the Royalty Review, the current flat and depreciating market, and why I think prices will continue to increase in Calgary.

Here's my response.

In 2006 prices increased 37%

In 2007 ... to date ... prices have increased 24%. (Isn't this amazing ... the media is only speaking about the drop in prices.)

In 2008 prices WILL increase 12 + %.

...

I am concerned about the certainty in the uppercase WILL and that this was directed to a client. Consider that the REALTOR gains a commission for persuading a buyer but loses nothing if the forward looking statement turns out to be incorrect.

Fun video (course language): Always Be Closing

Builder Incentives and Arbitrary Pricing

A home builder is offering the following incentives in an advertisement found in the Edmonton Journal:

• 3.95% 3-year fixed mortgage
• No payments until May 2008

They value these incentives at $37,317 Based on the following:

• sales price of $519900
• 10% down, 40 year amortization
• compared to a rate of 6.05%.

With a $52,000 down payment and ignoring the months effected by the incentives, the monthly payment would be $2,566*. For 40 years!

What happens if we lower the price and reduce the amortization to 30 years?

• sales price of $482,583 (original price - incentive value)
  
• same $52,00 down payment
  
• 30 year amortization
• Rate of 6.05%.

The monthly payment would be $2,575. Virtually the same as above. Bottom line is a lower price is much more useful to the consumer than incentives. In this example a person could use the estimated cash value of the incentive to pay off the mortgage 10 years sooner.

Why use incentives then? With prices being arbitrarily high the psychological effect of incentives valued at $37,317 is greater than a price decrease. On paper the difference between $519,900 and $482,583 does not get as much attention. Also the incentive may cost the builder less than the estimated value in the ad.


*using TD's mortgage calculator.

"GIT-R-DONE" with non-conforming loans

"GIT-R-DONE" summarizes the attitude mortgage brokers have getting people into non-conforming loans in Edmonton. This article in the Edmonton Real Estate weekly goes over many of the available options with these products. It describes these options as blessings for the consumer without any cautions to the drawbacks. There is also the attitude that any form of ownership is superior to renting:

Rents have also escalated dramatically and rental units are scarce, leaving tenants discouraged and financially strained, looking for a better way to put a roof over their heads but hoping to stay in Edmonton.

How to stay in Edmonton without renting?


"GIT-R-DONE" with higher debt service ratios:

non-conforming lenders, available primarily through mortgage brokers, may allow as much as 50% of the monthly income to be used for both housing and consumer debt.

"GIT-R-DONE" with creative and non-legal income:

Some examples of acceptable income are self-employed income, as little as one day in business, part-time employment, overtime earnings and even non-declared tips. Other commonly used income includes GST cheques, child tax, child support and alimony payments (both court-ordered and not), pensions, foster parent income, workers’ compensation payments and even rental income from a roommate or illegal basement suite.

"GIT-R-DONE" with whatever this means:

In some cases non-taxable income received can be grossed up by as much as 25% to help qualify for the mortgage.

"GIT-R-DONE" with longer amortization:

Another way to improve the chances of qualifying for a mortgage is by stretching the repayment period out over a longer amortization period, as much as 40 years.

Just be sure to "GIT-R-DONE":

Don’t talk yourself out of trying to buy because you think you can’t qualify with today’s prices. With the hundreds of mortgage products available to borrowers today through a mortgage broker, the odds are certainly in your favour!

Update: I thought i was being original but there appears to be a Git-r-done mortgage shop already open for business.