Perspective

• In-migration increases labour supply and lowers wages
• Out migration reduces housing demand

• Inflation forces consumers to spend more money on necessities
• Deflation increases real debt burdens

• Higher rates are unaffordable
  
• Lower rates are unsustainable
  

• Higher housing starts will result in oversupply
• Low housing starts will crush the economy

• High consumer sentiment implies mass delusion
• Low consumer sentiment implies a weak economy
  

• High inventory results in plenty of choice
  
• Low inventory results in higher prices

• Inflation increases the price of tangible assets
  
• Deflation leads to lower rates

• Higher rates reflect an improved economy
  
• Lower rates improve affordability

• Higher housing starts contributes to economic growth
  
• Low housing starts leads to shortages
  

• Higher prices reflect strong demand
• Lower prices result in buying opportunities

Updates: See transcript of Don Campbell's recent interview at VREAA. One way to be disingenuous is to look at the facts and pick one of the arguments above in a knee jerk fashion to support your own perspective. Don Campbell does one better by using the one way price model - Where supportive data justifies increasing prices and negative data will only lead to a "plateau".

Radley pointed out that average weekly earning increased by over 7% in Alberta. That's huge. The monthly number tends to fluctuate so this is probably overstated. Year to date average weekly earnings are up 4%. link

Lenders Behaving Badly

Something to consider about fixed rate loans. Penalties.

The fact they exist isn't what is troubling. It is a problem when the penalty is arbitrary and unnecessarily complicated. The Globe and Mail discusses how lenders select an unrelated interest rate (the posted rate) when doing interest rate differential calculations, which end up favoring the lender.

....

Here comes the evil part.

At many big banks, they don’t use your existing 4.75-per-cent rate. What they do is take the posted rate at the time you took out your mortgage. This is a rate that has no relevance to you, as you never paid it. In fact, it likely isn’t listed anywhere on your mortgage contract. Remember the ridiculously high mortgage rate we talked about at the beginning of this article? Now you see what it can be used for.

....

Because of this sleight of hand, you would now owe the bank an additional $12,000!

The federal government was going to announce some regulation regarding mortgage penalties but has failed to do so. Reducing onerous mortgage penalties will reduce future foreclosures at the margin, which in addition to consumer protection should be the goal of regulation - not controlling asset prices.

The Canadian Mortgage Trends blog recently wrote about some lesser know potential costs of borrowing. I don't have comment for each individual item, but when compiled into a list it seems the industry benefits themselves through technicalities and obfuscation.

• Restrictions on breaking your mortgage before the term is up
• Restrictions on breaking your mortgage for the first 3 years
• A penalty surcharge of 1% for mortgages broken within the first 12 or 36 months
• “Reinvestment fees” (on top of mortgage penalties)
• Interest rate differential (IRD) penalties based on an onerous bond yield calculation
• IRD penalties on variable-rate mortgages (usually IRD penalties apply to fixed mortgages)
• IRD penalties based on a costly posted vs. discounted rate formula
• Inability to port unless the purchase and sale take place on the exact same day (which can be hard to arrange)
• A poor conversion rate guarantee
• No refinances during the first year
• No free switches (for transfer-eligible mortgages)
• Amortization limits of 25 years
• Minimum amortizations of 15-18 years
• Restrictions on converting from a variable rate to a fixed rate for the first six months
• No ability to break your “open” HELOC without a penalty
• No pre-payments within 30 days of discharge
• Inability to port across provincial lines
• High administrative fees when porting
• 100% clawback of cash-back if the mortgage is broken before maturity
• Requirement for a full banking relationship with the lender
• No lump-sum pre-payment privileges
• No annual payment increase allowance
• Pre-payments restricted to one specific day a year (instead of any payment date)

A lot of the fees are related to breaking the mortgage, which can occur simply by selling the house. With this in mind some thing that can mitigate these risks.

• Borrow below your limit which reduces the chance of a forced sale during financial stress.

• Keep amortization periods as short as possible to avoid dealing with these fees for 25-40 years!

• Only buy if you seriously plan to stay in the house for awhile (5+ years)

• Avoid gimmick mortgages like the so-called "cash back"

Edmonton Market Update

Here are the charts once again. This time I'd like to know what the dozen or so readers out there have to say about them. One point - I estimated sales in some of these charts based on preliminary numbers.

Have a great weekend.

Calgary Market Update

For the last couple of months sales have been fairly steady. This has resulted in a shift away from the "scorched earth" benchmark as sales are expected to fall this time of year.


New listings are tracking closer to the rate of the 2nd half of 2009 after spiking dramatically earlier this year.

Seasonally adjusted home sales bottomed in June and have increased since then. Even with this increase sales are low by historical standards.
Seasonally adjusted new listings remain well below the rush of earlier this year or in 2007/2008 as people are more reluctant to sell in a tough market.


The seasonally adjusted sales to new listings ratio increased again last month but remains slightly below 50%.


Although new listings have declined inventory is moving more slowly. The level of inventory combined with still historically low sales means that prices must be competitive to sell.