Canada’s most expensive housing market not headed for crash, says credit agency DBRS

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A leading credit rating agency says Canada’s most expensive housing market may not be all that affordable for the average family, but despite that no major correction is coming Vancouver’s way.

DBRS looked at 39 markets in Canada, the United States and Australia, releasing its focus feature on Vancouver Wednesday.

“Based on historical data, the Vancouver market does not appear to be significantly overheated,” said DBRS, in the report. “Therefore, a correction of any magnitude may not be justified given the strong fundamentals in the market.”

Related CMHC turns up scrutiny of condo investors as concerns of overheated market grow Housing market skewed by handful of hot cities, Canada Guaranty CEO says Ratings agency Fitch calls for more government action in ‘overvalued’ Canadian housing market This month the real estate board of Greater Vancouver said June competition among homebuyers was as strong as it had been since 2011.

Property sales in the region were up 28.9% in June from a year ago while the average sale price of detached home reached $1,200,539.

DBRS acknowledged there are affordability issues and said home prices continue to rise faster than disposable income, “threatening the affordability of housing for many Canadian families” in the market.

DBRS says given the stable economy and the low interest rate environment that could persist for the foreseeable future, it’s hard to envision a correction.

“It is difficult to foresee catalyst that could create a significant price correction in the Vancouver housing market over the medium term,” said DBRS.

In its study, DBRS noted from 1994-1998, Vancouver did have a correction and prices dropped 9% from peak to trough. From 2008-2013, prices increased 1.7% annually through this post recession period. It is over the last year that prices have rebounded with a 9% gain, said DBRS.

The ratings agency also stressed Vancouver has natural barriers that limit development in the city and controlled supply.

At the same time, DBRS says the quality of living in Vancouver is not a factor to be ignored in continued long-term demand.

“Vancouver’s status as one of the Canadian cities with the highest quality of living helps ensure continual population growth, says DBRS. “The city’s diversity and year-round mild weather help attract immigrants, thus keeping demand for housing high.

The agency offered shorter comment on other Canadian cities.

In Calgary, it says a well-paid work force has kept the housing market strong as the city has avoided a worldwide economic recession with its oil and gas economy. DBRS said continued development of new home supply has keep prices stable and it expects more of the same even if the Alberta economy slows down.

In Montreal, DBRS noted its housing price index saw declines from 1990-99 but is up 150% since then. “Housing prices haven’t been strongly impacted by the financial crisis and exhibit a stable, upward trend,” the agency said.

In Toronto, DBRS say restrictions on development allowing it to “expand up but not out” have helped maintain upward pressure on prices.

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Not so fast kids, you may not get the family cottage – ask a Vancouver mortgage broker

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Children hoping to inherit the family cottage may be in for a surprise, says a British Columbia financial institution.

BlueShore Financial surveyed 498 of its clients between July 7 and 14 and found among those who own cottages 61% don’t plan on passing the property on to their children.

Chris Catliff, the president and chief executive of BlueShore, acknowledges the poll only considers B.C. residents and, of the total responses only 160 people own cottages. But he thinks there is an important message in his firm’s findings.

“When you mix family, money and cottage, it equals emotion. The biggest problem is there are a lot of assumptions,” says Mr. Catliff, noting there can be dangerous consequences.

His firm found that of those who own cottages, 47% listed ‘me or my spouse’ as owners, 16% had shared ownership with other family members, 14% had parents as owners and 23% reported other ownership situations.

The survey also found that 56% of cottage owners don’t have a plan for transferring ownership, while 54% have not discussed a plan with their children for what will happen to the cottage upon their death.

“Sometimes the parents just assume the kids love it, like it like they do and will run it like they do,” said Mr. Catliff.

Related Fractional cottage ownership all the fun you can handle with much less work $7.4-million cottage shows Canada’s housing boom is feeding surge in vacation homes He said part of the problem with assumptions being made is that many parents will be forced to sell the cottages to help fund their retirement. “The kids just assume they are getting it, but parents need [the money],” he said.

Cottages represent a decent chunk of the net worth of Canadians, according to a survey released from Statistics Canada in February.

Based on 2012 data, the median net worth of families was $243,800. The main asset of most Canadians was their principal residence, which accounted for 33% of the total value of assets. But other property including cottages, timeshares, rental properties and commercial real estate, amounted to 9.9% of total assets held in 2012. StatsCan said about 20% of Canadian family units owned other property with the median value $180,000 in 2012. The median more than doubled since 1999.

“A lot of parents expecting to give property to their kids [don’t do so] because they see long-term affordability will be an issue for their kids,” said Mr. Catliff. “The long-term sense is this might be a luxury. Emotion is with the cottage but the reality is most people want to keep their city home first.”

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How a homebuyers’ ‘bellwether’ is buoying optimism in Canada’s housing market

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Genworth MI Canada Inc. and Home Capital Group Inc. reported profits that beat analysts’ estimates as low interest rates drive demand for Canadian homes.

Genworth, the country’s largest private mortgage insurer, reported July 29 that loan losses slid to the lowest level since its initial public offering in 2009 and premiums jumped 17%. Home Capital Wednesday boosted its dividend as net income rose 20%.

“The mortgage insurers are a bellweather for consumers — particularly Genworth is a bellweather for first-time homebuyers,” Nick LeBlanc, a financial analyst at DBRS Ltd., said by phone Wednesday. “The continued strength of the housing market, stable economic conditions, and low interest rates, have helped out the Canadian consumer.”

Canada’s residential housing market has drawn concern from regulators and economists who say it may be 20% overvalued and that consumers are taking on too much debt. The low losses at Genworth show Canadians aren’t having trouble paying off their mortgage debt, while the increased origination highlights strong demand.

Home Capital, the country’s largest alternative mortgage provider, also beat analysts’ earnings estimates and increased its dividend to 18 cents a share. First National Financial Corp., the largest non-bank mortgage lender and underwriter, increased originations 12% over last year to $4.7 billion.

Genworth’s profit excluding some items was $1.04 a share, the Oakville, Ontario-based company said, beating the 93-cent average estimate of nine analysts surveyed by Bloomberg. Loan losses declined to 12%, a record low. Genworth forecast that loss ratio will rise to a range of 15% to 25% for the year.

Stable Market

Bank of Montreal analyst Tom MacKinnon raised his rating on Genworth to an outperform from market perform after the results were announced.

“The housing markets are performing well,” Genworth Chief Executive Officer Brian Hurley said in an analyst conference call. “The interest rate environment is stable and looks to stay that way for a while.”

Genworth Chief Operating Officer Stuart Levings cited Vancouver and Toronto as cities that are facing affordability pressure. Toronto’s home prices soared more than 76% in the last 10 years and Vancouver prices rallied 4.4% in June over the previous year to $800,689.

“The Canadian consumer has been able to service their debt,” LeBlanc said. “Even though debt levels in Canada are increasing, we’re seeing really low defaults. You’re not seeing strain there.”

Genworth rose 0.9% to C$39.60 at 10:34 a.m. in Toronto. First National fell 1.8% to C$23.42. Toronto- based Home Capital climbed 0.9% to C$51.93, after earlier reaching a record high.
Bloomberg.com

Canadians expect to be mortgage-free later than previously thought

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A new survey says Canadians, on average, expect to be mortgage-free by age 58, one year later than in a similar poll a year ago.

But the survey, conducted for CIBC by Angus Reid, found some big discrepancies across the country.

For example, homeowners in British Columbia thought they wouldn’t be able to pay off their mortgages until they hit 66, while those in Alberta expected to be mortgage-free more than a decade earlier at 55.

The survey also found that just over half of those polled were taking advantage of the current low interest rate environment to pay down their mortgages faster.

Fifty-five per cent said they were putting in extra effort into repaying their mortgages, although that was down from 68 per cent last year.

Of those paying off their mortgages quicker than necessary, 32 per cent said they were making payments more often, 28 per cent were increasing the amount they pay while 18 per cent said they had made either an additional prepayment or a lump sump payment.

Beyond Alberta and British Columbia, the survey found the average age respondents expected to be mortgage-free ranged from 56 years in Quebec to 57 years in Atlantic Canada and Ontario and 58 years in Manitoba and Saskatchewan.

CIBC says even small efforts can lead to big savings for homeowners in the long run.

For example, someone paying 4.99 per cent interest on a $250,000 mortgage with 25-year amortization can expect to save nearly $35,000 of interest if they add $147 to their $1,453 monthly payments.

The same homeowner can save as much as $30,000 on interest if they make $726 payments every two weeks, instead of waiting until the end of the month to make a payment.

The bank pointed out that even making a lump sum payment every year – for instance, putting the average $1,600 tax refund towards the mortgage – would shave off $33,103 of interest.

“Employing one or more of these strategies does take some planning and discipline,” said Barry Gollom, vice-president of secured lending and product policy at CIBC.

“If becoming mortgage-free sooner is something you want to achieve, it’s important to look at your mortgage as part of your overall financial picture and to balance your mortgage payment plan against your other goals.”

The online poll was conducted by Angus Reid Forum with 1,509 Canadian adults between May 21 and May 22.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error as they are not a random sample and therefore are not necessarily representative of the whole population.

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Nine ways to power-save your way to a down payment – ask a Vancouver mortgage broker

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The question that comes up more and more in the country’s expensive housing markets is: Where are first-time buyers getting the money?

Parental help is a big factor, so much so that the federal agency Canada Mortgage and Housing Corp. has launched a study of the phenomenon. Also, it’s virtually a given that today’s buyers will raid their registered retirement savings plans to use the federal Home Buyers’ Plan. And then there are savings – money put away week by week over a period of years to build a down payment.

I took a look at housing affordability in a recent column and concluded that heroic savings measures are needed by anyone hoping to buy in expensive cities such as Vancouver, Calgary and Toronto. In other words, sacrifices must be made on all your spending, from the day-to-day to special occasions. Here are nine ways to power-save your way to a house down payment in any city:

Thinkstock1. Move in with your parent or in-laws
Explain that you’re thinking strategically in moving back home. The quickest way to get into the housing market is to maximize savings, which is difficult to do when you’re paying the cost of rent in a big city. You’ll pay your parents a token amount of rent, but most of your savings will go directly into your house down payment fund. Tell your parents to think of the grandchildren you’ll be raising in the house you’re saving for.

Yearly rent at $800 per month: $9,600
Minus token rent payment to parents: $2,400
One-year savings: $7,200

photos.com2. Move down one level of rental
If you have a two-bedroom apartment, try going down to one bedroom. Or, trying squeezing into a bachelor apartment. You could also look at moving to a cheaper part of town, as long as it won’t jack up your commuting costs. Get rid of stuff that won’t fit in your new, smaller place, or store it in your parents’ basement. Don’t spend money on a storage unit.

Yearly rent at $800 per month: $9,600
Minus yearly rent at $650 per month: $7,800
One-year savings: $1,800

Sami Siva3. Sell your car and take the bus
You’ll be saving on fixed costs such as parking, insurance, gas, maintenance and possibly car payments, and you’ll be protected against the risk of financially catastrophic four-figure repair bills. Rent a car or use a car-sharing service for those times when the bus won’t cut it. A cheap bike will help you save on bus fare.

Estimated annual cost of gas, insurance and maintenance and parking: $5,000
Minus estimated annual cost of a bus pass and occasional car rental: $1,500
One-year savings: $3,500

Robert Byron4. Stop buying lunch
A pain, but worth it. You’ll have to think ahead by either picking up the right groceries to make your own lunch, or by scooping up after-dinner leftovers. Healthier than your food-court lunch, which you’re probably sick of anyway.

Estimated cost of buying lunch at $8 or so per day: $2,000
Minus cost of spending about $15 per week to stuff to make your lunch with: $750
One-year savings: $1,250

5. Dial down your vacations
New York is out. Maybe Buffalo. For West Coasters, maybe Seattle instead of Hawaii. Use the likes of Airbnb (airbnb.ca) to find cheap accommodations instead of staying in a pricey hotel. Or stay home and use some of the money you saved on hotels to try some nice restaurants in your town. This is good practice for when you own a home and find that fancy vacations are unaffordable without going into debt.

Summer vacation somewhere in the U.S.: $2,500
Minus the cost of a Staycation: $500
One-year savings: $2,000

Getty Images/iStockphoto6. No pets
Buy a house, and then get a dog, cat, ferret, parakeet or whatever. Pets don’t cost a lot on a day-to-day basis, but vet bills will blow your mind if something goes wrong. Protect your house down payment fund.

Food, vet, toys etc.: $500
One-year savings: $500

7. Put a $100 price limit on birthday presents
Extravagant presents are fun to both give and receive. But they’re a luxury for people who are more financially settled than someone who is madly saving for a house down payment.

Yearly cost for a couple of buying presents for various occasions: $1,000
Minus using the $100 present limit: $500
One-year savings: $500

Matt Rourke/AP8. Cut your cable TV and landline
Almost like heat and hydro, an Internet connection is essential. But a home phone is dispensable if you have a smartphone, and cable TV can be replaced by Netflix, watching shows online and using an HDTV antenna. Also, try buying up DVDs of movies and TV show seasons at garage sales, or find stores that sell used DVDs, CDs and videogames.

Yearly cost of cable and home phone: $1,200
Minus approximate cost of a Netflix subscription: $110
One-year savings: $1,090

Stockbyte/Getty Images9. Halve your spending at restaurants and bars
Studies of Generation Y spending habits show that going out to eat and drink is big. Hey, everyone needs a hobby. But this one is too expensive for people who are set on buying a house. Aim to eat out less often, and rather than pay marked-up restaurant or bar tabs, grab a beer from the fridge.

Annual cost of spending $250 monthly: $3,000
Minus half that annual cost: $1,500
One-year savings: $1,500

TOTAL ONE-YEAR SAVINGS FROM ITEMS 1-9: $19,340

Getty Images/iStockphotoAnd one more thought: Ask for a raise at work!

Freedom 58? How Canadians are shaving thousands off the cost of their mortgage

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TORONTO — A new survey says Canadians, on average, expect to be mortgage-free by age 58, one year later than in a similar poll a year ago.

How this man plans to be mortgage free by age 31

This 29-year-old pension analyst is $130,000 away from paying off his $425,000 home in Toronto, without money from parents or the lotto. Find out how But the survey, conducted for CIBC by Angus Reid, found some big discrepancies across the country.

For example, homeowners in British Columbia thought they wouldn’t be able to pay off their mortgages until they hit 66, while those in Alberta expected to be mortgage-free more than a decade earlier at 55. The survey also found that just over half of those polled were taking advantage of the current low interest rate environment to pay down their mortgages faster.

Fifty-five percent said they were putting in extra effort into repaying their mortgages, although that was down from 68% last year.

Related Canadians’ household debt worries ease as mortgage borrowing slows in May: RBC Savings crippled by kids’ illnesses, parents in their late 50s struggle to find a way to retire and pay off $287,000 mortgage How to pay $67,000 of debt in 3 years and save for a house and retirement CIBC says even small efforts can lead to big savings for homeowners in the long run.

For example, someone paying 4.99% interest on a $250,000 mortgage with 25-year amortization can expect to save nearly $35,000 of interest if they add $147 to their $1,453 monthly payments.

The same homeowner can save as much as $30,000 on interest if they make $726 payments every two weeks, instead of waiting until the end of the month to make a payment.

The bank pointed out that even making a lump sum payment every year — for instance, putting the average $1,600 tax refund towards the mortgage — would shave off $33,103 of interest.

“Employing one or more of these strategies does take some planning and discipline,” said Barry Gollom, vice-president of secured lending and product policy at CIBC.

“If becoming mortgage-free sooner is something you want to achieve, it’s important to look at your mortgage as part of your overall financial picture and to balance your mortgage payment plan against your other goals.”

Of those paying off their mortgages quicker than necessary, 32% said they were making payments more often, 28% were increasing the amount they pay while 18% said they had made either an additional prepayment or a lump sump payment.

Beyond Alberta and British Columbia, the survey found the average age respondents expected to be mortgage-free ranged from 56 years in Quebec to 57 years in Atlantic Canada and Ontario and 58 years in Manitoba and Saskatchewan.

The online poll was conducted by Angus Reid Forum with 1,509 Canadian adults between May 21 and May 22.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error as they are not a random sample and therefore are not necessarily representative of the whole population.

Canada’s top court declines to hear Toronto realtor case appeal

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Canada’s top court said it won’t hear an appeal of a case on whether Toronto’s main realtor group must give wider access to their historical price data.

The Ottawa-based Supreme Court published the decision on its website Thursday.

The Toronto Real Estate Board blocks its 35,000 members from publishing sale prices on their internal websites, according to a summary of the case from the court’s website, a policy challenged by the federal Competition Commissioner.

The realtor group won its first case at a tribunal before a federal appeals court ordered a second hearing. TREB then asked the Supreme Court to review the case. Bloomberg.com

Sharp rebound in buyer confidence fuels Toronto condo recovery, says Urbanation

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The country’s largest condominium market has fully recovered and is breaking new ground, according to a Toronto research firm.

Urbanation Inc. says during the second quarter Toronto passed a new milestone with more than 100,000 condo dwellings in active development in the census metropolitan area. Of the 105,027 units in the pre-construction, under construction and occupancy phases, 18,744 remain unsold.

The firm notes in a release out Friday that’s “above historical averages but down 3% from a year earlier.”

The new condo market has performed well above expectations in the first half of the year Shaun Hildebrand, Urbanation’s senior vice-president, says there have been plenty of incentives in the marketplace for existing inventory and some new condo openings are proving more attractive to buyers.

“The new condo market has performed well above expectations in the first half of the year, reflecting a sharp rebound in buyer confidence,” said Mr. Hildebrand.

The 5,992 condo apartments sold in the second quarter were the third highest volume for that time of the year with only 2007 and 2011 having a better record for sales for the period. Sales were up 56% from the post-recession low reached in 2013.

Related Housing market skewed by handful of hot cities, Canada Guaranty CEO says Canadian home sales rise 0.8% to highest level in four years Ratings agency Fitch calls for more government action in ‘overvalued’ Canadian housing market The 12-month total for new condo sales was 18,463 and Urbanation says that is in line with the 10-year annual average.

Despite the boost in sales, prices have only moved up 2.8% from a year ago with Urbanation’ index showing an average sale price of $554 per square foot in the second quarter. Prices of unsold inventory climbed 1% to an average of $570 per square foot.

While sales have heated up, prices have remained in check due to competitive supply pressures “While sales have heated up, prices have remained in check due to competitive supply pressures and an absence of short-term speculation on the part of buyers,” said Mr. Hildebrand.

The market for existing condominiums has been hotter with resale sales hitting a record of 5,238 in the second quarter, up 12% from a year ago. New listings also hit a new high with 11,246 offered for sale in the second quarter, down 10% from a year ago.

Fewer new listings than sales led to tighter market conditions with the sales-to-listings ratio rising to 47% — a level Urbanation says is below the 50% characterized as a balanced market.

Prices for existing condo apartments jumped 3.4% in second quarter form a year ago but that was still good enough to set a record high of $427 per square foot for an existing condo.

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CMHC turns up scrutiny of condo investors as concerns of overheated market grow

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Canada’s housing agency is set to publish results of a Toronto and Vancouver condominium-owner survey as it seeks to address economist and policy maker concern that not enough is known about what’s driving price gains, documents show.

Canada Mortgage & Housing Corp. surveyed condo investors — those who purchased at least one condo that isn’t the owner’s primary residence — in August and September 2013, according to documents obtained by Bloomberg through an Access to Information request. Most of the content, including the number of people Ottawa-based CMHC contacted, the survey questions and the results, was redacted.

Calls are growing louder for more detail about who’s investing in the nation’s condo market, including how much is owned by foreigners, and what the risks are. Policy makers have warned for the past half decade a bubble may be forming in Canadian real estate, and some analysts have said prices are as much as 20% overvalued.

Related Sharp rebound in buyer confidence fuels Toronto condo recovery, says Urbanation Housing market skewed by handful of hot cities, Canada Guaranty CEO says Homebuilding rebounds quicker than expected with 35% jump in condos and apartments The lack of condo-ownership data in Canada “is a shortcoming,” Sal Guatieri, senior economist in Toronto for Bank of Montreal, said by phone July 22. “The more data, the better the quality of the data, the better the policy making.”

CMHC’s Condominium Owners Survey will be “factual and provides a descriptive profile of condominium investors,” the documents show. The agency expects to release the results of its survey, which doesn’t give an estimate of the share of foreign and corporate investors, in early August, according to a July 25 e-mail from spokesman Charles Sauriol.

Lowest Rates

National home sales reached the highest level in four years in June and prices in Toronto and Vancouver are up 12% and 29% on the year, a realtor report this month showed. Historically-low mortgage rates are adding momentum, and the Bank of Canada has kept its benchmark policy rate at 1% since 2010.

The survey to be released in August is CMHC’s second attempt. The agency conducted a telephone survey of Toronto and Vancouver condo investors in August 2012 in response to “industry concerns about the extent and nature of condominium investment and its sustainability,” according to a mostly- redacted August 2012 CMHC board presentation. The survey intended to determine what investors planned to do with their units, how long they intended to hold them, what would motivate them to sell, how much they put down and the source of the downpayment.

That survey wasn’t publicly released because it “didn’t produce results that were reliable enough,” CMHC’s Sauriol said in his July 25 e-mail.

Foreign Investment

The housing agency is monitoring foreign investment in real estate by tracking land registry data, hosting investor round tables and conducting surveys into vacancy rates and rents, according to the 2012 board presentation.

“There is no comprehensive data source of foreign investors in the Canadian housing market,” CMHC Interim Chief Executive Officer Douglas Stewart said in an Aug. 21, 2013 memo to Canada’s Employment Minister Jason Kenney. “Although some estimates can be gleaned from some municipal land registries, those estimates are not reliable.”

Stewart’s memo was in response to Kenney’s questions from a CMHC briefing about foreign investment in the Canadian housing market, the documents show. Kenney also asked about the impacts of changes to the Immigrant Investor Program in Vancouver and Australia’s foreign investment policy.

Investor Roundtable

Participants at a Toronto condo investor roundtable that CMHC hosted in March 2012 cited unidentified brokers who estimated foreigners with no ties to Toronto account for about 2% to 3% of total condo purchases in the city, according to meeting minutes that don’t include participant names or affiliations. The minutes, included with the other documents obtained by Bloomberg, had already been made public.

Fifteen percent of the stock managed by rental management companies is owned by foreigners, based on filings of non-resident tax forms, according to the roundtable minutes.

Demand for Toronto condominiums pushed prices to new highs in the second quarter. The average price rose 2.8% from a year earlier to a record $554 per square foot, even as the number of high-rise homes in the pre-construction, under construction and occupancy phases reached a high of 105,027 units in the city, Urbanation Inc., a Toronto-based consulting company, reported July 25.

Condominiums account for more than 1.6 million Canadian households, or about 12%, and more than half of those are located in the three largest markets Toronto, Vancouver and Montreal, according to Statistics Canada data.

“The gap between the importance of the real-estate market to the economy and the lack of publicly available information on it is mind-boggling,” Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, wrote in an April note to clients. “What is the share of foreign investors in the condominium market?”

Mortgages & Investment Strategy – Consult with a Vancouver Mortgage Broker

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