Province

Business is booming in the Canadian resale housing market and will continue to do so, according to a report released Friday that shows November sales back above 2008 numbers in all 28 markets surveyed.

The Conference Board of Canada report also showed higher year-over-year prices in 24 of those markets.

While the Canadian real estate market didn’t suffer the same kind of collapse seen in the United States, it did see a correction.

Friday’s report suggests that in most parts of the country, however, the market has come roaring back. The only region covered that is considered to still be a buyer’s market is Saguenay, Que. Seven others are considered to be sellers’ markets and the rest are deemed to be balanced, with neither buyer nor seller having a pricing advantage. The board says this suggests “firm pricing ahead.”

Windsor, Ont., a car-manufacturing city hit hard by the downturn, is one of those balanced markets, despite home prices there being 10 per cent lower than they were a year ago, before Chrysler and General Motors went into bankruptcy protection, though the number of sales has increased year-over-year.

Compared with October’s prices, the numbers look slightly less rosy — sales are up in only 11 of the 28 markets, while prices were lower than October’s in 14 of the locations.

In the short term, the board expects prices to grow by seven per cent in Edmonton, Saskatoon and in six Quebec markets, including Montreal and Quebec City.

Prices are expected to increase by five per cent in Victoria, Vancouver, the Fraser Valley, Calgary, Regina, Ottawa, Halifax and the province of Newfoundland and Labrador. Three per cent increases are forecast in Winnipeg, Saint John, N.B., and six Ontario markets, including Toronto, Sudbury and St. Catharines.

Andrew Mayeda
Sun

The federal government is ready to clamp down further on mortgage rules if the boom in the Canadian housing market turns into a bubble, says Finance Minister Jim Flaherty.

In an exclusive interview With Canwest News Service and Global National, Flaherty said the government is closely monitoring the red-hot housing market for signs that it is reaching “irrational” levels.

“The reality is we have low mortgage rates … so we can expect some upward pressure on housing,” he said. “That’s okay, as long as it doesn’t become a bubble. We’re watching that.”

If necessary, the government is prepared to further tighten the conditions under which the Canada Mortgage Housing Corporation insures mortgages, the finance minister said.

In July 2008, amid the fallout from the subprime mortgage crisis in the United States, the Finance Department announced that CMHC would shorten the maximum amortization period that it will accept to 35 years from 40, as well as require a down payment of at least five per cent of the value of the home. The new rules, which came into effect in October 2008, effectively made it more difficult for prospective homeowners to receive government-backed mortgages.

“If we have to, we’ll do what we did last year and limit the rate of amortization further than we already did, and require higher down payments,” said Flaherty.

His remarks come as some leading private-sector economists warn that the housing market might be getting ahead of itself amid a relatively modest recovery. In a recent report, Bay Street economist David Rosenberg estimated that housing prices are overvalued by as much as 15 to 35 per cent. This week, the Canadian Real Estate Association reported that sales of existing homes spiked 73 per cent year-over-year in November, while the national average sale price rose 19 per cent.

“If being 15 per cent to 35 per cent overvalued isn’t a bubble, then it’s the next closest thing,” said Rosenberg, chief economist for investment firm Gluskin Sheff.

In recent weeks, Bank of Canada governor Mark Carney has expressed concern about the amount of debt that Canadian households have been racking up since the central bank cut its benchmark lending rate to near zero. Flaherty also wants to remind Canadians that the easy money won’t last forever.

“Interest rates are at historic lows. They are naturally going to go up,” said Flaherty. “People have to make sure that the mortgage on their home that they’ve put on today will be affordable at higher interest rates in the future.”

The discussion of a potential housing bubble shows how much the economic climate has improved since the end of 2008, when it was still unclear how the world would pull out of the global financial crisis.

Looking back, Flaherty said the turning point was a meeting of the G7 finance ministers and central bankers in October 2008, where, after “a lot of finger-pointing by the Europeans at the Americans,” they agreed to backstop the world’s financial system.

© Copyright (c) The Vancouver Sun

Office-leasing market shows signs of recovery

Garry Marr, with a file from Derrick Penner
Sun

Metro Vancouver’s office-leasing market saw some signs of economic recovery in the fourth quarter of 2009, along with signs of concern over how sustainable that recovery will be.

Commercial realtor CB Richard Ellis said in its fourth-quarter report that downtown Vancouver’s vacancy rate edged down to 5.8 per cent as leasing activity picked up for the second straight quarter.

Across Metro Vancouver, however, office vacancy edged up to 9.1 per cent from 8.9 per cent in the previous three months.

“Deal activity downtown was very strong this quarter,” CB Richard Ellis analyst Nicholas Westlake said, with tenants perhaps staging a “flight to quality” to snap up premium Class-A office space.

Across Metro Vancouver, however, new suburban office developments continue to add space into a market with already weak demand.

Burnaby, for instance, had a 12.7-percent vacancy rate in the fourth quarter, and is expected to see that number rise further through 2010 with the completion of two new developments.

“With the Canadian unemployment rate hovering around 8.5 per cent, it is quite evident that companies will need to start creating more jobs if we are to witness any sort of a positive trend moving into 2010,” Westlake said.

Nationally, the overall vacancy rate shot up from 6.7 per cent a year ago to 9.8 per cent this past quarter.

CB Richard Ellis maintained that businesses have already began taking on new space, but most of those decisions won’t be reflected in statistics because the leases don’t begin until the new year. “While the general commercial real estate outlook for 2010 is mixed, confidence in the Canadian economy and its impact on the sector’s recovery cannot be underestimated,” said the company’s vice-chairman John O’Bryan. “As we head into 2010, anticipated economic stability will gradually allow the country’s commercial real estate market to improve.”

Toronto and Calgary, which make up half of the country’s commercial real estate market, continue to have a great deal of new supply coming onto the market. CB Richard Ellis says it might take until 2011 for both markets to absorb the supply of new space.

“Watching the story in Toronto and Calgary is akin to watching a glacier head steadily in your direction,” O’Bryan said.

© Copyright (c) The Vancouver Sun

Home buyers are focusing on smaller homes

Stephanie Armour
USA Today

Out of the depths of housing’s worst downturn, smaller new homes are turning into a bright spot for some home builders.

The trend toward more compact new homes is being driven partly by the fact that more customers are first-time buyers who have less to spend.

Home builders are responding by offering smaller designs with features such as high ceilings and large windows that create a spacious feel and options that let buyers personalize the model they choose.

KB Home‘s smaller model helped it achieve a 62% increase in year-over-year net orders in the third quarter.

The trend cuts across the industry. The median square footage of new homes has dropped 9% from a peak of 2,300 square feet in the third quarter of 2006 to 2,100 square feet in the July-September period this year, according to data from the National Association of Home Builders (NAHB).

Housing size drops with each recession, but economists expect the current movement toward smaller homes to continue for some time in part because of the severity of the current housing market slump.

First-time buyers are driving the trend toward smaller homes because that is what they can afford, says David Crowe, chief economist at the NAHB.

As the economy improves, move-up buyers generally enter the market and begin buying larger homes. But this time, so many homeowners owe more on their homes than their properties are worth that many potential move-up buyers will be stuck even as the economy strengthens.

That means first-time home buyers will still be buying smaller homes while larger homes will find fewer buyers.

“This downsizing is more sustainable,” Crowe says. “The first-time buyer will continue to be a large part of the market because the move-up buyer will not have as much equity. It’s going to take them awhile to climb out.”

The NAHB doesn’t keep data on the percentage of new home sales that are made by first-time home buyers, but about half of all home purchasers were first-time buyers in October, according to the National Association of Realtors.

For builders, smaller, less-expensive homes mean less profit. But the industry is already facing strong competition from a high supply of foreclosed homes selling at comparatively low prices.

A welcome change

Some analysts say the downsizing trend could be good news for builders.

“The appetite for smaller homes may be a welcome change for home builders as new home sales have been challenged in the past few years,” says Tom Lydon, editor of ETF Trends, which educates investors on fund choices and market trends.

Major home builders such as KB Home and Pulte Homes are responding to the shift in demand by offering more of the smaller properties.

At Pulte Homes, its most popular designs today are 100 to 200 square feet less than the most-popular plans in 2005-06.

So the lower-priced homes don’t seem bare-bones to buyers, open floor plans and 9-foot ceilings provide a sense of roominess. Fireplaces are an option.

To hold down costs, Corian — a surfacing material created by DuPont— is a standard for kitchen counters instead of granite. Appliances are standard models instead of pricier stainless steel.

“It’s not just making it smaller, it’s maximizing the space in the home,” says Caryn Klebba, a spokeswoman at Pulte Homes. “It’s a 9- or 10-foot ceiling rather than a cathedral ceiling.” Cathedral ceilings are 14 to 18 feet.

Getaway option

Smaller homes also are appealing as vacation homes.

Nancy Coronado, 55, a retired framer in an art gallery, has a large home in Whitehall, Mich., and bought a second Pulte home in Florence, Ariz., in March. The new home is about 1,400 square feet. “I have a big home in Michigan and didn’t want another big home,” she says. “I wasn’t looking for that.”

KB Home also has redesigned its homes to reflect the trend, because nearly 80% of its customers are first-time home buyers.

Toll Bros., which builds luxury homes, says demand is down across the board, and not just for larger homes. Company officials say they, too, see an increased interest in smaller homes but believe that home buyers will someday return to wanting larger properties.

Smaller homes, they say, reflect a down economy and tighter credit rather than an appetite for less space.

“We see the demand for smaller homes, but it’s not as though there’s huge demand for smaller homes but no demand for larger homes,” says Kira McCarron, a spokeswoman for Toll Bros. “There is still a demand for luxury homes.”

Variable-rate-mortgage holders could face financial squeeze late next year

Derrick Penner
Sun

Homeowners are being warned any rise in interest rates later next year risks putting a financial squeeze on the large number of debt-laden Canadians who took out variable mortgages at rock-bottom rates.

This is a particular concern in Metro Vancouver, Canada’s most expensive housing market, where buyers have been drawn into the market in numbers large enough to drive prices back up to near their previous peaks following the recent market correction.

“Canadians are potentially leaving themselves wide open for significant financial obligations once interest rates begin to rise,” the Mortgage Brokers Association of B.C. said in a statement Wednesday.

The association estimates that some 40 per cent of homebuyers are taking on variable mortgages.

“There certainly has been more of a trend for people deciding to choose variable rates,” association president Joe Santos said in an interview.

And the mortgage association’s call was on top of a warning from Bank of Canada Governor Mark Carney that Canada “must be vigilant” in containing the threat rising rates would have on increasing the debt-servicing costs for Canadians who have taken on increasing levels of debt.

And Carney’s advice, delivered a week after he first voiced concern about the high levels of debt Canadians are carrying, followed the bold prediction of economist and author Jeff Rubin that the jump in rates could be as steep as three to four percentage points over the next two years as the Bank of Canada raises rates to keep inflation, caused by increasing energy costs, in check.

That increase could add up to $1,000 a month to the payment on a $400,000 mortgage, typical for Metro-Vancouver.

“Mortgage rates and debt loads aren’t particularly onerous at today’s interest rates,” Rubin told Reuters.

“Where the concern comes into the equation is that people strap on record debt levels at today’s unsustainably low interest rates to find out that, two years from now, [when rates have risen], that those housing purchases are no longer affordable.”

Rubin, former chief economist of CIBC World Markets and more recently author of the book Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalization, predicts oil prices, already $71 a barrel, will rise to $90 a barrel by the end of the winter and $100 by the end of 2010, which will stoke inflation.

However, interest rates depend on whether or not inflation takes hold quickly, with many arguing that Canada’s still-weak economy shows few signs that it will.

Carol Frketich, regional economist for Canada Mortgage and Housing in B.C., said recent figures from Statistics Canada indicate Canada’s manufacturing sectors are running well below capacity. Unemployment, she added, also remains relatively high, which takes the pressure off employers to raise wages.

Both factors, Frketich said, are signs the economy has room to grow without sparking inflation.

In that environment, “the general outlook is for gradually rising [mortgage] rates, but when you look at where they’re at, they are just incredibly low, that’s no big surprise.”

Cameron Muir, chief economist for the B.C. Real Estate Association, noted that Bank of Canada governor Carney slashed the bank’s key overnight lending rate to a record low 0.25 per cent as a measure to encourage spending in the economy, and promised to keep it there until next June.

However, with the economy’s recovery proceeding slowly, Muir said “it might not be until the fourth quarter of 2010 by the time we see that target, trendsetting rate increase.”

Muir is forecasting mortgage rates might increase 1.30 percentage points on short-term mortgages and perhaps 0.75 of a percentage point on five-year rates by the start of 2011.

That modest increase in interest rates will still dampen sales as they combine with Metro Vancouver’s high prices, he added.

Muir said that Metro Vancouver’s home prices, which dropped as much as 15 per cent during the depth of B.C.’s recession, have recovered almost all of those losses.

Santos said his biggest concern from rising mortgage rates is with buyers who purchased homes in 2006 and 2007, when credit was a little more easily obtained and borrowers could get 100-per-cent mortgages, than he is for recent buyers who have taken out variable mortgages.

“I think [steep rate increases] would certainly create some issues for some consumers who were stretched when they initially qualified [for mortgages],” he said.

Recent buyers, Santos said, would have qualified under rules that call for an ability to pay a higher rate than the current variable rate and should have room in their budgets for bigger mortgage payments.

Santos added that good mortgage brokers will be advising clients on when it might be the best time to lock into a fixed-rate mortgage.

And Carney said consumers need to be ready to do that.

“When risks are still manageable is precisely the best time to act,” he said.

—

INTEREST RATE IMPACTS

Economist Jeff Rubin has made the bold prediction that rapidly rising energy prices will force the Bank of Canada to raise interest rates faster than expected, by as much as three to four-percentage-points, over the next two years putting the financial squeeze on homeowners holding variable-rate mortgages. Here is a comparison of what monthly payments would be on a typical mortgage today, and after interest rate increases.

© Copyright (c) The Vancouver Sun

Martin Crutsinger
USA Today

WASHINGTON — Construction of new homes, helped by better weather, rebounded in the U.S. in November following a setback in the previous month.

The Commerce Department said construction of new homes and apartments rose 8.9% in November to a seasonally adjusted annual rate of 574,000 units. The gain represented strength in all areas of the country although the increase was slightly lower than economists had expected.

Applications for new building permits were also up, rising 6% to an annual rate of 584,000 units, a stronger showing than economists predicted.

The gains are a hopeful sign that the housing recovery is continuing, a development viewed as critical to lifting the overall economy out of recession.

In a second report Wednesday, the Labor Department said consumer prices moved higher last month, but they mostly reflected higher energy costs.

The consumer price index, the government’s most closely watched inflation barometer, rose 0.4% in November, up from a 0.3% increase in October, the Labor Department said.

But stripping out energy and food, all other prices were flat last month, signaling that inflation isn’t rising through the economy. It was the first time this measure, known as “core” inflation, was unchanged, after 10 straight monthly increases.

The reading on overall inflation matched economists’ forecasts. The showing on core inflation turned out even better than the tiny 0.1% increase analysts were expecting.

Looking ahead, companies will find it difficult to jack up prices when consumers are expected to remain cautious, the job market is weak and the recovery is slow, analysts say.

Wednesday’s report gives the Fed, wrapping up a two-day meeting Wednesday, leeway to hold its key interest rate at a record low to nurture the recovery.

Copyright 2009 The Associated Press. All rights reserved.

Council approves tower that will spell end for all but facade of Maxine’s Hideaway

Tiffany Crawford
Sun

A heritage building will be torn down to make way for a highrise rental tower in Vancouver’s West End, despite concerns from residents that the city has no plan for the neighbourhood.

City council voted 6-2 on Tuesday to approve the 20-storey tower on Bidwell Street that will see the demolition of all but the facade of Maxine’s Hideaway, a 1930s style heritage building. The new apartments will be rental units for 60 years or the life of the building.

The project, proposed under the city’s Short Term Incentives for Rental (STIR) program, was approved by city staff to provide more rental housing in the city.

Councillors Ellen Woodsworth and Suzanne Anton opposed the motion.

“I cannot support this,” said Anton. “I cannot support it because I think the public benefit would be better spent in a public way in the West End and if this money is determined to be used for housing it should go where it’s most needed.”

Anton suggested that instead of rental units, the city should have looked at approving condominiums, which would have brought the city up to $7 million from the developer. She said that money could have gone to building a gay and lesbian centre for the area or saving the Stanley Park petting zoo, which has been axed because of a budget shortfall.

Anton also voiced concern that the rental units contained mostly units for single people and not for families with children.

Woodsworth’s concern was the neighbourhood had not been properly consulted and she wanted to see community consultation before moving the project forward.

“They want real affordability in the rental projects and this isn’t going to create that,” said Woodsworth.

“I think what we need is that community consultation and we need to listen to the neighbours in this community and find out what they want…. We’re driving something that we hope will create rentability with its 49 units but it’s not creating the kind of rentability that we need in the city.”

Tim Stevenson, who voted for the project, said the West End is desperate for affordable rental housing.

“We have waited a long time for someone to do something about housing,” he said. “We don’t have any rental units in the West End. There’s nothing.”

Deputy Mayor George Chow, who was acting for Mayor Gregor Robertson while he is away, was also in favour of going ahead with the project

Residents packed two public hearings about the Bidwell project earlier this month, arguing the neighbourhood should retain its current zoning until the city comes up with a neighbourhood plan. However, the city later altered the zoning to allow for the development. Many residents were upset about the tower blocking view corridors and that the development would not include the entire heritage building.

The development, by Millennium English Bay Properties, calls for retaining the Maxine’s heritage facade and building the 20-storey towerwith49rentalhousingunits behind it. There has been no rental housing built in the West End for at least a decade.

The heritage building, at 1215 Bidwell St., is now a nightclub called Maxine’s Hideaway, named after Maxine McGillvary, who opened a beauty school at the location in the early 1900s. The school later became a brothel with secret tunnels to bootleg liquor during prohibition.

———

We have waited a long time for someone to do something about

housing. We don’t have any rental units in the West End. There’s nothing.

COUN. TIM STEPHENSON

© Copyright (c) The Vancouver Sun