Governor
Mark Carney and the Bank of Canada left interest rates at 1% on Tuesday, but
indicated that the Canadian Economy remained solid and that interest rates
would be "moving higher - probably sooner, rather than later". Not
exactly a definitive statement for when to expect rates to start to rise, but I
think that we can assume that we have almost seen the end of historically low
interest rates, and that the trend in the near future will be upward.
Although
the Bank of Canada has hinted that we should expect rates to begin to rise in
the next 12 months, the U.S. Federal Reserve has vowed to keep their rates at
"rock bottom" into 2014. This will greatly limit the Bank of Canada's
ability to raise our rates earlier than the end of 2013 / beginning of 2014
(coinciding with the raise of U.S. rates), as our economy would not react well
to the surging Canadian dollar that would surely follow a premature rate hike.
We
want to bring this to your attention, as anyone that is due to re-finance their
mortgage in the next 12-24 months will want to watch these Bank of Canada and
U.S Federal Reserve updates very closely. Be in touch with your Bank or
Mortgage adviser well in advance to the maturity date of your mortgage and make
sure that you do everything possible to take advantage of these historically
low rates.
If
you have and questions or concerns please don't hesitate to call us anytime.
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Vancouver displaced Sydney as the least-affordable housing market after Hong Kong among large English-speaking cities, as home prices rose faster than incomes, a study of 325 metropolitan areas worldwide showed.
Vancouver’s median home price of C$678,000 ($686,400) in the third quarter was 10.6 times its median pretax household income of C$63,800, making the city “severely unaffordable,”Demographia said in a report today. A ratio of 3 or less is considered “affordable,” according to the public-policy firm’s survey of markets in Australia, New Zealand, Ireland, the U.K., the U.S., Canada and Hong Kong.
Sydney’s ratio of median home price to income was 9.2, while Hong Kong’s was 12.6, a record for the eight-year-old survey, surpassing the previous high of 11.5 for Los Angeles in 2007. Home prices in Hong Kong, Vancouver and Sydney haven’t plunged as they have elsewhere, such as in Ireland, now the second most-affordable country, after the U.S., the study said.
“Housing affordability generally improved in the surveyed nations, though the most unaffordable markets, Hong Kong and Vancouver, became even more unaffordable,” wrote Wendell Cox, principal of Belleville, Illinois-based Demographia, and Hugh Pavletich, managing director of Pavletich Properties Ltd., a commercial developer and investment company in Christchurch, New Zealand.
Policies limiting lots available for construction drove up land prices, putting homes out of reach for middle-class buyers and younger workers in cities such as Vancouver and Sydney, the researchers said. The median price of a detached house in metropolitan Vancouver reached a record C$900,000 in April 2011, according to the Real Estate Board of Greater Vancouver.
‘Massively Deteriorating’
“The causes of massively deteriorating housing affordability are not a mystery,” Cox and Pavletich said.“They inevitably result from more restrictive land-use regulations adopted by governments with insufficient attention to economic fundamentals.”
The study focuses on the home-affordability ratio, not absolute prices. It doesn’t take into account such influences as falling interest rates, an influx of foreign buyers or the attractions of climate and coastal location.
“There’s no question if you want to live in Manhattan or in a nice, close-in suburb, it’s going to cost you more,” Cox said in a telephone interview. “Demand doesn’t drive up prices. Demand drives up prices if there are constraints in supply, and the cause here is regulation.”
Bubble Bursting
Home prices in the eight capitals of Australia’s states and territories fell 3.7 percent in 2011 through November and were on pace for the biggest annual decline in at least 12 years on concerns that Europe’s debt crisis may damp the nation’s economic growth, according to figures released Dec. 30 by RP Data, a real estate researcher.
“The bubble is bursting in Australia,” said Pavletich, who operates PerformanceUrbanPlanning.org, a website on urban public-policy issues.
In New Zealand, Christchurch is “severely unaffordable,”with a ratio of 6.3, according to the study. The city is rebuilding after a series of earthquakes that started in 2010.
“There’s huge pressure on the government to open up land supply and get affordable new lots,” said Pavletich, who is an advocate for the effort.
From the end of World War II through the late 1980s, homes in the countries surveyed generally cost two to three times median income, according to Demographia. Today, only the U.S. is affordable by the study’s measure, with Ireland and Canada“moderately unaffordable,” at 3.3 and 3.5 times median income, respectively.
U.S. Cities
San Jose, California, and San Francisco were the least affordable among U.S. housing markets with populations of at least 1 million, according to the survey. Detroit was the most affordable market in that group, with a median multiple of 1.4 times income, according to the study. Atlanta followed with 1.9, and Phoenix with 2.2.
Honolulu, with a smaller population, was the least affordable U.S. city, with a median multiple of 8.7.
Outside the U.S., Dublin, with a median multiple of 3.4, and Edmonton, Alberta, at 3.5, were the most affordable cities.
To contact the reporter on this story: Hui-yong Yu in Seattle at
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To contact the editor responsible for this story: Daniel Taub at
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With real estate being one of the top performing sectors in 2011 - the S&P/TSX Capped REIT index was up by 15 per cent, or 24 percentage points above the return for the S&P/TSX composite - some have argued real estate won't generate a repeat performance this year.
But Jeffrey Olin, a former real estate executive turned investment banker turned portfolio manager at Vision Capital Corp. isn't in that camp. Mr. Olin, who co-oversees the three property funds that are home to about $100 million in assets, believes the fundamentals continue to be attractive.
"The prospect of low-long-term Japanese-style interest rates for the foreseeable future bodes extremely well," said Mr. Olin, citing a 2.85 per cent 10-year mortgage recently given to one of the country's largest apartment rental companies.
In addition, Mr. Olin argues the supply-demand balance for commercial real estate is positive. "Across the country, we have single-digit vacancy rates for virtually every property type in virtually every region versus double-digit in the U.S. You will start to see rent increases this year," said Mr. Olin, who at a recent conference heard that cap rates will soon start with a four and not a five.
As well, real estate companies will be helped by a move to new global accounting standards that should mean an increase in net asset value.
Analysts are also bullish. "The publicly traded commercial REITs in Canada have all reported healthy and stable operating metrics in the most recent quarter. For instance, operating income from the same properties was up by about 1.5 per cent on a year-over year basis," said Jimmy Shan, from GMP Securities. "Investors desire for yield plus cap rate compression were a big part of 2011's performance."
As for Vision's modus operandi, Mr. Olin puts it in these terms.
"Look for value. You have got upside and you have got a cushion on the downside if and when the world falls apart," said Mr. Olin, who comanages the funds with Frank Mayer, a veteran real estate analyst.
As for downside protection, Mr. Olin says it comes provided stocks can be bought at 50¢ on the dollar in "terms of value." These the real estate assets "are bricks and sticks for which there are lots of buyers," he said.
But some companies aren't bargains, which allows Mr. Olin the opportunity to short them.
Vision has three funds: the Opportunity Fund Trust (formed in July 2008 and is RRSP-eligible); the Opportunity Fund LP (formed in July 2008); and Opportunity Fund LP 11 (formed in September 2009.) Two of the funds are allowed to use 25 per cent leverage, though Mr. Olin said it has never been used. The funds are geared for investors who aren't looking for liquidity within five years, the term of the hedge funds. Instead, investors are required to hold their investment for five years before getting redeemed, though swaps - where a new investor buys out a departing investor - are allowed.
Mr. Olin believes in concentrated portfolios, namely owning a few stocks. His current holdings include:
- Mainstreet Equity Corp., a Calgary based company that buys apartments on the cheap, fixes them up and then re-tenants them, allowing higher rents to be charged.
- Morguard Corp.: The company, has a major stake in Morguard REIT, and is trading at a large discount to its net asset value.
- Edleun Group: Based in Western Canada, Edleun aims to be one of the consolidators of child care centres. Vision has helped Edleun raise capital and Olin is a director.
By Letter: Jen, Vancouver, The ProvinceJanuary 26, 2012 1:06 PM
Comment
0
These are just some of dozens of emails we received in response to our package about the high cost of Vancouver real estate. Join the debate! Add your comments. Share your story.
Yes!
This article completely describes the situation that my husband and I are in.
We’re both in our early 30s, with good paying jobs, and a one-bedroom condo in Vancouver at Main Street and Second Avenue that we’ve owned for two and a half years.
We have our condo up for sale in the hopes of something a bit bigger — ideally with a front door of our own and, dare I even say, a garage?
There are two-bedroom condos in our price range in our beloved East Vancouver, but that’s it. There is a complete lack of small townhouse-like homes in Vancouver under $500,000. And we’re not even asking for that much. We understand that a four-bedroom home with a big yard and garage, would require us to move to the Fraser Valley.
A home with a small patch of grass and a second bedroom would make us quite happy, if it was west of the PNE.
We have been banging our heads for months, trying to find a home in the $400,000-$500,000 price range in “our community.” We’ve spent ten years in East Van, our friends are here, my husband works here, but for us the more we look the more we realize that shortly we will be gone.
It makes us sad that for the better part of a decade, we have made roots here, paid property taxes, voted, supported local artists, the community centres, coffee shops, and on and on. And soon, we will have to move to, most likely, New Westminster or Port Moody.
Thank you for your article, although I don’t really believe that things will change any time soon. I understand that Vancouver is one of the most beautiful and liveable places on earth. As long as there are people who are willing and able to pay these prices, those like my husband and I will have to warm up to the idea of finding a new place to call home.
By Letter: Jen, Vancouver, The ProvinceJanuary 26, 2012 1:06 PM
Comment
0
These are just some of dozens of emails we received in response to our package about the high cost of Vancouver real estate. Join the debate! Add your comments. Share your story.
Yes!
This article completely describes the situation that my husband and I are in.
We’re both in our early 30s, with good paying jobs, and a one-bedroom condo in Vancouver at Main Street and Second Avenue that we’ve owned for two and a half years.
We have our condo up for sale in the hopes of something a bit bigger — ideally with a front door of our own and, dare I even say, a garage?
There are two-bedroom condos in our price range in our beloved East Vancouver, but that’s it. There is a complete lack of small townhouse-like homes in Vancouver under $500,000. And we’re not even asking for that much. We understand that a four-bedroom home with a big yard and garage, would require us to move to the Fraser Valley.
A home with a small patch of grass and a second bedroom would make us quite happy, if it was west of the PNE.
We have been banging our heads for months, trying to find a home in the $400,000-$500,000 price range in “our community.” We’ve spent ten years in East Van, our friends are here, my husband works here, but for us the more we look the more we realize that shortly we will be gone.
It makes us sad that for the better part of a decade, we have made roots here, paid property taxes, voted, supported local artists, the community centres, coffee shops, and on and on. And soon, we will have to move to, most likely, New Westminster or Port Moody.
Thank you for your article, although I don’t really believe that things will change any time soon. I understand that Vancouver is one of the most beautiful and liveable places on earth. As long as there are people who are willing and able to pay these prices, those like my husband and I will have to warm up to the idea of finding a new place to call home.
By Letter: D. Graham, Surrey, The ProvinceJanuary 26, 2012 1:06 PM
Comment
0
These are just some of dozens of emails we received in response to our package about the high cost of Vancouver real estate. Join the debate! Add your comments. Share your story.
I could hardly believe some of the comments by the people featured in your article about housing the Vancouver area.
It is NOT our government’s responsibility to ever help out with housing for its citizens. Don’t forget the government’s money is our tax dollars and the last place I want to see it used is for the less-educated, lazy or those with a sense of entitlement due to being raised in the area.
Come on people, “man up” and realize what kind of education and thus job you will need to afford what you WANT, not deserve.
Yes, those wishing to buy a home in the area will have to save up at least $50,000 or more (less debt is better) for a home in the Vancouver area.
I went to university until I was 25 and knew I’d need a high-paying job order to afford a decent home in our area. Thus I became a stock broker and earned only about $25,000 to $40,000 my first three years. Soon after, by my very late 20s and early 30s, I was earning $75,000 to $120,000.
I saved $75,000 in those first five years of my commission-only career for the down payment on my first house. It was near the Surrey truck border crossing and in 1992 cost $242,000.
To save for my down payment I had no life. I lived with friends and our rent was about $300 each. I never had a nice mountain bike or new skis or took vacations.
I budgeted so I could save about $1,500 to $2,000 per month — always bag lunches, cheap dinners and almost never went to restaurants or coffee shops.
I married in 1993 and my wife never worked outside the home and raised our two kids as a stay-at-home. I’m now 50, my wife is 43 and we now have a home worth about $2.5 million and five rental houses and townhouses with small mortgages. We are still frugal and watch our spending very carefully.
I still find it hard to believe people in their 20s are bitching about not being able to buy a home in our area.
Yes, it is a very pricey area and always will be, but these younger people must realize that it takes many years of saving to afford a home. I think it is crazy for people to want to buy a home without at least a 25 per cent down payment.
The great cities of the world, such as London, San Francisco, New York, Paris, etc will always be expensive and highly desirable places to live. People must realize this fact of life and possibly move away to make and save money for a home in this area at sometime later down the road .
You have to be willing to make some sacrifices in life to get want you really want.
My advice to those with less money or with less education and lower earning capacity is to move to somewhere like Fort St. John or Chetwynd, where there are great paying jobs and low rents.
Go save and come back here in five to 15 years, or go get a great education that you know will pay off huge once you are working — such as a dentist, doctor, engineer, financial analyst, lawyer, etc. Just stop expecting others to pitch in for your lifestyle and wants here in the Lower Mainland.
After surprising growth in 2011, Greater Vancouver real estate prices will rise just two per cent in 2102, Canada Mortgage and Housing is forecasting.
In 2011, CHMC predicted price growth of just three per cent, tempered by an expectation of higher interest rates, but interest rates stayed low and prices ultimately jumped 16 to 17 per cent.
In 2012, the market will stabilize and show modest growth in line with inflation, said Robyn Adamache, senior market analyst with CMHC in Vancouver.
"I'd say it's a pretty stable market out there. We're not expecting to see a lot of change going forward," Adamache said Thursday in an interview. "We have seen the market moving to more balanced conditions over the past five or six months, and that's expected to continue."
She said job growth and migration, including people from within Canada and immigrants, are the factors driving the housing market, and they should continue.
"So far, for the first 11 months of 2011, we've seen about 30,000 additional jobs created in the Metro Vancouver area," Adamache said. "We're forecasting that we'll see 35,000 to 40,000 people moving here each year, going forward."
Not all municipalities saw this kind of growth in housing prices in 2011; the west side of Vancouver and Richmond led the way with 20-per-cent or higher increases for single family homes, while other municipalities and multi-family homes saw lower growth.
For the five years leading up to 2010, the compound annual growth rate in Greater Vancouver for all types of homes was 10 per cent, while the 20-year average was six per cent, Adamache said.
In some areas, such as Maple Ridge, prices of condominiums have not recovered to prerecession prices, Adamache said.
The average price of a home in Greater Vancouver, including single-family and multi-family homes, for 2011 up to Nov. 30 was $796,000. CMHC is calling for that average to rise to just over $800,000 by the end of 2012.
For November only, the monthly average was down slightly to $736,000, and Adamache said that trend might continue into the first half of 2012.
"I think we will see prices staying fairly flat until later in 2012," Adamache said.
Across the country, prices were 5.8 per cent higher in 2010, to an average $339,042.
Forty-eight per cent of households in Vancouver own their own homes, while nationally the average is 68 per cent.
In Greater Vancouver, housing starts will see growth of about five per cent in 2012, compared to 12 to 15 per cent in 2011, and the number of houses sold will also increase about nine per cent over 2011, Adamache said.
Meanwhile, CMHC released its 2011 Canadian Housing Observer on Thursday, showing that Canadians owed more than a trillion dollars on their mortgages as of March, which when added to other household debt is a "serious issue."
The CMHC reported that housing-related spending of about $330 billion a year in 2010 has risen by 67 per cent since 2001 and now comprises 20.3 per cent of Canada's gross domestic product in 2010 - which underlines the importance of that debt load, and what might happen to the economy if for any reason Canadians crack under its burden.
CMHC figures show that mortgages made up about 68 per cent of total household debt in 2010 - up from 63 per cent in 1971 but down from the peak of 75 per cent in 1993. Consumer credit, which makes up the other 32 per cent, has been growing faster than mortgage debt over the past two decades, it says.
A breakdown of these numbers for B.C. was not available; however, the report shows that B.C. has a high percentage of mortgage-free homeowners at 47 per cent, a number second only to Cape Breton.
"The major risk in the mortgage market is impairment in a household's ability to pay, often due to job loss. Recession or other adverse economic scenarios, such as rising interest rates, could certainly pose a challenge for some Canadian households," the report states.
Canadians' debt levels have been growing fairly steadily since the 1960s, the report notes, but adds that a number of more recent factors have allowed debt to grow to its current record level, including low interest rates, rising household incomes and financial product innovations, which have allowed Canadians to make lower payments on higher debt loads.
While about 6.5 per cent of Canadian households are financially vulnerable according to Bank of Canada guidelines, the CMHC says continued employment growth, increasing net worth of households and a growing population are all positive factors for housing demand.
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The BC Government has just raised the threshold for the home owners grant to $1,285,000 from $1,150,000. In the Greator Vancouver area this translates to a $570.00 savings off your gross property taxes.
A new survey judges Vancouver to be one of the top five places to live in a world of rising social unrest and falling economic conditions.
Consulting group Mercer assesses a range of factors, including safety, infrastructure, environment, plus culture and social climate, said company principal Luc Lalonde.
In a list dominated by European cities, Vancouver netted a fifth-place tie with Dusseldorf, Germany, among 200 cities worldwide.
“We look at quite a few factors and Vancouver tends to do well across the board,” Lalonde said in an interview Tuesday.
Mercer compiles information to help multinational organizations judge where business and employees will best be placed, and whether “hardships” are a factor. Lalonde said Vancouver’s natural beauty, temperate climate, and relatively good schools, health care and low crime rates make the city an easy sell for expatriate workers.
In the Americas, Vancouver was judged to be the best place to live, followed by Ottawa, Toronto, Montreal and Honolulu.
Worldwide, Vienna’s excellent infrastructure, affordable public transit, street safety and good public health service made it the best place to live, according to Mercer. The worst place was Baghdad.
“Those cities and countries that have escaped the brunt of social unrest and economic downturn have been able to continue investing in urban infrastructure and other provisions for comfortable and enjoyable daily living to improve the quality of living for their residents,” the report said.
University of B.C. real estate and economics professor Tsur Somerville said he generally takes quality-of-life surveys — in which Vancouver typically places high — with a grain of salt.
“I don’t think these things drive housing values, but they confirm what people already know,” he said. “Being a very attractive place to live means people will pay a premium to be here.”
On the oft-discussed topic of red-hot Vancouver real estate, Somerville said prices have actually been “pretty slack” since spring. But he doesn’t see a big drop, unless interest rates rise dramatically, or people suddenly lose confidence.
“My sense is we’ll see a more subdued market,” he said, noting softness this year is “an expression of global uncertainty, and how fast the market rose (after the 2008 financial crisis subsided.”
The report notes: “If economic and political instability remain a global factor, cities in parts of Asia-Pacific and Western Europe, as well as in Canada, will continue to benefit from their relative stability and wealth of public services and recreational provisions.”
Top 10 in Mercer Quality of Living survey
1. Vienna, Austria
2. Zurich, Switzerland
3. Auckland, New Zealand
4, Munich, Germany
5, Dusseldorf, Germany (tied for fifth)
5. Vancouver, Canada (tied for fifth)
7. Frankfurt, Germany
8. Geneva, Switzerland
9. Bern, Switzerland (tied for ninth)
9. Copenhagen, Denmark (tied for ninth)
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Metro Vancouver's resale housing market has moved into a “balanced” range where neither buyer nor seller have any particular advantage in negotiating a sale, according to a Conference Board of Canada report released Tuesday.
As well, the report's author said in an interview about the board's metro Resale Index – November 2011, there's no longer a threat of a real estate bubble forming in the region.
“The threat of a bubble has largely dissipated,” senior economist Robin Wiebe said of Metro Vancouver. “But, really, there never was one.
“When prices rise, new supply is attracted to the market. And that's what's happened.”
According to the index, the average price in Metro Vancouver was $774,000 in October, two per cent more than September and 15.3 per cent more than October 2010.
As well, the number of listings stood at 60,600 in October on an annualized seasonally adjusted basis, which was 2.5 per cent less than September but 14 per cent more than October 2010.
The total number of sales in October – also on an annualized seasonally adjusted basis - were 30,792, up two per cent from September and 0.8 per cent from October 2010.
The Fraser Valley was in a balanced market, with prices up 9.6 per cent year-over-year to $494,000, but Victoria was considered a buyers' market, with prices down 7.1 per cent year-over-year to $490,000.
Wiebe said there is now adequate supply and reasonable demand in Metro Vancouver, meaning that a balanced market exists.
He said that rapid average price growth in May and June, fuelled largely by sales of expensive homes in exclusive neighbourhoods, is no longer a major factor in Metro Vancouver, with sales of the expensive homes having moved through the system.
“Price growth [year-over-year] in the last two months has been pretty good, but at 14.5 per cent it's a way down.”
He said with prices rising about 20 per cent year-over-year in May and June, a lot of people put their homes on the market, hoping to cash in.
“It changed the market balance a bit. Sales have cooled, listings have gone up. So the market balance has shifted. It's not surprising.”
Nevertheless, Wiebe said, the number of sales are reasonable by historic standards.
Nationally, sales were up in 17 of 28 markets from September to October, and new listings rose in 16 of 28 markets.
A total of 23 of markets were considered balanced, while four were a buyers' market. Listing shortages made Thunder Bay the only sellers' market.
As well, average values rose between September and October in 16 areas.
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See the sun set every night from this beautiful contemporary
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