Calgary Alberta Mortgage and Real Estate News

The news media continues to mislead with the headlines and the articles. The headline “Calgary leads major centres for slide in home prices” is in the May 28, 2009 Calgary Herald. The introduction to the article states: “Calgary home prices have seen the steepest decline in the country from peak levels, according to a housing report released Wednesday. The Teranet-National Bank house price index said house prices in the Calgary metropolitan area have fallen by 12.7 per cent from their peak in August 2007.”

If you are a prospective buyer, would that not scare you off?

If you are trying to sell, maybe that low-ball offer may actually be worth considering.

The reality, though, is that the Calgary resale housing market is in great shape (condos are holding their own, but are not rising in price like quality houses are). About 2/3 of the currently listed properties are either in poor condition, or are in bad locations. This is simply a reflection of those people who were “forced” to buy that particular property during the EXTREME sellers’ market of 2-3 years past - and those properties are not moving.The other 1/4 to 1/3 of good properties, are moving quickly, some with multiple offers, and offers above list price.The average Single Family sale prices to date this year below:

Do your own homework, use an ABR as your buyer agent, negotiate smart, and, of course, get your mortgage through me.

Oil on Friday (May 29, 2009) closed at 66.31.

It’s interesting to listen to, and read, the opinions of energy analysts.

TD Economics released a detailed Quarterly Commodity Price Report report on April 3, 2009 http://www.td.com/economics/commodity/cpr0409.pdf . Even as the report was released, oil was over $51. TD Economics stated: “The recent push above the US $50 per barrel mark was driven by some optimism for a global recovery and actions by the U.S. Federal Reserve in an attempt to stabilize financial markets. However, we believe that this is nothing more than a bear market rally and will prove to be temporary.”

It will be interesting to read their next Quarterly Commodity Price Report.

Meanwhile, there are a number of commodity bulls out there.

Perpetual oil bull Jeff Rubin has stated that, by 2012, oil will reach $225. a barrel. Canwest article is at: http://communities.canada.com/ottawacitizen/blogs/bulldog/archive/2009/05/26/the-world-of-225-a-barrel-oil.aspx

An excellent interview on BNN last week was Jaime Carrasco of Blackmont Capital. His reasoning on oil, copper as a bell-weather commodity, and a wariness about coal makes this a must watch.
 http://watch.bnn.ca/market-call-tonight/may-2009/market-call-tonight-may-22-2009/#clip175350

The decision last week by Imperial Oil to proceed with the Kearl oilsands project, at an initial cost of $8 BILLION, speaks louder than all the analysts combined.

Needless to say, a large number of my clients are in the oilpatch. A future post will outline the significant correlation of oil price, Alberta real estate, and the Canadian dollar.

Declining prices and continued low mortgage rates are offering a pleasant surprise these days for Albertans in the market for a new house.The Calgary census metropolitan area recorded the third-steepest year-over-year decline across the country in new house prices in March, according to Statistics Canada.

In reporting its new housing price index on Monday, the federal agency said contractors’ selling prices decreased by 2.4 per cent nationally from March 2008 to March 2009.

The biggest 12-month decline was in Edmonton at 12.3 per cent, followed by Saskatoon at 11.2 per cent and Calgary at 8.7 per cent.

“Albertans in the market for a new house these days may be in for a pleasant surprise,” said Todd Hirsch, senior economist with ATB Financial in Calgary.

“This downward price trend has been accelerating over the past nine months,” he said.

Hirsch said the lower housing prices are part of a pattern of price correction across Alberta, similar to the moderation in prices for existing homes. New housing prices in the province had shot up dramatically during 2006 and 2007, rising by well over 50 per cent in some reporting periods.

“Those price increases were due to extremely strong in-migration and an overheated real estate market,”said Hirsch. “Now we are seeing prices for new homes falling. That reflects not only the cool-down in the real estate market, but also falling costs for builders.

“On the surface, falling new home prices may seem negative for Alberta’s economy, but in fact it is more positive.The lower new home prices will help encourage more inter-provincial migrants to settle in the province, which will boost overall economic activity.”

The peak for year-over-year overall change in new home prices was in August 2006 at 60.6 per cent for the Calgary market.

The Calgary census metropolitan area includes the city, Airdrie, the Municipal District of Rocky View, Chestermere, Cochrane, Irricana, Beiseker and Crossfield.

The house only component in the Calgary region saw a 12.8 per cent drop from a year ago, while the land only component was off by only 0.5 per cent.

“This is the first time the land component has decreased in quite some time,” said Lai Sing Louie, senior market analyst in Calgary for Canada Mortgage and Housing Corp. “Builders have quite a lot of lots in the city and there is pressure from the resale market in terms of pricing.”

He said further price declines are expected.

The year-over-year change for the house-only component of the new housing price index for the Calgary region peaked at 66.1 per cent in August 2006 while the peak for the land-only component was 49.6 per cent in September 2006.

Nationally, the annual change for the house-only component fell by 3.6 per cent while the land only component decreased by 0.4 per cent.

The biggest year-over-year increases in Canada overall in March were in St. John’s, N. L., at 20.8 per cent and Regina at 12.8 per cent.

Calgary and Edmonton also showed the biggest monthly declines of 1.2 per cent from February to March.

“In Calgary and Edmonton, declines were attributed to lower material and labour costs and lower lot prices from developers,” said StatsCan.

Across the country, new home prices declined for the sixth consecutive month, said Millan Mulraine, economics strategist with TD Securities.

“The continued drop in new home prices is a reflection of the overall weakness in the Canadian housing market. And the weak domestic economic conditions and soft labour market conditions continue to sap housing demand,” he said.

Mario Toneguzzi, Calgary Herald 

Calgary bucked the national trend in February for building permit values as the city’s census metropolitan area saw an 11.8 per cent increase from the previous month, according to Statistics Canada.

The federal agency reported Monday that building permit value in the Calgary region rose to $195.9 million in February from $175.2 million in January.

Nationally, building permit values dropped by 15.9 per cent to $3.7 billion in February, from $4.4 billion in January.

At the provincial level, the values dropped by 11.2 per cent in Alberta to $509 million in February from $573 million in January.

An increased appetite for owning a home and a drop in the number of people moving to Calgary have pushed up the city’s apartment vacancy rate.

A report released yesterday by the Canada Mortgage and Housing Corporation shows Calgary’s vacancy rate has risen to 2.1% in October, up from 1.5% a year ago.

The rate of rent increases has slowed as a result.

Rents increased 4.7% during the past year, compared to a 15.4% increase the previous year.

This October, it had cost an average $1,092 to rent a two-bedroom home, or $49 more than October last year.

The average monthly rent for a two-bedroom condominium was $1,293 in October, compared to $1,217 one year ago.

Vacancy rates varied widely across the city.

They were highest in the city’s southeast, where they reached 3.7% in October, up 2% from one year ago, and lowest in the Chinook area, were they reached 1.4%, up from 0.3% a year ago.

“The upward movement in the average vacancy rate,” stated CMHC senior market analyst Lai Sing Louie, “can be attributed to the movement of renter households into home ownership and a moderation of net migration.”

In Alberta’s major centres, the average vacancy rate rose to 2.5% in October, up from 1.6% one year ago, for the same reasons that pushed up rates in Calgary, says the CMHC.

Of the province’s major centres, the Wood Buffalo area, which centres around bustling Fort McMurray, posted a 0.5% vacancy rate, the province’s lowest.

Brooks, located about halfway between Calgary and Medicine Hat on the Trans-Canada Highway, had the province’s highest vacancy rate at 9.1%.

Edmonton had an October vacancy rate of 2.4%, up from 1.5% one year ago.

The Canadian dollar declined from a six-week high on speculation an economic slowdown in the U.S. will curb growth in Canada.“We’ve seen the highs in the Canadian dollar,” said Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets Inc. “The central bank will cut interest rates again in the first quarter. A U.S. slowdown will hit Canada eventually.”

The currency fell 1.3 percent to 99.41 Canadian cents per U.S. dollar at 4:08 p.m. in Toronto. The currency touched 97.57 cents on Dec. 28, the strongest since Nov. 20. One Canadian dollar buys $1.006. The currency rose to an all-time high of 90.58 Canadian cents per U.S. dollar on Nov. 7, and gained 17 percent this year.

Bank of Canada Governor David Dodge said on Dec. 21 that the country faces a greater risk of recession now than it did six months ago, as growth slows around the world and the risk of a “disorderly” adjustment increases.

Canada’s central bank unexpectedly lowered the benchmark borrowing cost a quarter-percentage point to 4.25 percent on Dec. 4 in a bid to bolster growth. The central bank will cut the rate to 4 percent at the next policy meeting on Jan. 22, according to the median forecast in a Bloomberg News survey.

The Canadian currency’s gain this year was its biggest since 2003, as advancing commodity prices boosted the country’s exports and pushed the unemployment rate to three-decade lows. The Canadian dollar had the second-biggest advance among the 16 most-actively traded currencies, trailing only Brazil’s real, which gained 20 percent.

Oil, Gold

Commodities such as crude oil and gold account for half of Canada’s exports. Oil prices rose 57 percent this year to about $96 a barrel, for the biggest annual percentage gain since 2002. Gold rose 31 percent this year, the seventh straight annual gain.

Hedge funds and other large speculators last week trimmed their bets that the Canadian currency will gain against the U.S. dollar by 37 percent, figures from the Washington-based Commodity Futures Trading Commission showed on Dec. 28. The wagers betting on the currency’s gain outnumbered those on the decline by 14,723 as of Dec. 25.

The currency may decline to C$1.06 per U.S. dollar by the end of next year, according to the median forecast in a Bloomberg News survey of 40 analysts.

The yield on Canada’s 4.25 percent two-year government bonds due December 2009 fell 4 basis points, or 0.04 percentage point, today to 3.74 percent. The price rose 7 cents to C$100.93.

Canada’s dollar fell to an almost six-week low after Bank of Canada Governor David Dodge said an interest rate cut is possible because of “risks” to economic growth.Dodge said the growing threats to the global economy and volatility in financial markets may affect the country’s benchmark lending rates. Interest rate futures suggest traders have increased bets that the central bank will cut the borrowing cost from 4.5 percent early next year.

“The central bank has started to take note of the downside risk coming from the trade side,” said David Watt, a senior currency strategist at RBC Capital Markets in Toronto. “The days of easy gains in the Canadian dollar are gone.”

Canada’s dollar weakened 1 percent to 98.19 Canadian cents per U.S. dollar in Toronto at 11:25 a.m. The Canadian dollar reached 98.88 Canadian cents per U.S. dollar on Nov. 16, its weakest since Oct. 9.

Canada’s trade surplus narrowed more than forecast in September to a nine-year low, as the country’s currency soared to parity with the U.S. dollar and hurt exports of machinery and industrial goods, a government report said on Nov. 9.

“It’s quite clear the downside risks to world growth have increased” since policy makers from the Group of Seven nations met in Washington a month ago, Dodge told reporters during a conference call from South Africa. “That clearly poses a risk, which we’re going to have to take into account in setting our own policy.” Dodge is in South Africa for meetings with finance ministers and central bankers from the Group of 20 nations.

Interest-Rate Futures

Bankers’ Acceptance Futures for March fell 13 basis points, or 0.13 percentage point, to 4.29 percent. The futures yielded 4.76 percent on Oct. 10.

The futures have settled at a three-month lending rate averaging 16 basis points above the central bank’s target since Bloomberg started tracking the data.

International investors reduced holdings of Canadian securities for a fifth consecutive month in September, with the decline exceeding economists’ forecasts, government figures showed.

Investors abroad sold a net C$5.2 billion ($5.3 billion) of Canadian securities, Statistics Canada said today in Ottawa. Foreign portfolio investors sold C$2.9 billion of Canadian stocks during the month, and C$2.6 billion of Canadian bonds.

The currency extended its losses after National Bank of Canada, the country’s sixth-largest bank, said it plans to take a C$365 million ($374 million) writedown in the fourth quarter for its investments in Canadian asset-backed commercial paper.

Asset-Backed Securities

National Bank’s action is the largest among five Canadian banks that have said they’ll reduce the value of their asset- backed securities in the quarter. The other lenders, including Royal Bank of Canada and Bank of Montreal, had combined writedowns of C$807 million on commercial paper and securities tied to the U.S. subprime mortgage market.

Citigroup Inc., the largest U.S. bank by assets, was lowered to “sell” by a Goldman Sachs Group Inc. analyst who predicted that the lender’s writedowns of collateralized debt obligations will total $15 billion over the next two quarters.

The yield on the two-year Canadian government bond, more sensitive than longer maturities to interest-rate policy change, fell 18 basis points, the most since May when the bond started trading, to 3.66 percent. The price of the 4.25 percent security maturing in December 2009 rose 34 cents to C$101.15. Bond prices move inversely to yields.

“There has been a lack of liquidity in the market,” said Dean Popplewell, a currency analyst in Toronto at Oanda.com, an online foreign-exchange trading firm. “People are looking at the bigger picture, and taking shelter in the fixed-income market.”

New-home construction in Canada is set to cool slightly next year, and would likely drop more precipitously if not for the widespread adoption of longer-term mortgage products, according to one economist.

Housing starts are expected to pull back about 6 per cent in 2008 as rising prices curb demand, according to an outlook report by the Canada Mortgage and Housing Corp (CMHC).

“The pullback in housing starts next year will be mainly due to increases in house prices in recent years, which have pushed mortgage carrying costs higher,” Bob Dugan, chief economist at CMHC, said in a statement.

This would still put new-home construction at a relatively strong 214,000 units in 2008, the seventh consecutive year in which they’ll top the 200,000 mark, according to the report.

Lofty prices in the country’s hottest markets, particularly Western Canada, would likely take a much bigger bite out of new construction if it weren’t for longer-term mortgage products, said Derek Holt, assistant chief economist at Royal Bank of Canada.

Last year, the federal government extended the maximum amortization period for mortgages from 25 years to up to 40 years.

Consumers have embraced these products, which raise the cost of a mortgage over time but lower the entry hurdle to buying a home because the longer payment period allows for smaller monthly payments.

“It’s my belief we would be 10 to 20 per cent below 200,000 housing starts next year if it wasn’t for the impact of these mortgage innovations,” Mr. Holt said.

Sixty per cent of new and rollover insured mortgages are for amortization periods of longer than 25 years, and half of those are for 40 years, Mr. Holt said.

The economist expressed concern that people taking out 40-year mortgages aren’t leaving themselves any buffer in the event of future rate shocks.

Buyers should also be aware of the much higher overall interest cost of a longer-term mortgage.

For example, the total interest on a $300,000 mortgage can soar from $286,161 over the life of a 25-year mortgage to $498,416 over a 40-year amortization period - adding more than $200,000 to the cost of the home.

In the resale market, sales of existing homes are poised for their best year on record, with slightly more than 521,000 units expected to be sold in 2007, as measured by sales on the Multiple Listing Service sponsored by the Canadian Real Estate Association.

The 7.8-per-cent increase in volume from 2006 is attributable to booming sales in the Prairie provinces.

However, purchases of resale homes are expected to slow somewhat in 2008 to slightly more than 500,000 units, a drop of about 3.9 per cent.
 

You have to wonder what David Dodge will be thinking this time. Just over a year ago, the Bank of Canada governor met with Canada Mortgage and Housing Corp. because of his fears exotic mortgages were juicing an already robust Canadian housing market. Now, CMHC has decided it is going to let Canadians buy investment properties with no down payment.The Crown corporation, which controls about 70 per cent of the mortgage insurance market in Canada, has quietly introduced changes that lower the down-payment threshold for an investment property. Instead of needing 15 per cent down, Canadians will be able to buy a second property — not to mention a third and fourth and fifth — with no money down.

“These enhancements will ensure continued supply of affordable rental accommodations across Canada,” said Pierre Serre, vice-president of insurance products with CMHC.

Critics charge CMHC once again has moved into risky territory, the last time being its decision to allow Canadians no money down on a principle residence. “Look at the fee, anytime it’s that high, you know there is a lot of risk,” said one senior mortgage industry observer.

The mortgage insurance fee for the new product is 7.25 per cent of the total amount of the loan. So, a $300,000 mortgage would have a $21,750 mortgage insurance fee.

Instead of paying the fee up front, CMHC will allow that fee to be added to the overall mortgage which can be amortized over as many as 40 years. Based on 5.8-per-cent interest,  the current discounted rate for a five-year term, it would cost just over $1,700 a month to carry that $321,750 mortgage.

By law, any consumer with less than a 20-per-cent downpayment must buy mortgage insurance if they are borrowing money from a financial institution covered under the Bank Act.

None of CMHC’s competitors are coming close to this new offer. Genworth Financial Canada — the other dominate player with about 30 per cent of the mortgage insurance market — requires investors to have at least 10 per cent down.

Back in July, 2006, Dodge demanded a meeting with the federal crown corporation. He was concerned about products like interest-only mortgages which give consumers the option of not making a principle payment for the first 10 years of a mortgage.

Serre said CMHC did consider the issue of whether the changes could over-stimulate the market. “We look at those kind of considerations all the time,” he said, adding that to get a loan consumers will have to meet certain criteria in terms of their overall debt load. “We’re not trying to get people into situations they can’t manage.”

Some question whether there was any need for the latest change, given how strong the market in Canada remains.

The Building Industry and Land Development Association said this week condo sales in Toronto — the largest market for new high rises in North America — were up 31 per cent over the first nine months of the year from a year earlier.

“I’m not sure why CMHC is relaxing the rules, the logic escapes me,” said Stephen Dupuis, chief executive of BILD. “The market is strong. I look at what is happening in the United States and wonder if there is a need to be so free with credit.”

The real reason for the new program, suggest some commentators, is CMHC trying to fend off competitors in the marketplace. In a constant battle with Genworth, CMHC is also facing up to four new mortgage insurers who have applied to do business in Canada or are already licenced to do so.

“There are competitors in the marketplace that didn’t exist before. They are reacting to competition that hasn’t even materialized yet,” said Dupuis.

CIBC World Markets senior economist Benjamin Tal said the latest changes by CMHC are probably just the beginning. “The genie is out of the bottle, this mortgage market is starting to move. Over the past 16 months we’ve seen more changes than the past 30 years,” said Tal.

the Bank of Canada this coming week almost certainly passes on another opportunity to raise interest rates.And that’s despite expectations that the annual inflation rate last month bounced back up above the central bank’s two-per-cent target.

The Bank of Canada’s interest rate announcement on Tuesday, its latest monetary policy report Thursday, and Statistics Canada’s September inflation report Friday are the major domestic economic reports this week.

While many economists still suspect that the next move by the Bank of Canada will be to raise rates further, they say it certainly won’t be this week, and may not be until next year.

Analysts expect the central bank will keep its trend-setting overnight target rate steady at 4.5 per cent, the second time it will have passed on an opportunity to carry through on last summer’s threat to raise rates further.

And that’s good news for indebted consumers, as changes in that key rate are almost always matched by changes in the chartered bank’s blue-chip prime rate to which the rates on consumer and business loan and variable rate mortgages are tied.

“While the recent employment and housing data have been strong and the turmoil in financial markets appears to be abating, the Canadian dollar is up about a whopping eight cents since the bank’s last meeting, and house price gains have been moderating,” UBS Securities Canada said in explaining why it expects no change in rates this week.

CIBC Worlds Markets economist Avery Shenfeld was even more adamant about why the central bank won’t raise rates.

“It can’t even think about cutting rates with a 5.9-per-cent unemployment rate, and a hike seems equally unthinkable given uncertainties over the U.S., a soaring Canadian dollar, and a crunch in commercial paper markets,” Shenfeld said.

Bank of Canada governor David Dodge will give his own explanation of what it did or didn’t do with rates and why when it presents its Monetary Policy Report which will also provide an update the bank’s expectations for inflation, the state of the domestic credit crunch, as well as its outlook for the Canadian, U.S. and global economies.

UBS, meanwhile, expects that Statistics Canada will report on Friday that the annual inflation rate bounced back up to 2.4 per cent last month from 1.9 per cent in August, which, under normal circumstances, would give the central bank justification to raise rates further.

But UBS also expects core inflation, which excludes volatile energy and food prices, and which the central bank monitors for underlying inflation trends, to ease to 1.9 per cent, a notch below the bank’s two per cent target, and down from 2.2 per cent in August.

Meanwhile, UBS sees mixed results coming from two other Canadian economic reports for the month of August, a 0.7-per-cent decline in factory shipments following a 2.3-per-cent gain in July but a three-per-cent rebound in new motor vehicle sales following three months of declines.

Americans and most of the rest of the world, meanwhile, will focus this week on speeches by U.S. Federal Reserve chairman Ben Bernanke on Monday in New York and then again on Friday in St. Louis, the latter being on the issue of conducting monetary policy in times of financial and economic uncertainty.

“And there’s no shortage of uncertainty these days,” CIBC’s Shenfeld noted.

Some of the uncertainty surrounding how the U.S. economy has responded to the mortgage market meltdown and ensuing credit crunch may be reduced with a string of reports from south of the border on September’s consumer price inflation and housing starts on Wednesday, the U.S. leading economic indicator on Thursday, and industrial production and business capacity utilization on Tuesday.

One uncertainty that will be cleared up is who is this year’s winner of the Nobel prize for economics, which will be announced Monday in Stockholm.