Edmonton Real Estate Blog

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Serge Bourgoin
Senior Managing Partner
Team Leading Edge
RE/MAX ELITE
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Rising mortgage rates are fuelling home sales. They also appear to be curbing price growth as buyers drive tougher bargains.

The number of existing homes that changed hands across the country last month rose 18.2 per cent from a year earlier, the Canadian Real Estate Association said Tuesday. September’s sales were slightly above the long-term average for that month, an indication that the market has fully recovered from the steep slump after Finance Minister Jim Flaherty tightened the mortgage insurance rules in the summer of 2012.

While sales were up just 0.8 per cent from August, the rise topped some economists’ expectations and marked the seventh consecutive month-to-month gain.

But many experts claim that the increase in mortgage rates that has occurred since the spring, and the prospect of higher rates down the road, is providing a sales boost that will prove to be temporary.

Mortgage rates are up about three-quarters of a percentage point since May, with five-year fixed rates having risen to 3.39 per cent from 2.64 per cent, according to Alyssa Richard, chief executive of RateHub.ca.

With buyers facing higher rates, the market could lose steam in the months ahead.

“We expect home resales to stabilize near the current levels, although some modest pullback may occur later this year or early next as payback for sales that may have been advanced during the rush to lock-in lower rates,” Royal Bank economist Robert Hogue said in a research note.

Greg Twinney, a senior executive at the e-book company Kobo, says mortgage rates played a large factor in his role to move his family from downtown Toronto to Caledon, north of Mississauga, this fall. He had been planning to move there some time in the next five years, but the combination of finding a property he liked and a lack of clarity over how much rates will rise spurred him to buy a house there last month.

“Given where interest rates are, you’re able to get in to a home now and lock in interest rates and know what you’re paying for the next five years and it’s affordable,” he said.

The banking regulator, the Office of the Superintendent of Financial Institutions, has long been considering tightening the country’s mortgage underwriting rules, and could still take action.

Canadian Imperial Bank of Commerce economist Benjamin Tal has said recently that he suspects the housing market is currently too strong for the government’s liking. But if the current momentum in sales does prove temporary, that could ease any fears that Mr. Flaherty might have.

Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals, met with Mr. Flaherty last month, partly in an effort to present the association’s case that the market is in balance and no further tightening is required. “I think he’s comfortable with where the market’s at,” Mr. Murphy said Tuesday.

Much of the concern that policy makers have had about the housing market in recent years has stemmed from rising consumer debt levels and home prices.

While the average price of homes that changed hands over the Multiple Listing Service last month was up 8.8 per cent from a year earlier, to $385,906, that’s in large part because pricey cities, such as Toronto and Vancouver, were in the midst of steep sales declines a year ago.

The Teranet-National Bank home price index for September, released Tuesday, hadn’t budged from August. The index normally picks up 0.2 per cent from August to September as buyers return from summer vacations.

“Price behaviour seems to be at odds with the recent pickup in resale activity,” National Bank economist Marc Pinsonneault wrote in a research note. “It looks that households are willing to buy, but they are now bargaining harder on prices to compensate for higher mortgage rates.”

Toronto-Dominion Bank economist Diana Petramala pointed out that a rising stock of unsold condos is also weighing on price growth. “Prices were down in Montreal and Ottawa where a growing overhang of condos on the market is keeping prices low.”

Meanwhile, consumers who are wondering where mortgage rates will go next should look to Washington, says TD chief economist Craig Alexander.

Five-year fixed mortgage rates tend to follow the yields on five-year government of Canada bonds, because those influence banks’ funding costs. Canadian bond yields tend to mirror those in the U.S. because the market views the securities as alternatives to one another. Mortgage rates rose over the summer as bond yields rose, largely because of expectations that the U.S. Federal Reserve would soon begin tapering its quantitative easing program.

That hasn’t happened, and bond yields have edged down a bit recently as a result. But banks tend to change their mortgage rates only when they think yield changes will be relatively long-lasting, Mr. Alexander said.

“Over the entire course of next year, I expect the five-year yield to go from 2.05 to 2.55 per cent, so I think the balance of risks are that, in 2014, fixed mortgage rates will creep up a little bit,” he said.

Source: http://www.theglobeandmail.com

Statistics Canada says its new housing price index rose 0.1 per cent in August, following a 0.2 per cent increase in July.

The agency says Calgary was the top contributor to the national increase in August, with prices rising 0.6 per cent because of market conditions, increased material and labour costs and a shortage of developed land.

It says the largest monthly price advance in August came in Windsor, Ont., where prices rose 1.0 per cent due to increases in material, labour and land development costs.

New housing prices rose 0.3 per cent in both Montreal and Saskatoon.

Negotiated selling prices contributed to lower prices in Vancouver, Halifax, Ottawa–Gatineau and Victoria.

Prices were unchanged in nine of the 21 metropolitan areas surveyed.

Source: Money.ca.MSN.com

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The REALTORS® Association of Edmonton released market housing statistics for the year to date (YTD) including the month of September. The all-residential average price for the first three quarters of the year in the Edmonton CMA is $350,741 as compared to $340,090 in 2012. In September, the all-residential average was $352,057, up 5.4% from a year ago and inching up from $351,455 in the previous month.

Year-over-year sales were also up 19.4% with 1,466 (adjusted, 1,357 actual) all-residential sales in September. There were 13,691 residential sales in the Edmonton CMA in the first three quarters of 2013 as compared to just 12,876 sales at the same time last year.

“Our members report that the market is very active with many properties attracting multiple offers,” said President Darrell Cook. “The increases in the Alberta population are driving the market and because of the steady sales there are inventory shortages at the lower price ranges.”

There were 926 (adjusted, actual 857) single-family detached sales in September at an average price of $408,642 (up 3.9% Y/Y) as compared to 773 sales a year ago at an average price of $393,374. Condos sold on average in September for $243,655 (438 adjusted sales, 406 actual), up from $224,330 last September (up 8.6%). Duplex/row house sales were up with 79 (adjusted ,73 actual) sales, valued on average at $338,250 ($316,973 last year).

“Average sales prices are the highest they have been in five years,” said Cook. “Combined with the highest sales numbers since 2012, we have year-to-date residential sales values totaling $4.8 million. Strong market fundamentals, increasing population and the persistence of low mortgage rates have convinced many buyers that an investment in real estate is secure.”

The September sales-to-listing ratio of 65% was the result of 2,089 residential listings and 1,357 residential sales. The inventory of available homes on the Edmonton MLS® System was down from 5,557 units in August to 5,111 units in September. It took 54 days on average (up one) to sell a home in the Edmonton area. A REALTOR® has access to all the latest market data and effective marketing tools and is the best source of real estate advice for both buyers and sellers.

Source: Realtors Association of Edmonton

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Canadian consumer sentiment climbed to the highest in more than two years as employment rose and the housing market remained buoyant, according to the new Bloomberg Nanos Canadian Confidence Index.

The index, a weekly measurement of the economic mood of Canadians, rose to 59.75 in the period ended Sept. 27, from 59.23 the previous week. That’s the highest since March 2011 for the index, which tracks consumers’ perceptions of the strength of the economy, job security, real estate and their financial situation.

“September remains above average in terms of positive consumer sentiment in Canada,” said Nik Nanos, chairman of Nanos Research Group, the Ottawa-based polling company.

The data reflect recent improvement in economic reports. Job security among Canadians rose this month after Statistics Canada reported Sept. 6 that the economy added 59,200 jobs in August, the second highest total this year. Data this month also have shown the number of Canadians receiving jobless benefits is falling.

“Modest improvements in housing finances and the Canadian labor market are the primary factors for the best reading of the index in over a year,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York.

The index has two sub-indexes: the Bloomberg Nanos Canadian Pocketbook Index on personal finances, and the Bloomberg Nanos Expectations Sub-index on future views. The data in the indexes date to 2008 and is based on phone interviews with 1,000 consumers, using a four-week rolling average of 250 respondents. The results are accurate to within 3.1 percentage points.

Pocketbook Survey

The Pocketbook Index, based on survey responses to questions on personal finances and job security, rose to 61.37 from 60.55. The difference between the share of Canadians who report their jobs are secure and those saying they’re not secure rose to 59.1 percentage points last week, the most since March 2011.

The expectations index, based on surveys for the outlook for the economy and real estate prices, rose to 58.13 from 57.91 as more Canadians predicted home prices would rise.

The improvement in attitude comes as the Bloomberg Consumer Comfort Index, a separate gauge of consumer sentiment in the U.S., rose for a third straight week.

Canada’s economy grew at its fastest pace in two years in July, Statistics Canada reported today, with the 0.6 percent advance reversing the prior month’s drop.

The country’s output is poised to accelerate at a 2.1 percent pace from July to September, after slowing to 1.7 percent in the second quarter, according to Bloomberg economist surveys.

Housing Rebound

Concerns that Canada’s housing market will cool rapidly are dissipating. Canadian home sales rose 2.8 percent in August from the previous month, the Canadian Real Estate Association reported Sept. 16. Sales have increased for six consecutive months at an average pace of 2.3 percent, the most since January 2011.

The Bloomberg Nanos gauge of Canadians’ view on real estate strengthened this month, with 38.1 percent polled predicting increased real estate values in their neighborhoods, up from as low as 34.5 percent in August. Twenty-one percent of those surveyed said they are better off financially over the past year, the highest reading since June.

The youngest age groups, and lowest income earners, are showing among the biggest confidence gains, according to the polling results. Consumers in Ontario led gains over the past week for the Bloomberg Nanos index.

Store Sales

Statistics Canada reported last week the nation’s retailers boosted sales in July by 0.6 percent, adding to evidence the nation’s economy is rebounding.

Statistics Canada also reported today that industrial product prices rose 0.2 percent in August, while raw materials prices increased 0.9 percent.

Elsewhere in the economy, Bank of Canada Senior Deputy Governor Tiff Macklem will give a speech tomorrow in Toronto on “Global Growth and the Prospects for Canada’s Exports.”

Western University in London, Ontario will release its Ivey Purchasing (IVEYSA) Managers Index for August at the end of the week, with economists forecasting a reading of 53.5 from 51 in July.

Source: bloomberg.com/news

Canada Mortgage and Housing Corp. is limiting guarantees it offers banks and other lenders on mortgage-backed securities. The measure comes amid the federal government’s efforts to protect taxpayers from financial risks in the housing sector, further cool lending and add upward pressure to mortgage rates.

The Crown corporation has notified banks, credit unions and other mortgage lenders that they will each be restricted to a maximum of $350-million of new guarantees this month under its National Housing Act Mortgage-Backed Securities (NHA MBS) program. The decision comes in the wake of “unexpected demand” for the guarantees, a spokeswoman for CMHC said in an e-mailed statement.

The conversion of loans into securities with CMHC backing has become a popular way for lenders to tap funds from a broad range of investors, enabling banks to issue more mortgages and at a lower cost.

Federal Finance Minister Jim Flaherty, concerned that Canada’s housing market might overheat and infect the economy, has been taking steps to cut back the flow of mortgage credit. This spring, he went as far as to publicly chastise some banks for dropping their mortgage rates too low.

He is also taking steps to reduce the degree to which taxpayers backstop the housing market.

This year, he announced he would restrict the ability of banks to buy bulk insurance from CMHC, and he curtailed the use of government-backed insurance in securities sold by the private sector. Ottawa released a legal framework for covered bonds, another type of bond backed by pools of mortgages, last year. It said banks could not use insured mortgages in such securities.

In addition to removing fuel from the housing market, these moves force banks and other lenders to take on more of the risk of mortgage defaults, rather than offloading that risk to Ottawa.

Canada’s housing market slowed in the wake of the government’s moves, namely Mr. Flaherty’s decision last summer to tighten mortgage insurance rules. Still, prices in most areas continued to climb, and sales have begun to bounce back.

“The government is attempting to tighten credit conditions for home loans, for example the changes to CMHC’s underwriting standards last year, and this is the latest iteration of that effort,” said National Bank analyst Peter Routledge.

He said that the four largest mortgage underwriters, Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Bank of Nova Scotia, had made good use of the NHA MBS program “and I expect that their funding strategies will change as a consequence.”

“Given the differentials in funding costs via NHA MBS or unsecured long-term funding, I could see [an additional] 20 to 65 basis points in the cost of funding mortgages for the larger banks,” he said. “All else equal, we could see mortgage rates start to move up in unison.”

At the start of this year, after consultations with CMHC, Mr. Flaherty said the Crown corporation could guarantee a maximum of $85-billion worth of new NHA MBS this year. By the end of July, lenders had already issued $66-billion worth of the securities, compared to $76-billion during all of 2012. As a result, CMHC is imposing the $350-million cap on each issuer effective immediately, while it comes up with a formal allocation process this month that it will put in place for the final four months of the year.

The Crown corporation guarantees timely payment of interest and principal to investors in both types of securities, and charges the banks a fee for the service.

On its website, CMHC states that “MBS [have] helped to ensure a ready supply of low-cost funds for housing finance and to keep mortgage lending costs as low as possible for homeowners.”

Mr. Routledge said that smaller mortgage lenders don’t create enough NHA MBS to be materially affected by the new $350-million cap.

The amount of NHA MBS being issued shot up during the financial crisis, as banks sought cheaper sources of funds to continue lending mortgages. The securities are backed by pools of insured mortgages, and investors receive monthly principal and interest payments that stem from the payments homeowners make on the underlying mortgages. Banks sell the securities to investors, or to be used in the Canada Mortgage Bond program.

Feel free to call for questions or more information.

Source: www.cmhc-schl.gc.ca/en/co

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In the first six months of the year, housing prices in the Edmonton Census Metropolitan Area (CMA) showed slow, steady increases. According to the REALTORS® Association of Edmonton, the all-residential average price was up 5.6% from the average price on December 31, 2012. Compared to June 2012, the current average price is up 4.2%.

“Economic conditions in the Edmonton area are generally positive and this is reflected in our local housing market,” said President Darrell Cook. “Prices have risen slowly through the first six months and there is nothing in our local economic trends to indicate that this period of stability will change.”

The average all-residential price for the Edmonton CMA in June was $359,631. This was up 0.8% from May 2013. The average price of a single family property in June was $412,269, up 2.3% from last June when the price was $402,840. Condominium prices followed a similar path with June prices at $261,854 compared to a year ago at $240,822.

The inventory of available residential properties on the MLS® System has increased over the past two quarters and is currently at 6,078 properties. Never-the-less, this is still lower than the inventory of 6,435 homes recorded at the end of June 2012.

“Higher prices and a shortage of inventory in some categories have limited the number of sales,” said Cook. “We are seeing some instances of multiple offers, however buyers looking at higher priced properties are taking their time to study the market with their REALTOR® before making an offer on the property that matches their needs.”

The all-residential sales figures for June are down 1.5% year-to-date when compared to 2012 with 8,664 sales so far in 2013 as compared to 8,792 in 2012. There were 1,840 residential properties of all types sold in the Edmonton CMA in June and 1,800 sold in June 2012. Single family detached sales of 1,080 were off 4.9% from last year. Condominium sales were up in the first half because of a lack of lower priced single family properties. There were 470 condo sales in June compared to 536 in June 2012. There were 116 duplex/row house properties sold in June. Note: all sales numbers are estimated to reflect late reported sales.

The average days-on-market for all residential property was up to 47 days from 45 days in May and the sales-to-listing ratio was 63% in June,

up from 53% last month.

Source: REALTORS® Association of Edmonton

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