Dominion Lending Centres Mortgage Industry News Highlights

Dominion Lending Centres Mortgage Industry News Highlights - December 16th, 2009

National home sales increased by 73% in November from the trough seen a year ago, with Ontario and Quebec hitting new monthly records as buyers took advantage of record low interest rates to secure mortgages.

The national average price gained 19% compared to November 2008, at $337,231, CREA said. Since the beginning of the year, prices have gained 4.4% compared to the same time last year.

“The year-over-year increase in November continues to reflect the high degree to which the average was skewed downward last year by plummeting activity in Canada’s priciest markets, and then upward by rebounding activity,” the association said.

CREA tracked 36,383 deals on its Multiple Listing Service in November. Crediting the housing market for leading “the overall Canadian economy out of the recession,” association President Dale Ripplinger said the numbers were a sign of an entrenched recovery. “National home sales activity last month shows how strongly the housing market has rebounded since the beginning of the year.”

Click here to view the full CREA release.

Canada’s real estate market is finding its balance.
A surge in new listings in November helped ease a chronic supply shortage and temper prices from a month earlier, easing fears of a bubble in the making even though the rebound in the market continued unabated.

That’s what economists were looking for because a steady string of monthly price increases could inflate an asset bubble and lead to a severe correction when interest rates eventually rise.

For the past several months, prices have been rising month-over-month, with double-digit percentage increases posted year-over-year.

Listings in November increased by 5% compared with October, the largest one-month gain in two years, CREA said Tuesday. The increase is a sign of consumer confidence, and signals a return to normalcy in what has been an extremely volatile market.

More inventory ultimately means lower prices. The average national price in November declined by 1.1% from October to $337,231, although that was still up sharply from the depressed levels seen 12 months ago.

Prices for new homes in Canada rose 0.3% in October after a 0.5% increase the previous month, Statistics Canada said Friday.

It was the fourth straight monthly gain in the federal agency’s new-home price index, although the increase was slightly below the 0.4% many economists had expected.

The biggest price increase was in Quebec City, up 1.1%, followed by Vancouver, up 0.7%.

As the Canadian real estate market continues to rebound from a steep decline a year ago brought on by the recession, homebuyers remain nervous about the stability of the economy, according to a survey of 1,225 Royal LePage agents and brokers across Canada. But few buyers think home prices will decline again.

When asked to comment on the most common fears they are hearing from homebuyers over the past three months, 38% of Royal LePage agents and brokers cited economic stability and related factors such as job security. Some 23% said homebuyers fear they may not be able to sell their existing homes at the price they are hoping for, while 12% said buyers are hesitant because they believe prices have not yet hit the bottom of the cycle. Twenty percent of agents and brokers said they are not hearing any concerns from buyers.

The Royal LePage Advisor Survey, conducted online in November, also found that an increasing number of Canadians are purchasing homes as investment properties, and almost 50% of brokers and agents say the number of buyers intending to renovate their properties after purchase is increasing.

“Given the volatility in the real estate markets over the past 18 months, it is not surprising that the state of the economy continues to weigh on the minds of Canadians as they consider buying a home,” said Phil Soper, President and Chief Executive, Royal LePage. “Canadian real estate markets are enjoying a strong recovery as 2009 draws to a close and appear poised for healthy growth in 2010. Our survey shows that consumer confidence is edging towards normal levels. Canadians clearly believe that the worst of the recession is behind them and that the real estate market is on the path to sustainable recovery.”

Click here to view the full Royal LePage release.

A new report from Statistics Canada carries a sober message: collectively, Canadians are deeper in debt than ever before.

But economists say record-low interest rates mean that debt loads are still manageable and will likely improve as the economy begins to recover from the recession.

The StatsCan report, issued Monday, comes on the heels of a stern warning about rising debt issued last week by the Bank of Canada.

Surging stock markets pushed up Canadians’ net worth in the third quarter, StatsCan said. The S&P/TSX Composite Index rose 9.8% in the third quarter. That’s on top of a 19% gain in the previous three months.

Household net worth, the value of families’ assets such as cars, homes, savings accounts and investments, minus what they owe, reached $5.72 trillion at the end of September. That’s an increase of 2.3%, marking two quarters of gains after three consecutive drops.

But household debt, mainly mortgages and consumer credit, rose from July to September as Canadians rushed to take advantage of low interest rates. Personal sector liabilities rose to $1.41 trillion, up 1.6%.

Click here to read the full article in The Star.

Bond yields and mortgage rates could head higher before the Bank of Canada’s pledge to hold interest rates steady expires in July, the Chief Economist at Bank of Nova Scotia said last week.

“There’s a very good chance long-term rates will head up before then,” Warren Jestin said in Toronto at a briefing sponsored by the Investment Funds Institute of Canada.

He warned new homeowners with variable-rate mortgages not to be influenced by the central bank’s neutral statements on rates last Tuesday. The bank has pledged to hold rates at a historic low of 0.25% until the end of the second quarter of next year, inflation conditions permitting.

Read the “fine print” and he believes it’s likely three-year and five-year mortgage rates will be higher before July 2010.

Click here to read the full Financial Post article.

The Royal Bank says Canadians can expect to be hit by higher interest rates in the second half of next year and in 2011.

Royal Bank economists say the Bank of Canada will be among the next group of central banks to move off floor-low rates, with the Canadian bank’s overnight rate finishing 2010 at 1.25%. And RBC economists say they believe the trend-setting rate could rise to as much as 3.5% in 2011.

The bank rate has been at 0.25 for most of 2009, a rate that is encouraging borrowing but also raising concerns that Canadians may be overextending themselves.

The Royal Bank says Canada has not suffered as badly as other economies in the recession, and will be among the first, after Australia and Norway, to start raising rates.

Click here to read the full article in The Star.

Mark Carney is urging prudence among Canadians who are borrowing at super-cheap rates today but may not be able to afford higher payments tomorrow.

Household debt is now the biggest risk to the financial system, even if it is not expected to climb to levels that could cripple bank balance sheets, the central bank said last Thursday in its review of the financial system. It used a “stress test” to show that rising interest rates between mid-2010 and mid-2012 would saddle a growing number of Canadians with unmanageable debt loads.

Carney, the Bank of Canada’s Governor, who has guided monetary policy throughout the crisis, is relying on consumers to help drive a recovery juiced by his historically low interest rates. Yet he is also warning borrowers and lenders not to go overboard and to think about the consequences of hefty debt in an inevitable environment of rising rates.

The semi-annual report marked the first time the bank has analyzed the risks based on interest rates reaching specific levels.

Click here to read the full article in the Globe and Mail.

Your first-time buyer clients have a chance to win one of two gift cards from Sears worth $250 apiece by filling out the following survey by January 10th for Buying Your First Home magazine (a consumer publication owned by CMP parent company, KMI Publishing & Events Ltd): http://yourfirsthomecanada.ca

The survey targets readers of the publication, but the magazine is also interested in hearing from those who haven’t read it, but are planning to buy their first home.