Is the glass half full or half empty?  Are the measures that we’re taken to modify the real estate market balanced or have policy makers over reached?  Numbers are supposed to be black and white.  Shades of grey come into play depending on the side of the argument you’re on.

The Canadian Real Estate Association, (CREA) released data this week which will make all sides of the Canadian real estate market argument happy.  Example, according to the MLS Home Price Index, home prices have increased by 7.6% from a year ago.  Now if you take Vancouver and Toronto out of the equation, the increase was 4.6% on a year over year basis.  So are we on the cusp of a potential real estate bubble or is it simple supply side economics?  The number of homes sold came in slightly lower than a year ago.  So is demand outpacing supply, causing prices to increase?  And oh my god, condo sales increased in Toronto as well. Red Rover, Red Rover, Doom Sayers come on over.  There’s a little something for everyone. The teeth nashers and those predicting Armageddon are fist bumping each other.  Others, justifiably so, are saying it’s a balanced market.  Should the price of a real estate never rise? If that we’re the case we would all be squatters, living in tents.  The commentators I love are the ones that sit firmly on the fence.  An economist for one major bank said their analysis suggests that we all experience a 10% decrease in home values, and there could be further risk if sales activity was to increase. They were so concerned with the “risk” that they matched the 2.99% five year rate that one of their competitors came out with.  That fence post must really be uncomfortable to sit on.

Sifting through all the commentary can be confusing, and let’s be honest, depending on the amount of skin you have in the game will influence the argument and opinion you support.  To combat human nature it’s important to seek contrary opinions, and I force myself do that, almost daily.  It takes some effort to find commentary which is not self-serving, like those selling newspapers, hedge funds that are shorting the Canadian economy or politicians playing politics.  Here’s a couple names to look out for when you want broader viewpoint, economists Nouriel Roubini and David Rosenberg.  What’s their bona fide? They predicted the financial collapse of 2008. So what are they saying today?  According to Rosenberg, “Nattering nabobs of negativity – stop knocking yourself out. First, there are a host of reasons why I see inflation rising moderately, and the wage process is but one of them. There is a very interesting development taking place that is not garnering a lot of attention. The U.S. commercial banks are loosening their purse strings. As for the U.S. economy, it is looking as though Q2 real GDP growth will come in close to a 4% annual rate. Why I turned bullish on the U.S. consumer.”  Clearly he’s refereeing to the U.S. Economy, but like it or not, when America sneezes we look for a tissue.  In good times and bad.

Until next time!

Cheers,

I’m spending some time in airports this week, and I use that time to catch up my reading.  I came across an on-line article by Christina Pellegrini, “Why real estate doomsayers continue to be wrong.” The article originally appeared in the Financial Post Magazine.  There was something different and unusual about the article which left me out of sorts after reading it.  Figuring I must have missed the nuance, I read the article again.  Then it dawned on me. The story was fair, balanced and looked at both sides of the story.  That’s something which is sorely lacking when it comes to stories about the real estate/mortgage industry in our country.

For far too long the doomsayers have dominated the airwaves and print media.  I get it, it sells.  Crash, bust or apocalyptic meltdown gets more attention than a stable and balanced market.  But shouldn’t someone hold the doomsayers accountable or at the very least ask the question, “you were way off, please explain?”

Pellegrini attempts to do just that.  There was a great quote in the article from Canada Mortgage Trends, Rob McLister.  With respect to where prices may be at some point in the future, Rob said the following: “Anyone that purports to tell people where prices are going to be in two, three, fours years down the road is a fraud. Housing is stable at this point and there’s nothing on the horizon that we can say with certainty is coming that would derail the market.”

Facts and trends can be debated, and that’s healthy. The problem today is there doesn’t appear to be much debate.  Rob’s viewpoint, along with many other in the article, is not only refreshing but necessary.  A balanced story, irrespective of the topic, requires work.  It’s time for some to stop being intellectually lazy.

Until next time

Cheers

Do my eyes deceive me? Is there a plethora of solid economic news? Let’s see, there aren’t any new weather disasters or heat waves to be concerned about which would impact housing. Well, that’s a start. Add that to some positive economic news and I’m almost afraid to continue on with the blog. What the hell, I’ll tempt fate. There’s some positive news coming out of Canada and also for our neighbors south of the 49th parallel.

The results of the most recent Thomson Reuters/University of Michigan U.S. Consumer Sentiment Index has reached the highest level since 2007. Given what happened in 2008, the near collapse of the global economy, these results are significant. The strength and weakness of the U.S. economy is dependent on consumer spending. After 2008, American consumers did something awful – they stopped spending and started to save. Their levels of individual savings reached record highs, and it was a convenient statistic for doomsayers in this country to point too. The soapbox rhetoric sounded something like this: “look how responsible the Americans have become. We should learn from them.” Saving money is wise but we have also learned that if the U.S. consumer doesn’t spend, we feel it. Like right in the derriere. Our economies are intertwined so any good news south of the boarder, as it relates to consumer spending, is good news for us. We have lots to sell them and with the falling loonie our products and services are more affordable. So come on American consumers, be patriotic. Dip into your savings accounts and don’t be embarrassed about having a larger credit card balance. Spend for the love of your country and your most appreciative neighbors to the north.

The good news here at home is the average Canadian net worth is on the rise. For the first time ever we’ve topped the $400,000 barrier. Okay, most of that is real estate equity but I don’t think we should have to apologize for that. Having a balanced portfolio mitigates risk, but wealth is wealth. Kudos to the people living in Ontario. The province which proudly claims that it’s “Yours to Discover” has discovered that paying down debt is not a bad thing. Ontario was the only province to lower non-mortgage debt, resulting in Ontario having the largest percentage increase in average net worth in the country. Saskatchewan is climbing the net worth charts given their newfound riches, due in large part to natural resources and real estate value. B.C. still holds the distinction of having the highest net worth at $662k. When it comes to B.C. we all know that if you own a home, you’re a millionaire. Unfortunately, to realize any gain, British Columbians would have to sell their home and move to Nunavut. Sure, the average temperature in Nunavut in January is -48, but you would have all that cash to throw into the fireplace to keep yourself warm.

All in all some good news across the country. I don’t want to push the “good news” stories too far. The law of averages dictates restraint. I may have gone too far already. So I’ll apologize in advance if a meteor hit’s the earth (the apology only applies if the meteor actually lands in Canada) and ruins everyone’s week.

Until next time,

Cheers

Much has been written and said about mortgage debt and affordability recently.  No point in belaboring what has and has not been done to address this issue. I’m sure there will be plenty of that in the future, as well ample hang ringing about the so-called condo bubble, specifically in Vancouver and Toronto.

Manhattan Living...

The so-called “condo crisis” (oh, how the mere thought of it makes the press salivate) in Vancouver and Toronto came to mind after I read an article in the Wall Street Journal. The article focused on the cost of condos in Manhattan. The current median price of a condo in Manhattan is the lowest it’s has been since 2004. Could Manhattan’s experience be a harbinger of what’s to come for Vancouver and Toronto?  If it is then maybe the 36 people in Toronto who don’t own a condo already should go and get one.

According to the Canadian Real Estate Association, the average home price for the month of December in Toronto was $501,361, and in Vancouver it was $730, 912.  Remember this includes dirt to go along with the walls.  In Manhattan the average condo price in 2012 was $835,000.  However, adjusted for inflation it was the lowest since 2004.  Can you imagine the headlines if Toronto was similar to Manhattan’s reality?  The median price in Manhattan for a 2 bedroom condo was $1.26 million, 3 bedroom was $2.37 million and a 4 bedroom was $4.75 million. Adjusted for inflation these are the lowest prices since 2004. According to the Wall Street Journal article there’s a disconnect between buyers and investment indicators.  Buyers are saying there’s not enough affordable housing and yet when you take inflation into account prices have actually declined.  So is it a good time to buy a condo in Manhattan?  I’m not familiar with the Manhattan’s housing cycle so I’m not sure, but what I can say is this: at an average price of $2.37 million for a 3 bedroom condo in Manhattan, I think Toronto is a good buy.

Some might be aghast that I would compare Manhattan to Toronto.  Well, Toronto is the 4th largest market between the US and Canada.  Therefore, I think it’s valid to look at values on a comparative basis.  That’s exactly what foreign investors did when buying property in Vancouver and Toronto. As absurd as we think our prices may be, the investor from Hong Kong looks at our market and thinks of great value.  As we all know value is driven in large part by consumer perception.  The perception of Vancouver and Toronto is that consumers buying condos are doing so at their own peril.  Yet in Manhattan, home buyers lament the high cost and scarcity, all the while being told now is a good time to buy.  It’s interesting how some things never change.  Here’s a headline that helped shape New Yorkers perception of their condo market, “Great Scarcity in Apartments…Never before has there been such scarcity of apartments on Manhattan Island.”  That headline came from the New York Times, in 1916!

Until Next Time

Cheers

For some time now, finding positive news about the mortgage industry and the real estate market in general required a Sherpa Guide and a donkey.  “I think I just heard something positive about mortgages…  OOPS, my bad, it’s just Big Foot.”

It hasn’t been easy but over the past couple of weeks there’s been news which leads me to believe the Four Horsemen of the Apocalypse may not be on the way.

CAAMP’s Annual State of the Residential Mortgage Market in Canada (love those short titles) was released just prior to Mortgage Forum 2012 in Vancouver.  It’s a must read for everyone in the industry.  All the major media outlets have picked up the report and there’s been a significant amount of coverage based on the report.  One aspect of the report that bodes well for the industry, and should give regulators some degree of comfort, is how responsible Canadian borrowers are.  I found it striking that 32% of borrowers either increased their monthly payments or made principal reductions over the past 12 months.  It is estimated that $3.5 billion in additional monthly payments were made, and a further $20 billion in lump sum payments.  Yes, consumers are taking on more debt but they’re looking at paying off their debt sooner.  When stories are written about consumer debt levels, a word or two should be dedicated to how responsible Canadians are in attempting to eliminate their debt.

Here’s another indication that consumers maybe be smarter than the press give them credit for.  Over the past 12 months there’s been a high level of ARM conversions to 5 year fixed terms, and the product of choice today is 5 year fixed. Maybe, just maybe consumers are smart enough to know that now is not the time to gamble.  They’re looking at five year terms and saying the rate is competitive and it’s worth the peace of mind for the next five years.

As far as I’m concerned, the only stat that matters to our industry is the unemployment rate.  Everything else, where prime is going etc., is secondary.  Our industry, our entire economy will rise and fall with employment numbers.  It’s simple, if borrowers are working and they have access to cheap money, like they do now and will have for the next few years, there’s less reason to dump a property.  A home owner may not get the price they’re looking for but because the home is affordable there is less reason to discount the price.

If a home owner loses their job a completely different set of circumstances arise.  That’s why there’s reason for optimism over the most recent employment numbers.  According to Stat’s Canada, 59 thousand new jobs were created in November. On a year over year basis 294 thousand new jobs have been created, and hours worked have also increased.  These numbers are critical, not only to our industry but to our economy. Anytime we see a reduction in the employment rate it’s a reason for a high five or fist bump.  So turn around and give your work mate a fist bump because our unemployment rate has been reduced to 7.2%.

There’s more good news that will be readily available when the full Maritz survey becomes public in January, another must read.  But even if we only take into account the data available today there’s reason for optimism, and lessons to be learned.  For instance, consumers do not require regulators to legislate responsibility. Consumers are miles ahead on that one.

Until next time,

Cheers.