18 Nov

Canadian Housing Not in a Bubble-BMO


Posted by: Kristina Crosbie

Housing affordability consistent with historic trends – Alberta and Ontario housing prices unlikely to drop sharply – Caution noted for British Columbia

TORONTO, Ontario, November 16, 2010 — While there is growing speculation that the Canadian housing market is a bubble ready to implode, a new report from BMO Capital Markets Economics asserts that market valuation is only moderately above long-term trends.

“All things considered, the Canadian housing market does not appear to be in a bubble, and is unlikely to suffer a U.S.-style collapse,” said BMO Economists Earl Sweet and Sal Guatieri. “A comparison of the ratio of prices to incomes with the long-term trend suggests Canadian house prices were overvalued by as much as 18 per cent in late 2009. However, a 3 per cent decline in seasonally-adjusted prices so far this year, coupled with continued moderate income growth, has reduced overvaluation to a less worrisome 11 per cent in the third quarter of 2010.”

Commenting on the report, BMO Bank of Montreal Vice President of Lending and Deposit Products, Martin Nel, said, “Due to historically low rates, mortgages remain affordable today. Even with the notable rise in house prices during the past few years, the costs to service an average priced home, including principle and interest, are running close to long-term norms.”

Nel added that with this in mind, Canadians still need to do their homework before making any big decisions.

“Regardless of the market conditions, we advise prospective home buyers to stress test their financial budget using a mortgage payment based on a higher interest rate then what is currently available,” said Nel. “For example, total housing costs, including mortgage payments, property taxes and heating costs, should not consume more than one-third of household income.”

The report does take note of regional differences, with B.C.’s housing market shown to be more overvalued than Ontario’s or Alberta’s. “Unlike these two other provinces, B.C. house prices have continued to trend higher in 2010, reaching new peaks in September,” said the two economists. “Consequently, it likely faces a greater downside risk than other provinces. Valuations in Alberta and Ontario are closer to the current national estimate.”

The full report can be found at www.bmocm.com/economics.

News source: BMO Financial Group

9 Nov

Market for homes close to balanced By JAY BRYAN, The Gazette November 9, 2010


Posted by: Kristina Crosbie

Mortgage debt in Canada climbed by 7.6 per cent in the past year to exceed $1 trillion -a figure that’s sure to spark new worries about a housing bubble in Canada.

But a look below the surface of this number is far more reassuring.

First, the sheer amount of mortgage debt sounds daunting, but what’s really important is how fast it’s growing. It turns out that this growth has slowed a good deal from a trend rate of 10.7 per cent in recent years, an encouraging sign. The forecast is for a further downshift.

As well, it’s hard to find signs of bubble behaviour or of a financial squeeze on homeowners.

Few Canadian homeowners are speculating on housing and most have a fat equity cushion in their properties. Better yet, most could afford monthly payments of at least $300 above their current ones, according to a new survey.

This information is courtesy of an outfit that represents many of Canada’s mortgage brokers and insurers, the Canadian Association of Accredited Mortgage Professionals, which has just published a wealth of housing-market intelligence in its annual report.

Bottom line, CAAMP president Jim Murphy says in a statement accompanying the report: “Canadians are being smart and responsible with their mortgages. They are building equity in their homes and making informed, long-term mortgage decisions.”

This sounds like one of those motherhood statements that you expect from sales-oriented organizations like your local real-estate board, but the interest of mortgage lenders is quite different, giving Murphy’s optimism a bit more credibility.

His members would suffer big losses if there were a big deterioration in people’s ability to pay off mortgage debt – a crucial factor that drove the 30-per-cent collapse in U.S. home values over the past several years.

And it’s not just CAAMP that’s unconvinced about any bubble. At BMO Capital Markets, senior economist Sal Guatieri has just taken another look at Canadian home valuations and concluded that the average price across the country is too high, but not by a lot.

At the peak of the home-buying frenzy late last year, Canadian prices were overvalued by maybe 18 per cent, he estimates, but this has diminished to about 11 per cent as the market cooled and incomes edged up. (His calculation is based on the long-term relationship between prices and personal incomes.)

With prices still richer than incomes would normally support, there’s some pressure for further cooling in prices, Guatieri believes, but he doesn’t see a drop of more than five per cent.

That’s partly because incomes continue to rise, helping to narrow the gap. It’s important to remember that Canada’s very low mortgage interest rates can support prices above the average level for quite a while, providing time for the slow advance of incomes to do most of the rebalancing.

Will Dunning, the chief economist at CAAMP, has a similar outlook. As demand for housing cools, he expects to see a sharp drop in new housing construction (a forecast that looked exactly right when we saw yesterday’s news of a nine-per-cent drop in housing starts last month), but little pressure on resale prices.

Dunning predicts that the average Canadian home price for 2011 will be a modest 3.9 per cent lower than in 2010, simply because of price declines that have already affected some markets.

But this annual average represents past price movements. He thinks the trend in 2011 and 2012 will be one of small price gains, just enough to offset inflation.

That’s because the balance between homeowners listing properties for sale and people looking for homes to buy has shifted back toward buyers, but not nearly far enough to kneecap prices. In Dunning’s view, the market these days is just about balanced.


Read more: http://www.montrealgazette.com/business/Market+homes+close+balanced/3797871/story.html#ixzz14nX8Ev89

8 Nov

Most Canadians could afford to pay higher mortgage: Report Mortgage debt for the first time surpasses $1 trillion


Posted by: Kristina Crosbie

By Mario Toneguzzi, Calgary Herald

CALGARY – Canadian mortgage debt for the first time has surpassed $1 trillion, according to the sixth Annual State of the Residential Mortgage Market report from the Canadian Association of Accredited Mortgage Professionals released today.

The report also said the vast majority of Canadians with mortgages are able to afford at least a $300 increase in their monthly mortgage payments. One in three (35 per cent) mortgage holders have either increased their payments or made a lump-sum payment on their mortgage in the last year. And 89 per cent of Canadian homeowners have at least 10 per cent equity in their homes and 80 per cent have more than 20 per cent equity.

Overall home equity is at 72 per cent of the total value of housing in Canada. For homeowners who have mortgages, equity level averages 50 per cent.

As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada, an increase of 7.6 per cent from last year.

Among homeowners who have mortgages, the average amount of equity is about $146,000, or 50 per cent of the average value of their homes, said the report.

The amount of equity takeout in the past year is unchanged from last year with around one in five homeowners, or 18 per cent, taking equity out of their home, at an average of $46,000. The most common purpose for equity takeout is debt consolidation and repayment (45 per cent) followed by home renovations (43 per cent), purchases and education (19 per cent) and then investments (16 per cent), added the report.