Mississauga, ON (February 8th, 2011) - Tighter inventory levels helped to make the last decade one of the healthiest periods on record for Canadian real estate, insulating markets in major centres from the peaks and valleys characteristic of past decades, according to a report released by RE/MAX.
The RE/MAX Housing Barometer Report measured monthly sales-to-new listings ratios in 18 major centres across the country from January 2000 to December 2010. The report found strong seller's/balanced conditions prevailed for much of the time frame, prompting significant gains in housing values. The lone exception was when the market dipped into buyer's territory during the latter half of 2008 and early 2009. However, fewer listings served to offset diminished demand and provided greater stability. Average price increases from 2000 to 2010 ranged from an annually compounded rate of return of 4.82 per cent in London-St. Thomas to a high of 9.56 per cent in Regina. The national average was 6.82 per cent. By far the tightest market in the nation was Winnipeg, where seller's ruled the roost for 85 per cent of the decade, followed by Hamilton-Burlington (67 per cent), Regina (63.6 per cent), Kitchener-Waterloo (59.8 per cent) and Edmonton (57.5 per cent).
Tuesday, February 8, 2011
Monday, February 7, 2011
Social Media Drives the Information WorldSocial Media
Engaging the customer was once the most time consuming part of our job. Meeting, greeting, socializing, keeping in touch, visiting and conversing with a customer was not only time consuming but tiring. Today, Social media can do this effectively, personally and in a much more engaging way than ever before.
For many, social media is frightening. for others it is simply misunderstood to the point that people refuse to even consider the possibility that they would benefit from a social media approach to their business and life.
Why should you consider social media and prepare a plan for your media marketing?
1. You can have one consistent voice heard around the world. Your clients are exposed to your brand in more than one spot on the Internet, on line as well as offline. Whether you are using a website, Twitter, Facebook or Linkedin you can be consistent with your messaging, coherent in your branding and effective in your conversation to convert a customer to a client.
2. Decide on your goal and central theme to drive more traffic to your blog of to make more people buy products from your website. Once you have your overall goal, select one central focus for your strategy and separate channels to drive traffic there. If you are attempting to drive traffic to your blog you can use Twitter, Digg, or Delicious to advertise your blog. Or perhaps website traffic to your website is your goal by encouraging visitors to access your articles, tools or services promoted on your blog. To do this simply link to the resource section of your website from Facebook, Twitter and/or Youtube channels.
3. Use other traditional media to publicize your blog such as brochures, business cards, presentations or regular print media. Include your web address, Twitter and Facebook and Blog URLs.
For many, social media is frightening. for others it is simply misunderstood to the point that people refuse to even consider the possibility that they would benefit from a social media approach to their business and life.
Why should you consider social media and prepare a plan for your media marketing?
1. You can have one consistent voice heard around the world. Your clients are exposed to your brand in more than one spot on the Internet, on line as well as offline. Whether you are using a website, Twitter, Facebook or Linkedin you can be consistent with your messaging, coherent in your branding and effective in your conversation to convert a customer to a client.
2. Decide on your goal and central theme to drive more traffic to your blog of to make more people buy products from your website. Once you have your overall goal, select one central focus for your strategy and separate channels to drive traffic there. If you are attempting to drive traffic to your blog you can use Twitter, Digg, or Delicious to advertise your blog. Or perhaps website traffic to your website is your goal by encouraging visitors to access your articles, tools or services promoted on your blog. To do this simply link to the resource section of your website from Facebook, Twitter and/or Youtube channels.
3. Use other traditional media to publicize your blog such as brochures, business cards, presentations or regular print media. Include your web address, Twitter and Facebook and Blog URLs.
Blogging - Become the Local Expert
Blogging began in the 1990 and has come a long way to the point that it is the most accepted way to share personal commentary with other Internet users. A blog is an online diary. After 10 years, with hundreds of millions of blogs in existence, this industry has become mature and not just a passing fad.
For a business, a blog can be an effective marketing tool that can spread word about your brand quickly, easily and in a cost effective manner. You are able to informally connect with your listening public to be listened to, responded to and engaged in a conversation with your target market.
There are no barriers to entering the blogging world. Platforms such as Blogger, WordPress, Typepad are free, simple to set up with no need for super skill levels. Content is easy to maintain an publish. Once published, there are many ways you can market your blog to grow readership and expand your customer base. Writing good content is important, but all the great ideas in the world are of no importance if your content cannot be found. There are several ways you can ensure that the world can find your content including optimization so you are visible. As well you can join other blogging communities to link with other bloggers.
Some bloggers monetize their blog by capitalizing on traffic to their site. The amount of traffic to your site becomes a magnet for potential advertisers. If you have a significant number of viewers on a certain topic advertisers are willing to pay simply to expose their product to your viewing audience.
So start your blog today and post relevant material your customers would want to see. Start small. Let it grow naturally. You can do it!
For a business, a blog can be an effective marketing tool that can spread word about your brand quickly, easily and in a cost effective manner. You are able to informally connect with your listening public to be listened to, responded to and engaged in a conversation with your target market.
There are no barriers to entering the blogging world. Platforms such as Blogger, WordPress, Typepad are free, simple to set up with no need for super skill levels. Content is easy to maintain an publish. Once published, there are many ways you can market your blog to grow readership and expand your customer base. Writing good content is important, but all the great ideas in the world are of no importance if your content cannot be found. There are several ways you can ensure that the world can find your content including optimization so you are visible. As well you can join other blogging communities to link with other bloggers.
Some bloggers monetize their blog by capitalizing on traffic to their site. The amount of traffic to your site becomes a magnet for potential advertisers. If you have a significant number of viewers on a certain topic advertisers are willing to pay simply to expose their product to your viewing audience.
So start your blog today and post relevant material your customers would want to see. Start small. Let it grow naturally. You can do it!
Good Start to 2011 states Toronto Real Estate Board Market Watch
TORONTO, February 4, 2011 -- Greater Toronto REALTORS® reported 4,337 transactions through the orontoMLS® system in January 2011. This result was 13 per cent lower than the record result reported in January 2010.
“While off the record pace experienced a year ago, the GTA resale market has started the year on a solid footing. Home buyers in Toronto and surrounding areas continue to benefit from a diversity of housing types for sale at many different price points,” said TREB President Bill Johnston.
The average selling price for January 2011 sales was $427,037, representing an increase of over four per cent compared to the average of $409,058 reported in January 2010. “The average selling price is expected to grow at a moderate pace in 2011. Growth rates in the three to five per cent range will be sustainable from an affordability perspective,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
“While off the record pace experienced a year ago, the GTA resale market has started the year on a solid footing. Home buyers in Toronto and surrounding areas continue to benefit from a diversity of housing types for sale at many different price points,” said TREB President Bill Johnston.
The average selling price for January 2011 sales was $427,037, representing an increase of over four per cent compared to the average of $409,058 reported in January 2010. “The average selling price is expected to grow at a moderate pace in 2011. Growth rates in the three to five per cent range will be sustainable from an affordability perspective,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
Thursday, February 3, 2011
Why a rate hike won’t be a blow to most
MICHAEL BABAD
Globe and Mail Blog
Posted on Tuesday, February 1, 2011 6:32AM EST
Bank of Canada Governor Mark Carney and other policy makers have no doubt been scaring the pants off consumers who have loaded up on debt like there's no tomorrow. Well, there is a tomorrow, and that was their aim.
But while the risk of overweight debt levels is a "significant" one to the economy, the effects of the inevitable rise in interest rates should not be oeverestimated, National Bank Financial says in a new reportMr. Carney has warned repeatedly that household debt levels are too high, and Finance Minister Jim Flaherty recently tightened up the mortgage market again. This came as the ratio of household debt reached a whopping 148 per cent of disposable income, a level higher than in the United States.
"It's not that Canadians are throwing money out the window," said Yanick Desnoyers, assistant chief economist at National Bank Financial.
"Rather they are buying more houses, taking the homeownership rate to a record 70 per cent. Since very few homebuyers pay cash, the resulting indebtedness is hardly surprising."
About 40 per cent of homeowners have no mortgage, compared to 31 per cent in the United States, Mr. Desnoyers found.
And given that some 30 per cent of Canadians rent, about 58 per cent of households pay no mortgage interest. Coupled with that is the fact that the net equity of owners in their homes is "very high," more than 60 per cent, compared to 39 per cent in the United States.
Also on the plus side, Mr. Desnoyers said, is the mix of mortgage products.
Two out of three mortgaged homes have pay a fixed rate, leaving just 14 per cent with a variable-rate mortgage.
"In other words, the great majority of Canadians are not exposed to a monthly-payment shock from a rate rise," he said.
"Though a larger proportion of households have home-equity lines of credit, all at variable rates, it remains that a rise in interest rates will not be an overnight blow to the bulk of households."
For a while, it looked like consumers were heeding the warnings, and the increase in credit was easing. But new numbers yesterday showed household credit climbing 0.6 per cent in November, from a month earlier, and 0.8 per cent in December.
"That was a stronger than a year ago, and lifted the annual trend to 6.8 per cent, but a bit down from the average growth of 7.5 per cent in 2009/10," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns. "Adjusted for [consumer price index] inflation, credit growth is running at 4.4 per cent, about 2 percentage points below the average of the past two years."
There are two ways to look at the numbers, according to Mr. Porter, sort of a glass-half-full, glass-half-empty kind of thing.
Even with the rise late last year, growth in household credit is at its slowest in seven to eight years. Of course, even with the softening last year, credit growth remains strong in real terms, and it's still climbing at a faster pace than income.
"It needs to slow more before the [Bank of Canada] will relax," Mr. Porter said.
Globe and Mail Blog
Posted on Tuesday, February 1, 2011 6:32AM EST
Bank of Canada Governor Mark Carney and other policy makers have no doubt been scaring the pants off consumers who have loaded up on debt like there's no tomorrow. Well, there is a tomorrow, and that was their aim.
But while the risk of overweight debt levels is a "significant" one to the economy, the effects of the inevitable rise in interest rates should not be oeverestimated, National Bank Financial says in a new reportMr. Carney has warned repeatedly that household debt levels are too high, and Finance Minister Jim Flaherty recently tightened up the mortgage market again. This came as the ratio of household debt reached a whopping 148 per cent of disposable income, a level higher than in the United States.
"It's not that Canadians are throwing money out the window," said Yanick Desnoyers, assistant chief economist at National Bank Financial.
"Rather they are buying more houses, taking the homeownership rate to a record 70 per cent. Since very few homebuyers pay cash, the resulting indebtedness is hardly surprising."
About 40 per cent of homeowners have no mortgage, compared to 31 per cent in the United States, Mr. Desnoyers found.
And given that some 30 per cent of Canadians rent, about 58 per cent of households pay no mortgage interest. Coupled with that is the fact that the net equity of owners in their homes is "very high," more than 60 per cent, compared to 39 per cent in the United States.
Also on the plus side, Mr. Desnoyers said, is the mix of mortgage products.
Two out of three mortgaged homes have pay a fixed rate, leaving just 14 per cent with a variable-rate mortgage.
"In other words, the great majority of Canadians are not exposed to a monthly-payment shock from a rate rise," he said.
"Though a larger proportion of households have home-equity lines of credit, all at variable rates, it remains that a rise in interest rates will not be an overnight blow to the bulk of households."
For a while, it looked like consumers were heeding the warnings, and the increase in credit was easing. But new numbers yesterday showed household credit climbing 0.6 per cent in November, from a month earlier, and 0.8 per cent in December.
"That was a stronger than a year ago, and lifted the annual trend to 6.8 per cent, but a bit down from the average growth of 7.5 per cent in 2009/10," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns. "Adjusted for [consumer price index] inflation, credit growth is running at 4.4 per cent, about 2 percentage points below the average of the past two years."
There are two ways to look at the numbers, according to Mr. Porter, sort of a glass-half-full, glass-half-empty kind of thing.
Even with the rise late last year, growth in household credit is at its slowest in seven to eight years. Of course, even with the softening last year, credit growth remains strong in real terms, and it's still climbing at a faster pace than income.
"It needs to slow more before the [Bank of Canada] will relax," Mr. Porter said.
Genworth taking back its share of mortgage market
TARA PERKINS — FINANCIAL SERVICES REPORTER
From Thursday's Globe and Mail
Published Wednesday, Feb. 02, 2011 6:22PM EST
Last updated Wednesday, Feb. 02, 2011 6:40PM EST
Genworth MI Canada Inc. (MIC-T27.00-0.06-0.22%) is recouping the share of mortgage insurance business it lost during the financial crisis, amid rising calls for Ottawa to remove rival Canada Mortgage and Housing Corp.’s “unfair” advantage in the sector.
Although Canada’s mortgage insurance system is a key reason why the housing market has held strong, there is room for improvement, critics say, and a more competitive system would lead to lower insurance fees for homeowners.
Think tanks such as the C.D. Howe and the MacDonald-Laurier institutes want legislators to re-evaluate the system and consider spinning off, or even winding down, CMHC’s main mortgage insurance business, or giving its private sector competitors the same advantages that CMHC has.
Mortgage insurance from CMHC comes with a 100-per-cent guarantee from the federal government, while private sector competitors such as Genworth receive a 90-per-cent guarantee. The insurance is designed to ensure that the bank issuing the mortgage is repaid if the consumer defaults, but banks with mortgages that are insured by a private sector insurer have to set aside more capital to cover the remaining 10 per cent.
When the financial crisis heightened the importance of banks’ capital levels, Genworth experienced a sharp drop in business. The net amount of premiums that Genworth wrote fell from $983.6-million in 2007 to $706-million in 2008 and $306-million in 2009. At the same time, CMHC’s business grew.
“People are concerned about how big CMHC’s exposure is – and the taxpayer takes direct responsibility for that – and are looking at whether there is a way to make the system better,” Genworth’s president Peter Vukanovich said in an interview Wednesday.
“It’s not about Genworth, it’s about the consumer,” he stressed. “The current framework is good, but it could be better for home buyers.”
Genworth reported its fourth-quarter results on Wednesday, which suggest that the company is beginning to recoup market share, said CIBC World Markets Inc. analyst Paul Holden.
“If there was a level playing field in terms of government backing, the private insurers, namely Genworth, would experience a significant increase in market share in a very short period of time,” Mr. Holden said in an interview.
Genworth’s profit came in slightly above the Street’s estimate, as its net premiums written rose 22 per cent from a year earlier to $134-million, bringing the 2010 total to $552-million.
A paper released by the C.D. Howe Institute this week argues that CMHC’s mortgage insurance business “subjects Canadian taxpayers to large, ill-defined risks.” It suggests that CMHC begin backing away from traditional mortgage insurance and instead concentrate on the securitization market, in which home loans are bundled into securities that are sold to investors.
The institute also wants CMHC to be subject to official oversight by the country’s financial regulator, as are its private sector competitors. Without proper oversight, the paper argues, taxpayers don’t have a complete understanding of the risks they are exposed to by CMHC.
A paper by Jane Londerville, an associate professor at the University of Guelph, released by the Macdonald-Laurier Institute for Public Policy in November, noted that in 1997, CMHC lacked sufficient reserves to cover the claims being made, and Ottawa had to step in to ensure the agency had enough capital. Since then, CMHC has charged higher rates.
Ms. Londerville argued that CMHC’s “unfair” advantage over private sector competitors is hurting consumers who buy mortgage insurance. A person buying a $300,000 house with a 5-per-cent down payment, for example, would pay about $8,000 for mortgage insurance – more if he were deemed a risky borrower.
She is calling on Ottawa to spin off CMHC’s mortgage insurance business and to give the same guarantee to all mortgage insurers to create “a more home-buyer-friendly marketplace.”
Along with Genworth, the other major competitor to CMHC is Canada Guaranty Mortgage Insurance, which was bought from AIG last year by a group led by the Ontario Teachers’ Pension Plan.
From Thursday's Globe and Mail
Published Wednesday, Feb. 02, 2011 6:22PM EST
Last updated Wednesday, Feb. 02, 2011 6:40PM EST
Genworth MI Canada Inc. (MIC-T27.00-0.06-0.22%) is recouping the share of mortgage insurance business it lost during the financial crisis, amid rising calls for Ottawa to remove rival Canada Mortgage and Housing Corp.’s “unfair” advantage in the sector.
Although Canada’s mortgage insurance system is a key reason why the housing market has held strong, there is room for improvement, critics say, and a more competitive system would lead to lower insurance fees for homeowners.
Think tanks such as the C.D. Howe and the MacDonald-Laurier institutes want legislators to re-evaluate the system and consider spinning off, or even winding down, CMHC’s main mortgage insurance business, or giving its private sector competitors the same advantages that CMHC has.
Mortgage insurance from CMHC comes with a 100-per-cent guarantee from the federal government, while private sector competitors such as Genworth receive a 90-per-cent guarantee. The insurance is designed to ensure that the bank issuing the mortgage is repaid if the consumer defaults, but banks with mortgages that are insured by a private sector insurer have to set aside more capital to cover the remaining 10 per cent.
When the financial crisis heightened the importance of banks’ capital levels, Genworth experienced a sharp drop in business. The net amount of premiums that Genworth wrote fell from $983.6-million in 2007 to $706-million in 2008 and $306-million in 2009. At the same time, CMHC’s business grew.
“People are concerned about how big CMHC’s exposure is – and the taxpayer takes direct responsibility for that – and are looking at whether there is a way to make the system better,” Genworth’s president Peter Vukanovich said in an interview Wednesday.
“It’s not about Genworth, it’s about the consumer,” he stressed. “The current framework is good, but it could be better for home buyers.”
Genworth reported its fourth-quarter results on Wednesday, which suggest that the company is beginning to recoup market share, said CIBC World Markets Inc. analyst Paul Holden.
“If there was a level playing field in terms of government backing, the private insurers, namely Genworth, would experience a significant increase in market share in a very short period of time,” Mr. Holden said in an interview.
Genworth’s profit came in slightly above the Street’s estimate, as its net premiums written rose 22 per cent from a year earlier to $134-million, bringing the 2010 total to $552-million.
A paper released by the C.D. Howe Institute this week argues that CMHC’s mortgage insurance business “subjects Canadian taxpayers to large, ill-defined risks.” It suggests that CMHC begin backing away from traditional mortgage insurance and instead concentrate on the securitization market, in which home loans are bundled into securities that are sold to investors.
The institute also wants CMHC to be subject to official oversight by the country’s financial regulator, as are its private sector competitors. Without proper oversight, the paper argues, taxpayers don’t have a complete understanding of the risks they are exposed to by CMHC.
A paper by Jane Londerville, an associate professor at the University of Guelph, released by the Macdonald-Laurier Institute for Public Policy in November, noted that in 1997, CMHC lacked sufficient reserves to cover the claims being made, and Ottawa had to step in to ensure the agency had enough capital. Since then, CMHC has charged higher rates.
Ms. Londerville argued that CMHC’s “unfair” advantage over private sector competitors is hurting consumers who buy mortgage insurance. A person buying a $300,000 house with a 5-per-cent down payment, for example, would pay about $8,000 for mortgage insurance – more if he were deemed a risky borrower.
She is calling on Ottawa to spin off CMHC’s mortgage insurance business and to give the same guarantee to all mortgage insurers to create “a more home-buyer-friendly marketplace.”
Along with Genworth, the other major competitor to CMHC is Canada Guaranty Mortgage Insurance, which was bought from AIG last year by a group led by the Ontario Teachers’ Pension Plan.
Home prices could dive if rates rise, analyst says
STEVE LADURANTAYE — REAL ESTATE REPORTER
From Friday's Globe and Mail
Published Thursday, Feb. 03, 2011 6:57PM EST
Last updated Thursday, Feb. 03, 2011 7:00PM EST
Higher interest rates could “easily” cause Canadian home prices to collapse, Capital Economics warned in a bleak report that suggests the housing market is likely to suffer the same sort of crash that has plagued countries such as the United States.
The report suggests that house prices in Canada have climbed at the same pace as the United States, but have not fallen at the same rate. In the United States, some markets have seen prices fall as much as 50 per cent through the recession.
As the Bank of Canada raises interest rates, mortgages will become more expensive for consumers. Add inflation to the mix, and Capital Economics predicts prices could fall 25 per cent over the “next few years.”
“Even small rises in official interest rates have been shown to have a big effect on homeowner confidence in other countries under similar circumstances as they can change perceptions toward the housing market very quickly,” Capital Economics economist David Madani said. “If the Bank of Canada does resume its monetary tightening this year, this could easily prove to be a tipping point for a house price collapse.”
Other market watchers expect higher rates to hinder price gains, but few are calling for as sharp a drop. The Canadian Real Estate Association expects sales to fall 9 per cent this year, for example, but prices are only expected to drop 1.3 per cent. It hasn’t issued a forecast beyond 2011.
Bank of Nova Scotia economist Adrienne Warren said it’s difficult to compare the Canadian situation with the American because Canada’s gains have been based on a strong economy – relatively speaking – as opposed to easy lending.
“We lack the triggers that prompted the U.S. market to crash,” she said. “I think what you see is prices staying flat as incomes rise over the next few years.”
Such a scenario could lead to home prices that are flat over the next five years, as personal incomes catch up.
“I think some markets may be overvalued and they can’t stay that way forever,” she said. “If you look at the longer-term trend in ratios, we could say things are overvalued by about 10 per cent, which is typical at the end of a boom. But there are so many different measures – it’s just safe to say that eventually you see a softening in prices.”
The country’s bank economists have varied short-term forecasts, but there are no expectations among the largest forecasters that a crash is inevitable, or even likely.
Some have suggested drops of 10 per cent may be in order next year as mortgage rates move higher and households struggle to service record debt loads, and the Bank of Canada specifically mentioned the prospect of “a more pronounced correction in the Canadian housing market” as one of three key risks to the country's economy.
However, real estate sales data from the autumn market showed that fewer houses have been listed and prices were largely unchanged from a year ago.
Capital Economics chief concern is that as the central bank raises rates, variable-rate mortgages become more expensive and homeowners could find themselves priced out of their homes.
Fixed-rate mortgages are tied to government bond yields, but would move in the same general direction. If a homeowner is already stretched financially, any hike could prove problematic.
However, a survey by the Canadian Association of Mortgage Professionals released late last year showed that Canadians are confident they could shoulder higher mortgage payments without too much difficulty, with 84 per cent saying a $300 monthly increase was no problem.
If prices do fall as far as Mr. Madani predicts, “the knock-on effects to consumer spending and housing investment could be significant and perhaps even strong enough to push the economy into another recession,” he said.
Capital Economics also warns that a crash in prices could cost Canada Mortgage and Housing Corp., which insures high loan-to-value mortgages, a loss of as much as $10-billion.
In January, the federal government shortened the maximum amortization period for mortgages to 30 years from 35 to rein in Canadians from taking on more debt at a time when it is at record highs.
difficulty, with 84 per cent saying a $300 monthly increase was no problem.However, real estate sales data from the autumn market showed that fewer houses have been listed and prices were largely unchanged from a year ago.
Capital Economics chief concern is that as the central bank raises rates, variable-rate mortgages become more expensive and homeowners could find themselves priced out of their homes.
Fixed-rate mortgages are tied to government bond yields, but would move in the same general direction. If a homeowner is already stretched financially, any hike could prove problematic.
However, a survey by the Canadian Association of Mortgage Professionals released late last year showed that Canadians are confident they could shoulder higher mortgage payments without too much difficulty, with 84 per cent saying a $300 monthly increase was no problem.
If prices do fall as far as Mr. Madani predicts, “the knock-on effects to consumer spending and housing investment could be significant and perhaps even strong enough to push the economy into another recession,” he said.
Capital Economics also warns that a crash in prices could cost Canada Mortgage and Housing Corp., which insures high loan-to-value mortgages, a loss of as much as $10-billion.
In January, the federal government shortened the maximum amortization period for mortgages to 30 years from 35 to rein in Canadians from taking on more debt at a time when it is at record highs.
While most private sector watchers expect the market to pull back in the second half of this year after a strong two-year run, the Capital Economics call for a 25-per-cent drop is the harshest.
After hitting record highs in May, the Canadian market did slow down, and ground to a halt across most of the country through the summer. Recent data from the Canadian Real Estate Association has many economists predicting a “soft landing,” however, with activity returning at a lower level and prices holding steady rather than rocketing higher each month as they have through the recovery.
From Friday's Globe and Mail
Published Thursday, Feb. 03, 2011 6:57PM EST
Last updated Thursday, Feb. 03, 2011 7:00PM EST
Higher interest rates could “easily” cause Canadian home prices to collapse, Capital Economics warned in a bleak report that suggests the housing market is likely to suffer the same sort of crash that has plagued countries such as the United States.
The report suggests that house prices in Canada have climbed at the same pace as the United States, but have not fallen at the same rate. In the United States, some markets have seen prices fall as much as 50 per cent through the recession.
As the Bank of Canada raises interest rates, mortgages will become more expensive for consumers. Add inflation to the mix, and Capital Economics predicts prices could fall 25 per cent over the “next few years.”
“Even small rises in official interest rates have been shown to have a big effect on homeowner confidence in other countries under similar circumstances as they can change perceptions toward the housing market very quickly,” Capital Economics economist David Madani said. “If the Bank of Canada does resume its monetary tightening this year, this could easily prove to be a tipping point for a house price collapse.”
Other market watchers expect higher rates to hinder price gains, but few are calling for as sharp a drop. The Canadian Real Estate Association expects sales to fall 9 per cent this year, for example, but prices are only expected to drop 1.3 per cent. It hasn’t issued a forecast beyond 2011.
Bank of Nova Scotia economist Adrienne Warren said it’s difficult to compare the Canadian situation with the American because Canada’s gains have been based on a strong economy – relatively speaking – as opposed to easy lending.
“We lack the triggers that prompted the U.S. market to crash,” she said. “I think what you see is prices staying flat as incomes rise over the next few years.”
Such a scenario could lead to home prices that are flat over the next five years, as personal incomes catch up.
“I think some markets may be overvalued and they can’t stay that way forever,” she said. “If you look at the longer-term trend in ratios, we could say things are overvalued by about 10 per cent, which is typical at the end of a boom. But there are so many different measures – it’s just safe to say that eventually you see a softening in prices.”
The country’s bank economists have varied short-term forecasts, but there are no expectations among the largest forecasters that a crash is inevitable, or even likely.
Some have suggested drops of 10 per cent may be in order next year as mortgage rates move higher and households struggle to service record debt loads, and the Bank of Canada specifically mentioned the prospect of “a more pronounced correction in the Canadian housing market” as one of three key risks to the country's economy.
However, real estate sales data from the autumn market showed that fewer houses have been listed and prices were largely unchanged from a year ago.
Capital Economics chief concern is that as the central bank raises rates, variable-rate mortgages become more expensive and homeowners could find themselves priced out of their homes.
Fixed-rate mortgages are tied to government bond yields, but would move in the same general direction. If a homeowner is already stretched financially, any hike could prove problematic.
However, a survey by the Canadian Association of Mortgage Professionals released late last year showed that Canadians are confident they could shoulder higher mortgage payments without too much difficulty, with 84 per cent saying a $300 monthly increase was no problem.
If prices do fall as far as Mr. Madani predicts, “the knock-on effects to consumer spending and housing investment could be significant and perhaps even strong enough to push the economy into another recession,” he said.
Capital Economics also warns that a crash in prices could cost Canada Mortgage and Housing Corp., which insures high loan-to-value mortgages, a loss of as much as $10-billion.
In January, the federal government shortened the maximum amortization period for mortgages to 30 years from 35 to rein in Canadians from taking on more debt at a time when it is at record highs.
difficulty, with 84 per cent saying a $300 monthly increase was no problem.However, real estate sales data from the autumn market showed that fewer houses have been listed and prices were largely unchanged from a year ago.
Capital Economics chief concern is that as the central bank raises rates, variable-rate mortgages become more expensive and homeowners could find themselves priced out of their homes.
Fixed-rate mortgages are tied to government bond yields, but would move in the same general direction. If a homeowner is already stretched financially, any hike could prove problematic.
However, a survey by the Canadian Association of Mortgage Professionals released late last year showed that Canadians are confident they could shoulder higher mortgage payments without too much difficulty, with 84 per cent saying a $300 monthly increase was no problem.
If prices do fall as far as Mr. Madani predicts, “the knock-on effects to consumer spending and housing investment could be significant and perhaps even strong enough to push the economy into another recession,” he said.
Capital Economics also warns that a crash in prices could cost Canada Mortgage and Housing Corp., which insures high loan-to-value mortgages, a loss of as much as $10-billion.
In January, the federal government shortened the maximum amortization period for mortgages to 30 years from 35 to rein in Canadians from taking on more debt at a time when it is at record highs.
While most private sector watchers expect the market to pull back in the second half of this year after a strong two-year run, the Capital Economics call for a 25-per-cent drop is the harshest.
After hitting record highs in May, the Canadian market did slow down, and ground to a halt across most of the country through the summer. Recent data from the Canadian Real Estate Association has many economists predicting a “soft landing,” however, with activity returning at a lower level and prices holding steady rather than rocketing higher each month as they have through the recovery.
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