The real estate market in Canada has performed well over the last few years but it could have resulted in a bubble that is ready to burst.
The Canadian residential sector has continued healthy despite the economic mortgage crisis that affected the US, and the forecasted nationwide real estate market bubble has yet to materialize. The Canada Mortgage and Housing Corporation's (CMHC) program to stimulate credit by approving high-risk mortgages had concerned experts because it pushed the ratio of housing values to a 7.4:1 ratio, which was over 50% more than American consumers experienced prior to their housing bubble collapse. As a consequence of the CMHC's policy shift, the average Canadian family debt experienced a 9.3 percent increase in only one year.
Some analysts, like the 84-year-old investment advisor Stephen Jarislowsky -- who has an estimated worth $1.85 billion -- said earlier this year that he believed that the strategy used by the CMHC would backfire. Jarislowsky flatly contradicted the statements made by Finance Minister Jim Flaherty claiming that the indications did not point to a future real estate bubble. Jarislowsky firmly believed that the government's programs were not going to strengthen the economy. During a phone conversation, he said that the CMHC "..has created the reverse effect of what was acceptable. " They have basically persuaded people to buy houses based on cheap mortgages. Evidence can be witnessed in the City of Toronto where the value of Toronto properties as increased by quite a bit over the years as purchasers rushed into the market.
An in-depth study of the Canadian real estate sector performed by the Wall Street Journal in February 2010 pointed out that the 2008 failure of the Lehman Brothers in the U.S. could have built a housing bubble backfire if the Canadian government did not change their lending tactics. But as early as January 2010, a representative of the Bank of Canada explained that "if the Bank were to increase interest rates to cool the housing market" that the result would be like "dousing the entire Canadian economy with cold water, just as it comes out from recession".
The Canadian Real Estate Association numbers that were released for the first half of 2010 does show that the start of the recession in 2008 translated into a sharp decline in residential real estate sales. But this did not last long, and the recovery has not been as dramatic as anticipated. Even though the May 2010 sales figures indicated a 9.5% drop, the year-over-year price increases actually balanced it to 8.4 percent. This stabilization in the housing market is a normal result of buyers not being quite as anxious to invest as the supply of properties increases and prices climb slowly, but proportionately.
Pascal Gauthier of the Toronto-Dominion Bank mentioned that the bubble scenario "made a lot of people nervous," fearing a huge crash comparable to the 30% decline in U.S. housing values. This summer, however, he is observing that the short-term elements that elevated property values resulted in only a modest decline in a clearly overpriced market and the attitude is a "180-degree change from six months ago". Gauthier believes that the national average may feel a 7 percent drop, but that the areas such as Toronto and Vancouver will bear the brunt of that decrease, and some areas such as The Prairies and Maritimes could even begin to realize gains by the end of the year.
By Stefan Hyross
Published: 7/13/2010
Showing posts with label CMHC. Show all posts
Showing posts with label CMHC. Show all posts
Tuesday, July 13, 2010
First Time Home Buyers Do Their Homework
Canada NewsWire
Toronto
- TD Canada Trust releases 2010 Home Buyers Report -
TORONTO, July 5 /CNW/ - Researching mortgage options. Getting pre-approved. Estimating utility costs. First time home buyers are savvy when it comes to shopping for a home - but are their aspirations too high? The majority of home buyers say they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. This is according to the first TD Canada Trust Home Buyers Report which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.
Nearly all home buyers are making informed financial decisions before buying their home by learning about mortgage options (93%), getting pre-approved (91%), calculating closing costs (88%) and estimating utility costs (85%). However, land transfer tax, closing costs and legal fees were the top three costs that buyers felt unprepared for (48%, 47% and 47% respectively).
Six-in-ten first time home buyers bought or intend to buy a fully detached home and three-quarters want a new home, but can they afford it? Nine-in-ten first time buyers took out or expect to take out a mortgage for their home and of these buyers, only 30% plan to or have more than a 20% down payment. The remaining 70% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Seventy per cent are making a down payment of less than 20%. Six-in-ten are worried about being able to afford their home if interest rates rise.
"It's only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time," says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. "I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save."
Home financing:
Most buyers report putting down as much as they can afford for a down payment (88%) and fifty-seven per cent say they saved or plan on saving for two years or less for their home purchase. Two-thirds say they expected or expect to pay less than the asking price for their home. Only 6% expect to pay more, while 29% expect to pay the asking price.
Nearly three-quarters of those surveyed have or plan to have a fixed-rate mortgage. "Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations than a fixed-rate is best," says Haque.
What kind of home do Canadians want?
If two homes were at the same price point, three-quarters of first time home buyers would prefer a newer home over an older home, but they are evenly split on location. Fifty-five per cent would prefer a smaller home closer to work and 45% would prefer a larger home with a longer commute. While the majority prefer detached homes, 21% chose a condo, 12% prefer town homes and 10% seek a semi-detached home.
Not surprisingly, price is the most important factor when considering what kind of home to buy and where (99%). The second and third most popular were features of the home (96%) and layout of the home (95%).
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
Toronto
- TD Canada Trust releases 2010 Home Buyers Report -
TORONTO, July 5 /CNW/ - Researching mortgage options. Getting pre-approved. Estimating utility costs. First time home buyers are savvy when it comes to shopping for a home - but are their aspirations too high? The majority of home buyers say they expect to pay less than the asking price and they prefer newer and detached homes to older and semi-detached homes or condos. This is according to the first TD Canada Trust Home Buyers Report which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.
Nearly all home buyers are making informed financial decisions before buying their home by learning about mortgage options (93%), getting pre-approved (91%), calculating closing costs (88%) and estimating utility costs (85%). However, land transfer tax, closing costs and legal fees were the top three costs that buyers felt unprepared for (48%, 47% and 47% respectively).
Six-in-ten first time home buyers bought or intend to buy a fully detached home and three-quarters want a new home, but can they afford it? Nine-in-ten first time buyers took out or expect to take out a mortgage for their home and of these buyers, only 30% plan to or have more than a 20% down payment. The remaining 70% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Seventy per cent are making a down payment of less than 20%. Six-in-ten are worried about being able to afford their home if interest rates rise.
"It's only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time," says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. "I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save."
Home financing:
Most buyers report putting down as much as they can afford for a down payment (88%) and fifty-seven per cent say they saved or plan on saving for two years or less for their home purchase. Two-thirds say they expected or expect to pay less than the asking price for their home. Only 6% expect to pay more, while 29% expect to pay the asking price.
Nearly three-quarters of those surveyed have or plan to have a fixed-rate mortgage. "Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations than a fixed-rate is best," says Haque.
What kind of home do Canadians want?
If two homes were at the same price point, three-quarters of first time home buyers would prefer a newer home over an older home, but they are evenly split on location. Fifty-five per cent would prefer a smaller home closer to work and 45% would prefer a larger home with a longer commute. While the majority prefer detached homes, 21% chose a condo, 12% prefer town homes and 10% seek a semi-detached home.
Not surprisingly, price is the most important factor when considering what kind of home to buy and where (99%). The second and third most popular were features of the home (96%) and layout of the home (95%).
About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.
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