Credit crunch hikes Cdn mortgage rates, here.
Market dives on bailout dithering
I hope to post some further thoughts on the precarious position we are all now in, within a few hours. Needless to say, things are not getting better. I mean, last night the biggest bank failure in US history occured, and it was not even the lead news item this morning. Yikes!
The $700-billion bailout of Wall Street looks decidely iffy. Even if it takes place amid the posturing positions and shifting platform sands of Obama and McCain, it will likely be a fatally flawed rescue, bound to come unseamed in the coming months. Sorry to say, but these are just the early chapters of a story with much more to come. And so long as instability reigns, residential real estate will be the victim.
The Canadian market is doing exactly what I forecast. This will continue. Declines in prices of 10% or 12% in Alberta will become 20% and 25%. Vancouver ultimately will be even harder hit, and Toronto values will drift lower at the end of 2009 by about 15%. Some neighbourhoods, far more.
The deniers will keep it up. You could hear more of that this week on CBC and CTV, as the bank economists and hopeful, battered, savaged realtors were trotted out to bolster confused consumers. Hopefully, Canadians will trust their sense that all is not well, and avoid being talked into a purchase at the very time when equity is most at risk.
Yesterday a local sent me the real estate board report for one market I am campaigning in – Milton, the fastest growing town in Canada, where there are acres and acres of subdividions full of fresh-faced young couples who bought in many cases with 1.5% down. They lusted after granite counter tops and the perceived financial maturity and stability of a new home, and were lulled into this by builders, agents, banks and families who all believed (or profited from) the cult of the house.
The average price in Milton last month was 9.4% below year-ago levels – and this is in the one area of the GTA (an area of about 4 million people) with the most frenetic real estate activity. in practical terms, this translates into an average price of $330,000, down from $365,000. Do you have any idea what this means to a young family with no equity, and a big mortgage?
In this you can see the seeds of a Canadian meltdown. If you can’t, call the CBC.
BTW, the article below is in the Globe today:
New economic climate puts chill on Toronto real estate prices
The country’s largest housing market, Toronto, is slowing as sales drop and a decade-long run-up in prices stalls.
Recent figures show prices have flatlined across the Toronto region, and in both middle and high ends of the market.
The soft market and forecasts of more of the same ahead do not signal a U.S.-style tumble, experts said yesterday, but rather point to a dawning realization that sellers can no longer count on unrelenting price hikes to boost their worth.
Fuelling the new reality was a move yesterday by two banks – TD Canada Trust and Bank of Montreal – to raise mortgage rates in Canada as fears of inflation resonate through the bond market and U.S. lawmakers edged closer to a deal on a $700-billion (U.S.) bailout plan for Wall Street banks.
“Revise your expectations going forward. It’s not a valid assumption,” TD Bank chief economist Don Drummond said.
“Unless you are skillful on the timing or you are lucky you don’t tend to make a killing on real estate.”
Home price declines have already hit Calgary, Edmonton and Vancouver, and now cracks in the market appear to be spreading into Toronto. Existing home sales activity dropped by 22 per cent in August from the same month a year earlier, while prices edged up by just 0.8 per cent, according to the Canadian Real Estate Association.
Though cooling off, the Toronto house market has not hit the wall, according to Mr. Drummond and others.
“We have gently nudged the wall,” he said. “I expect barely positive [price rises] over the next little while.” But he went on to ask and answer his own question: “Are they going to come down Miami style? Absolutely not.”
According to the Toronto Real Estate Board, average house prices dipped 1 per cent in August over a year earlier but climbed in the first half of September. For the first half of this month, the board recorded 998 sales, a 23-per-cent drop from the same period a year ago.
As of mid-month, the average house price in Toronto was $386,524, up marginally from the same period a year ago and 12 per cent higher than 2006.
There is still a lot of money in the market, contended Michael Polzler, executive vice-president and regional director, RE/MAX Ontario-Atlantic Canada, with people with realistic expectations still able to sell their homes.
But he cautioned that homes are likely to stay on the market longer than during the height of the boom, and sellers shouldn’t expect bidding wars.
This is good news for buyers who until recently had no crack at markets such as central Toronto, he said.
Now these shoppers
may have a chance to get
into desirable markets and make more careful purchases than they did in the past, he said.
In the luxury home market, Toronto was among five of 15 cities that experienced year-over-year sales declines, according to a report yesterday by RE/MAX.
Sales of homes listed at $1.5-million or more dropped from 505 in the first seven months of 2007, to 487 in the same period this year.
The timing of the slowdown comes as Toronto homeowners brace for word next month from the Municipal Property Tax Assessment Corporation on changes in home property values since 2005.
Earlier this month, the agency said that as of January, 2008, property values have risen an average of 20 per cent across the province.
PAST THE PEAK?
|Average house price in the city of Toronto|
|Volume of sales|
SOURCE: REAL ESTATE BOARD