Real Estate: Study suggests first-timers fuelling market

According to a new survey by the Canadian Association of Accredited Mortgage Professionals (CAAMP), it seems that those responsible for keeping the housing market alive right now are actually the first-time homebuyers.

Even with the housing market prices currently at an all-time high, those purchasing a home for the first time are making up 45 per cent of the 620,000 homes sold over the past two-plus years in Canada.
The Toronto Real Estate Board’s director of market analysis, Jason Mercer, doesn’t disagree, but he believes there are a number of factors to consider as to why the housing market is still so strong.

“I wouldn’t necessarily disagree that it’s first-time homebuyers who are driving the market,” says Mercer of Toronto. “But there is also an added supply of housing now with new condominiums and project completions throughout the city.”

Mercer explains that, if we look at things like job creation and consider where unemployment rates have been trending in the last few months, we would see that Toronto’s local economy has been one of the best performing local markets.

He also credits diversity within the city as a factor in determining why we are seeing so many new homeowners.

“Toronto has one of Canada’s most diverse local economies, so there are a lot of different employment opportunities,” says Mercer. “It’s a virtuous circle in a sense that those employment opportunities attract a diversity of newcomers to Canada, and they choose to move into the Greater Toronto Area,” he adds.

The latest CAAMP consumer survey report released revealed that, even though 18 per cent of down payments are still being loaned to buyers (usually from parents), 53 per cent are using money that they themselves or their co-buyers have saved.

“Everyone questions where the money is coming from, and a lot of it is simply borrowed money, but nobody collects that data because of privacy laws,” says Sherry Cooper, chief economist of Dominion Lending Centres. She believes the money is coming from parents. “It’s baby boomer parents helping out their kids.”

However, Cooper doesn’t agree that it’s first-time homebuyers exclusively who are driving local housing markets, especially with regard to the biggest increases in Toronto and Vancouver.

“Employment might be growing in Toronto, but it is also dampening in places like Alberta, because of the oil patch, so places like Calgary and Edmonton have been negatively affected.” She stresses that the survey was based on all of Canada and to keep in mind that those markets are much cheaper than Toronto and Vancouver.


Housing prices to ease in second half, CREB® forecasts

Continued weakness in housing demand will limit downward pressure on supply levels and cause prices to ease in the second half of the year, CREB® said in its 2015 mid-year forecast. Despite this anticipated retraction, Calgary’s benchmark prices are only expected to decline by less than one per cent on an annual basis. 

“Further job losses are expected in the second half of the year,” said CREB® chief economist Ann-Marie Lurie. “These employment changes, combined with overall weakness and slower than anticipated recovery of oil prices, are expected to keep housing demand relatively weak for the rest of 2015. However, with the initial shock of oil price declines having dissipated, the pullback in sales activity in the second quarter is not expected to be as dramatic as the first part of the year,” said Lurie.

Overall sales activity in Calgary is forecasted to total 19,798 in 2015, a 22 per cent decline relative to last year, but only six per cent lower than average activity over the past five years.

Dramatic swings in new listings during the first half of the year caused inventory levels to rise, but by June, they remained below previous highs. Over the second half of the year, inventory levels traditionally ease as we move toward the fall and winter markets. However, this year housing supply levels are expected to remain relatively elevated due to improved selection in the rental markets, completion of projects under construction, and an easing in the rate of decline in resale new listings. 

While some price moderation is expected moving forward, it should be noted that it’s not going to be the double-digit decline that some have suggested. In part, this is related to the limited supply in the market moving into this next cycle. Also, the forecasted pullback in employment and migration is not going to be as severe as what occurred last time we recorded significant price declines. The City of Calgary residential benchmark price is expected to average $448,354 for 2015, a modest 0.20 per cent decline over the previous year.

“It’s a two sided coin when talking about pricing for buyers and sellers,” said CREB® president Corinne Lyall. “Some buyers have the expectation that they will get significant price reductions in this market, but that’s not always the case. In some areas, supply levels are more balanced with demand and that creates price stability. On the other hand, in most situations, it will be the sellers who need to adjust expectations, particularly if they have to compete with a large amount of comparable product in the neighbourhood.”

While slower demand is impacting all sectors of the market, the apartment sector is expected to record the largest pull-back in both sales and price growth in the second half. Challenges in this segment are linked to the rising supply in competing markets. There is more selection is the detached and attached segments, which makes it difficult to attract buyers. Sellers also faced added competition from new apartment units and increased selection in the rental market. 

Meanwhile, activity in the detached segments will continue to vary based on price and location. Continued weakness in demand relative to supply levels, particularly in the higher price ranges, are expected to cause aggregate detached benchmark home prices to decline in the second half of this year. However, annual prices are expected to remain relatively unchanged compared to last year. Overall, detached sales are expected to total 12,105 units in 2015, a 19.8 per cent decline over last year.

“It’s important for active housing consumers to understand what type of comparable property is available by product type, community and price range,” said Lyall. “While some degree of competition exists in every market condition, most sellers in the current environment will need to take extra care in setting realistic expectations to attract a good crop of potential buyers. This kind of smart pricing may encourage buyers who are sitting on the sidelines to consider entering the market if they are in a position to do so.”

As with any market forecast, there are several factors that could influence the outlook. On the upside, if there is no further deterioration in the economic climate, it’s possible that the pullback in housing demand could be less severe. In this scenario, potential buyers who are in the market may decide to take advantage of higher supply levels and overlook short-term risks in favour of the positive long-term outlook. This possibility could keep market conditions relatively balanced in the second half and prevent any further price declines.

 “Ultimately, what happens to prices will depend on supply levels and how much they go up or down against demand,” said Lurie. “The duration of this economic downturn and the resulting job loss will determine which direction supply will go in the months ahead.


Texas oil tycoon T. Boone Pickens has something he wants to say to us: Calgary, I’m so sorry about the Keystone pipeline

Not every day you get an apology from a billionaire, but here it is.

To my friends in Calgary and across Canada: I apologize on behalf of my fellow Americans for the United States government’s actions.

Why? Because after years of poring over the engineering, design, geology and the contents of the proposed Keystone XL pipeline, President Barack Obama chose to make a political statement and vetoed a bill to allow construction to begin.

I feel bad about this.

I lived in Canada in the 1960s. You have a great country, and it’s a great place to operate in the oil and gas sector. We should have done better by you.

You may not follow the ins and outs of the U.S. Congress as much as we do, but you probably know Keystone was a bipartisan bill. Republicans and Democrats in the U.S. House and Senate voted for it. That was big news, as Democrats and Republicans working together on anything over the last 10 years has been rare.

There was no good explanation for Obama’s decision to veto the bill. The U.S. Department of State reported previously the environmental effects of the pipeline would be minimal. In its January 2014 report, the department stated: “emissions (from pipeline activities) would be equivalent to greenhouse gas emissions from approximately 300,000 passenger vehicles operating for one year.”

There are 250 million passenger vehicles operating in the U.S.

Keystone would have the effect of adding about 1/10th of one per cent to the fleet.

Because the pipeline crosses national boundaries, the State Department is charged with producing reports. Yet, after State made its report, the White House went “agency shopping” and asked the Environmental Protection Agency (EPA) to take another look at Keystone. To no one’s surprise, the EPA fired off a letter objecting to pipeline construction, citing concerns of increasing greenhouse gas emissions.

Where the EPA went wrong, however, was calculating the effects on greenhouse gases “from the extraction, transport, refining and use of the 830,000 barrels per day of oilsands crude that could be transported by the proposed project at full capacity.”

The problem with the EPA’s math is that Canadians don’t need permission from the U.S. to recover that oil and sell it. Canadians will extract it and ship it overland by train or via pipeline and tanker, not south to the United States, but west to Asia, or elsewhere.

When oil prices come back up, Korea, Japan, China and others will benefit from the Canadian oilsands, not the U.S.

It is no surprise to Canadians that Canada is the U.S.’s largest oil-trading partner. But it is a surprise to many U.S. residents. I have long been a supporter of the idea of building on the North American Free Trade Agreement by establishing a North American energy alliance to include Canada, the U.S. and Mexico.

The reason oil prices are not bouncing up and down with every piece of news out of Iraq, Iran and Israel is the U.S. and Canada are using the latest innovative technology to recover oil and natural gas — from sands and shale. Additional production from those sources has provided an international energy price shock absorber. For U.S. consumers, lower gasoline and diesel prices have been like getting a $300-billion bonus. The effect in Canada has likely been similar.

So, why is Obama so opposed to the Keystone XL pipeline?

As my dad used to say, “Son, it’s kind of like murder. It’s tough to explain.”

Politics is the most likely answer. The veto lets the president throw a bone to his political left while thwarting a win for the Republican-controlled House and Senate on their bill.

The silver lining is this: Obama’s veto didn’t kill the Keystone XL pipeline. He delayed it. Sooner or later, good planning will trump bad politics and the project will get the green light — we hope.

My Canadian friends, please have patience. The Keystone pipeline will happen.

T. Boone Pickens is the architect of the Pickens Plan, an energy plan for America. He is also chairman and CEO of BP Capital.

-Calgary Herald

Bank of Canada- Prime Reduction

The Bank of Canada announced today that it has reduced its overnight rate by a quarter of a percent. Therefore the Prime lending rate has been reduced to 2.65%. At this time only one lender has announced that they are also dropping their Variable rates but only by 10 basis points and not the full 25 basis point drop indicated by the Bank of Canada. Typically other lenders will follow.

Total CPI inflation reflects price declines for consumer energy products. The Bank’s estimate of growth in Canada for 2015 has been marked down considerable from it’s prior expectations. However, growth is expected to resume in the 3rd and 4th quarters.

With all that being said, both variable and fixed rate mortgages are still at record lows. If you’re in the market for a new mortgage-or if you have a question about your existing one-please don’t hesitate to reach out.

With the Prime rate falling, we are continuing to recommend that clients stay in their existing variable rate mortgages. The date of the Bank of Canada’s next announcement is scheduled for September 9 2015

Calgary house prices forecast to decline 2.4% this year

Average prices in major housing categories have remained relatively flat in Calgary for the first half of this year but they are forecast to decline by 2.4 per cent in 2015 compared with 2014, says a new report released Tuesday by Royal LePage.

The real estate firm’s House Price Survey and Market Survey Forecast said that in the second quarter the standard condominium category gained 1.6 per cent year-over-year to an average price of $291,022. Over the same period, standard two-storey homes declined 3.1 per cent to $474,239 and detached bungalows  were down 0.9 per cent to $496,689.

Ted Zaharko, broker and owner with Royal LePage Foothills in Calgary, said predictions of gloom due to low oil prices and the change in the provincial government are proving to be premature.

“I think the City of Calgary, the economy of Calgary generally, is bigger than people expect it to be,” said Zaharko. “We were in a kind of limited inventory situation. Interest rates have been attractive. I don’t think people are as pessimistic about the future as a lot of other people think they are.

“Things are just balanced and I think that’s good.”

The report said the average house price sale in Calgary will drop to $449,500 this year from $460,584 in 2014. It was $437,036 in 2013.

“We’re going to continue to see a situation of what we’re going through right now. The inventory levels are not being replenished. We could be in kind of an awkward inventory situation where there’s limited inventory in all these price ranges and the buyer wants to see houses for sale,” said Zaharko.

According to the Calgary Real Estate Board, in the first half of 2015, there were 10,197 MLS sales in the city, down by 26.4 per cent compared with the same period last year. New listings also fell by 7.7 per cent to 18,678. The inventory of homes for sale at the end of June of 5,457 listings is up 53.1 per cent. The sales-to-new listings ratio of 0.55 dropped by 13.9 per cent. The days on the market to sell a listed property has gone up from 29 in 2014 to 40 this year.

Nationally, Royal LePage said the detached bungalow segment had the highest national increase in the second quarter, rising 7.5 per cent year-over-year to $438,938, while standard two-storey homes appreciated 6.8 per cent to $471,002. During the same period, the average price of a condominium rose 3.9 per cent to $268,583, it said.

The report said the average price of a home in Canada will increase 6.1 per cent for the full year to $432,960 when compared to 2014’s price of $$408,068. It was $382,466 in 2013.

“The robust national average home price increases that we have seen in the second quarter are heavily influenced by activity levels in Toronto and Vancouver,” said Phil Soper, president and chief executive of Royal LePage, in a statement.  “Looking to Canada as a whole, 2015 is shaping up to be a record year for housing, despite the cloud of economic uncertainty caused by low oil prices and twitchy global economies.

“While the oil shock has been a troublesome drag on our economy this year, it seems premature to ring the recession alarm bells now, injecting further monetary stimulus. The country’s all-important real estate market simply does not need a rate cut. I worry that stoking this engine further could move us from a perfectly manageable major market expansion into a more difficult correction, as price levels decouple from more household incomes.”

-Calgary Herald