U.S. Housing Market Shows No Relief.
The U.S. housing market recession continues in full swing, with home sales running at least 20% slower than a year earlier, prices posting significant yearover-year declines and the stock of homes for sale holding well above historical norms. Residential investment fell at a 24.6% annual rate in the first quarter after plummeting 25.2% in the fourth quarter of 2007 and subtracted a sizeable 1.1 percentage points from economic growth in the first quarter of 2008.
Foreclosures were up in April and delinquencies are continuing to rise. RBCs forecast assumes that the recession in this sector will continue through 2008. In 2009, the combination of lower interest rates and lower house prices is expected to reduce the inventory of homes for sale to more normal levels, which should put a floor beneath new home construction after three years of significant declines.

The Canadian Housing market is losing its edge but not headed for a crash.

Canada's resale housing market showed signs of slowing early in the second quarter with sales off 1% from the first quarter of 2008 following three consecutive quarterly declines. However, sales continue to run well above the average pace of the past 20 years. While strong demand boosted prices, with gains of at least 10% in the past six years, the pace slowed to 3.2% in April. In contrast, new listings picked up in the first quarter and this trend continued into April, with listings in the major markets up 17.7% compared to a year earlier. Slowing in the housing market was expected and, to some degree, desired because affordability had been increasingly strained through 2007, with most major markets seeing affordability deteriorate to its worst levels since the early 1990s.


On the supply side, the high level of demand continues to support construction activity with housing starts running at an historically fast rate. The structural backdrop to Canada's housing market remains solid, with very limited sub-prime mortgage activity, a relatively small speculative sector and no significant supply overhang despite robust construction activity.
Affordability is also forecast to improve this year, with the Bank of Canada having cut the overnight rate by 150 basis points since last December, mortgage rate spreads showing some signs of narrowing and the pace of house price gains slowing.
Exerpts from Royal Bank of Canada Economic & Financial Market Outlook, July 2008. To read the complete report, visit

BC will outperform most other provinces in economic and job growth during the next two years.
Existing home sales will decline slightly as mortgage carrying costs rise in response to higher home prices and mortgage rates. Income and population growth stemming from tight labour markets will put upward pressure on existing home sales, lessening the decline.

BC will outperform most other provinces in economic and job growth during the next two years. This relative strength will translate into a high level of existing home sales, housing starts and house


Move-up buyers and people downsizing their residences will keep the number of resale transactions above the ten-year average. Existing home sales will decline during the next two years in response to high home prices, a rise in mortgage rates in 2009, and slower job growth.

High home prices will result in more homes being listed for sale. This increase in supply will slow growth in the provincial average MLS® price from the double-digit pace of the past four years. Centres where the local economy is more diversified and homeownership demand remains strong will record double-digit price gains again in 2008.

Fewer homes will be started as tight resale market conditions ease and potential homebuyers are more able to satisfy their housing needs in established neighbourhoods. Single-detached home starts will trend lower, as builders balance the high cost of land and building materials with what price conscious homebuyers will pay. Multiple-unit starts will account for the lion’s share of new home construction. With demand shifting to denser housing forms, more than sixty per cent of starts will be in multiple-unit housing developments. The large number of projects already in the construction pipeline in Vancouver and Kelowna will ensure multiple-unit starts will be at high levels.
Mortgage rates are expected to trend marginally lower throughout 2008, but will be  within 25-50 basis points of their current levels. For 2009, posted mortgage rates will begin to drift up slightly as the year progresses. For 2008 and 2009, the one-year posted mortgage rate is forecast to be in the 6.50-7.50 per cent range, while three and five-year posted mortgage rates are forecast to be in the 6.75-7.50 per cent range.
Exerpts from CMHCs Housing Market Outlook - British Columbia Region Highlights - Second Quarter 2008. For complete report, visit


"...there is no evidence that the Canadian market is facing the kind of turmoil that has disrupted the United States."
The federal government said Wednesday that it is tightening the rules relating to government-guaranteed mortgages, even though there is no evidence that the Canadian market is facing the kind of turmoil that has disrupted the United States.
The new rules, set to take effect Oct. 15, are a "responsible and measured approach … to reduce the risk of a U.S.-style housing bubble developing in Canada," the Department of Finance said in a news release. However, it also said that Canadian creditors' "prudent and cautious approach" to mortgage lending, as well as sound supervision, have "allowed Canada to maintain strong and secure housing and mortgage markets."
The government said the measures will apply to new, government-backed, insured mortgages. "Canadians who already hold mortgages will not be affected," it said. The changes include:
  • Cutting the maximum amortization period to 35 years from 40.
  • Requiring a minimum down payment of five per cent, whereas loans for 100 per cent of the price are possible now.
  • Establishing a requirement for a consistent minimum credit score.
  • Introducing new loan-documentation standards.
The government acknowledged that the proportion of bank mortgages in arrears is stable at 0.27 per cent, "near the lowest levels experienced since 1990 and well below the highs of 0.65 per cent experienced in each of 1992 and 1997." And housing prices don't show evidence of speculation, the Finance Department said, because they are "in line with economic factors such as low interest rates, rising incomes and a growing population."

Mortgage insurance protects lenders when a borrower defaults by making up any shortfall needed to repay the loan if the sale of the property doesn't cover the debt. Federally regulated lenders must have mortgage insurance on loans where the buyer's down payment is less than 20 per cent of the price. The Canada Mortgage and Housing Corp. (CMHC), a Crown corporation, as well as private insurers provide mortgage insurance. The government backs CMHC and also private mortgage insurers so the private insurers can compete with CMHC.

Just over a year ago, Parliament passed a bill changing mortgage insurance to make home buying easier, and in 2006, CMHC eased the insurance rules.

If the fluctuation of a variable becomes too much, there's also usually the option to lock in at any time.
Homeowners looking to renew their mortgages should resist the urge to lock in to a fixed-term mortgage in the face of rising rates if they can stomach the more nerve-wracking ride of a variable mortgage, experts say.
The prospect of a mortgage that rises and falls with prime rate changes may cause some unease, especially following the recent announcement by the Bank of Canada not to cut interest rates and the subsequent hike in mortgage rates by several of the country's biggest banks. But experts say variable rates may still be worth the trouble because they will save more in the long run. Many people who opt for fixed mortgages do so for the security of knowing what their payments will be every month, and may be spread too thin financially to afford much more. But variable mortgages often offer more flexibility, and have more pre-payment options for those wishing to pay their mortgages off faster.
"If it becomes important to pay off the mortgage faster, they can lose a little bit of those pre-payment options if they do fix in for a longer period of time," said Mark Olkowski, regional manager at Invis, one of Canada's largest mortgage brokers, noting that a fixed mortgage may allow for a 15 per cent pre-payment option, while variables are usually around 20 per cent or higher. If the fluctuation of a variable becomes too much, there's also usually the option to lock in at any time.
"Studies have shown that in general, the variable rate will cost you less, but there may be times, if rates go up fairly quickly for example, that you're going to be kicking yourself for not having locked-in," said Adrian Mastracci, president of KCM Wealth Management in Vancouver.
Mastracci suggests assessing the risk of your budget and income to help you decide which kind of mortgage to pick. Most economists are expecting prime to go up over the next 12 to 18 months, but some warn against basing too much of your decision on where interest rates may go in the future. Peter Veselinovich, vice-president of banking and mortgage operations at Investors Group, says individuals have to think of mortgages in broader terms than just a focus on where rates are at on any given day. Above all, Mastracci said, borrowers should focus on getting a mortgage that can be paid off as quickly as possible.
Courtesy of The Real Estate Weekly, THE source for Real Estate information, with 16 publications delivered to over 500,000 homes and Real Estate offices throughout the Lower Mainland each week.
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