Real Estate Expectations Changing

A market shift = a shift in expectations

Real Estate market conditions in the Lower Mainland and other parts of BC have shifted. After five years of blockbuster Real Estate activity in BC and double-digit price growth, market conditions have slowed, and now favour buyers in many areas of the province.

Residential sales have declined 22 per cent in the first six months of this year, while available resale inventory has grown by 54 per cent to 57,000 active listings in June. In the Greater Vancouver board area, where longer-term data is available, inventory is at the highest level since 1998.

Home price appreciation observed from 2004 to 2007 is less attainable in today’s market, and sellers’ expectations for such gains should be tempered. More generally, in a market favouring buyers, prices generally increase at or below the level of inflation. While the average residential home price in BC increased at a healthy 6 per cent per year since 1981, large gains are often followed by periods of price stagnation. Over-optimistic pricing by sellers will only inhibit the timely sale of properties, adding to inventory levels.

Buyers have more homes to choose from now than in previous years, resulting in greater freedom to compare the attributes and prices of similar properties in the market before making purchase decisions.

Despite current buyers' market conditions fuelled by housing affordability constraints and economic uncertainty, the economic and demographic backdrop in support of housing demand remains strong in BC. BC's unemployment rate remains near record lows, while the labour force participation rate hovers near historical highs. Meanwhile, the province remains a favoured destination for new migrants, reflected in the third-highest population growth among provinces during the first quarter of 2008. However, challenges continue in the forestry sector, and eroded consumer confidence may also be playing a role in a pull back of consumer spending.

As a mortgage broker I can still offer 100% until October 2008 at fully discounted rates.

100% Financing & 40 Year Ammortizations Coming to an End

It looks like the days of Zero down mortgages and 40 year amortizations in Canada are numbered. The changes are set to take place October 15, 2008 which gives those 90 day closings and rate holds a chance to either fund or expire. It will be interesting to see if this causes a short term run up on housing sales as people jump to take advantage of the 40 year or 100% before its gone. It will equally as interesting to see what effect this has on house pricing, especially in the lower mainland when the 35 year amortization becomes the max.

Ottawa revamps mortgage rules

KEVIN CARMICHAEL

Globe and Mail Update, Reuters

July 9, 2008 at 4:36 PM EDT

OTTAWA — The federal government says it will no longer guarantee 40-year mortgages, one of a handful of measures aimed at guarding against a U.S.-style housing bubble.

The Finance Department said Wednesday in a news release that the government will guarantee no mortgages with durations longer than 35 years. The government also will demand a minimum down payment equal to 5 per cent of the value of the home.

“Today's announcement marks a responsible and measured approach by the government to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada,” the Finance Department said.

The government hastened to emphasize that Canada's housing and mortgage markets were performing much better than in the United States.

Canadian housing prices are in line with economic factors such as low interest rates, rising incomes and a growing population and the demand for residential housing remains buoyant at more than 200,000 housing starts a year, it said.

The percentage of bank mortgages in arrears is also stable at 0.27 per cent, the lowest levels experienced since 1990 and well below the highs of 0.65 per cent in 1992 and 1997.

“The historically prudent and cautious approach taken by Canadian financial institutions to mortgage lending, combined with a sound supervisory regime, has allowed Canada to maintain strong and secure housing and mortgage markets,” it said.

It nonetheless noted “accelerated financial innovation” in the mortgage markets since the fall of 2006, for example, allowing loans up to 100 per cent of the value of the house and increasing amortization periods to 40 years from 25 years.

The government will now require a consistent credit score for mortgages it backs, and a minimum level of loan documentation standards to ensure evidence of the reasonableness of property values and the borrowers' income.

In addition, government guarantees will not be allowed for high-ratio mortgages where amortization is not required in the first few years – e.g., mortgages that begin with interest-only payments.

Finally, it will set a maximum of 45 per cent on a borrower's debt-service ratio – the proportion of gross income that is spent on debt service and housing-related fixed or essential payments.