Sunday, November 1, 2009

The Canadian Real Estate Boom? or Future Bust?

From Boom---to Bust?

1 - The Boom - Real Estate
Vancouver Real Estate Market Heating Up
Vancouver has the hottest real estate market in the country, according to figures released Thursday by the Canadian Real Estate Association. Quarterly sales increases of 11 per cent in Toronto and 19 per cent in Calgary were topped by a 34-per-cent jump in Vancouver. It's the biggest year-over-year increase since early 2002, the association said.

Toronto Helps Lead Surge
Existing home sales across Canada climbed to the highest level of any third quarter on record, according to figures released today by the Canadian Real Estate Association.Year over year increases in Toronto at 28 per cent and Vancouver at 124 per cent were the main reasons for the upswing.

2 - Concern, What is Fueling The Boom?
Bank of Canada Monitors Real Estate Surge
Bank of Canada Governor Mark Carney says he has “some concern” that the surge in the housing market is unsustainable, although for now the boom in home buying remains a significant factor in Canada's economic rebound.“We do have some concerns about it,” Mr. Carney said at a press conference Thursday. “Obviously, consumer borrowing cannot not grow faster than the economy forever.” Most Canadian housing indicators are much stronger than most economists imagined they would be so early into the rebound from Canada's first recession since the early 1990s. For example, the average price of an existing home was $331,602 in September, a 13.6 per cent increase from the same month a year ago, according to the Canadian Real Estate Association.

3 - Real Estate Fuel = Historic Levels of Debt
Canadian Household Credit 'Is Defying Gravity'
Household credit is growing at a year-over-year rate of more than 7%, the fastest seen in any economic recession in the post-war era on an inflation adjusted basis, a new CIBC Capital Markets report shows. "It's all about affordability. During the first six months of the year, total debt rose by $44-billion but interest payments on debt fell by $3-billion," Benjamin Tal, economist with CIBC, said in the report. "Household credit in Canada is defying gravity." The mortgage market alone has grown 7.8% in the past year, reflecting a strong rebound in real estate activity.

'Defying Gravity'
Household credit is "defying gravity," growing at the fastest pace of any recession since the Second World War when adjusted for inflation, a new report from CIBC World Markets shows. A booming real-estate market that has sent outstanding mortgages surging 7.8% year-over-year in August is the primary driver, accounting for almost 70% of the 7% increase in overall household credit, said Benjamin Tal, senior economist at CIBC World Markets. That is in stark contrast to the 1991 and 2001 slumps, when mortgage growth ground to a halt on an inflation-adjusted basis, the report notes. "During a recession, usually mortgage markets go down, but this time it hasn't and the reason is affordability, driven by low interest rates," Mr. Tal said. "The Bank of Canada cut interest rates to stimulate the economy, and it's working."

Household Credit Defying Gravity
Household credit is defying gravity in Canada, expanding by more than 7 per cent year over year, a new analysis says. “On an inflation adjusted basis, credit is rising at the fastest rate seen in any economic recession in the post-war era,” Benjamin Tal, senior economist with CIBC World Markets, wrote in report published Tuesday. The main driver is low interest rates. Even as Canadians added $44-billion to their total debt in the first half of the year, interest payments fell by $3-billion. In fact, interest payments as a share of disposable income now stand at 7.7 per cent, the lowest rate since 2006 and significantly below the more than 10 per cent during the 1991 recession, Mr. Tal said. “This in a nut shell is the reason for the strong rebound in real estate activities in the Canadian mortgage market.” National home sales were up 18.5 per cent year-over-year in August, with the average home price rising 11 per cent, according to the Canadian Real Estate Association.

4 - The Bust?
Be Careful, Low Rates Won't Last
Bank of Canada Governor Mark Carney is warning homebuyers against taking on too much debt because today's low interest rates will not last forever. "People should manage their affairs prudently in anticipation that, at some point, rates will return to a more normal level," Carney said after releasing his quarterly economic review. "Obviously, rates are exceptionally low," he said, noting that the central bank has used its interest-rate-setting influence to drive down consumer borrowing costs to record lows to help stimulate economic activity.

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