8 Jul

CIBC Report: July 7,2011 – State Of Real Estate Economy CIBC Report


Posted by: Kimberly Walker

Transmitted by CNW Group on : July 7, 2011 13:19

Average House Prices a Misleading Gauge of the Health of the Canadian Real Estate Market: CIBC

Detailed analysis shows a highly segmented market that will see prices drop over time, but preconditions for a market crash don’t exist

TORONTO, July 7, 2011 /CNW/ – The Canadian housing market is becoming highly segmented and multi-dimensional which is making traditional measures, like average prices, increasingly irrelevant in gauging the health and state of the sector, finds a new report from CIBC World Markets Inc.

“Glancing at popular metrics such as the price-to-income ratio or the price-to-rent ratio, it is tempting to conclude that the housing market is already in clear bubble territory and a huge crash is inevitable,” writes Benjamin Tal, Deputy Chief Economist at CIBC, in his latest Consumer Watch Canada report.

“Tempting, but probably wrong. When it comes to the Canadian real estate market at this stage of the cycle, any statement based on average numbers can be hugely misleading. The truth is buried in the details—and there the picture is still not pretty, but much less alarming.”

He notes that while the average house price in Canada rose 8.6 per cent on a year-over-year basis in May, that number slows to 5.6 per cent if you take Vancouver out of the picture. Remove Vancouver and Toronto and the average price increase drops to 3.7 per cent.

By digging into the details on the high profile Vancouver market he found that the gap between average and median prices is reaching an all-time high. While the average house price climbed 25.7 per cent on a year-over-year basis to more than $800,000 in May, he found that by removing properties that sold for more than a $1 million there was a much more moderate price appreciation in the market. It also reduced the average sale price by $220,000 to just over $590,000.

“What makes Vancouver abnormal is the high end of its property market,” says Mr. Tal. “And in this context many, including Bank of Canada Governor Mark Carney, point the finger at foreign—mainly Asian wealth—as the main driver here.”

Data on the extent of the role that Asian investors have played in Vancouver housing prices is quite limited. Mr. Tal’s analysis of data obtained from Landcor Data Corporation suggests that only 10 per cent of the nearly 4,500 transactions involving foreign money over the past five years were above the $1 million mark, with an average purchasing price of just under $600,000.

According to the information provided by Landcor, foreign money accounted for only 2.6 per cent of all sales during the same period. However, Mr. Tal believes that could be a serious underestimate, as it is based on where property tax assessments are mailed, and would exclude offshore buying on behalf of children or other local proxies. “There are many reasons to believe that a significant portion of what is perceived to be buying by offshore investors is, in fact, driven by Chinese immigrants that are integrated into the community but still maintain strong links to mainland China, with many residing and working in China while their family establishes roots in B.C.”

“Looking beyond the average price numbers reveals a highly segmented and multi-dimensional market that is probably influenced by different forces,” says Mr. Tal. “But even a multi-dimensional market can overshoot—and the likelihood is that prices in the Canadian market and its sub-segments are higher than what can be explained by factors such as income growth, rent and household formation. Given that, the housing market will eventually correct. The only question is what will be the mechanism of that correction.”

Mr. Tal feels the price correction in Canada will be gradual as the two key triggers for a price crash – a significant and quick increase in interest rates and/or a high-risk mortgage market that is very sensitive to changes in economic factors – are not at play in Canada.

“In Canada, a sharp and brisk tightening cycle is unlikely. The market expects a gradual increase in short-term rates in the coming years. The rising number of mortgage holders that carry a variable rate mortgage will be the first to feel the pain. But if history is any guide, they will return quickly to the comfort of a five-year fixed rate the minute the Bank of Canada starts hiking.”

He also believes that the country is in relatively good shape when assessing the two sub-segments of the mortgage market that traditionally account for most defaults: mortgage holders that carry a debt-service ratio of more than 40 per cent and those with less than 20 per cent equity in their house.

Just over six per cent of households have a debt service ratio of more than 40 per cent—a number that has risen by a full percentage point since 2008. “However, this ratio is still well below the ratio seen in 2003, when the effective interest rate on debt was more than a full percentage point higher, and no correction in house prices ensued,” adds Mr. Tal.

“All other things being equal, even a 300-basis-points rate hike by the Bank of Canada would take this ratio to only just over eight per cent. Not surprisingly, Vancouver has the highest ratio of households with high debt-service ratio, followed by Toronto.”

A little more than 17 per cent of the Canadian residential real estate pool is in properties with less than a 20 per cent equity position, a number that has been rising over the past few years. More than 80 per cent of households with less than a 20 per cent equity position are first time buyers.

“Digging deeper and looking at the households with both low equity positions and high debt-service ratios, we found that this fragile segment of the market accounts for only 4.6 per cent of total mortgages—a number that has been on an upward trend over the past few years,” says Mr. Tal. “Shock the system with a 300-basis-points rate hike and that number would rise to a still-tempered 6.5 per cent. Historically, even in that group, the default rate has been well below one per cent. Thus, short of a huge macro shock, there does not appear to be the risk of large scale forced selling that would typically be the trigger for a precipitous plunge in the national average house price.

“As a result, while house prices are likely to adjust as interest rates eventually climb, the national pace of any correction is likely to be gradual. That could still entail a period in which housing underperforms other assets as an investment class, until rising incomes and a tame price trajectory bring the market back to equilibrium.”


Have a great weekend!



7 Jul

Why working is the secret to happiness


Posted by: Kimberly Walker

Why working is the secret to happiness

Jenna Goudreau, On Wednesday July 6, 2011

I like yoga. The few times I do it a year, I feel warmer, more flexible and rather proud of myself for investing in my personal happiness (though I’ve often had the sneaking suspicion that jogging would have been a better workout and more cost effective). In a recent fit of daring, I even took an aerial yoga class—attempting to calm my breathing as I dangled upside down from fabric suspended from the ceiling. Clearly, I was on the path to inner bliss.

The most impactful part of a good yoga class, at least I am told, is the meditation at the end. Your heartbeat slows. Your body is at rest. Your mind empties. Well, it’s supposed to anyway. Whenever I try to clear my thoughts through meditation, I end up thinking about dinner or tomorrow’s to-do list or what might be wrong with me that I can’t stop thinking.

Thus it comes as some relief to learn that yoga, relaxation, meditation and stress-free living are not clear paths to happiness. On the contrary, economist Todd Buchholz believes that peace and stillness might make you miserable. In his new book, Rush: Why You Need and Love the Rat Race, Buchholz outlines why he’s decided that work is the secret to happiness.

The former White House director of economic policy and Harvard teacher set out to write a book about how Americans were destroying themselves by chasing success and achievement. Soon, however, he realized that it was that very pursuit that makes us happiest.

“Behavioural psychologists and yoga masters are flat wrong,” Buchholz told me. “The idea that our entire society needs to de-stress is treacherous.”

Despite the perception that work and stress stunt our happiness, Buchholz says our brains are wired to thrive in the rat race. He points to the frontal lobe, which evolved to plan for the future and craves forward thinking and motion. If we were to step off the wheel, retiring to an endless beach and flow of daiquiris, we would resort to “a life of stasis” that would “confound and frustrate the frontal lobe.” Retirement, he says, ages us and causes brain function to decline.

Similarly, Buchholz dismisses the idea that smiling and serenity will boost our spirits. Rather he believes that rushing around and frequent activity converts into internal energy that revives us. Dopamine and serotonin—the body’s natural feel-good drugs—flood our systems when we take a risk or begin a new challenge.

And all that society-wrenching competition going on in the workplace? Happiness inducing, Buchholz claims. “Typical academics would say the opposite of competition is cooperation,” he says. “My argument is that competition can lead to cooperation. Human beings created cooperative hunting teams because they were competing against the elements. Competition is what drives people to improve their lives.”

The workplace, then, is not a cesspool of greed, rivalry and political maneuvering. It’s an arena that forces you to compete against the industry standard, your coworkers and even yourself, which ultimately drives innovation, creativity and personal growth.


5 Jul

News Release Fraser Valley Real Estate Board June 2011


Posted by: Kimberly Walker

News Release: July 5, 2011


(Surrey, BC) – For three consecutive months, the percentage of properties sold in the Fraser Valley compared to those that were available for purchase has remained at 16 per cent, reflecting a balanced market starting to favour buyers.  

In June, the Fraser Valley Real Estate Board processed 1,588 property sales on its Multiple Listing Service (MLS®), while at the same time had 9,758 active listings available.

Sukh Sidhu, president of the Board, explains, “When supply and demand remain as consistent as they have since April, it indicates a stable market.

“However, it is important for both buyers and sellers to be aware that Fraser Valley’s market is highly localized. In general, 16 out of every 100 properties sold in June, but that’s referring to every property type in all six of our communities. Be sure to ask your REALTOR® for the percentage of properties selling specific to your home in your area.”

The Board received 2,762 new listings in June, a decrease of 10 per cent compared to May and a decrease of 12 per cent compared to the 3,153 new listings received in June 2010.


Sidhu adds, “Although the volume of new homes coming on stream saw a seasonal dip in June, selection remains very good in particular for Fraser Valley apartments. With interest rates remaining stable, there are some excellent opportunities for first-time buyers this summer.”


In June, the benchmark price for Fraser Valley detached homes was $528,060, an increase of 1.9 per cent compared to $518,355 in June 2010 and a decrease of 0.3 per cent compared to May.


The benchmark price of Fraser Valley townhomes in June was $327,457, a decrease of 0.2 per cent compared to $328,080 in June 2010 and up 0.8 per cent compared to May. The benchmark price of apartments was $249,537 in June, an increase of 1.3 per cent compared to the $246,351 price in June of last year and down 0.6 per cent compared to May.


Information and photos of all Fraser Valley Real Estate Board listings can be found on the national, public web site www.REALTOR.ca. Further market statistics can be found on the Board’s web page at www.fvreb.bc.ca. The Fraser Valley Real Estate Board is an association of 2,920 real estate professionals who live and work in the communities of North Delta, Surrey, White Rock, Langley, Abbotsford, and Mission.



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