News Release: January 3, 2013

FRASER VALLEY REAL ESTATE SALES AT LOWER LEVELS IN 2012

(Surrey, BC) – Fraser Valley’s real estate market in 2012 will be remembered as the year buyers and sellers took a breather reflecting quieter sales, an average number of new listings and prices overall remaining flat.

The president of Fraser Valley’s Real Estate Board, Scott Olson, says, “The last half of 2012 was like a Mexican stand-off. Buyers kept hoping for greater price drops while sellers who didn’t have to sell just took their home off the market rather than lower their price.

“With the economy so stable, we’re not in a situation where people have to sell their home, so they’re not. It’s a very different market than in 2008 when listings were at an all-time high and sales were at historical lows.”

The Board’s Multiple Listing Service® processed 13,878 sales in 2012 compared to 15,529 the previous year, a decrease of 11 per cent, while the number of new listings remained about the same – 31,009 in 2012 compared to 31,592 in 2011. Over the year, the number of active listings for buyers to choose from dropped by 3 per cent going from 7,399 properties in December 2011 to 7,187 in December 2012.

Although 2012 ranks the second slowest year for sales in Fraser Valley since 2003, the volume of new listings finished in the middle of the pack. Scott Olson, says, “Inventory levels are down, which is a sign of a healthy market where insufficient demand leads to reduced supply. This is also keeping prices in most areas either flat or down only slightly.”

In December, the benchmark price of a detached home in the Fraser Valley was $539,000, an increase of 1.2 per cent compared to $532,700 in December 2011 and a decrease of 1.0 per cent compared to November.

For townhouses, the benchmark price in December was $296,400, a decrease of 2.2 per cent compared to the same month last year when it was $303,000 and down 0.8 per cent compared to November. The benchmark price of apartments in December was $200,100, an increase of 1.6 per cent compared to December 2011 when it was $196,900 and a decrease of 1.3 per cent compared to November.

Average prices year over year show detached homes down 3 per cent – $576,709 in 2012 compared to $594,402 in 2011. The average price of townhomes increased by 3.7 per cent, going from $316,259 in 2011 to $327,935 in 2012 and the average price of apartments decreased by 0.2 per cent going from $218,235 in 2011 to $217,843 in 2012.

Almost “Riskless and Costless” Lending

“Insured mortgage lending is almost riskless and costless to lenders.”—Finn Poschmann (Source)

Really?

This statement implies that lenders are getting a free lunch off the taxpayer’s back…that lenders reap all the profits and offload almost all their risk to unsuspecting Joe Sixpack and Grandma Millie.

Let’s examine that for a brief moment.

In the first place, describing insured lending as “costless” is as amusing as it is perplexing. It’s quite difficult to launch and operate a successful underwriting and mortgage funding operation without:

A multi-million dollar upfront investment (sourced by people who expect to see their money back).

Significant capital (to be an insurer-approved lender, MBS/CMB participant, etc.).

Highly experienced personnel (with good reputations).

Ongoing expenses.

Such expenses become prohibitive if your arrears are abnormal and you get banned from securitizing (selling) your mortgages.

And riskless? Finn, if you want to see how riskless insured lending is, try:

a) starting a lender

b) underwriting poorly

c) incurring excess defaults

d) getting shut off by the insurers

e) going out of business and losing all or most of your capital.

Then write another column about how riskless your lender experience was.

Lenders have no shortage of incentive to manage exposure, keep lending and stay solvent—mortgage insurance or not.

See related: Skin in the Game

Rob McLister, CMT

Hello 2013

Article written by Boris Bozic on the 08 Jan 2013 in Business

“The only thing that is constant is change.”

Welcome back all and I hope you all enjoyed the Christmas season.  I know that may be somewhat politically incorrect to evoke Christ’s name during and after the holiday season.  Here’s my view on that, oh well.  I celebrate Christmas and if I say Merry Christmas, and someone responds by saying Happy  Hanukkah or Happy Big Bang Theory Day, I won’t be offended.  So let’s dispense with political correctness of Christmas past and focus on the future.

Things to look for in 2013?

As a start who will be in charge at the Bank of Canada.  Mark Carney’s reign is coming to end by mid-year so it will be interesting to see who his replacement will be; someone with “star power”?  Or a bureaucrat who goes about his business in the shadows?  The Globe is reporting that the Finance Department is not saddened about Carney’s departure.   According to the Globe, “Though the finance minister has worked closely with Carney and had helped catapult him into the exalted job of central bank chief in 2007, the once-tight relationship deteriorated in the following years as Carney’s star power threatened to leave Ottawa’s political class in the shadows, sources said“.  How juicy, how Entertainment Tonight.  I can see how Minister Flaherty might have been a little perturbed.  The Minister is an elected official whom the voters can turn on if things don’t go according to plan.  On the other hand the head of the Bank of Canada takes no political risk and benefits from a bigger payday in another country.

Another thing I will be watching for is the treatment of CMHC in the press. When and why did it become fashionable to treat CMHC like a Pinnate?  I get it, when you get big enough you take your blows deserved or not.  When you’re big enough you become a lightning rod (for illustration look to the dominant technology provider in the broker space, as well as the National Association).  But CMHC has been around since 1946, dedicated to home ownership in Canada, and yet now the scope of their responsibility is being questioned in the press.  By appearance this looks to be a case of fixing something that isn’t broken.   Or it could simply be a case of CMHC running up against powerful enemies who whisper sweet nothings into the ears of the press?

Of course we’ll all be watching for signs that economies, be it ours or around the world, are starting start to garner some momentum. Then again that’s old news, that watch began in 2008.  I have no doubt that 2013 will be another interesting year for all of us.  The only thing that is constant is change.

Until next time,

Cheers.

Raymond Lee | Director of Business Development
C: 416 540 7364  TF: 1 877 210 4498

Email: Raymond.lee@merixfinancial.com

Website : www.merixfinancial.com

News Release: January 3, 2013

FRASER VALLEY REAL ESTATE SALES AT LOWER LEVELS IN 2012

(Surrey, BC) – Fraser Valley’s real estate market in 2012 will be remembered as the year buyers and sellers took a breather reflecting quieter sales, an average number of new listings and prices overall remaining flat.

The president of Fraser Valley’s Real Estate Board, Scott Olson, says, “The last half of 2012 was like a Mexican stand-off. Buyers kept hoping for greater price drops while sellers who didn’t have to sell just took their home off the market rather than lower their price.

“With the economy so stable, we’re not in a situation where people have to sell their home, so they’re not. It’s a very different market than in 2008 when listings were at an all-time high and sales were at historical lows.”

The Board’s Multiple Listing Service® processed 13,878 sales in 2012 compared to 15,529 the previous year, a decrease of 11 per cent, while the number of new listings remained about the same – 31,009 in 2012 compared to 31,592 in 2011. Over the year, the number of active listings for buyers to choose from dropped by 3 per cent going from 7,399 properties in December 2011 to 7,187 in December 2012.

Although 2012 ranks the second slowest year for sales in Fraser Valley since 2003, the volume of new listings finished in the middle of the pack. Scott Olson, says, “Inventory levels are down, which is a sign of a healthy market where insufficient demand leads to reduced supply. This is also keeping prices in most areas either flat or down only slightly.”

In December, the benchmark price of a detached home in the Fraser Valley was $539,000, an increase of 1.2 per cent compared to $532,700 in December 2011 and a decrease of 1.0 per cent compared to November.

For townhouses, the benchmark price in December was $296,400, a decrease of 2.2 per cent compared to the same month last year when it was $303,000 and down 0.8 per cent compared to November. The benchmark price of apartments in December was $200,100, an increase of 1.6 per cent compared to December 2011 when it was $196,900 and a decrease of 1.3 per cent compared to November.

Average prices year over year show detached homes down 3 per cent – $576,709 in 2012 compared to $594,402 in 2011. The average price of townhomes increased by 3.7 per cent, going from $316,259 in 2011 to $327,935 in 2012 and the average price of apartments decreased by 0.2 per cent going from $218,235 in 2011 to $217,843 in 2012.

The Canada Mortgage and Housing Corporation (CMHC) complex in Ottawa. About 70 per cent of mortgages in Canada are insured and the government provides a 100 per cent guarantee of mortgages insured by CMHC.

Globe and Mail

Private sector should take on CMHC’s role

FINN POSCHMANN

Published Thursday, Jan. 03, 2013 06:55PM EST

Last updated Thursday, Jan. 03, 2013 06:56PM EST

When the forerunner of the Canada Mortgage and Housing Corporation opened shop in 1946, its job was to help war veterans find housing. From those humble beginnings, CMHC has emerged as a financial market giant. As this baby-boom behemoth contemplates life after 65, it, like many of us, should consider a more modest public role.

By the 1950s, CMHC was in the affordable (public) housing business; Toronto’s Regent Park was one of its first projects. The agency’s social policy portfolio expanded, with assisted housing and assisted home-ownership programs, on-reserve housing, and green energy and conservation programs.

What has also grown is CMHC’s mortgage loan insurance program. Federal law requires successful mortgage applicants to buy mortgage insurance if their down payments are less than a legal minimum (currently 20 per cent of the home purchase value).

This insurance guarantees lenders are repaid in full, even if borrowers default on their mortgages; this, for good or ill, lifts from financial institutions most of the risks associated with mortgage lending. Those risks are big: Through mortgage insurance, CMHC’s gross loan exposure is now scraping its $600-billion legislated limit. Taxpayers are shielded in part by CMHC’s $13-billion equity buffer, but nonetheless are exposed to the liabilities that will follow on an extended housing market downturn.

Now, while high loan-to-value-ratio borrowers must buy mortgage insurance, they need not buy it from CMHC. Smaller, private sector providers supply about 30 per cent of the market. They offer products and prices similar to CMHC’s, and are similarly on the hook when mortgages go bust. There is no direct taxpayer exposure to those bad loans. However, if the insurer itself were to go bust, taxpayers are responsible for 90 per cent of the residual exposure.

The reason for the private sector’s federal backstop is to lower financial institutions’ capital costs. If an insurance provider with a federal backstop insures banks’ mortgage lending, under international agreements and domestic regulation, lenders need to reserve little or no capital against their mortgage books. Insured mortgage lending is almost riskless and costless to lenders.

Many questions flow from this situation. Why does the Crown corporation do all of the things it does? Why aren’t social housing and related social programs part of a division of Human Resources and Skills Development Canada, where similar social programs reside? Why aren’t housing market data functions handled and financed by Statistics Canada? Why aren’t green energy programs part of Natural Resources Canada? Why aren’t mortgage bond and securitization programs run by Treasury or Finance?

And that leaves mortgage insurance. This usually is a profitable business – people must buy the product, and to do so at the price CMHC sets. But why does the federal government hustle mortgage insurance, and not auto insurance?

Given such questions, the obvious next step would be to split up CMHC.

Few outside government would notice if Statscan took over housing market data, or if energy-conservation programs migrated to other federal departments. CMHC’s financial market functions are already overseen by Finance and the Office of the Superintendent of Financial Institutions, which also inspects private insurers. And the Canada Mortgage Bond program could be run by Treasury.

The mortgage insurance program, meanwhile, would be an attractive investment for a well-capitalized domestic financial institution, such as a pension fund (the Ontario Teachers’ Pension Plan already owns half of one of the private insurers). In private hands, the current insurance book could be grandfathered, and new contracts underwritten by a reconfigured agency called, say, the CMHC.

Again, few would notice the shift; the key difference would be the new layer of taxpayer protection afforded by a 90-per-cent (or lower) guarantee of residual housing market liabilities, rather than the 100-per-cent exposure within the current CMHC. In a market occupied by private competitors, a broader range of portable insurance products and prices seems a likely outcome.

Mortgages and mortgage insurance would still be regulated by federal and provincial rules, exactly as now. Regulation of conduct and oversight with respect to financial stability would still be federal responsibilities. Consumers and most market participants would be unaffected by the change.

CMHC, as it exists, has outlived its mandate.

 http://www.theglobeandmail.com/report-on-business/economy/housing/private-sector-should-take-on-cmhcs-role/article6922279/?service=print

Psst. Here’s the ugly truth_{By            CMP            |            02/01/2013 8:00:00 AM            |                 0                comments}

Shall CMP break it to your BFS clients or should you? The ugly truth about B20 is that self-employed borrowers may actually have to report their full income.

The new OSFI lending guidelines, demanding an unprecedented level of scrutiny with regards to BFS borrowers. have caught many self-employeds flatfooted and scrambling to meet the document requirements.

The constraints have negative repercussions for many brokers who deal primarily with self-employed clients, says Rachele Raia, broker/partner at Your Mortgage Connection in Vaughan, Ontario.

“BFS borrowers make up 30 per cent of our client list,” according to Raia, representing the concerns of hundreds of brokers in the same boat. “More document requirements mean more back and forth and longer wait times.”

The focus at the moment is the identification and verification of a borrower’s source of income in order to assess that person’s ability to pay the mortgage.

“Several months ago, a stated income was enough,” Raia says. “Now lenders want to see a person’s stated income, T1, notice of assessment and bank statements.”

Prior to the mortgage rule changes, BFS borrowers could easily apply for mortgages with A lenders.

However, banks and A lenders have adopted stricter qualifying controls following the mortgage rule revamp and lately some B lenders appear to have “lost their appetite” for BFS borrowers as well, she tells CMP.

Under this new level of scrutiny, according to another seasoned broker, document preparation is not the only strategy.

“Brokers also need to coach BFS clients on issues such as when to file income taxes and  document authentication,” says Dustan Woodhouse, broker with Dominion Lending Centres Canadian Mortgage Experts on B.C.’s Lower Mainland.

For instance, borrowers should opt to pay more personal income tax this year, he says. The goal is to bump up a borrower’s income to a level that will qualify that individual for the mortgage he or she is hoping for.

“Advise your clients against starting a dividend income program this year,” he says. “It may be a good tax strategy, but not a good mortgage strategy.”

Brokers should also make sure of their clients have a 2012 business license.

“The number one reason I hear from various tradespeople is: ‘I work all over town,” says Woodhouse. “My answer is: Get one from the municipality in which you reside.”

BFS borrowers also need to have an accredited accountant prepare their business financials and file their tax returns.

“I think brokers should connect with their client’s accountant at tax time and make sure they are working on the same page regarding the borrower’s mortgage plans,” he adds.

Brokers can also advise their clients to incorporate their business, says Woodhouse. Apart from the liability and tax advantages, in the new lending regime, limited corporations will have an easier time compared to sole proprietors.

BFS borrowers also need to be reminded to report all rental income in the T1 General forms or via Hold CO Financials and made sure those financials are up to date and filed.

“Remember, your clients need to keep an impeccable record of their financial status,” Woodhouse says.

Canada’s housing market: a victim of demographics

ROB CARRICK  The Globe and Mail

Demographic trends built up our housing market, and now they’re going to start pulling it apart.

Prepare yourselves, buyers and sellers. The years ahead for housing will look nothing like the last decade.

A report issued by Pacifica Partners Capital Management in B.C., describes the housing market as we know it today as a product of a wave of buying by baby boomers in their peak earning years. Now, as they start entering retirement, boomers aren’t buying houses any more and the younger generation isn’t large enough to pick up the slack.

Anyone still think the housing market’s going to snap back from the weakening trend that has taken hold in the past couple of months? It’s not, so act accordingly. Adjusting our expectations about housing won’t be easy because we’ve seen prices rise dramatically. Canadian Real Estate Association numbers show an average annual price gain of 7.7 per cent over the past 10 years on a national basis.

Aman Bhangu, Pacifica’s vice-president of research, said real estate has performed a lot like stocks did before the twin stock market crashes of the past decade. “At the end of the 1980s and 1990s, you had that mantra of ‘buy and hold, stock markets always go up, just get in there.’ It’s likewise with real estate – ‘real estate always goes up.’”

Mr. Bhangu said that taking a fresh look at the fundamentals supporting the real estate sector suggests prices are overvalued today by one-third, while other estimates call for a price decline of 10 to 25 per cent from current levels. Forecasts like these are educated guesses, whereas the demographic impact on housing is rooted in basic numbers.

Pacifica’s report says people aged 45 to 64 used to account for just below 20 per cent of the population. In the 1990s and 2000s, however, this cohort claimed an additional 10 per cent of the population. In round numbers, there are 4.3 million more 45- to 64-year-olds now than there were in 1990. Most housing bubbles in the industrialized world have occurred after sharp growth in the number of 45- to 64-year-olds, Pacific said in paraphrasing research issued last fall by the French bank Société Générale.

In previous generations, the supply of young people in Canada was big enough to replenish the gaps created as older workers moved into retirement. Now, with baby boomers such a disproportionate part of the population, there’s a shortfall.

Young adults buy starter homes from people moving up to the more expensive houses where boomers live. Gen Y, you’ve just been handed the perfect comeback the next time a boomer dismisses your complaints about high tuition costs and a tough job market. Just say: “Good luck selling your house, old timer.”

Mr. Bhangu said immigration could help support the housing market as boomers age, but he’s unsure how much of the impact of shifting demographics can be overcome. A key question is whether the job market in Canada can sustain the level of immigration needed to maintain equilibrium in the housing market.

Here’s what Mr. Bhangu suggests if you’re a boomer who has ideas about selling the family home any time soon. Consider all your financial assets and savings, and determine how much you’re depending on the value locked in your home to meet your financial goals. If your home is a dominant part of your net worth, think about selling it now so you can diversify your holdings.

Mr. Bhangu said young people shouldn’t dismiss renting for the near term, in part because it gives them mobility in finding a job. Those who want to buy a house need not feel as if they have to rush into the market now, before house prices climb out of reach. “At this time, there’s more risk going in than there is in holding out.”

That’s the investing point of view on home ownership. Before the rapid increase in house prices of the past decade, people generally bought houses for lifestyle reasons. If that’s your view on owning a home and you figure on staying for 10 years or more, then ignore demographics and focus on affordability.

Here, there’s good news. Housing prices are under pressure as sales decline, and a five-year fixed-rate mortgage can be had with minimal hassle for roughly 3 per cent. Only buy a house you love, though. It’ll carry you through the days ahead when people talk about what a terrible investment housing is.

Borrowers reminded of flexibility amid fixed-rate fever_{By            Nestor Arellano            |            12/12/2012 4:35:00 PM            |                 0                comments}

Outgoing Bank of Canada Governor Mark Carney may be delighted that consumers are heeding his warnings and have been flocking to fixed-rate mortgages in record number, but one broker is advising borrowers to pick shorter term mortgages because they offer greater flexibility.

“Right now people are looking for security, that’s why they are going for fixed-rate mortgages,” said Omer Quenneville, a mortgage broker with Centum in Toronto. “However, I would recommend that borrowers go for three-year mortgages just so they can quickly switch once discounts for variable-rate mortgages go down.”

In a speech before members of the Chartered Financial Analysts Society in Toronto on Tuesday Caney said he has seen some “encouraging” signs in the housing market that his persistent warnings about future interest rate.

The BOC chief said Canadians, who have one of the highest debt-to-income ratios in the world, appear to be taking the looming possibility rate hikes seriously as seen with the increase take up in fixed-rate mortgages.

“The share of new fixed-rate mortgages has almost doubled to 90 per cent this year, reflecting the combination of attractively priced fixed-rate mortgages and the tightening bias of the Bank of Canada,” said Carney. “I wouldn’t say mission accomplished…but a more sustainable housing situation in Canada is within sight.”

Since September 2010, the central bank has kept its one-per cent policy rate but last year warned it will likely move towards higher rates. When this happens, Quenneville said, variable-rate mortgages are likely to become attractive again.

“As a broker, I will be telling my clients to go for shorter fixed-rate mortgages,” he said. “When the prime rate goes up, they’ll have more flexibility to switch mortgages.”

_{By            Nestor Arellano}       

“In the current context, a specific concern is that the total number of housing units under construction has been increasing and is now well above its historical average relative to the population,” according to the bank’s Financial Systems Review – December 2012 report. “If the upcoming supply units are not absorbed by demand as they are completed over the next 18 to 36 months, the supply-demand imbalance will become more pronounced, increasing the risk of a sudden correction in prices.”

Some brokers and realtors, at least in Toronto, believe the condo market has peaked. In August, there was a 10 per cent slip in Condo sales which forced an overall decline of 1.5 per cent in Canada’s hottest market. Condo sales fell to 1,753 for July with the overall sale of 7,570 home that month, compared to 7683 that sold a year earlier, according to the Toronto Real Estate Board.

But according to the BOC, the over building is mainly occurring in the multi-unit dwelling market especially in major metropolitan areas. In the scenario it painted, the bank warned, price corrections in this particular segment may pull down house prices in general creating a domino effect that would also cause jobs to tumble and household spending to slacken.

“This would likely lead to a decline in housing activity, adversely affect household incomes and employment, as well as confidence and household net worth, which would in turn reduce household spending,” the report said.

Three developments in the sector need monitoring according to the Bank of Canada:

• Since June 2011 the number of unsold high-rise units in the pre-construction stage has risen from 7,000 to 14,000. Unsold units under construction have increased from 5,000 in the beginning of 2012 to almost 7,000
• Over the past year prices of condos have flattened and many builders have started phasing projects to address overbuilding
• The average square-footage of sold units has been shrinking since 2010

News Release: December 4, 2012 HOME SALES DECREASE IN THE FRASER VALLEY; THOSE BUYING LOOKING FOR AFFORDABILITY (Surrey, BC) – Property sales through the Fraser Valley Real Estate Board’s Multiple Listing Service® (MLS®) decreased by 19 per cent in November compared to the same month last year, moving from 1,120 to 905. Sales also decreased 14 per cent month-over-month compared to October 2012. Scott Olson, president of the Board says, “Buyers can’t borrow as much as what they could prior to the mortgage rule changes, so we’re seeing our pool of prospective buyers shrink and we’re seeing a change in the price range they’re looking for. “For three months in a row, we’ve seen a decrease in sales of detached homes $700,000 and up and greater demand for those $400,000 to half a million. Tighter credit conditions are having an impact on the market.” In addition to the drop in sales in November, the number of new listings posted on the MLS® decreased by 11 per cent compared to last year and by 32 per cent compared to October. Olson observes, “This was a significant drop with last month ranking alongside November 2003 as the slowest for new listings in the last decade. “It means that sellers are adjusting to conditions that favour buyers; great selection, houses are on the market longer and prices are lowering. If sellers don’t have to sell, they’re taking their home off the market.” In the last six months, prices for all three residential property types combined have decreased by 1.4 per cent while year over year they’ve increased by 1.3 per cent. For single family detached homes, the benchmark price increased by 2 per cent in one year, going from $533,800 in November 2011 to $544,700 last month. For townhouses, the benchmark price in November was $298,900, a decrease of 1.5 per cent compared to $303,600 during the same month last year. The benchmark price of apartments in Fraser Valley in November was $202,800, an increase of 2.6 per cent compared to $197,700 in November 2011. The Board received 1,723 new listings in November compared to 1,926 during the same month last year, taking the number of active listings to 9,478, on par with November 2011. For a detached home in the Fraser Valley, the average number of days to sell in November was 59, up five days from the same month last year. For townhomes, it was 70 days and apartments 74 compared to 52 and 72 in November 2011. —30 — The Fraser Valley Real Estate Board is an association of 2,855 real estate professionals who live and work in the BC communities of North Delta, Surrey, White Rock, Langley, Abbotsford, and Mission. The FVREB marked its 90-year anniversary in 2011. Full package: http://www.fvreb.bc.ca/statistics/Package%20201211.pdf