Richmond Condo News

Here is the 10 weeks 5-year bond rate as reported by the Bank of Canada.

Copyright © 1995-2008, Bank of Canada.

The gradual increase in the bond yield over the past 10 weeks confirmed the earlier RBC Economics's quaterly rate forecast that future interest rates were likely to go up.

GST Payable On A Real Estate Transaction

In British Columbia, GST is applicable to many services involved in a real estate transaction, including real estate sale commission, appraisal, home inspection, lawyer fees, etc.

The exception and exemption for GST payment are on resale homes, home mortgages, home loan and interest payments and mortgage broker fees. Although the Goods and Services Tax (GST) is collected at a rate of 5% on the sale price of goods and services, it doesn't apply to every type of home sale or every form of real estate service.

The payment of GST on new homes is subject to GST credits up to $450,000.

Click here for more information on the various real estate transactions and the GST payable.

Globe and Mail reported on May 14, 2008:

Home sellers flooded the markets in Toronto and Saskatoon last month, causing listings to surge to a record level in Canada.

Unit sales dropped by 6.1 per cent from the year before, but edged up by 0.8 per cent compared with March, on a seasonally adjusted basis.

In 2007, the average price of a resale home in Saskatchewan rose by 32 per cent compared with the national average increase of 11 per cent, according to data from CREA. This year, the average home price in Saskatchewan is expected to rise by 19.5 per cent to $208,400, the highest year-over-year provincial gain in Canada and well above CREA's forecast national average increase of 5.3 per cent.

Atlantic-Canadians were the most positive towards a home purchase, according to the CAAMP survey, with 49 per cent saying it was a good time to buy compared with 24 per cent who said it was not.

Sales fell the most in Calgary and Edmonton in April with drops of 31.2 per cent and 25.4 per cent respectively.
Thirty-seven per cent of home buyers took out mortgages with longer amortizations than the standard 25 years in the period from September, 2006, to September, 2007, according to CAAMP's most recent data.

Read the full report here.

In Greater Vancouver, active listings are reported to be rising at an all time high as of May 15, 2008. The April data as reported by Paul Boenisch at Prudential Sussex Realty highlighted the large number of new listings hitting the market.  The final May listing inventory will be reported back here as soon as the data are available.

Source: statistics from Real Estate Board of Greater Vancouver

Richmond Detached Home Housing Report - April 2008

The sales and listings statistics for Richmond in April continued to track the seasonal pattern of having more listings and sales. Over the past 4 months, more listings were added to the market, and cumulatively the number of active listings is now surpassing 670 from the December low listing number just over 400.

More inventory added

It is now taking longer to sell a detached home with around 26% probability of an average home selling and the Absorption Rate is now tracking 3.87 months from the previous month in March at 3.6 months. The median price at $705,500 was marginally lower than the previous month at $711,000. The average price was reported for the month was higher at just over $800,000 as compared with around $780,000 the previous month, but below the $835,000 high in February, 2008.

Prime building lots in demand

Overall, the market activities are still bullish and prices are holding. There are now more selections for home buyers who are taking their time to evaluate the homes they viewed. For prime location older homes bought as building lots, home builders are active and quick in making their bid at prices at $800,000 range. These homes are torn down and new home built on the lots are being listed and sold at $1.8 to $2.0 million dollars.

Eric Beauchesne, Canwest News Service  Published: Thursday, May 15, 2008"

Here is a quote from Scotiabank economist Adrienne Warren

"Unlike in the U.S., home prices in Canada are not substantially overvalued, the real estate market is not overbuilt, households are not over-leveraged and overall mortgage quality is still sound, she said."

Can this be true in major Greater Vancouver city centers like Vancouver, Burnaby, Richmond, Coquitlam, etc. that house prices will continue to move up?

At local level, the Greater Vancouver real estate market especially new condos may face serious selling and pricing pressure due to high prices, more inventory and changing home buyers psychology. Any cooling or correction in the market  will drastically reduce the demand thereby depressing house prices. 

If sales drop off substantially, more selling pressure could result in home prices correcting by 10 % or more. The April benchmark prices as reported by the Real Estate Board of Greater Vancouver for detached houses, townhouses and condos were $771,321, $477,900 and $389,070 respectively.

The Globe and Mail reported on May 05/2008:

"Inflation worries will drive interest rates higher: Rubin"

While the Bank of Canada may cut interest rates one more time, unrelenting pressure on food and energy prices will boost inflation over the next 12 months and force rates at least 100 basis points higher next year, CIBC World Markets chief strategist and economist Jeff Rubin said. Read more...

MSNBC in today's report "Surge in energy prices stokes inflation" highlighted the danger of rising energy and food prices could spell trouble for consumers who are overly leveraged and financially stretched if interest rates spike up.

For home buyers considering whether to have a fixed or variable rate mortgage, current variable terms are more favorable than fixed rate mortgage. But, for home owners who are on variable term mortgage and planning to lock-in later, their mortgage plan may preclude them from getting the most favorable fixed term discounted rates.

Variable or Fixed Rate?

Home owners who are on variable mortgage may enjoy another few quarters of low rates before the crentral bank will tighten liquidity and raise rate interest rates. Most Candaian banks do not gaurantee the best discounted mortgage rates when borrowers are locking-in on their rates.

There are disadvantages for home owners who do not plan to stick with their variable mortgage for the full term of their mortgages. Most variable contracts are on 5-year term, which required borrowers to lock-in on a mortgage term not less than 5 years (from the time when the mortgage was issued). Longer term mortgages traditionally being higher than 1 and 2-year mortgages, will result in home buyers locking in at higher fixed rates.

The Times: Home repossessions to double this year for mortgage defaulters

Dearer mortgage costs in the log-jammed home loans market were blamed for a rise of almost 20 per cent over the past year in court orders allowing lenders to seize properties.

In a further sign of the growing financial distress, the number of new court actions started by lenders seeking repossession also leapt sharply. The latest survey from Halifax, the biggest mortgage lender, showed that average house prices dropped by 1.3 per cent in April, and are down by 0.9 per cent on levels a year ago.

Rising numbers of cheap, discounted properties being offloaded by lenders after repossession will only increase the downward pressure on prices, economists said.

Not all orders granted by the courts for lenders to take back homes from borrowers in financial trouble lead to actual repossessions.

Click here to read the full story.

"The Market Oracle" article posted by Mick Phoenix, "UK Housing Market Surge In Mortgage Repossession Orders", the housing problem in the UK in the 1990s re-emerged in 2004 with a spike up in repossession orders.

In spite of rising prices over the past few years, the "reposession claims" spiked up signifiying home owners were strained by high household debt loads. The "properties taken into possession" did not follow the spike up in the repossession cliams could be attributed to home owners being able to unload their homes in a still bullish housing market. 

The UK housing market may follow the US housing market as UK too has to deal with excessively high prices, lack of affordability and excessively loose lending in the past.

At the sametime,  A blog posted by Mish's Global Economic Trend Analysis "Housing Hell in Spain and Oz" highlighted the housing troubles and falling prices in Spain and Australia.

The big question is with sky-high real estate prices in Vancouver, will falling prices in the US, UK and Australia affect home owners confidence here.

The lower sales for Richmond homes in the month of January and February 2008 can be attributed to the seasonally lower yearly real estate activities. Sales picked up from a low figure of 271 to 378 in February and reached a total sales figure of 427 in March.

This compared favourably with the average Richmond 2006 and 2007 sales at 416 and 446 respectively.

A more up-to-date tracking report by Paul Boenisch at Prudential Sussex Realty is showing a significant build-up in Richmond's housing inventory for April, 2008. Paul's chart showed that Richmond's housing inventory for April surpassed that reported the same month for 2005, 2006 and 2007.

The next 2 months sales and inventory report will give us a better idea as to the direction of Richmond's housing market. The lower housing sales as reported for the 1st quarter for Greater Vancouver may put pressure on house prices if available homes for sales continue to build up. 

There are signs in Canada that interest rates may not stay low for long. Eventually, the pressure to tackle higher inflation will result in higher interest rates for Canadian.  With more housing inventory and slower sales, any spike up in interest rates will affect buyers sentiment.

Housing inventory and sales 

The all time high building activities in the province of British Columbia ad new homes have to be absorbed at a healthy clip to avoid build up of inventory. Presently, Fraser Valley is reported to have around 5 months inventory. If inventory continue to build up, pressure for more discount or price reduction can be exoected. 

Any down turn or softening of the Canadian housing market will further reduce sales and eventually put pressure on home prices. 

Affordability in Greater Vancouver is a major problem for home buyers. Presently, rental income hardly covers half the monthly mortgage payment. Investors unloading their investment properties will add more inventory to the market place.

A more sensitive tracking of the market is to follow the sales and monthly average prices on a month-over-month rather than the year-over-year comparison.

Recent increase in the bond yields and the spreads between shorter (1 and 2 years) and the longer term (5, 7 and 10 years) bond yields in the US and Canada may signal the return to a more normal rate differentials. Historically, the spread between the shorter 1 and 2-year mortgages and longer term 4 and 5-year mortgages was between 05% to 0.75%(from 2002 to beginning of 2005). The Canadian mortgage posted rates from 1 to 5 years narrowed and were relatively flat for the past 18 months.

Recently, Canadian Banks were found to be discounting more aggressively on their 1-year fixed rate mortgage.  A Prime home borrowers can now get a 1 year fixed mortgage at 4.99% compared to around 6.00% just 3 months ago. The spread now between 1-year and 5-year fixed mortgage is around 0.5%. 

Canadian Banks have been discounting between 1% to 1.5% for their 5-year fixed term mortgages to their prime borrowers. The posted rates from 1 to 5 years for the past 2 years were comparatively flat hovering around 7.0%. The widening in the posted rates has a significant impact for home owners who prefer to get a variable term mortgage now with the intention to lock-in on a later date when interest rates are heading up.

Variable or fixed rate mortgage?

When most banks are offering Prime (presently at 4.75%) less 0.6% or 0.7% for a floating rate mortgage around 4.05% to 4.15%, many home owners are attracted to floating rate mortgages. But, few may be prepared or aware that when they lock-in later, they will be paying be locking-in at rates that are not as attractive.