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After 5 years of surge in housing demand and price gains, experts are projecting a more moderate housing market for 2008. The following article was published on Tuesday, February 12, 2008 by Alia McMullen, Financial Post.
Housing affordability is likely to improve this year as house-price growth eases and falling interest rates make mortgages cheaper, economists say.
Michael Gregory, senior economist at BMO Capital Markets, said housing affordability was becoming an increasingly important issue in some Canadian cities, with house prices jumping at "unsustainable" levels amid a surge in population-driven demand, a strong jobs market and relatively low mortgage costs.
Rishi Sondhi, economist at RBC Capital Markets, said housing should become more affordable as house-price gains ease and interest rates fall, with the Bank of Canada expected to cut interest rates again in March following a 25-basis-point cut to 4% in January.
Greater Vancouver has the highest high prices in Canada, and the less affordable. One of the biggest culprits to the problem is "lack of land" for housing! This is an irony as Canada has plenty of land, but artificially "frozen" and not available to be used for housing. There are many housing critics arguing for the "freeing up" of more land for housing developments and better-planned high-density developments along the transit lines. Consumers are paying for the "Agricultural Land Reserve" policy (obsolete? or urgently needed to be revamp?) freezing land parcels that are presently designated as "agricultural land".
To many critics this is a mis-allocation of valuable resources resulting in artificially high land costs. The failure of the Governments to take bold action and lack of leadership to solve the housing affordability problem will exert economic toll on the future growth of Greater Vancouver.
You are welcomed to post your thoughts and comments on how the housing affortability problem can be solved.
The pace of home loan lending is still considered healthy and relatively un-affected by the credit crunch in Canada. More affordable and lower priced housing units are consisted of multi-family units like Condos and townhomes. Presently as much as 60% of home sales in British Columbia, Canada are accounted for by condos and townhouses. Many home owners now have to resort to 40-year amortization to qualify for the loans they needed.
The danger in a housing market collapse in Greater Vancouver can result in a price correction to the support levels which are at 30% - 35% lower than current prices as can be seen on the price graph here.
The housing markets of Alberta and British Columbia are definitely bubbles that will burst soon. With the US economy entering recession and the heavy reliance of Canadian economy on the US, there is no way the Alberta and BC housing market can have a soft landing. The bubble burst is on the way.
There was more bad news about the Canadian housing market this week. The Canadian Mortgage and Housing Corporation (CMHC) have warned that the number of property sales could fall as much as 40% this year. The announcement came just days after the Housing Minister Monte Solberg's refusal to attend a national housing meeting with provincial and territorial ministers and then inadvertently revealed that the Government believes there will be a 5% to 10% drop in prices this year "at best". Meanwhile, mostly economists at banks and building societies - believe the falls in prices will be limited to low, single digits. But while the jury's still out on whether there is going to be a crash or a modest decline, there does now seem to be a broad consensus among the experts' that house prices will be lower at the end of the year. So, is it finally time for first-time buyers to crack open the champagne and celebrate? If you're a homeowner, should you be crying tears into your pillow? Who are the real winners and losers when house prices fall? The most obvious winners are first-time buyers. Not only are prices becoming more affordable, but it's a buyer's market now, with properties taking 50% longer to sell than this time last year and asking prices dropping, on average, around 27% before a sale can be agreed.* First-time buyers are in a particularly strong position because they are chain-free buyers. So far, so good. But are all first-time buyers winners when house prices fall? Since the credit crunch, it has become much more difficult to get a mortgage, with lenders pulling deals left, right and centre. Even if you can find a cheap mortgage deal with a low rate, you may not be eligible for it. It all depends on the size of your deposit. Due to the increased risk of negative equity when prices fall, mortgage lenders are becoming increasingly wary of lending to borrowers with small deposits. While you can still get a mortgage with a 5% deposit, you'll have to pay a higher rate. According to the Royal Bank of Canada (RBC), the average two-year fixed rate (taking into account the fees) is now almost 7%, compared to 6.3% last July. On the plus side, those that can save are benefiting from rising savings rates, as banks compete desperately to lure in your cash during this economic downturn. The most obvious losers, you might assume, are homeowners. After all, when prices fall, they lose money.