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It's getting more difficult to pay for the costs of owning a home in Canada and the situation will likely worsen, the Royal Bank says.

The RBC said Tuesday rising house prices were responsible for a modest deterioration in home affordability in the first few months of 2012 after two quarterly improvements, but warns that rising interest rates are the more pressing concern long-term.

"It became a little tougher on household budgets to carry the costs of owning a home at market prices at the start of this year," said Craig Wright, RBC's chief economist said in a statement Tuesday.

"Strong buyer demand was a principal driver of the modest rise in home ownership costs. While the deterioration in affordability was felt to varying degrees across the country, it was mild in most cases."

RBC's affordability index for a detached bungalow stood at 43.1 per cent of income nationally in the first quarter, up 0.8 percentage points from the fourth quarter of 2011 and up 1.5 percentage points from the first quarter of 2011.

That figure assumes an average home price of $360,500 for a 1,200 square foot, one-storey house and $77,900 in annual qualifying income. Based on those figures, an owner would need to spend 43.1 per cent of annual income to pay for mortgage payments, utilities and property taxes.

The deterioration of affordability — the proportion of pre-tax income required to service the costs of owning a home — was most acute in Vancouver, where the costs associated with owning a detached bungalow at market prices rose 3.1 points to 88.9 per cent of annual income.

There was a similar trend in Toronto, Montreal and Ottawa but the bank's affordability index was unchanged in Calgary and improved in Edmonton compared with the fourth quarter of 2011.

In Vancouver, which is Canada's most expensive real-estate market, RBC assumes an owner would need $155,900 of annual income to make mortgage payments on a bungalow priced at $832,600.

Based on those figures, the owners would have to direct $8.89 of every ten dollars earned each year towards mortgage payments, utility costs and property taxes.

In Toronto, the index deteriorated by 1.2 percentage points to 53.4 per cent based on $110,000 in annual income; in Montreal, the cost of ownership increased 1.2 percentage points to 41.4 per cent of income at $64,100 and in Ottawa it was up 0.9 per cent to 41.8 per cent of income at $88,800.

In Calgary, by contrast, only about 36.7 per cent of pre-tax income would be required to pay for a standard bungalow — unchanged from the previous study — and in Edmonton the index improved by 0.4 percentage point to 32.4 per cent.

Qualifying income was also lower in the two Alberta cities than in Vancouver, Toronto or Ottawa, at $87,000 in Calgary and $73,000 in Edmonton.

Wright said the affordability challenge will likely increase once the Bank of Canada begins raising interest rates.

"Exceptionally low interest rates have been the key force in keeping affordability from hitting dangerous levels in Canada in recent years," Wright said.

"Affordability headwinds are likely to increase next year, as interest rates make their way towards more normal levels."

He said RBC expects Canada's central bank will hike rates gradually, starting in the fourth quarter.

"A gradual pace of increases will allow income growth to provide some offset," he said.

However, there have been persist ant warnings from the Bank of Canada, federal government and many economists that Canadian household debt levels are precariously high.

There have also been concerns that prices for certain types of homes and certain local markets — condominium apartments in Vancouver and Toronto, in particular — have risen too quickly to be sustainable.

RBC's localized affordability measures are adjusted to reflect the different cost of real-estate and the amount of income that a buyer would need to qualify for a typical mortgage that would fix interest rates for five years.

In Toronto, the country's second-most expensive real-estate market, a buyer would require $110,000 of annual income to afford a bungalow, $129,800 a year to afford a two-storey house and $71,200 to afford a condo.


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Homes cost residents an average of 88.9 per cent of income: RBC

TORONTO — RBC says home ownership was less affordable in most major Canadian cities during the first quarter, although Calgary and Edmonton bucked the trend.

The latest RBC Economics report on home affordability says its index deteriorated sharply in Vancouver and to a lesser degree in Toronto, Montreal and Ottawa — primarily due to higher real-estate prices.

But the bank’s affordability index was unchanged in Calgary and improved in Edmonton compared with the fourth quarter of 2011.

The report tracks how much of a home owner’s income would be required to pay typical costs associated with owning a standard one-storey detached house.

In Vancouver, RBC estimates the combined cost of mortgage payments, utilities and property taxes rose 3.1 percentage points to 88.9 per cent.

In Calgary, by contrast, only about 36.7 per cent of pre-tax income would be required to pay for a standard bungalow — unchanged from the previous study — and in Edmonton the index improved by 0.4 percentage point to 32.4 per cent.

In Toronto, the index deteriorated by 1.2 percentage points to 53.4 per cent; in Montreal, the cost of ownership increased 1.2 percentage points to 41.4 per cent of income and in Ottawa it was up 0.9 per cent to 41.8 per cent.

“It became a little tougher on household budgets to carry the costs of owning a home at market prices at the start of this year,” said Craig Wright, RBC’s chief economist said in a statement Tuesday.

“Strong buyer demand was a principal driver of the modest rise in homeownership costs. While the deterioration in affordability was felt to varying degrees across the country, it was mild in most cases.”

He said the challenge will likely increase once the Bank of Canada begins raising interest rates.

“Exceptionally low interest rates have been the key force in keeping affordability from hitting dangerous levels in Canada in recent years,” Wright said.

“Affordability headwinds are likely to increase next year, as interest rates make their way towards more normal levels.”

He said RBC expects Canada’s central bank will hike rates gradually, starting in the fourth quarter.

“A gradual pace of increases will allow income growth to provide some offset,” he said.

BY DAVID PADDON, CANADIAN PRESS


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A mortgage is usually the biggest financial commitment - and greatest risk - most people are likely to assume in their lifetimes.

Buying a home is a leveraged investment, not unlike buying stocks on margin. With just 10 per cent down, a homeowner takes on debt equal to 90 per cent of the acquisition cost of the property. The immediate increase in net worth is negligible and equity grows at a glacial pace as most of the mortgage payments in the early years cover interest charges. Unlike stocks, housing is not a publicly traded asset so there is no reliable way to track daily housing prices.

However, they can be as volatile as a penny stock, as mil-lions of Americans recently discovered. And over the long term, housing performs little better than the rate of inflation. Seen in this light, both equity and debt need attention.

Homeowners know regular maintenance is required to keep a home shipshape. Out-side the irrational Vancouver real estate market, a home that is in good repair will be worth more than one that isn't. But keeping the mortgage in good standing is equally important, and that means never, ever missing a payment, even when a financial institution offers a deferral, as some do around Christmas.

If a homeowner has chosen a mortgage wisely, the lender will allow weekly or biweekly payments, rather than the more common monthly schedule, which will pay off the mort-gage more quickly. It may also allow an increase in those payments as cash flow permits, directing more of the payment to principal. And there will be anniversary payment opportunities, giving the homeowner the option of making a lump-sum payment each year to be applied directly to principal.

Unless the property was purchased solely for investment purposes - in which case other considerations come into play - borrowers should take advantage of these terms when-ever possible.

Mortgage holders need to keep an eye on interest rates and challenge the lender, if necessary, to meet or beat the competition.

When Bank of Montreal cut one of its five-year rates to 2.99 per cent this year, other financial institutions, fearing mass defection, responded by lowering rates on some of their mortgage products.

Although homeowners often fail to recognize the risk implicit in their mortgage debt, financial institutions do.

They insist highly lever-aged borrowers, those who put down less than 20 per cent of the purchase price to buy mortgage loan insurance, which guarantees the debt against default. A buyer put-ting down 10 per cent on a $550,000 property will pay a mortgage insurance premium of $2,475 (assuming a premium of 0.5 per cent) which, in most cases, will be added to the mortgage loan.

Some financial institutions urge borrowers to take out mortgage life insurance even in situations where mortgage loan insurance is not mandatory to ensure the debt is paid in the event of the borrower's death.

Financial advisers, however, tend to favour basic term life insurance over mortgage life insurance, pointing out the premium on mortgage life insurance doesn't change even as the amount to be repaid declines as the mortgage is paid down. Term life insurance, on the other hand, pays out the original face value of the policy.

henchin@vancouversun.com


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OECD says rate increases should happen this fall

Canada’s economy is gradually recovering and is expected to grow by 2.25 % this year and 2.5 % in 2013, according to a new report by the Organization for Economic Co-operation and Development.

 

Private consumption and investment will continue to be the primary drivers of growth in Canada, said the report, which was published Tuesday.

 

Canada’s growth will slightly outpace the OECD average, which is expected to be 1.6% in 2012 and 2.2% in 2013.

“It’s not a great outcome. A generation ago, coming out of a recession like this, we would have thought this was deplorable, but it’s not bad,” said Peter Jarrett, senior economist with the organization.

 

Assuming the euro zone “muddles through” its crisis, avoiding a Greek exit, Mr. Jarrett said OECD wants the Bank of Canada to start raising interest rates in the fall to avoid speedy inflation that will follow the economic growth.

 

“In order to head off that eventuality, we assume that beginning in the fourth quarter the Bank would move at a rate of a quarter of a point per quarter, bringing us to a rate of about 2.25 % by end of 2013,” Mr. Jarrett said.

 

The benchmark interest rate in Canada has been 1% since September 2010.

 

A rate hike is also needed to slow down quick-climbing housing prices. “We also feel that would help cool off the housing market in the places where it’s been hot and we expect it to remain hot in some of those places, particular in Toronto,” Mr. Jarrett said.

 

But if interest rates are increased, mortgages rates are also likely to rise, which could hinder the ability of some homeowners to make their payments. “We don’t want to end up in the same situation as our neighbours to the south,” said Mr. Jarrett.

 

The OECD report flagged Canada’s housing sector as imbalanced, but noted stiffer lending rules surrounding mortgages have helped reduce risk. The report comes on the heels of a Fitch Rating report released Monday that called Canada’s fast-climbing housing prices and record household debt levels unsustainable.

 

“The Bank of Canada is doing its best to ensure that lending is taking place on a prudent basis so that if indeed interest rates do have to go up more suddenly than one might have expected, then the number of people who can’t afford their houses is not too great and the impact on banks and lending institutions isn’t too great,” Mr. Jarrett said.

 

If Greece does leave its peers — the probability of which is rising, according to Mr. Jarrett — Canada will feel the effect through the financial markets rather than through its exports or bank-based contagion. Mr. Jarrett said a Greek exit would trigger a rush for low-risk assets, causing commodity prices to fall, and demand for the U.S. dollar, pushing down the loonie.

 

He said Canadian banks are better positioned than some their international counterparts to withstand a deeper crisis because they don’t rely as much on whole-sale borrowing. “The Canadian deposit base is quite solid compared to a lot of other countries,” Mr. Jarrett said.

 

Overall the global economy is slowly recovering, the OECD said, but at substantially different rates.

 

The euro zone crisis is dragging down the overall economic recovery.

 

“The crisis in the euro zone remains the single biggest downside risk facing the global outlook,” said OECD chief economist Pier Carlo Padoan in a statement.

 

Heading into a European Union summit in Brussels this week, the OECD urged leaders to take immediate action to avoid a deepening of the crisis in the euro zone and spillover effects to other nations.

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When a new condominium project sells out in one day, as it did with the Marine Gateway building in April, ever wonder who actually buys one of the units?

Real estate marketer Bob Rennie, whose company was responsible for selling the 414 apartments at the Cambie and Marine towers, gave some indication in his annual speech Thursday to the Urban Development Institute. "I think that the marketplace needs us to open the vault a bit here and share the consumer data that we received," Rennie told a crowd of more than 800 people gathered in a ballroom at the Fairmont Hotel Vancouver.

In a survey sent to 414 buyers, of which 170 responded, Rennie said 66 per cent were from Vancouver, 16 per cent from Richmond and nine per cent from Burnaby. He didn't say where the remaining eight per cent hailed from.

Of those from Vancouver, 23 per cent came from the immediate and adjacent postal codes and 37 per cent from six neighbouring postal codes.

Rennie's survey found 48 per cent of buyers spoke Mandarin or Cantonese at home-he noted 28 per cent of Greater Vancouver's population is Asian-and 46 per cent identified English as their primary language. Of the 414 buyers, 405 had B.C. driver's licences and dealt with a local bank, he said.

The survey also found that 109 purchasers were first-time buyers and 44 per cent were under 40 years old. Half of the condos for sale were advertised for under $350,000. More than 70 per cent of respondents said access to transit was very important in choosing a location to live. Rennie noted 105 of the 414 sales were to people who will not get access to a parking spot. That's a trend that has occurred with other projects he's marketed, including downtown's "Electric Avenue," where 102 buyers didn't get a parking spot.

Unlike the '70s and '80s when the real estate mantra was "location, location, location," Rennie said he believes it's now all about "transit, transit, transit."

The Marine Gateway project, which features two towers, is on the Canada Line, which provides area residents with easy and quick access to downtown and Richmond. "If you're under 25, you don't own a car because it's an inconvenience and you care about the environment," he told the crowd. "And unlike the '50s, you do not need a car to find out where your friends are. The reality is, youth has replaced dependency on the automobile with the dependency on the iPhone. And unlike their moms and dads, youth [don't] require a car to get laid."

Rennie's company, Rennie Marketing Systems, is also responsible for selling the former Olympic Village condominiums. He said 516 of the 737 condominiums have been sold. "My company's job was to protect the asset," he said. "All of us at [my company] considered our newly named Village on False Creek quite possibly to be the most watched and quite possibly career making or career breaking assignment of our company's history."

The city took over the financially troubled project and, as of Dec. 31, 2011, its investment was $462 million. Recovery of that investment is primarily based on proceeds from sales of the remaining condominiums.

 

 

BY MIKE HOWELL, VANCOUVER COURIER


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Green players are turning out sleek, contemporary designs and changing perceptions of modular homes.

 

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You could be forgiven for asking the obvious: "What the heck is a house doing in the parking lot at Scotiabank Place?"

The contemporary construction of exposed wooden beams and glass looks lonely, sitting in the spring sun under the giant posters of Ottawa Senators captain Daniel Alfredsson and crew that hang over the front doors of the team's official home.

The players are long gone for summer, but for four months of the season, thousands of fans walked past the home, glancing in the windows.

"It's all about marketing and raising the profile of a new, very green and decidedly modern player in the world of prefab homes," says a slightly wistful Dany Bonneville, co-president of Bonneville Homes, a Quebec-based firm that has built more than 35,000 homes since 1977.

As the savvy marketing whiz for his family-owned company, Bonneville was hoping the Sens would go further in the Stanley Cup playoffs, bringing crowds — and potential buyers — past the two-bedroom NaturA model in parking lot 6.

The house arrived late last year on a series of flatbed trucks from the company's factory in Beloeil, just outside Montreal. Within days, crews had ripped off the heavy plastic that protected the modules for the road trip and then cranes moved the pieces into place. The crews "buttoned" up — or attached — the modules, which were already wired, plumbed and had cabinets hanging on the kitchen walls and hardwood on the floor. Furniture arrived the next day.

Instant house.

In this particular case, it's a house with a contemporary pedigree and energy smarts that drop heating and cooling costs. The house easily exceeds Ontario's tough new building code for energy consumption, thanks to precise construction in a factory setting.

Yet there is still the challenge to change the perception of modular homes.

Gone are the days of cheap, boring designs. Today, companies are using smart factory-built technologies to speed up the construction process, while hiring leading architects to deliver open, multi-use spaces devoid of clutter that create a strong connection to the outdoors thanks to big windows and sliding glass doors.

Bonneville is a leading member of this ultrachic modular club, a membership that includes an innovative developer who is days away from selling a $1.6-million modern home on the side of a ravine in the heart of Toronto and two Calgary brothers who recently won national honours for a modest green cabin that's big on design and small on price, starting at $154,000.

Best of all, the Toronto developer, Gary Lands, who owns Nexterra Green Homes, and the Calgary brothers, Kurt and Kris Goodjohn, owners of Karoleena Homes, are developing distribution systems to ship their modular homes across Canada, including to Ottawa.

And there are other familiar names in the modular business, including Ottawa's Guildcrest Homes and Sea Hawk Homes.

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Building modular homes is not new. Sears Roebuck shipped components for more than 100,000 homes across the United States between 1908 and 1940.

Bonneville is Eastern Canada's biggest modular builder, celebrating 50 years of building mobiles in one form or another. In 1977, Paul Emile Bonneville bought the Beloeil factory and started building affordable, modular homes in a controlled setting where the weather was not a factor. It's a dynasty that has spanned three generations and a huge portfolio of home styles.

PAGEBREAKIt's newest series, the Natur, has provided star performers for half a dozen years at home shows in Ontario and Quebec, plus in a certain parking lot at Scotiabank Place.

Besides trekking to home shows, Dany Bonneville runs nine traditional model sites in Alberta, Ontario and Quebec, including a courtyard of permanent homes outside Arnprior and Chelsea and a joint project with race car driver and former Montreal Canadiens star Patrice Brisebois that opened Easter weekend at Mont-Tremblant.

Called Domaine Mont Bellevue, crews were finishing off a swanky $500,000 Natur model at the Mont-Tremblant site on Good Friday when Kash Pashootan walked through the doors and was smitten.

Pashootan visited the Beloeil factory and signed a deal for the partially finished home on Easter Sunday.

"It caught us off guard because we were going to use the house as a model for six months," says Bonneville, who is now busy designing another model home for Domaine Mont Bellevue, which — when finished — will have 140 super-green modular homes on 1.5-acre lots.

"It was everything I wanted," says the high-flying financial adviser at the Ottawa offices of Raymond James and regular financial adviser on television and in newspapers. The confirmed modernist has already designed and built a contemporary stone-and-glass home close to the Ottawa River in Gatineau.

He had been searching for a modern, environmentally friendly recreational property at Tremblant, but couldn't find anything. He was thinking of buying land and building, but then happened upon Domaine Mont Bellevue.

"I am a big fan of Dwell magazine and modern publications. This was a really good option. It is modern, green and already built, yet you still have the ability to use your creativity with the finishes."

The main level of his two-bedroom Tremblant house will feature about 1,500 square feet of glass, exposed wooden beams on 10-foot ceilings, concrete floors and built-in furniture.

He plans to create a rooftop garden and is now finishing the lower, walkout level with large glass walls, more bedrooms and a strong connection to nature.

"It will be all wood, stone and glass. It will be woodsy and natural. And it will be ready by June 1, just in time for summer," says Pashootan.

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The Bonneville homes are perfect for buyers driven by immediate gratification and builders who plan on construction timetables of three months and not the 12 to 18 months it takes to build a conventional home on a site.

And they're just one of a group of inspired factory-built homes popping up on ravine lots in downtown Toronto, urban streets in Calgary and providing shelter on Alberta farms.

PAGEBREAKThese new prefab designs are sleek, ultra-green performers, a Canadian take on contemporary, factory-built homes popularized by American architect Ray Kappe, who established the Southern California Institute of Architecture (SCI-ARC) in 1972, mentoring generations of contemporary architects to design multi-levelled homes that reach out through glass walls to touch the landscape.

It was California developer Steve Glen who hired Kappe to design a line of sophisticated, green contemporary homes for his modular company, Living Homes. Toronto developer Gary Lands noticed the media buzz, met up with Glen and Kappe five years ago and invested in the company. He wanted to bring the California designs to Canada.

Lands set up Nexterra Green Homes, bought four lots on a Toronto ravine and started the complex negotiations to get city approval for the country's first modular home built to the tough standards of the Leadership in Energy and Environmental Design (LEED) platinum certification.

There is a geo-thermal heating system, ultrasmart wiring behind the walls, a sizzling European kitchen by Scavolini and modern furniture. The house opened to rave reviews in late April and Lands is now days away from selling. A similar home in California would cost about $4 million, he says.

The cost of buying a modular home is similar to a stick or site-built home, but the advantage comes down to quality control (because it's built in a factory) and in the speed of construction, says Lands, who is looking for other sites to build more modular homes.

"It is a disciplined way of building because the price is locked in near the start," says Lands. "This is a new concept and it makes so much sense for an urban site that is 25 or 30 feet across. You get a crane and set it down."

He adds that "the time has come for modular housing," saying factory-built homes can sidestep the nagging issue of fewer trades and an aging workforce in the housing industry. "There is no reason more homes cannot be built in a factory setting. It makes sense."

Calgary's Kris and Kurt Goodjohn are creating their own green, contemporary buzz, winning the Best Innovation award in April from the Canadian Home Builders' Association for their Karoleena Cabin. The 700-square-foot, glass-and-wood cabin was a hit at home shows in Calgary, Edmonton and Vancouver and is now on a permanent foundation on a ranch near Invermere, B.C.

"The rancher flew to the Edmonton show to see the cabin and bought it for $225,000," says Jamie Reeney, sales and marketing manager for Karoleena Homes.

The Goodjohn brothers are young, emerging stars in the Calgary housing marketing, opening a 30,000-square-foot factory four years ago and building the Gracie, a contemporary four-plex apartment on a tight lot in an inner neighbourhood, in 2009.

There have been more inner-city homes and a range of recreational cabins. There are housing projects in northern Alberta, an appearance on Dragon's Den and requests from across the country, including Sudbury and Ottawa, to ship their modern homes east. There is now a network of dealers for most of Canada, including Ontario, says Reeney.

PAGEBREAKThe Goodjohns were inspired by the modular advantage after watching European countries and Japan adopt the building concept.

Western Canada has embraced the contemporary designs, but Ontario is a bit slower, says Reeney, adding that the factory and Karoleena's 24 employees are working flat out to keep up with demand. It takes five weeks to manufacture a home in the factory.

"It makes so much sense because you build quickly and you don't have to worry about weather," says Laura Felstiner, a marketing adviser who is raising awareness of the Karoleena brand in Ontario and overseeing local projects.

Kash Pashootan is well aware of the modular advantage, planting a garden and planning summer gatherings on the deck of his Tremblant getaway, with not a bit of drywall dust in sight.

 

 

BY SHEILA BRADY, THE OTTAWA CITIZEN

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Mayur Arora is seeing something few would have expected in Vancouver’s real estate market – people walking away from deposits on houses, convinced prices will fall further.

“It happened twice in the last month. One [deposit] was $75,000 and one was a $20,000 deposit, the guys just walked away from it,” said Mr. Arora, who runs Oneflatfee.ca in Surrey, B.C. “They are going to wait it out. So they lost $75,000 and $20,000, but if the market comes down $150,000 on a $1.5-million house, that’s not uncommon.”

Vancouver’s once-overheated housing market has cooled sharply, with the average price falling nearly 10 per cent in April from a year ago to $735,315, according to figures released Tuesday by the Canadian Real Estate Association. That was the largest drop since the recession and it marked the fourth decline in the past five months.

In a market once famous for being overheated, Mr. Arora said he hasn’t seen a bidding war in months. “It’s totally a buyers’ market. Buyers are determining the price,” he said. “And sellers are surprisingly accepting it. They are taking it.”

One reason for the decline is fewer buyers from Asia, something that had been driving parts of the Vancouver market in recent years, according to agents. “The number of buyers from China is definitely down this year,” said Andrew Hasman, a real estate agent who specializes in high-end homes. “We’re seeing far fewer buyers from that part of the world and that’s the reason our sales are down.”

Mr. Hasman said money flowing out of China has slowed considerably and Canadian banks have also tightened their mortgage lending rules, especially on larger loans commonly associated with high-priced real estate. Jean Zhang, who works for Sutton Group in Vancouver, agreed and said she is also seeing fewer immigrant buyers.

Over all, home sales increased slightly last month across Canada and the average price jumped 0.9 per cent on a year-over-year basis to $375,810, according to CREA figures. Prices were up in 80 per cent of all local markets. Toronto remained one of the hottest markets, with sales up 2.5 per cent and the average price climbing 8.4 per cent to $517,556 from a year ago.

“While growth in Canadian housing activity has lost some steam over the last year, the level of Canadian home prices and sales remain high,” said Diana Petramala, an economist at Toronto-Dominion Bank. She added that low interest rates continue to push demand and estimated that Canadian housing is 10 to 15 per cent overvalued, particularly in Toronto and Vancouver.

While Toronto has garnered much attention for its price appreciation and flurry of activity, it's not the only real estate market that's bustling.

In Regina, year-to-date prices are 9.4 per cent higher than the same period a year ago. Sales and average prices set a record last month, driven by strong population growth, including migration, and the lowest jobless rate in the country. The average home price in Regina is now $312,873, according to CREA.

“The picture that emerges from the April existing homes statistics continue to support our view that housing market activity – at least on the resales side – is on a path of moderation over all in Canada but that regional divergences remain,” said Robert Hogue, a senior economist at Royal Bank of Canada.

Not everyone is convinced there’s a housing bubble. Economic fundamentals are driving activity and prices, and many markets are still undersupplied, said Peter Norman, chief economist at Altus Group.

He points to an improving labour market, low interest rates, population growth and pent-up demand from the recession as driving activity. “I wouldn't say it's out of control but it certainly indicates strengthening demand in a relatively supply-constrained market,” he said.

Even in Toronto, where talk of a bubble is most concentrated, rising prices simply reflect population growth of about 100,000 people a year in a city where “severe land constraints” are limiting the ability to build single homes, he said.

 

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Price gains in two of Canada's largest housing markets have slowed considerably, but the national average price in April continues to inch higher. (CREA)

 

The average selling price of a Canadian resale home was a little less than one per cent higher in April compared to the same month a year ago.

The average home sold for $375,810 across the country in April, the Canadian Real Estate Association said Tuesday, a rise of 0.9 per cent from the same month last year.

But the volume of homes sold was significantly higher.

April home sales were 11.5 per cent higher than where they were the same month a year ealier. CREA said that's partly because sales in April 2011 were lower after buyers rushed to buy the month before ahead of new mortgage rules.

A total of 157,804 homes have been sold across Canada this year, an increase of 6.4 per cent over the first four months of 2011.

As has been the case for several months, activity in two of Canada's largest housing markets, Toronto and Vancouver, is disproportionately skewing the national averages.

"It bears repeating that the national average price was skewed higher last spring by record level, high-end home sales in Vancouver’s priciest neighbourhoods, and that a replay of this phenomenon was not expected this year," CREA's chief economist Gregory Klump said.

'It’s not that surprising to see continued growth in Canadian home sales.'—TD Bank economist Diana Petramala

"Sales data confirm that high-end activity in Vancouver is well off the peak levels reached at this time last year, which is exerting a gravitational pull on the national average price."

Prices in the Greater Vancouver area came in 9.8 per cent below the level of a year ago, a fourth contraction in home prices in five months and the largest drop the region has seen since the recession, TD Bank economist Diana Petramala noted.

At the same time, activity in Toronto is stronger this spring than it was last spring.

"Higher-priced sales activity there is on the rise and buoying average prices," Klump said. "As the most active housing market in Canada, Toronto is the biggest factor supporting national average price."

If data from Vancouver and Toronto are stripped out of the equation, the national average price is up by 3.1 per cent.

"With mortgage rates still at rock bottom through the early part of this year and job creation heating up through March and April, it’s not that surprising to see continued growth in Canadian home sales," Petramala said.

"Absent of an external negative economic shock, Canadian housing demand should remain supported by a continued low interest rate environment through 2012."

TD Bank is expecting home prices to appreciate by about two per cent in 2012, a drop of seven per cent in each of the past two years.

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New numbers last week on Canada’s condo-juiced housing market are fanning fresh worries about a bubble in Canadian real estate.

This week brings another temperature reading on the housing market – sales of existing homes for April.

And Bank of Montreal deputy chief economist Doug Porter is forecasting a healthy 10 per cent year-over-year gain. He also expects prices to rise, paced by Toronto’s hot housing market.

 

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“Look for another round of bubble chatter,” he warned.

 

“Early indications are that activity revved up again last month.”

 

There’s clearly a lot of demand for new housing.

 

A surge in condominium construction helped drive overall housing starts up 14 per cent last month to a seasonally adjusted annual rate of 244,900, the highest since September, 2007, and an increase from the March pace of 214,800, according to Canada Mortgage and Housing statistics released last week.

 

Almost all the activity was in multi-family or condo starts.

 

The key now is to see if sales and prices are staying hot in the resale market.

 

The crucial markets to watch are Toronto and Vancouver; the latter boasts one of the priciest housing markets in the world (average price: $761,000).

 

In Vancouver, it looks like the peak is past. Prices have stabilized and there’s some evidence of over-building.

 

“Vancouver could be a canary that flags trouble in another large city, Toronto, where valuations and condo construction are also becoming elevated,” BMO said in a research note.

 

OTTAWA— From Monday's Globe and Mail

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OTTAWA - For most Canadians their home is the biggest investment they'll ever make - but they might be surprised to learn you can use if for more than just sleeping.

People generally don't think of their homes as a potential pile of cash in the bank, but experts say it's something worth pondering now that home prices in Canada may have hit their peak.

In fact, analysts say if finance is the only consideration, conditions now and into next year or so form a seldom seen sweet spot for using home equity as a type of asset for investment.

Why might it be a good time to sell?

At about $370,000 average nationally - and just under $800,000 in Vancouver - home prices are already at record levels. Many observers believe prices are long due for a downward correction of anywhere from 10 per cent to 25 per cent, perhaps more in some of the hottest markets.

"Home prices to income, housing price to rent, all the indicators are setting off warning signals," said Derek Burleton, a senior economist with TD Bank.

"If you are purely in it for reaping profits, now is not a bad time to sell" before prices drop.

The profits from selling a home can be used to build savings, eliminate debt, make traditional investments or, ironically, buy more real estate - albeit in a different market where home prices are lower.

Of course, even if it makes sense financially, selling the family home to rent or move to a less expensive housing market doesn't make lifestyle sense for the vast majority of Canadians.

Burleton knows how they feel.

"I wouldn't want to sell my home right now even if I wind up taking a hit on the home price, just because I enjoy where I'm living and moving is a pain," he said.

While there's no guarantee of a correction, observers note there are additional signs that the housing market could cool off in a big way.

With ownership levels near a record 70 per cent, demand is expected to wane, making it a buyers market for the first time in years.

And Bank of Canada governor Mark Carney warned last month he was preparing to hike rates, which along with tighter lending rules being applied by federal authorities could trigger a flight from real estate.

In market terms, selling a home at the peak is a way of "locking in" profits accumulated over the past decade of price appreciation - and tax free if it's the principal home.

Meanwhile, home valuations have been rising far faster than the rent they would fetch since at least 2000. Canada's home price-to-rent ratio is well above historic norms and among the highest in the advanced world.

That is a hard indicator that homes are over-valued, but also that renting is relatively cheap compared to buying.

David Madani of Capital Economics, who anticipates a 25 per cent price crash over the next few years, cautions that like selling stock shares, timing is always tricky.

"We're dealing with irrational exuberance. We've been treating housing like some magical financial asset that is going to solve all our problems because prices are always going up," he said.

"Of course, when the turn comes, the over-confidence that drove the market up can turn to fear. You are dealing with emotion ... so I don't believe in a soft landing."

The market is clearly at or near peak, he said, so soon may indeed be the time to act.

But then again he felt that way a year ago, he points out, and if households had acted on his advice they might not have gotten all the value they could from the premature sale.

CANADIAN PRESS 


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REBGV April Stats Videocast

May 9, 2012

 


Click on the box above to view our monthly market update videocast featuring Board President Elect Eugen Klein.

The videocast is also available at www.rebgv.org

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Home construction is feeding a stable Metro Vancouver housing market with an increase in multiple-family starts offsetting fewer single-detached starts last month, according to Canada Mortgage and Housing Corp.

“It’s steady as she goes,” noted CMHC senior market analyst Robyn Adamache of their latest report on residential construction intentions, which concluded there were 1,332 starts in April, about the same as April 2011.

However, starts were up 16 per cent to 5,963 for the first four months of 2012 compared to the first four months of 2011. Multi-family starts are up 20 per cent in that period to 4,987, while single-detached home starts are up one per cent to 976.

Adamache said that although the local market is doing well, she sees no danger of a potential glut of new condos saturating the market.

“I don’t see it,” she said. “The numbers are rising, but they’re nowhere near the numbers in 2007-08, when there were 20,000 units under construction. Now, we’re just over 11,000.”

Cameron Muir, chief economist for the B.C. Real Estate Association, agreed.

“The numbers can be volatile on a month-to-month basis, [but] overall consumer demand is trending on a 10-to-15 year average. We’re looking at the total housing starts for B.C. up 1.5 per cent over last year and up 3.3 per cent in Metro Vancouver. There have been moderate gains in construction activity. But, at this point, we don’t see that [a condo oversupply].”

Adamache noted that if the rest of 2012 plays out like it has so far, there would be 18,400 starts for the year in Metro Vancouver, just under CMHC’s forecast of 18,500 and above the 17,867 starts in 2011.

There are about 1,700 new condos unsold in the region, she added, far less than the mid-’90s peak when there were twice that many.

“All in all, the condo market is stable. Prices have been flat for some time and sales have been steady.”

Adamache said that the cities of Vancouver and Surrey continue to record strong new home construction activity, with condominium apartments accounting for most of the starts in Vancouver and townhouses the main type of new homes in Surrey.

Other hot spots, according to Canada’s national housing agency, include White Rock, New Westminster and Maple Ridge. For urban B.C., the seasonally adjusted annual rate rose 6.3 per cent to 22,100 in April, up from 20,800 in March. Actual numbers for urban B.C. in April were 1,867, slightly lower than 1,898 in April 2011.

Nationally, housing construction starts blew past expectations in April, with CMHC saying there was a seasonally adjusted annual rate of 244,900 housing starts last month. That was up 14 per cent from the previous month.

“While unseasonably warm weather has been helping starts in recent months, April’s return to more normal seasonal temperatures still saw home building soar,” CIBC World Markets economist Emanuella Enenajor said in a research note.

Construction on multiple-housing units in urban areas drove the overall gains. They were up 27.4 per cent to a rate of 158,500. Urban singles saw a gain of 0.6 per cent to 67,700.

Regionally, there was a surge of 56.5 per cent in urban housing starts in Quebec, and increases of 12.2 per cent in Ontario, 6.3 per cent in the Prairies, and 2.6 per cent in Atlantic Canada.

bmorton@vancouversun.com


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