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Here’s how Canadian household debt levels could affect the housing market in 2019

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Photo: James Bombales

For months, industry experts have written about how higher interest rates will affect the Canadian housing market in 2019. But according to one economist, they might not be such a sure thing.

The Bank of Canada (BoC) hiked the overnight rate to 1.75 percent in October, part of an extended plan to slowly raise rates, after years of historically low levels. It is widely expected to do so again in 2019, a move which could exert a downwards pressure on the housing market, as mortgage rates rise and homebuyers’ purchasing power shrinks.

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But high household debt levels might cause the BoC to reconsider, according to Stephen Brown, senior Canada economist at Capital Economics.

“Households are even more vulnerable to higher interest rate(s) than we had previously thought,” writes Brown, in his most recent note. “In that environment, the Bank of Canada’s plan to raise interest rates repeatedly could be a serious policy mistake.”

Brown is referring in part to data released last week by Statistics Canada, which found that over the past year Canadians’ savings rate has dropped to just 1.4 percent of their incomes, the lowest level since 2005.

He writes that the low number — which suggests that Canadian households are in a vulnerable position when it comes to their debt loads — could cause the BoC to reconsider its plan to continue hiking rates.

“The Bank will ultimately be forced to reverse course next year, [and reduce rates],” he concludes.

Still, most industry experts maintain that the BoC will stick to its guns and continue to steadily raise rates in 2019. That’s especially true given that, ever since a new mortgage stress test was introduced in January, mortgage debt levels have been on the decline. In fact, mortgage borrowing fell by $3.6 billion in the second quarter of 2018, according to Statistics Canada.

And, a recent report from the Chartered Professional Accountants (CPA) of Canada found that Canadians’ credit quality remains strong, adding to the likelihood that households would be able to withstand higher interest rates.

“In contrast to the situation a decade ago in the US…the number of borrowers with high credit quality has risen from 66 percent in 2002 to 88 percent in 2017,” reads the CPA Canada report. “In turn, the number of low-credit-quality buyers shrank from 17 percent to three percent over that period.”



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Vancouver’s housing market is in the dreaded ‘death cross’ — here’s what that means for home prices

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Enter the death cross.

The ominous term, one that should be familiar to those following the stock market, isn’t literally a matter of life or death.

But it does often signal an asset will lose value, and according to new analysis from Eitel Insights, Vancouver’s detached-home prices have spiraled into a death-cross scenario.

Death crosses occur on charts when the short-term average price crosses below the long-term average, suggesting immediate demand has fizzled to the extent that longer-lasting declines are on the way.

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And that’s exactly what happened in Vancouver last month, says Dane Eitel, a local realtor and founder of Eitel Insights, which applies stock market-style technical analysis to housing markets.

“This shows that we are going down longer. The short-term is actually starting to dip past any previous points since 2013,” Eitel explains of the drop in short-term average pricing, which is based on annual prices. The long-run average is calculated over 26-month periods, a timeframe Eitel says has proven more reliable than two-year cycles.

This is just the eighth time that this has happened in Vancouver since 1978, the furthest back the Real Estate Board of Greater Vancouver provides average pricing.

Eitel says there is a psychological factor that has sent investors looking to other markets for single-family homes. They don’t anticipate future gains in the coming years, so they’re leaving the market for greener pastures.

Meantime, expanded stress testing for mortgage applicants has eroded the buying power of some who now have to qualify at higher rates. “The years’ momentum of continually increasing has seized to exist, so now this longer-term momentum has to catch back down,” he says.

The last time Vancouver’s single-family home market was in a death cross was 2012, a situation that persisted for less than a year. But Eitel sees the current situation as mirroring the preceding death cross in the ‘90s, which saw a similarly exuberant runup in pricing.







The 1996–1999 death cross shaved 17 percent off average prices.

Based on his analysis, Eitel foresees Vancouver detached-home prices — currently averaging $1.7 million — bottoming out at the $1.4-million-mark in 2020–2021, before beginning a historic runup in prices that ends with the average price of a detached home peaking at $2.8 million in 2028.

That start of that scenario would have another, less morbid name: a golden cross.



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Canadian “landing pad” cities will continue to see strong demand for housing in 2019

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Photo: James Bombales

There are plenty of factors that should keep the Canadian housing market relatively cool in 2019. Stricter mortgage rules, rising interest rates, and high household debt levels are all expected to contribute towards some lacklustre activity numbers. But, according to one bank, population growth should keep the market balanced in the country’s largest cities.

“Rising rates are a clear headwind to housing markets,” writes the TD Economics team, in their quarterly economic forecast. “However, it is important to bear in mind a key fundamental: population growth has been very robust of late, and is set to remain healthy for the foreseeable future with an immigration target of 340k by 2020.”

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That’s especially true when it comes to the country’s economic hubs, which consistently see the highest levels of immigration and demand for housing.

“With many of these new Canadians destined for ‘landing pad’ cities such as Toronto and Vancouver, demand conditions should remain healthy,” writes the team. “All told, we see more balanced conditions prevailing that will prevent another run-up in sales and prices.”

And while some of the country’s smaller housing markets may not see the same population boom in 2019, the team writes that a relatively balanced picture is emerging in cities across the country.

“Performances are mixed, but aren’t waving any red flags; New Brunswick and Quebec continue to see healthy gains, while soft conditions prevail in the Prairies,” reads the forecast.

Of course, each market will have to grapple with the reality of rising interest rates. The Bank of Canada (BoC) hiked the overnight rate to 1.75 percent in October, a move that has caused the big banks to raise mortgage rates, and many buyers to rethink their decision to enter the market.

The BoC is forecasted to hike rates at least twice more in the new year, which should keep activity from returning to the heights seen in the spring of 2017.

“For the year ahead, we anticipate most major Canadian resale markets to remain in a holding pattern, caught between continued healthy income fundamentals and gradually rising interest rates,” concludes the forecast. “Price gains are expected to be muted in most parts of the country.”



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Ring in the new year in a brand new home by M/I Homes

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With about two weeks left in 2018, time is running out to take advantage of the “home for the holidays” sales incentives by M/I Homes. The promotion, available on all of its Houston-area communities, includes GE appliances, a Sonos-brand sound system, and paid closing costs on new and move-in ready homes.

For a limited time, special financing opportunities are available on select move-in ready homes.

Spread over 10,000 fun-filled acres in Missouri City, TX, Sienna Plantation is a master-planned community that offers residents a world of action-packed amenities to explore year-round — from lush wooded landscapes to miles and miles of hiking and biking trails.







Sales for available homes start at $254,990, with sizes ranging from 1,698 square feet to 2,651 square feet in three- to four-bedroom floorplans. Sienna Plantation has a total of four move-in ready homes currently for sale.

The Tavola community in New Caney features many exclusive outdoor activities for active homeowners, including zip lining, hiking and swimming.







Available homes range from 1,843 square feet to 3,317 square feet and are available in three- to four-bedroom floorplans. Tavola currently has a total of six move-in homes currently for sale.

Enclave at Katy is located just thirty miles from Houston. The community boasts both single- and two-story homes that range in size from 2,100 square feet to 3,651 square feet, available in three- to five-bedroom floorplans.







Currently, Enclave at Katy has six move-in homes available. Pricing starts at $287,490.

The Rosehill Reserve community is located in Tomball. It offers a resort-style pool, scenic walking trails and tranquil lakes.

Rosehill Reserve has a total of 12 quick move-in homes currently for sale, with pricing starting at $247,490.







The NorthGrove community is located in the heart of breathtaking Magnolia. It is a fully walkable neighborhood set within 200 acres of preserved lush green space. Pricing starts at $311,990, with four move-in ready units available immediately for purchase.







M/I Homes goes above and beyond to defy customer expectations with every community they design. They implemented a unique set of building standards that exceed traditional requirements. The “whole homes building standards” are a combination of innovative construction methods and superior design, ultimately resulting in better-built, more efficient homes.

M/I Homes stands behind its better building standards program with a 15-year transferable structural warranty on every home.

The prolific developer is also keen on providing homeowners with the latest in green technology. Customers can expect to see significant energy savings in comparison to homes built to standard code — saving as much as 30 percent on energy use and utility bills.

Don’t delay — the special winter incentive is available only through December 31st. Start the new year in a brand new home by M/I Homes.



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