January 2010

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Commentary

All around signs appear to be brighter than they were this time last year – banks are profitable, confidence is up, employment is on the upswing lately, and the housing market is moving. Ottowa’s Centre for the Study of Living Standards reports shows that consumption has grown in “leaps and bounds” from $30,000* per person in 1981 to $50,000* in 2008 adjusted. That’s per person, with the average Canadian family being 2.37 people. That brings consumption per family to $118,500 for the average family.

The upcoming Olympics are expected to provide a beneficial influx of money for Canada and for Vancouver. The small business sector in British Columbia has the most optimistic outlook of all provinces in the country, most likely due to the games. The dramatic 253% increase in home sales in the Greater Vancouver area could also be partly fueled by the Olympics.

The country appears to have traveled quite a distance over the past year – from the verge of the next depression last year to what appears to be an economy that’s found its way to firmer footing.  One example is that most consumers planned on spending more this year on gifts for the holidays this year than last year.

With some concerns that the housing market has rebounded too much, too fast; it is important to keep in mind is that year-over-year increases are compared to an unusually weak year.

* Adjusted for inflation to 2009 dollars and includes government spending

Housing Market

Home Sales

Sales activity remained upbeat in November. National resale housing activity had a record-breaking month with 46,450 units trading hands. This stands in sharp contrast to weak activity seen one year ago and is 76 percent above the decade low reached in January. Low interest rates, coupled with upbeat consumer confidence, continue to bolster national sales activity.

Average Home Price

The national average home price reached new heights in November, rising 19 percent to $337,231 from the same month last year. This year-over-year increase continues to underscore the sharp rebound in Canada’s priciest markets

Inventory

Sales-to-Listings Ratio

Strong rebounds in home sales activity and average price gains are beginning to draw more sellers back to the market. New listings fell 8 percent from November 2008 but rose 5 percent on a month-over-month basis to 69,110 units. Even with the uptick in new listings, the strong increase in housing demand continues to draw down inventories. Nationally, there were four months of inventory in November, the lowest level in more than two years. The sales-to-listings ratio was 67 percent, signaling a strong seller’s market.

Mortgage Rates

Average for: 25-Year Amortization, 5-Year Term

In November, the 5-year conventional mortgage rate edged down to 5.49 percent, 1.26 percent lower than this time last year. As the Bank of Canada reiterates its commitment to hold its benchmark overnight lending rate steady at 0.25 percent until the end of the second quarter of 2010 and with the overall risk to the inflation outlook tilted slightly to the downside, it suggests that the Bank could leave rates unchanged even longer than expected.

Sources: Conference Board, The Canadian Real Estate Association, Royal Bank of Canada, Canadian Mortgage and Housing Corporation, Bank of Canada

Notable News

Bank of Canada

In its most recent meeting, the Bank of Canada said that the recovery is becoming more firmly rooted and that it expects its growth forecasts to happen as pictured. The Bank of Canada once again held firm to its commitment to keep rates at their current 0.25 percent until mid-2010.  While a strong loonie still represents some risk, it has remained slightly below the Bank’s assumption.

The Bank also heeded caution about the level of debt that consumers are taking on, reminding them to keep the long term in mind since rates will not stay low forever. Those who are taking out adjustable rate mortgages must particularly keep this in mind. As rates increase, their payment will as well.  The bank and the finance minister reminded buyers to ensure they are in a financial position to handle increases.

Source: The Financial Post

Exports Jump – Move to Trade Surplus

The Canadian economy heavily depends upon trade, particularly on exporting. Due to its close proximity, most of the exports find their way south of the border into the United States. With a hard-hit U.S. economy over the past year, demand from the United States for Canadian products dropped off. Given a better economic climate in the U.S. recently, last month’s demand was up and pushed Canada back up into positive trade surplus territory for the first time in four months.

Much of the economic activity over the past few months has come from domestic demand – Canadians are taking advantage of low interest rates and the banks that will make loans and buying Canadian products with it. So far, this has helped fuel the recovery. While it is too early to know if the increase in exports will become a trend, it is a positive sign. A sustained increase in exports would help take some of the pressure off domestic demand and add additional fuel to the fire in arriving at a truly sustainable recovery.

Source: The Financial Post

Job Postings on the Rise

Indicating that employment will likely be on the rebound over the coming months, the help-wanted index for November was up for the fourth consecutive month.

Most provinces, excluding only Newfoundland and Labrador, saw a rise in job postings. The Conference Board of Canada, the author of the index, stated that this suggests that labour markets across the country have possibly hit bottom.

November’s employment numbers overwhelmingly beat forecasts of 15,000, coming in at 79,000 new jobs. Most of those jobs were concentrated in the services sector. The rise in the help-wanted index could point to a continued trend of increasing employment throughout the country.

Source: Canwest News Service, The Conference Board of Canada

Timely Topics

Salary Freezes Expected to Thaw in 2010

According to a survey by Towers Perrin, half of the firms they interviewed froze salaries in 2009, but only 11 percent are expecting to in 2010. This is great news for your average consumer – they can now put the extra from the salary bump toward savings or spending on the many great opportunities with low interest rates, including a new home.

Senior executives, however, may need to wait a little longer as one in five are expected to continue to have their salaries frozen. It’s unclear yet if salaries for the highest earners are readjusting to a new norm or if this will be temporary.

Most salaries are expected to regain much of the ground they lost in 2009. Median salary increases are expected to be 2.5 percent.

Source: The Financial Post

Another Friday, another market update. Not a lot to report – it seems that the market is stuck at an inventory of 127 homes for sale – the 5th week in a row!

Sales are remaining fairly stable, which is a good thing. There has been some more clearing out of stale inventory, as there were 6 homes on the market for 60 days or more, one of them for over a year, so that is a good thing. Including these anomalies, the average days to sell is pretty low, at 24 days.

Notice the activity seems to be in the lower price ranges again, with some in the upper ranges too; given the buying power of the dollar in today’s interest-rate climate, you might expect people to be spending more.

The annual summary chart, above, now has a full year’s worth of activity to report – notice how many houses were available as recently as 9 months ago, compared to the number on the market now.

Weekly Summary in Graphical Format

Supply & Absorption Rate

Weekly Listings & Sales

In looking at the current milton and oakville ontario real estate market, it is important to have some historical perspective on things. The charts below give some of that perspective.

An unfortunate thing with statistical data is that it is often difficult to give a very simple label for the data presented, thus leading to the possibility of confusion of the reader. I will attempt to keep things as non-confusing as I can, so the message doesn’t get lost in the words.

The data in these charts covers the period from January 1st, 2002 to the present time. This is a good representation for the area, as the market really changed in both Milton and Oakville right before this due to the explosion in new construction. The data provided is for the entire area covered by the Oakville, Milton & District Real Estate Board; note that most activity in Georgetown is covered on the Toronto Real Estate Board, and most covered in Burlington is covered on the Hamilton-Burlington Real Estate Board.

The first chart is for the available listings at the end of each month, and the number of homes sold during that month.

The path of the lines in the chart above show some of the seasonality of the real estate market, however, what is really interesting and noteworthy is the couple of big spikes in the available listings in the second half of 2007 and 2008, without a corresponding bump in the number of houses sold. Is some of that discrepancy due to changes in interest rates? Here’s a monthly chart of posted 5-yr-mortgage-rates since 1973 to aid you in answering that question.

The next chart, below, shows the number of new listings coming on the market every month. This number is important as it reflects the confidence that sellers have in the market; if the market is weak, people will not sell unless they have to due to having purchased a new home, job transfer, divorce, etc.

The new listings chart clearly reflects the seasonality of the market throughout the year, as well as the overall increase in the number of houses in the area. In January 2002, for example, the 500 new listings that came on the market may have reflected 1.25% of all houses in the area, but the 575 new listings that came on the market in June 2009 may reflect only 0.75% of the houses in the area.

The next chart shows the absorption rate of the market, meaning how long it would take to run out of inventory of homes for sale if no other homes came on the market.

As noted in an earlier post, there are some general rules-of-thumb in the real estate market, when it comes to available properties. If there is less than a 20-week supply of homes available, the market is considered to be a Seller’s Market; between 20 & 28 weeks supply is considered to be a Balanced Market, and a supply more than 28 weeks is considered to be a Buyer’s Market. On that basis, you can see that we have spent very little time in a Balanced Market over the past 7.5 years, and for only 4 months have we been in a Buyer’s Market.

This is significant information given the current market activity; if it weren’t for the crazy-low interest rates we are enjoying, I believe that we would be in more of a Balanced Market, or maybe even a Buyer’s Market.

This final chart shows the data from which the above charts were compiled:

Would you like to know more about how to use this data to your benefit when planning to sell or buy a home? Give me a call at 905-208-7002 and we can set a time to get together and discuss it.

Ontario to provide 75 per cent tax rebate on first $400,000

ROBERT BENZIE
QUEEN’S PARK BUREAU CHIEF
Premier Dalton McGuinty’s Liberals are sweetening the pot in a bid to make the controversial harmonized sales tax more palatable to Ontarians.

In a surprise move this morning, the government announced it was capitulating to homebuilders’ demands by effectively reducing taxes proposed on new homes.

Under the change, buyers of new homes in all price ranges would receive a 75 per cent rebate of the 8 per cent provincial portion of the HST on the first $400,000 of the cost.

In the March 26 budget, Finance Minister Dwight Duncan had said that while people purchasing new homes costing less than $400,000 would be eligible for the tax break, those buying more expensive homes would get little relief.

It would have been a recipe for disaster for consumers and developers because there would be a gradual increase in taxes on homes costing between $400,000 and $500,000 and a massive one on those priced above $500,000.

For residents of Greater Toronto, where homes are more expensive than in the rest of Ontario, it would have been especially onerous.

“During these challenging economic times, the McGuinty government’s enhanced housing rebate would improve affordability for more homebuyers – increasing the most generous housing rebate of its kind in Canada,” Duncan, who was not available for comment, said in a news release.

The Liberals also announced a new rebate to encourage builders to construct rental housing units.

The HST, which will blend the 8 per cent provincial sales tax and the 5 per cent federal GST, is to come into effect July 1, 2010.

Since it was announced early this spring, the government has weathered an avalanche of criticism because the business-friendly levy will increase taxes on gasoline, heating fuel, funerals, newspapers, fast-food value meals, legal services and a slew of other things.

A Toronto Star-Nanos Research poll last month found 67 per cent of people polled have a negative view of the melded tax compared to 23 per cent seeing it as positive and 10 per cent unsure.

Silver Linings of Recovery in Sight

Canada’s housing market is humming along with sales activity increasing 11% from the previous month, the largest monthly gain in more than five years. Low mortgage rates, improved affordability and greater choice of inventory have helped more renters become buyers. With sales activity rising strongly and new listings trending downward, Canada continues to move toward balanced supply and demand conditions. Home building recorded its first broadly based increase since October last year, which is good news as this sector will hopefully cease to be such a drag on the economy.

The housing market was not the only bright spot – the Organization for Economic Cooperation and Development (OECD) said their composite leading indicator showed tentative signs of recovery in Canada. Their data indicates that Canada’s economy may be bottoming out and is likely to start heading up. Consumer confidence has been increasing for the last three months and currently stands at the highest level in 15 months.

The strengthening U.S. and international demand for manufactured and commodity-related products should help lift Canada’s economy. However, a strengthening Loonie could serve as a counterinfluencing factor.

The Numbers That Drive Real Estate

Home Sales (In Thousands)

Sales activity increased 11% from the previous month. This was the largest monthly increase in more than five years. 70% of local markets saw an increase in sales. Calgary, Vancouver, Montreal, and Toronto accounted for most of the increase.

Average Home Price In Thousands

Home prices increased 6% from the previous month but still remained slightly lower than the same time last year. Record home prices were seen in Saskatchewan, Manitoba, Quebec, and Nova Scotia.

Inventory (Sales-to-Listings Ratio )

The supply of homes continued to shrink. There were 21% fewer new listings in the market in April when compared to the same time last year. With sales activity rising strongly and new listings trending downward, Canada continued to move toward balanced supply and demand conditions

Sales-to-listings ratio is an indicator of price pressure in the home market. (Data released on May 15, 2009)

Source: Conference Board, Canadian Mortgage and Housing Corporation, The Canadian Real Estate Association

Mortgage Rates Average for: 25-Year Amortization, 5-Year Term

Mortgage rates stood at 5.25% last month. This was 1.4% lower than the same time last year and .2% below where it stood when the Bank made the latest rate cut on April 21.

It is, of course, important to note that these are the posted rates, and not the deepest discount rates available, which currently run approximately 1.5% below the rates above.

Recent Government Action

Government Rescues General Motors

A comprehensive restructuring plan was approved on June 1 after General Motors failed to get its bondholders on board.

While the additional details on the restructuring gets ironed out, the massive rescue plan by the Canadian and U.S. governments will yield a majority ownership in excess of 70% between the two governments. The $9.5 USD billion in aid from the Canadian government will translate into a 12% stake in the “New GM.” This represents the largest corporate rescue in the history of Canada.

Typically, financial institutions step in to provide a company with funds through the restructuring process, but with the trouble in the financial sector, no institutions took interest leaving it up to the governments to provide $40 USD billion on top of the $20 USD billion the company already received.

The massive intervention bodes well for Canadian interest in the company by ensuring that the interests of Canada receive formal representation, and it protects the company from liquidation, saving numerous Canadian jobs. This action intends to support the auto industry; however, the 12% stake pales in comparison to the 60% majority held by the U.S. government.

Here’s the full presentation (it’s best if you view it in full-screen mode):