CAAMP gets it

And they're trying to push that when prices start falling it's a result of the government making it too difficult for a small subset (the fringe) of potential home buyers.

CAAMP said 79% of mortgages in Canada have fixed rates and most of them are locked in for terms longer than five years, meaning only 21% of people with mortgages are vulnerable to a spike in rates.

First off, I doubt it if this quote is accurate. The most popular mortgage product in Canada is a a five year term, so I don't see how "most of them" are "for terms longer than five years." I can't find it anywhere in CAAMP's actual report.

Nor can I find these two statements that appeared in CAAMP's fall consumer report; statements which can't be taken back empirically, and statements which shouldn't be ignored in light of CAAMP's renewed vigour against policy changes that make it harder for their members to make a buck:

1. 16% of Canadians with a mortgage could not manage an extra $300 increase in mortgage payments.  
2. In addition, 11% of households would run into financial trouble if mortgage rates rose only 1.5%.

That's a sizable issue for Canadian financial policy makers. And CAAMP just "forgot" to mention these folks in their latest report.

Remember, these rule changes don't prevent lenders from offering flexible mortgage terms to the 79% of prudent Canadian borrowers (as per CAAMP). These rule changes just mean the fringe won't benefit from subsidized interest rates through CMHC insurance anymore unless they can meet marginally more difficult terms, today.

CMHC insured mortgage changes

Full details here.

Here's the coles notes:

• Mortgages with amortization periods longer than 30 years will no longer qualify for government-backed mortgage insurance, which is required for buyers with less than a 20% down payment on a home. The previous limit was 35 years.
• Maximum amount Canadians can borrow against the value of their homes, lowered to 85% from 90% on a refinancing.
• Federal government backing for home equity lines of credit, or so-called HELOCs, is removed.
• Adjustments on amortization and refinancing limits coming into force on March 18.
• Government backing on HELOCs will be removed as of April18.

Interesting that the Department of Finance is spinning this as a "savings" move for consumers.

 

From the DoF directly:

The new measures:

• Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
• Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

These changes are actually more drastic than I'd expected. Especially on the HELOC side of things. IMO removing insurance on HELOCs is a direct hit on homeowner as second property speculator. Others will call that an abhorrent change that prevents people who can't manage their consumer credit from rolling their high interest debt into their homes. Because that's what a home is there for and all that...

I still expect a short term but subdued buying rush in the market. That may include a listings frenzy too as sellers try to sell before the rule changes in March. By mid-February I suspect there won't be a big bank in Canada still doing CMHC insured 35 year amortizations.

UPDATE: The effects of the mortgage rule changes will be felt in the sales stats. MLS numbers courtesy of the VREB via Marko Juras.

Month to date January 2011
Net Unconditional Sales: 144 
New Listings: 560
Active Listings: 3,007

Sales to new listings ratio: 26%
Sales to active listings ratio: 5%

January 2010
Net Unconditional Sales: 418
New Listings: 1,211
Active Listings: 2,793

Possible mortgage changes

You'll note the government has reigned in the CMHC twice since 2008 after opening the floodgates for loose lending in 2006:

• 0% down, 40 year amortization CMHC insured mortgages were eliminated in October of 2008
• 5% down, 35 year amortization CMHC insured mortgages were "pegged" to the 5-year fixed rate on offer moving forward from April 2010. 

It's possible, though how likely is a wide open debate at this time, the government reigns in the CMHC again in 2011. We've heard speculation from changing the impact condo fees have on the qualification criteria all the way to upping the down-payment requirement and reducing the amortization period from 35 years to 30, perhaps even 25.

We've been having a discussion as to the effects this will have on people's ability to purchase a home in Victoria. Here it is all laid out for you. I used TD's mortgage calculator to generate these graphics. I used $400K as the mortgage amount and the "special offer" 5-year fixed rate to base the calculations on. The only thing I changed was the amortization period.

The total monthly payment changes $130 with a 5-year reduction in amortization and then $330 with a ten year reduction in amortization.

For a little perspective on the impact this may have, let me consult the most recent CAAMP survey on the state of mortgage financing in Canada:

• 16% of Canadians with a mortgage could not manage an extra $300 increase in mortgage payments.
• In addition, 11% of households would run into financial trouble if mortgage rates rose only 1.5%.

In other words, 16% of current Canadian homeowners wouldn't be able to afford a $400K mortgage if amortizations dropped from 35 years to 25 years. Victorians don't have above average household incomes compared to their peers across Canada so we can safely say this kind of mortgage qualification change would be felt here in the first time buyer single family home market.

I think the likeliest change to come will be a reduction in amortization periods from 35 to 30 years. It's a small pill for Canadians to swallow at this time. I also think there's a fair probability that fixed interest rates climb over the calendar year, perhaps even by 1%. If that occurs, it has the combined effect equal to dropping the amortization to 25 years:

Minor tweaks, yet they may impact about 16% of the market. I know I'm reaching a bit with this analysis. But a bit of "what if" context is necessary to broaden the discussion, no?

UPDATE: While not official, it's about as close as it gets until tomorrow. 30 year amortizations and HELOC clamp-down coming. (H/T Reid). I expect a similar time line to last year's changes: no earlier than mid-April for implementation is my guess. Expect a short-term "busy" period in the market between now and then as people scramble to buy now before the rules change. I'd be expecting banks to almost-immediately implement the new rules, although current pre-approval terms will likely be honoured.

Something stinks

And it's in the numbers. Here's further proof why the real estate industry associations numbers as they are released to the public are seriously flawed.

Here's what the Victoria Real Estate Board has to say about property values in the Capital in 2010:

...overall average prices were stable and showed modest increases across major property types. The overall average price for single family homes increased by nearly 8.5 per cent; the average price for condominiums rose over four per cent and the average price for townhomes rose over three per cent.

and:

The value of all property transactions through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) system also declined by 14 per cent...

Emphasis mine. So prices are up, in some cases only slightly, and the total value of homes traded dropped, largely because sales volumes were down from the previous year. Fair enough.

Here's what the BC Real Estate Association has to say about property values in the Capital in 2010 (H/T A Simple Man). Dollar volume dropped -14.7%. So we've got harmony between the organizations here. No problem.

Until you look at the harmonized property values average prices. VREB breaks them out into the three most common property types as noted above. BCREA on the other hand lumps the lot together. And they report a drop in the average price of the lumped group of almost 5%.

How is this possible when the VREB is reporting price gains for all types of properties across the board? If you do the quick math, even dumbing it down to single digits, you get 8 + 4 + 3 = 15/3 = 5 which when I last checked was a positive number. But the BCREA average price reporting is 10% less than that.

Let me be clear: I'm not saying that any of these statistics are incorrect (although they could be), nor am I saying that either of these two organizations are purposely misleading the public. But I am saying that for whatever reason, and I believe the reasoning is carefully considered laziness, er, workplace efficiency, that real estate organizations that represent the REALTORS® have very little interest in transparency when it comes to their market data. I'm beginning to think there's not much point in paying attention to any of these numbers anymore. Which is likely what they want us to do.

I'm not the only one questioning board market data these days either: here's someone hitting the Okanagan board pretty hard too. And someone else has some questions for the Calgary board as well.

Meaningless real estate statistics

The real estate statistics that are meant to tell the general public how healthy the local market is, are, well, basically meaningless as they are presented.

And they're meaningless on purpose, because it's easy to cook the statistics when you don't provide any analysis behind what they actually mean and how current market conditions might be responsible for misleading statistics.

Case in point: Royal LePage's unpaid advertisement (though their PR department likely costs them some sheckels) reprinted without a shred of balance or analysis in the Times Colonist today. (H/T Alexandrahere).

Here's the headline: Condominiums lead price gains

Funny that, for a guy who barely scans headlines anymore because of a lack of faith in local journalism, this headline makes me think that prices for all condominiums rose by more than any other property type. Except immersed in the market as much as we are around here we know this to be utter and total bullcrap.

Let's juxtapose this statement summing up the article in one sentence:

The survey noted prices increased in all housing types with standard condominiums leading the way with price gains of 7.5 per cent to $285,000 compared with the fourth quarter of 2010.

With what Just Jack wrote in the comments of the previous post here (he's in the know):

The median price for a non new 800 to 1000 square foot non view condominium in the core municipalities for the last 90 days of 2010 was $255,000.

The same median for the same period in 2009 was $272,000. A year over year drop of 6 percent.

The volume of sales also dropped 32 percent from this time last year.

The number of days to sell also increased 156 percent from 23 to 59 days.

The last time the median for this condominium grouping was at this level was the last 90 days of 2007 when the median was $252,000. The number or sales was also 30 percent higher then and it only took some 16 days to sell.

Condominiums have failed to build equity through appreciation for the last three years. The best way to insure that you will be priced out of buying a single family home is to buy a condominium.

Moral of the story? If a bunch of discounted luxury property sells in a down market, it doesn't make the market, it skews the statistics. The real estate industry does everyone--themselves, the media that nauseatingly repeats their press releases without a shred of analysis, the buyers and the sellers--a great disservice by presenting market data like they do.

Running start

It's January 4, 2011. And there's already news about what a great time it is to own real estate in Victoria.

BC Assessment released property assessments online yesterday and you'll be getting paper values in the mail this week if you're a homeowner.

What should you do with them? Well, if you plan to stay in your home you should dispute the assessment to get it lowered so you pay marginally less property tax. They've got assessments up this year on average around 4%, but that's very unlikely reflective of true market value which is arguably up twice as much year over year. You'll probably not gain much, and all you'll lose is your time if you do dispute your assessment, but keep in mind BC Assessment values July to July, not January to January.

And if you think you might sell this year? You might want to seek a higher assessment. Especially if your assessment is outside of 10% of what you think your home should sell for. Nothing puts a buyer off more than seeing a home assessed for $400,000 with an asking price of $650,000. Except maybe a salesperson who suggests that will save them on the property tax bill ;-).

In case you were looking for a riddle to answer:

VREB reports that the value of all properties sold through their MLS system in 2010 was down 14% from 2009, yet "The overall average price for single family homes increased by nearly 8.5 per cent; the average price for condominiums rose over four per cent and the average price for townhomes rose over three per cent."

How could this possibly be? You guessed it, volumes down, prices up, see real estate in Victoria can only go up, even when fewer people want to get some!

Anyway, just having a little fun on this rainy winter day.

And we're off

It's 2011. But real estate is still backwards thinking in this town so let's have a last look at December 2010.

MLS numbers courtesy of the VREB via Marko Juras.

December 2010
Net Unconditional Sales: 349
New Listings: 522
Active Listings: 3,252
Months of Inventory: 9.1
Sales to new listings ratio: 67%
 
December 2009 totals
Net Unconditional Sales: 453
New Listings: 480
Active Listings: 2,557

Percent changes
Net Unconditional Sales: - 23%
New Listings: + 8%
Active Listings: + 22%

December 2010 was a flat month. I suspect very little change in reported pricing. Bring on the spring market. And the inevitable listings rush. If this is to be a bear year we should see new listings outstrip sales 4 to 1 from January to July. We'll need total active listings to jump above 4,000 very quickly. I expect flat reported pricing for the next 4 months.