Saturday, October 11, 2008

Housing beginning to feel global chill

It's going to get worst before it gets better. That's the message from industry leaders gathered on a conference call Thursday to discuss the state of Canada's housing market over the next year.

Canada's entire real-estate market - from home building to new and existing sales and, not least, home prices - is beginning to feel the downdraft of a global liquidity crisis between banks.

The good news is that they say the national market is in far better shape than its American counterpart and it's already moving to correct itself.

"The market is realigning and we don't see that there will be a housing market bust in Canada like we're seeing in the United States," said Gregory Klump, chief economist at the Canadian Real Estate Association.

"Rather, we're going from a rather strong seller's market to more balanced market conditions."
Calming words, but of little comfort to homeowners that witnessed national prices fall the fastest in 12 years in August and are in for a similar blow when Ottawa-based CREA delivers September's data next week, according to Mr. Klump.

Still, there's a point to be made of Canada's position vis-a-vis the United States, where there have been unprecedented foreclosure rates in some states stemming from subprime mortgages, still estimated to represent 18% of outstanding mortgages in the United States.

Here, Mr. Klump said that while torrid growth remains in a few markets in Western Canada, nationally prices will continue in a downward trend until the "second half of next year. With sales declining as well as listings declining, [prices] will stabilize."

Home building, too, is poised to decline, according to Derek Holt, vice-president of economics at Scotia Capital. Despite a robust showing of 217,000 annualized construction starts on new homes last month, the rate of permits is falling to well below that level for coming months and next year.

Mr. Holt contends the annualized rate for 2009 will slow to about 180,000 as home builders scale back.

Indeed, there was marked concern over the threat that the widening financial crisis poses.
Inter-bank lending is quickly seizing up, and no matter how strong Canadian lenders' balance sheets are, the drying up of international lending is anathema to domestic recovery.

"That worries us, to be frank," said Mr. Holt. "Bankers are worrying about the fragile state of the global financial system and that is absolutely for every consumer and business borrower across the world ... going to tighten access to credit on tighter terms."

Credit conditions for mortgage borrowers are already beginning to come under strain. Despite a cut of half a percentage point by the Bank of Canada on Tuesday, Canadian banks shed only a quarter of a point, citing their own elevated costs of borrowing in open markets.

Rates on variable mortgages have also been raised in recent weeks. Will it mean Canadians looking for a mortgage will be shut out?

"For the vast majority, no," said Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals. "There's always issues for those who may not have the credit score or have debts ... [but] for people that qualify, no."

David Pylyp; No matter the source, or detail of the information of the reports that housing is safe in Canada, people will hesitate to make sure, for their own comfort and proceed with caution. Prices in Ontario and Toronto specifically has declined a very modest 3% over last years high.

The stock market has adjusted the value of many buyer's downpayment pool and they need to reevaluate the choices available. Steven Harper has already stated that the Banks in Canada are not in jeopardy, do not need a bail out and will not require one.

The issue of the US bailout looms on the horizion but is a larger issue as the policies implimented may not truly be felt until a new President is in office in January 2009.

There is a lot of blame to go around. What the market needs is confidence. Real reasons to sell and buy a home, the marriage, the extra family member and downsizing are coming to the fore.

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