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Archive for November, 2012

Canadian homes are getting more affordable

Thursday, November 22nd, 2012

This article is taken from the Financial post dated Nov 22 2012.

It is interesting to note, in the graph about 3/4 of the way through the article, Edmonton is still the most affordable of the cities listed.


TORONTO — Royal Bank says the cost of home ownership became more affordable in the most recent quarter due to a modest decline in home prices and gains in Canadian household incomes.

RBC’s affordability index for a detached bungalow stood at 42% of income nationally in the second quarter.

That means an owner would need to spend 42% of pre-tax annual income to pay for mortgage payments, utilities and property taxes — one percentage point lower than in the third quarter of 2011.

The index fell even more for two-storey homes, by 1.2 percentage points to 47.8% and eased 0.6 percentage points to 28% for condos.

The bank, which publishes the index on a quarterly basis, says ultra low interest rates have been the key factor in keeping affordability levels from reaching dangerous levels in recent years.

Despite the recent improvement in affordability, RBC said the amount of income to service home ownership costs continues to be higher than long-term averages.

RBC notes that Canada’s housing market cooled further in the third quarter, partially because of the effects of a fourth round of rule changes to government-backed mortgage insurance.

The bank expects the negative effect of the changes on home sales will ease by the end of the year and that resale activity will stabilize next year.


The July-September quarter fully reversed the mild erosion in affordability that occurred during the first half of 2012, said RBC chief economist Craig Wright.

“The broad affordability picture has been somewhat stationary over the last two years, alternating between periods of improvement and deterioration, resulting in an affordability trend that is, on net, essentially flat,” Wright said.

Wright expects the Bank of Canada to begin raising its overnight lending rate for banks — which affects bank’s prime lending rates — from the current 1% in the second half of next year, assuming the euro crisis remains in check and U.S fiscal issues are addressed.

“This, along with the expected continued growth in household income, will lessen the risk of marked erosion in affordability,” he said.


Mike Faille/National Post

Despite the recent improvement in affordability, RBC said the amount of income to service home ownership costs continues to be higher than long-term averages,

As is often the case, Vancouver’s extremely expensive real-estate skewed the national figures.

“The cost of owning a home took a smaller bite out of household pocketbooks in the third quarter as home prices fell — most notably in the Vancouver area, though it remains the least affordable market in Canada by a wide margin,” explained Wright.

The index in Vancouver stood at 83.2% of income, followed by Toronto at 52.4%, Montreal 40.2%, Ottawa at 38.7%, Calgary at 38.3% and Edmonton at 31.1%.


Making your Real Estate needs my Priority
Dave Dry
Realtor, Century 21 Vantage Realty Ltd
Office: 780 483 2122
Direct: 780 446 3727
Fax 780 478 7017

Calgary top real estate investment market in Canada, Edmonton ranked second

Tuesday, November 13th, 2012

This article has been re posted from the Edmonton Journal dated Nov 13 2012.

I think that this bodes well for Alberta and Edmonton.

CALGARY — Calgary has been ranked as the top real estate investment market in the country followed by Edmonton by the Real Estate Investment Network Ltd.

In its Top Alberta Investment Towns report, REIN said that Alberta’s economy has come out on top after a few years of economic turbulence.

The report identifies towns and regions poised to outperform other regions of the province over the next three to five years.

And none is better than Calgary.

“After a couple of roller-coaster years, Calgary is back on a roll. The return of jobs to the city, as well as greatly reduced office vacancy rates show us that the city’s short slump has come to an end,” said the report. “Recording a GDP growth of three per cent in 2011, and one of the lowest unemployment rates in the country, it’s no wonder Calgary is sitting as one of the top places in North America for property investors. When you combine the economic fundamentals, the population growth, and a burgeoning provincial economy, it is easy to see why so many businesses and people have come to call the city home.

“The market is hot. With the pressure on the resale housing market, there is similar pressure on the rental market. Inventory has dropped for rental accommodations while monthly rents have increased. Real estate investors and real estate agents are reporting that rental listings are being pounced on. Savvy investors purchasing units and advertising them for rent upon close are receiving calls from anxious tenants wanting to see the unit before the investor has possession and/or has done any improvements to the property. Rental sites are reporting difficulty in compiling statistics become some communities have nothing for rent.”

REIN said housing affordability will begin to be an issue in Calgary, with rents increasing and a high average sale price. But when you look at that price versus average income it shows that other cities in Canada have a much larger problem on their hands.

“Calgary has the long-term economics to support long-term market strength while other cities do not,” said REIN.

The Top Alberta Investment Towns ranked in order are: Calgary, Edmonton, Airdrie, Red Deer, St. Albert, Fort McMurray, Lethbridge, Grande Prairie, Okotoks, Leduc, Sylvan Lake and Lacombe.

The report said Airdrie has been one of the fastest growing communities in the province.

“Its proximity to the economic engine of Calgary and the growth of the surrounding economy will push the physical and economic growth limits of the city in the next decade,” said REIN.

“With increasingly easy access to many areas of Calgary via the ring road as well as the growth of job centres in and around the city, Airdrie property owners should continue to feel upward pressure on both rents as well as home prices. As affordable housing becomes a growing problem in Calgary, Airdrie will benefit from lower average house prices. As the office centre of the west, Calgary may offer employment opportunities that Airdrie does not, but much of the labour force will turn to Airdrie as a place to call home.”

REIN’s top Canadian investment cities ranked in order are: Calgary, Edmonton, Hamilton, Surrey, Maple Ridge and Pitt Meadows, Airdrie, Kitchener and Cambridge, Red Deer, St. Albert, Waterloo, Winnipeg, Saskatoon, and Halifax.

According to a research note by Scotia Economics, Alberta remains a key economic engine for Canada, with the highest provincial real GDP growth rate forecast for 2012 and 2013 at 3.4 per cent and 3.0 per cent respectively.

“The economy is growing strongly with contributions from consumer spending, business investment, particularly in the oilsands, and exports, which is encouraging given the strong Canadian dollar and soft global demand,” it said. “Provincial government spending also will continue to support growth, albeit at a slower pace than over the decade prior to the recession.”

In the second quarter of 2012, Alberta had a year-over-year population growth rate of 2.5 per cnet, the highest in the country.

“At this juncture, the federal government’s recent tightening of mortgage and home equity financing standards appears to have had a limited impact on Alberta’s housing market,” said Scotia Economics. “It continues to be supported by strong employment growth, significant wage gains and ongoing resource development.”

Making your Real Estate needs my Priority
Dave Dry
Realtor, Re/max Real Estate
Office: 780 457 3777
Direct: 780 446 3727
Fax 780 478 7017

November Newsletter

Friday, November 2nd, 2012

How house prices depend on demographics

Friday, November 2nd, 2012

Below is an interesting article taken from the financial post dated Oct 30 2012. While I agree with the basic premiss that baby boomers are going to be selling larger homes and moving into smaller condos, I think to some degree this will has less of an effect in Alberta. Why? because our average age is lower and in migration is high, this combined with the relatively high wages in the oilfield, I think will limit the degree to which it effects Alberta.

Jason Heath | Oct 30, 2012 12:12 PM ET

What’s going to happen to home prices in Canada? Despite all of the analyses and hypotheses in the media, the answer may not be based on historical real estate prices, interest rates or ratios. The answers may lie, to a great extent, in our demographics.

The typical Baby Boomer is likely to sell the 3,000 square foot, 4-bedroom home they raised their family in and instead opt for a 1,500 square foot condo before long. They don’t need the space and they don’t want the stairs. Besides that, they may need the money to fund their retirement. When they’re no longer able to care for themselves, the next downsize may be a 500 square foot nursing home. And the final downsize requires considerably less square footage.

This pattern is likely to put a damper on real estate prices, in general, in the coming decades. It’s also one reason supply, demand and prices for condos in this country may continue to rise.

According to Statistics Canada, the Baby Boom lasted 20 years in Canada. During that time, more than 8.2 million babies were born, an average of close to 412,000 a year. In comparison, the number of births in 2008, when the population was twice as large as during the baby boom, was only 377,886.”

Canadian consumer spending represents about 58% of the Canadian economy as measured by Gross Domestic Product (GDP). Shelter, principal accommodation, household operation and household furnishing represent about 58% of consumer spending. This means expenditures related to real estate ownership and maintenance represent about 1/3 of Canadian GDP.

What this means is that the pressure of Baby Boomer downsizing could be an impediment to home prices, economic growth and inflation.

Canada’s annual inflation rate came in at 1.2% for September, below analyst expectations of 1.3%. Core inflation, which excludes the most volatile components of inflation, was 1.3%, compared to an expected 1.5% and down from 1.6% in August. The Bank of Canada maintains a target of 2% for core inflation. The Bank generally increases interest rates in order to keep inflation from rising too much, too quickly. Inflation does not appear to be an issue in Canada at this time, so we continue to have low interest rates.

Deflation — the opposite of inflation — occurs when inflation falls below 0% and prices generally decline. The problem with deflation is that money becomes more valuable the longer you hold it, which tends to become a self-fulfilling prophecy, as spending slows down and prices decline further. Why buy something for $100 today if it will only cost $99 tomorrow? It’s never been much of an issue in Canada, though Japan has fought a battle with it for the past two decades.

Ben Bernanke, governor of the U.S. Federal Reserve, made a famous speech in 2002 in which he said that deflation could be prevented or reversed by dropping money from a helicopter — a speech that earned him the nickname “Helicopter Ben.”

“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent),” he said, “that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Ten years later, Bernanke is putting his money where his mouth is, having recently embarked on a third round of quantitative easing to stimulate the U.S. economy. This stimulus is arguably focused most specifically on putting a floor on U.S. real estate prices.

Despite central bank intervention to help encourage economic growth, according to Harry Dent, author of The Great Crash Ahead, demographics are forecasting deflation.

Dent writes: “When the average kid is born, the average parent is 28. They buy their first home when they’re 31 . . . after they had those kids. When the kids age into nasty teenagers, the parents buy a bigger house so they can have space. They do this between the ages of 37 and 42. Their mortgage debt peaks at age 41. And . . . their spending peaks at around 46.”

Baby Boomers were born between 1946 and 1964, meaning their parents turned 46 in the 70s and 80s. Perhaps not surprisingly, these were the years during which Canadian inflation more than tripled from the post-war average of 2% to closer to 6% — peaking in 1975 at nearly 15%. High inflation during the 70s and 80s was not a Canadian phenomenon, but then again, neither was the Baby Boom.

The Baby Boom peaked in 1961. The thing about the magic number 46 is that if you add it to 1961, you get 2007. It’s not that Baby Boomers, the homes they live in and their spending habits caused the financial crises of the last five years — sub-prime mortgage lending in the U.S. and excessive government deficits abroad have played their part. But it’s interesting, nonetheless.

There are about 9.6 million Canadian Baby Boomers. They represent more than one-quarter of our population. Their spending habits will greatly influence future real estate prices and make the Bank of Canada’s goal of stable, predictable inflation difficult. At least we have Helicopter Ben patrolling our southern borders — for better or for worse.

Jason Heath is a fee-only Certified Financial Planner and income tax professional for Objective Financial Partners Inc. in Toronto, Ontario.

Open house Sunday Nov 4 2-4 pm in Schonsee

Thursday, November 1st, 2012

Please join me for an open house from 2-4pm

2360 sqft show home condition.

Property details.

Making your Real Estate needs my Priority
Dave Dry
Realtor, Re/max Real Estate
Office: 780 457 3777
Direct: 780 446 3727
Fax 780 478 7017

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