Friday October 17, 2008

Informed buyers and informed sellers look at the facts.

The markets have a lot of people doubting the strength of the Canadian economy despite solid fundamentals. How this doubt will affect the Toronto Real Estate market is something weve yet to see, although many people think they have the answers. I dont purport to know, but a look at the facts might help dispel a few misconceptions.

From the CREA (Canadian Real Estate Association) website:"Informed buyers and informed sellers look at the facts. And the facts right now indicate the real estate resale market is stabilizing in many markets," says Calvin Lindberg, the President of The Canadian Real Estate Association.

There have also been a number of initiatives that will have an impact going forward, including the governments decision to invest $25 billion in insured mortgage pools, the recent drop in the Bank of Canada rate, and the new rules reducing the maximum amortization to 35 years instead of 40," the CREA President adds. Those new mortgage rules go into effect October 15th. "The third quarter MLS statistics and these developments are more factors showing the Canadian market is not following U.S. housing trends."

"As the Canadian housing market and pricing environment cools, the number of days on market for sales is likely to rise. By and large, Canadian home sellers are under no financial duress to sell, and a number may decide to take their home off the market should it remain unsold when the listing expires. The resulting decline in listings limits the extent to which the balance of sales and new listings will realign. Canadian homebuyers should not expect to see the kind of price correction thats underway in the U.S., where overly indebted homeowners are selling into a housing market where foreclosures and the number of newly constructed unoccupied homes are increasing."

More from the Globe and Mail website: The Canadian market can't be painted with a broad brush, and varies widely not just by province and city, but even from community to community, Ann Bosley, vice-president of Toronto-based Bosley Real Estate Ltd., said ... Parts of Toronto subject to big price run-ups and bidding wars last year, for example, are cooling more than other areas where price increases were more moderate, she said. Real estate agents at Bosley have been fighting off misconceptions the Canadian market is currently mimicking that of the U.S., she said. My brokerage had calls saying I want to buy a foreclosure.' I said That's nice, go to Buffalo,' Ms. Bosley said.

On the topic of foreclosures: The foreclosure rate in the U.S. is somewhere around 4% for prime mortgages (read: the buyer qualified with a real down payment and respectable due diligence by the lender) or 18% for the sub-prime mortgages, which were the catalyst for the downturn. (source: Globe and Mail, Oct 17th 2008) . To the best of my knowledge, the Canadian rate of foreclosure is around 0.027% . (slightly over one quarter of one percent)  No insignificant difference. Canadian Banks did not take the same risks as the American ones and are more strictly regulated resulting in more stable mortgage and housing markets. 

The articles written about serious downturns in the value of condos and houses, often fail to emphasize the difference between the decrease in the volume of sales (prices downtown Toronto are still fairly healthy if you compare them to 2006) or the overly broad swath of the reported stats. (Vancouver, Edmonton  and Calgary's average values have dropped dragging the national numbers down but an important issue is that their numbers skyrocketed in the last few years leading up to this decline.

I'm still an optimist when it comes to the housing market in downtown Toronto, if more people start to believe that values will decrease, the more likely it can happen. (Self-fulfilling prophecy).

Lastly, here are some answers, from the Globe and Mail Report on Buiness, to frequenlty asked questions about the broader markets:

Report on Business