OTTAWA, September 9, 2009 — The seasonally adjusted annual rate1 of housing starts increased to 150,400 units in August from 134,200 units in July, according to Canada Mortgage and Housing Corporation (CMHC).
“Housing starts are trending higher, reflecting improvements in both the single and multiple segments,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “The improvement in housing starts is consistent with our expectation of a stronger second half for 2009.”
The seasonally adjusted annual rate of urban starts increased by 14.0 per cent to 131,800 units in August. Urban multiple starts increased by 23.8 per cent to 77,600 units, while urban single starts moved up 2.5 per cent to 54,200 units in August.
August’s seasonally adjusted annual rate of urban starts increased by 56.0 per cent in British Columbia, by 16.1 per cent in the Prairies, by 13.8 per cent in Ontario, by 9.6 per cent in Atlantic Canada, and by 2.5 per cent in Quebec.
Rural starts were estimated at a seasonally adjusted annual rate of 18,600 units in August2.
As Canada's national housing agency, CMHC draws on more than 60 years of experience to help Canadians access a variety of quality, environmentally sustainable and affordable homes. CMHC also provides reliable, impartial and up-to-date housing market reports, analysis and knowledge to support and assist consumers and the housing industry in making vital decisions.
The Continuing Collapse of the US Housing Market to 2013
Don R. Campbell
President, Real Estate Investment Network
What would you do if you saw a train wreck about to happen and there was nothing you could do to stop it? You’d get out of the way. So why don’t many Canadians do that with their investment decisions? Simply, because we can’t help ourselves – we have the sun in our eyes.
The sun will be shining when the snow begins to fly up in Canada. That alone is a big draw to buying property in the U.S. Yet those who purchase today will look back at that decision as just another poor ‘holiday influenced’ decision. Prices will have dropped, expenses will have escalated and that piece of paradise will no longer be a place of peace and relaxation – and will definitely not be the bargain it may look like today.
Although many Canadians are looking south for bargains, the fundamentals of the US housing market, especially in key states, indicate that the bottom is still nowhere in sight. The key sun-belt, snowbird states have already been hit the hardest and are poised to perform just as poorly for years to come. For example, according to the Case-Shiller Index:
Phoenix is down 54% LA area is down 42% Miami is down 48%
Las Vegas is down 49% Tampa is down 41% San Francisco is down 46%
This would lead one to believe that these, and other sun-belt markets, are trading at a massive discount and couldn’t go any lower. Well, unfortunately that is not what the analysis is showing. Future real estate prices are driven by many key factors, including job growth, population growth, income growth, along with simple supply and demand. Lower prices do not mean good deals, if prices are going to move lower.
When analyzing the key economic fundamentals of these regions a very nasty picture emerges. Continued job losses, average incomes slipping, higher taxes, companies closing or moving to lower cost regions because of government incentives, all of these fundamentals are showing negative signs.
The whole R-rated picture comes into view when you factor in the coming foreclosure wave about to hit. Let’s take a look.
Many predicted that the foreclosure peak would occur in the heart of the recession, in 2008. Yet here we sit in 2009 with record numbers of US foreclosures being declared. A whopping 1.5 million properties in the U.S. received foreclosure notices in the first 6 months of 2009, a 15% increase over the same period in 2008. This occurred despite the US government stimulus package and mortgage incentive programs.
It is even worse when you dig down to the typical ‘snowbird’ states. A full 6% of all housing units in Nevada received a foreclosure notice in the first half of 2009, the worst of any state, followed closely by Arizona, Florida, California, Georgia and Colorado.
These numbers indicate that the market is about to be flooded with much more supply, softening prices even further.
Some would interpret these numbers as ‘a time for bargains,’ which may be true, if there were any fundamentals showing this trend coming to an end. However, we must look at the precarious financial situation of those who still own their own home. A full 23% of mortgage holders in the US owe more on their home than the property is worth as of the 2nd quarter of 2009. It is estimated by Deutsche Bank that this figure could jump to 48% of mortgage holders owing more than their homes are worth by first quarter of 2011.
They should be able to hold on, as long as their job or income situation doesn’t change, or their neighbourhood isn’t filled with some of the millions of empty properties that blanket the US, or their mortgage payments don’t move upwards. In other words, the prospects don’t look very good for many of this 23%. We will witness many of these properties become part of the coming tidal wave of properties for sale.
How about the remaining 77% who owe less than the property is worth and are still making their monthly payments diligently? Are they out of the woods – or are we going to see them also hit a brick wall even if they keep their job and income? Sadly, it doesn’t look overly positive for many of these homeowners either.
Why? Because we cannot ignore the pending re-set of hundreds of billions of dollars of Adjustable Rate Mortgages (that don’t even peak until May 2012). As these mortgage payments are adjusted up to market rates, from the low introductory rates that allowed people to purchase properties they couldn’t afford, an increasing number of homeowners will not be able to meet these new monthly obligations forcing them to either sell or ‘mail back the keys’ in foreclosure.
In the months of March to August 2009, payments on approximately $135 Billion of A.R.M.s were re-set and we’ve already witnessed what that has done to the foreclosure numbers as they hit new record highs. In the same period in 2012, there will be another $221 billion of A.R.M.s being re-set. This will be the peak period of these types of mortgages being adjusted, which should also lead to the bottoming out of the property values in the US, which will occur in early 2013.
These mortgage payment adjustments will have a major impact as we are already witnessing how close to the edge many American home-owners are. In the 2nd quarter of 2009 a new record was set when almost 1 in 8 homeowners were either delinquent in payments or in the process of foreclosure. Add the new higher payments that are coming for many of these and you can see how delinquency rates will soar.
The re-setting mortgages are no longer just the sub-prime mortgages that are being blamed for the current crisis, the next 3 years of ARM mortgages were provided to higher quality borrowers (prime and Alt-A) right along side the sub-prime market. Meaning these re-adjustments are going to begin hitting the heart of the US housing market… middle America.
The train is hurtling down the tracks. Do what you can to avoid being hit by it.
Conclusion: Canadians who can take the sun out of their eyes should make money in the Canadian real estate market, then use this money to rent their vacation home in the US every year for as many weeks as they’d like. Rents will be very low for years to come AND you can choose your vacation location every year and not be saddled with having to go to, and maintain, the same spot year after year (unless you choose to).
Central bank raises economic outlook
Tuesday, July 21, 2009
The Bank of Canada said Tuesday that it is maintaining its target for the overnight rate at 0.25%, and reiterated its conditional commitment to hold the current policy rate until the end of the second quarter of 2010.
The Bank Rate is unchanged at 0.5% and the deposit rate is 0.25%.
“There are now increasing signs that economic activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilize the global financial system,” the Bank of Canada stated. “However, the recovery is nascent.”
The announcement to leave interest rates unchanged was in line with expectations, but some economists were surprised at the new degree of optimism expressed by the bank.
The bank said it now expects the economy to contract by 2.3% this year, a slight improvement from the 3% contraction it forecast back in April.
For 2010, growth is now projected to hit 3%, an improvement from April's outlook of 2.5% growth. The bank did moderate its 2011 outlook to 3.5% from its April forecast of 4.7% growth.
“The central bank is clearly less worried about the downside risks to growth,” commented CIBC World Markets economist Avery Shenfeld. “That degree of optimism, however, may understate the structural challenges to brisk growth abroad, and the risks to Canada from an overvalued exchange rate.”
Shenfeld considers a 3% growth rate for 2010 to be an ambitious projection. “We expect growth to run at roughly half the Bank’s call,” he said.
Economists at TD Bank Financial Group agree. “The Bank’s forecast for 2010 is well ahead of our own (1.4%) and the overall private-sector consensus,” said TD economist Grant Bishop.
The Bank of Canada also expressed concern about the strength of the Canadian dollar. In its statement accompanying the rate decision, the central bank cautioned that the higher Canadian dollar, plus restructuring in some major industrial sectors, “is significantly moderating the pace of overall growth.”
But the bank’s concerns around the loonie appear to have moderated since its last statement, economists noted.
“The comment on the currency actually represented some easing in the Bank’s concern relative to its April’s comment that ‘if the unprecedentedly rapid rise in the Canadian dollar proves persistent, it could fully offset [other] positive factors’ cited at the time,” said RBC Economics Research assistant chief economist Paul Ferley.
A full update of the Bank of Canada’s outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on Thursday, July 23.
The next scheduled date for announcing the overnight rate target is September 10.
Canadian economy forecast to grow by 2.7% in 2010
The Canadian economy is expected to begin growing in the second half of this year, but the effects of the global recession will linger into 2010 and the recovery will be slow, according to a report released Monday by the Conference Board of Canada.
“The current recession is so widespread that its effects are expected to linger for longer than the typical business cycle,” says Pedro Antunes, director, national and provincial forecast. “Although the U.S. economy is forecast to return to growth in the second half of this year, battered American consumers will be saving more of their incomes in the foreseeable future. As a result, the global recovery will be soft, and Canada is not expected to achieve economic growth significantly above its potential until at least 2011.”
Real gross domestic product in Canada will fall by 1.9% in 2009. In 2010, the Canadian economy is forecast to grow by 2.7%. That’s still much weaker than typical post-recession growth, the Conference Board says.
In both Canada and the United States, consumer confidence has partially recovered from the depths that it reached last winter. Consumer spending will grow modestly next year, following a decline in 2009. The main contributors to the rebound in 2010 will be strong growth in public infrastructure spending and a recovery in both resource prices and exports.
Canadian exports are expected to decline for the second consecutive year-by 14.2% in 2009. However, exports are forecast to grow by 2.8% in 2010. U.S. housing starts and automobile sales, currently at rock-bottom levels, can only rise, the Conference Board says. “Canadian exporters of automobiles, lumber and construction materials have been through the worst of the business cycle,” it says.
Infrastructure spending, record-low interest rates and other government initiatives will provide a much-needed short-term boost to the economy. The Conference Board forecasts that the federal government could rebalance its books as the economy recovers and temporary stimulus measures, such as infrastructure spending and tax incentives, are eliminated.
“On the other hand, the provincial governments as a whole will not be able to achieve surpluses in the future without tax or spending changes,” the Conference Board says.