Tuesday, November 3, 2009

CMHC Housing Outlook 2010

CMHC has come out with their housing outlook for 2010 (you can see it here).

In a nutshell they say housing activity and prices will pick up next year as demand grows. The average listed price will increase to $312,950 this year and rise further to $324,500 in 2010, with British Columbia continuing as the most expensive place to live. The average MLS home price in BC will increase modestly from $452,000 in 2009 to $460,000 in 2010 (a price point that includes apartments and condos).

A forecast for continued growth - what a surprise.

Of course this is the group that, at the start of 2008 never saw any downturn in the market despite all the havoc happening in the United States (see 2008's first quarter report here).

Now we can cut them some slack for 2008. The entire government had their head in the sand at the start of the year as Harper, Flaherty et al were saying that, despite what was happening in the US, no recession was coming to Canada and absolutely no deficit would be incurred. The Bank of Canada was repeating those themes.

But this year... this year we have the Governor of Canada threatening to intervene in the real estate market and "influence financial institutions that issue mortgages, both through regulation and pressure, including the ability to change the terms of mortgage insurance."

You get the impression that, in the CHMC world, there is never an outlook that isn't sunshine, lollipops and rainbows.

In a follow up to our new Sunday Feature for November previewing what is to come in our real estate market by looking at the current California experience (see here), there was this piece by Bloomberg today titled Real Estate Price Plunge Makes U.S. Homeownership Perilous Path

  • Kajal and Vishal Dharod paid $559,000 in 2006 for a new four-bedroom house built in Rancho Cucamonga, California. Today, it’s worth about $360,000.

    “We don’t know how we can come back from a loss like that,” said Kajal Dharod, 29, a first-time homeowner with a $4,200-a-month mortgage. “Buying the house was a mistake.”

    American homeownership, once considered a path to wealth, is now leading to disillusionment.

“Buying the house was a mistake.” Remember that phrase, it will become the catchphrase for everyone who bought in 2009 when it comes time to renew those mortgages in 2014.


Email: village_whisperer@live.ca
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  1. Hi there, nice blog.

    If you have time I would love to see the bear view next to the bull view on the following 13 points:


  2. Thanks for the post.
    A funny thought has occurred to me, namely, that somehow I have come to trust an anonymous blogger more than our government officials and mainstream media. If I was a conspiracy theorist, this would come as no surprise....but I'm not.

  3. Ray... thanks for the link.

    First off, the last point in the posting on that site (#13) tells you everything you need to know.

    They say, "Let’s suppose a doomsday scenario unfolds and rates rise 4% (to say, 8% on a 5-year fixed)."

    'Doomsday' for these guys is 8%?

    The normal rate for the last 20 years is 8.25%. If a return to normal is 'doomsday', then they simply can't fathom what lies on the horizon. Perhaps this disconnect explains the next part of that point #13...

    These 'insiders' propose that "If the average household income is $61,800 today, and the mortgage is $250,000, that would necessitate a $10,400 pre-tax income jump in five years to pay the extra debt service. That’s just over 3% annual wage growth—not an unreasonable earnings growth assumption."

    Ummm... so how many single family homes have sold over the last three years have only a $250,000 mortgage?

    Has there been a flood of home purchases where the buyers have put 60% down?

    There is a massive amount of mortgage debt out there and there are enough Canadians carrying $500,000 plus in debt who will be ruined by 8% or higher rates. And the impact on all real estate by the defaults of these Canadians will be profound.

    Towards the end of this month or in December I will have a detailed series of posts on interest rates and the crisis that is coming.

  4. There is a lot of good opinion and comment, on this blog. However, the conclusion reached by the various people, I would argue, is incorrect. what people fail to recognize, is that the US, is fundamentally different than Canada, by virtue of the fact that we (and australia) are resource-exporting nations, that benefit from inflationary trends. 8% interest rates only spell ruination if the price of your house fails to rise by 8%. the US Fed is engaged in competitive currency devaluation with every other central bank in the world, and this is forcing countries like Canada and Australia to keep rates lower than they would otherwise, lest their currencies rise out of control---killing off their domestic export economy. This is what happened in the 60s and 70s, leading up to the 1979-80 bust. see www.2035crash.com for other research that I have done. Summary, 1946-1980 was inflationary. 1980-2002 was deflationary. 2002-2035 will again, be seen as inflationary. Real estate, gold, silver, oil, gas, resources in general, all do well in inflationary times. So does the CDN$ and AUS$. Those who question the inevitability of long-term cycles risk being proven wrong, very wrong. House prices in Vancouver went parabolic 1960-1980. from 1980-2000, they went no-where. 2000-2010 is only the first leg up, of three or possibly four. 2010-2035 will see similar parabolic rises as 1960-1980. History has a nasty way of repeating itself, or at least rhyming. I am putting my money where my mouth is, as I am taking possession of a $3M condo downtown, early in 2010. Those who think it will drop to $1.5M or $2M are simply fooling themselves. Inflationary times are also a period of political instability. Inflation, is really, the risk premium of time. We live in Vancouver--for me, i was born here. but to think housing must come down because people can't afford the mortgage, misses the entire swath of foreigners who want to park their money in a safe country, in a rising currency, in a moderate climate. In that respect, Vancouver has very few competitors, as a safe place to park one's money, that one would also want to live in.