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Home purchases have doubled since January’s near collapse, says economist

VANCOUVER — Spurred by record-low mortgage rates, provincial real estate sales should continue to rise through the remainder of 2009 from last year’s market fall, according to the B.C. Real Estate Association’s latest forecast.

Home sales have doubled since January’s near collapse in sales, association chief economist Cameron Muir said in a news release.

He expects transactions recorded through the Multiple Listing Service to climb some 15 per cent from 2008 to 79,400 units.

Prices, although edging up from their declines through the last half of 2008, will remain below last year’s levels before showing slight gains again in 2010, according to Muir’s forecast.

The provincial average price for a home of $451,200 will be one per cent below the 2008 level, and should show a one-per-cent gain to $457,600 in 2010.

“When we look at the economy itself, we’re coming out of the recession, albeit slowly,” Muir said in an interview. “And the amount of demand we’ve obviously seen — year-to-date and going forward — [justifies] sales around or below the 10-year-average.”

B.C.’s 10-year average for housing resales is about 83,000 units.

Economic forecasts continue to indicate that the province’s recovery from recession will be slow, however. Central 1 Credit Union was the latest with its forecast that B.C. will experience below-average growth until 2012.

Muir’s expectation is for provincial unemployment to average 7.7 per cent this year, and go down only marginally next year.

However, he does expect the slow recovery from recession to start creating jobs that will help support demand for housing at that 10-year-average level.

Muir sees housing as a brighter spot in the economy, which will likely spill over into other areas, such as retail sales.

However, economist Helmut Pastrick, with Central 1 Credit Union, believes Muir’s forecasts are somewhat conservative given the pace of sales in recent months.

In answer to the question why, Pastrick replied, “Interest rates. It’s amazing the power of those low mortgage rates.”

Over the short term, with the Bank of Canada vowing to keep its trend-setting overnight rate at 0.25 per cent until the middle of next year, there seems to be little risk of mortgage rates rising.

Muir noted that most first-time homebuyers lock in mortgages for five-year fixed-rate terms, so they should be insulated from rising rates.

However, “if interest rates climb higher than expected, that’s going to pull demand out of the market as [a buyer’s ability to pay mortgage costs] is eroded.”

In a recent report, Scotiabank Economics senior economist Adrienne Warren noted that the average new mortgage payment in Canada in 2009 declined 26 per cent from its peak in 2007, due almost entirely to the reduction in mortgage interest rates.

Pastrick said the increase in interest rates should “be a self-correcting mechanism,” and if the province does not fall into the dreaded double-dip recession, they should rise as the overall economy improves.

“In a broader sense, at some point [low rates] run their course,” Pastrick said. “We know there will be a rate-normalization phase when economic growth does pick up.”

The recovery of sales, however, hasn’t been shared equally across the province. Metro Vancouver, Victoria and the Fraser Valley have seen relatively sharp rebounds, while the South Okanagan, the Kelowna to Vernon region and Kamloops are forecast to see much slower recoveries.

Muir expects housing starts to remain depressed for the remainder of this year, and not recover by a lot next year.

His forecast is for 14,800 new -home starts by the end of 2009, which is only slightly higher than the most recent low of 2000.

Muir added that if some of those starts do not materialize and they fall below 14,400, that will be the lowest level of new-home construction in the province since 1962.

depenner@vancouversun.com

(© Copyright (c) The Vancouver Sun)

(Derrick Penner, Vancouver Sun: Thursday, August 6, 2009)
VANCOUVER — Home sales in the Lower Mainland burst out of their long slump in July as first-time homebuyers, lured by lower prices and rock-bottom interest rates, flooded into the market.

Both Metro Vancouver and Fraser Valley real estate boards reported record home sales for the month of July.

Metro realtors racked up 4,114 sales through the Multiple Listing Service in July, the Real Estate Board of Greater Vancouver said Wednesday.

That’s an 89-per-cent increase from July 2008, when sales were just headed into the doldrums.

The price of the typical single-family home in Metro hit $711,702 in July, down 5.5 per cent from the same month last year but 10-per-cent higher than at the beginning of this year.

It was a similar story in the Fraser Valley, where the real estate board saw 2,089 MLS sales in July, a 62-per-cent increase from the 1,284 sold in July 2008, and a little higher than the previous record of 2,051 in July 2005.

The price of a typical detached home in the Valley reached $477,420 in July, down almost six per cent from a year ago, but up almost four per cent over the last three months.

Paul Penner, president of the Fraser Valley board, said 37 per cent of buyers in the July market were first-timers, compared with 33 per cent in June.

“That volume creates a significant ripple effect as the sellers of those homes move up,” Penner said in a news release.
Jake Moldown, president-elect of the Vancouver real estate board, concurred.

He said first-time buyers who entered the market during the boom a couple of years ago now feel comfortable moving up the property ladder.

“They understand what a mortgage is and they’re comfortable with their payments, and now they’re looking to step up,” Moldown said.
Vanessa Brown, a library technician at Langara College, is one of those buyers.

She traded a one-bedroom condo at 56th Avenue and Fraser Street in Vancouver, which she bought five years ago for $123,500 and recently sold for $196,000, for a $365,000 two-bedroom unit at Seventh Avenue and Main Street.

“I figured when the market dipped a bit, even though I would be sacrificing a bit of money on the sale of my apartment, I would have more to gain as I moved up the market,” she said.

Moldown said the strength of sales in recent months has been surprising, but he believes the overall market is stabilizing.

Tsur Somerville, a real estate expert in the Sauder School of Business at the University of B.C., said there are signs of more stability in the overall economy, but it is difficult to see the pace of sales continuing at peak levels.

“This is a very, very high level, and [long-term mortgage] interest rates have already started creeping up,” Somerville said.
“It’s a wonderful, positive statement about people’s outlook for where things are going,” he said, “but it’s hard to put together the set of circumstances where sales of this level are sustainable and persistent.”

However, Somerville said there are few signs that the market will collapse again “without some substantial shift in [mortgage] rates.”
B.C.’s employment picture, especially in Vancouver, has shown signs of stabilizing with the addition of more full-time jobs in recent months after a period of losses, said Carol Frketich, regional economist for Canada Mortgage and Housing Corp.

The big question is whether high sales levels are sustainable, Frketich said. “That’s yet to be seen until we see that labour market more solid.”
Frketich it’s now a seller’s market in some areas, with inventories falling as sales rise.

In Vancouver, the number of active listings is down 34 per cent from the same month a year ago, and now stands at 12,482 units.
Sellers put 5,041 new listings on the market in July, a 17-per-cent decline from July 2008.

The inventory of unsold homes also shrank in the Fraser Valley, declining almost 23 per cent from record levels a year ago to 9,510 active listings in July.

(© Copyright (c) The Vancouver Sun)

Ottawa made Victoria an offer it couldn’t refuse on HST — $1.6 billion in cash

(By Peter Simpson, Special to The Vancouver Sun)

August 1, 2009

Okay, in my July 18 column I said I would take a bit of a breather and my Westcoast Homes column would return at the end of August.

Well, during the past week or so things have changed dramatically, and quickly, in B.C., and I felt I just had to comment on them.

First they said they wouldn’t, and then they did. The B.C. Liberal party, after stating before the provincial election it did not plan to introduce a harmonized sales tax, the HST, has done so.

On July 23, the federal and provincial finance ministers signed a six-page memorandum of understanding on HST. Included in the agreement, right up there in paragraph two, was the root of it all — the feds would pay B.C. $1.6 billion for jumping aboard.

That’s way too tasty a carrot to resist.

The subsequent government news release offered this explanation for the switch to HST, effective July 1, 2010: “The [provincial sales tax] is an outdated, inefficient and costly tax, some of which is hidden in the price of goods and services and passed on to and paid by consumers.”

Here’s the thing.

Before the election, the Greater Vancouver Home Builders’ Association asked all major parties for their positions on HST.

The New Democratic Party responded it had no plans to introduce harmonization. The Liberal party said harmonization “would reduce the provincial government’s ability to unilaterally adjust sales tax rates and make it harder for future provincial governments to lower or raise sales tax rates, which reduces flexibility.”

Here’s another thing.

The home building industry and its customers are significant contributors to the provincial economy, yet the HST application on new housing, appearing in afterthought fashion, was referenced way down in paragraph eight of the news release, two paragraphs below feminine hygiene products.

The HST, in its proposed form, will add significant cost to new homes and home renovation. What choked industry leaders most was the fact there was zero consultation before the announcement.

And the timing couldn’t be worse. Canada Mortgage and Housing Corp. reported that B.C. housing starts during the first six months of 2009 were 5,287, down 69 per cent from the 17,101 recorded during the same period last year.

In the Vancouver region, January-to-June starts totalled 3,342, down 67 per cent from the 10,178 starts reported during the same period in 2008.

The government should have sought builder feedback on how the tax would impact their businesses and their customers, the home buyers, who always pick up the tab.

The recent HST bunfest in Ontario, where there was also no industry input, should have taught them the value of consultation.

The B.C. HST program calls for partial rebates for new homes priced up to $400,000, while homes priced above that threshold will receive a flat rebate of $20,000.

That might be acceptable if you live in Podunk, B.C. but if you reside in, say, the high-priced Vancouver region, the rebate is insufficient. The rebate threshold should be raised and indexed, so in future it rises along with price increases.

Last week I, along with business leaders from a wide range of industry sectors, attended an HST roundtable discussion convened by Premier Gordon Campbell and Finance Minister Colin Hansen.

Apart from a chorus of objections from the Canadian Home Builders’ Association of B.C, the Urban Development Institute, representatives from the restaurant industry and me, the event was a love-in, with business leaders high-fiving each other all over the place.

That’s okay; the HST will benefit some industry sectors by helping them to improve productivity, boost business investment and create jobs.

I understand and respect that. It’s just that there is a lot of work to be done on the housing side.

We asked the premier and finance minister if they would work with the home building industry to ensure tax neutrality, so that home buyers do not pay any more tax than they do now.

The response from the premier was speedy — “There is no promise for neutrality.” Campbell did, however, offer to work with specific sectors to try to find ways to soften the more onerous impacts.

“I get that there are problems,” said Campbell.

“We need to identify them and do what we can to mitigate them.”

One of the problems is the transition rules, such as how the HST will be charged on sales contracts written before July 1, 2010 but completed after the HST launch date. One upset builder said his projects typically take two years to complete and if he had known about this new tax he would have reconsidered his launch date.

We would like to meet Minister Hansen, although I believe, somewhat misanthropically, there will be little room for flexibility, except for the transition rules.

What was rolled out is likely how it will be.

I hope I am wrong.

Home buyers deserve better.

The tax burden on buyers of new homes has become patently unreasonable. In addition to the GST (soon to become HST) there are development cost charges imposed by regional and local governments, provincial property transfer tax, and an assortment of fees and levies.

As well, tax pyramiding — or tax on tax, when one tax is embedded in the price of a good and subsequent taxes are applied to that price — has become a growing concern across Canada.

The Altus Group, a Toronto-based economic consulting firm, was commissioned by the Canadian Home Builders’ Association to examine tax pyramiding.

Its soon-to-be-released report states that “tax-on-tax schemes score poorly in terms of principles of good taxation, including equity and fairness, simplicity, accountability, certainty, stability, transparency, visibility and neutrality … It is neither ethical nor fair to ask taxpayers to pay tax on top of taxes already levied.”

Zeroing in on the report’s last principle of good taxation, neutrality, which we are seeking in the provincial government’s treatment of HST, the Altus Group offers that “a good tax system should minimize effects on taxpayers’ economic decisions. The tax system should interfere as little as possible with individual decisions made in the marketplace.”

So many tax collectors, only one taxpayer.

One final thought. The proposed HST undoubtedly will fuel an already burgeoning underground economy in home renovation, characterized by cash deals, no contracts, no permits or inspections, no adherence to building codes, no liability insurance and no WorkSafeBC compliance.

B.C. homeowners are expected to spend nearly $7 billion on home renovation and improvement this year. They should resist the lure of cash deals and deal only with professional renovators, particularly those who agree to abide by the 10-condition code of conduct mandated by the RenoMark program.

Now I am taking a bit of a breather and my column will return at the end of August. Honest.

Peter Simpson is the chief executive officer of the Greater Vancouver Home Builders’ Association.
E-mail:peter@gvhba.org

(© Copyright (c) The Vancouver Sun)