The Real Estate Board of Greater Vancouver Housing Market Update for April 2012 with REBGV president Eugen Klein.

TORONTO — Home sales in April gained 0.8 per cent compared with March, boosted by strength in Toronto and Calgary, the Canadian Real Estate Association said Tuesday.

On a year-over-year basis, the association said there were 49,480 homes sold in April, up 11.5 per cent from 44,370 a year ago when sales slowed following a tightening of mortgage lending rules that came into effect in March 2011.

The average home price in Canada in April was up 0.9 per cent from a year ago at $375,810.

“It bears repeating that the national average price was skewed higher last spring by record level high-end home sales in Vancouver’s priciest neighbourhoods, and that a replay of this phenomenon was not expected this year,” said Gregory Klump, CREA’s chief economist.

Sales in Canada’s largest markets are having opposite effects on the national average, with slowing sales in Vancouver dragging, and soaring sales and prices in Toronto exerting upward pressure.

The average selling price in Vancouver was down 9.8 per cent compared with a year ago at $735,315, while the average price in Toronto was up 8.4 per cent at $517,556.

Excluding Toronto and Vancouver, the average price in Canada was up 3.1 per cent from a year ago.

The number of newly listed homes pared back 0.2 per cent from March to April, which, combined with slightly higher sales resulted in a tighter national housing market.

“The national housing market tightened marginally in April due to higher sales and stable new listings, but remains firmly entrenched in balanced market territory.”

A total of 157,804 homes have traded hands so far this year, up 6.4 per cent from levels reported in the first four months of 2011.

That’s also about four per cent higher than both the five- and 10-year averages for sales during the first third of the year.

Sales on CREA’s Multiple Listing Service was either up or held steady in half of all local markets, with Toronto and Calgary posting the biggest monthly increases for the second consecutive month.

Gains in Montreal, Winnipeg, Edmonton, as well as London and St. Thomas, Ont., also contributed to the increased sales, offsetting declines in Ottawa, Windsor-Essex, Quebec City, the Fraser Valley, and Vancouver.

“Trends in Vancouver and Toronto continue to diverge. These two housing markets have an obvious influence on national statistics and a high profile, but Canada is a big place,” said Wayne Moen, CREA President.

Long approval timelines, inefficient construction methods, marketing costs all contribute to high cost of housing

Much of the effort that is being expended to try to conquer the housing affordability challenge in Metro Vancouver is focused on assisting buyers or renters in one way or another, or on providing more subsidized housing in different forms. Mean-while, not enough effort is focused on lowering costs of traditional market housing.

Perhaps we should be looking for ways to lower the cost of housing to the consumer by identifying ways to plan, design, approve, permit, engineer, construct and market housing differently.

A good place to start would be to look at the time that it takes to deliver new housing to the market.

The majority of housing buildings in Metro Vancouver today is multi-family housing – condominium apartments, townhouses and forms of housing other than the detached single-family home. I know from experience that in most jurisdictions in Metro Vancouver, it can take more than twice as long to plan, design and obtain the necessary land use and construction approvals for new multi-family housing than it takes to construct that housing.

That means it can take as long as four and a half years from the time a parcel of land for a new multi-family development project is identified and acquired by a developer until the day when the new homeowner moves in, especially where the property has to be rezoned and the building is a concrete structure. Where the zoning is already in place, a new townhouse development or wood-frame condominium apartment development might be able to be completed in just over half that time, from the time the property is first identified. But we’re still talking about an awfully long time.

A lot can change in three to four years. Remember the meltdown in the global economy that happened less than four years ago? Change and the uncertainty that comes with pro-longed time periods means risk. To compensate for risk, those who risk their money whether they be the developers who risk their personal and corporate equity or the lenders who finance new developments with debt, all need to be paid a reward or return.

Without a return that matches the risk and uncertainty, no one would make capital available for new housing projects. To understand that time is money, consider that for every month that passes, it costs around $2,500 just in normal bank interest for every $500,000 a developer risks while waiting for a project to be approved.

When the average home price is well in excess of $500,000, these costs add up quickly.

These costs – a significant cost component of new housing – can be mitigated with shorter time periods during which capital is at risk.

Homes can also be built faster if innovative construction practices are used, such as pre-fabricating components, sections and even entire buildings in a controlled environment. We haven’t seen a lot of factory-built housing in this part of the world, but perhaps it is time we explored this alternative to building on-site.

That means changing and adapting building codes and other regulations, as well as changing construction practices. Not only can pre-fabricated housing reduce construction time, it can also mean better quality control and less construction waste, both of which make home building more cost-efficient.

Home construction is feeding a stable Metro Vancouver housing market with an increase in multiple-family starts offsetting fewer single-detached starts last month, according to Canada Mortgage and Housing Corp.

“It’s steady as she goes,” noted CMHC senior market analyst Robyn Adamache of their latest report on residential construction intentions, which concluded there were 1,332 starts in April, about the same as April 2011.

However, starts were up 16 per cent to 5,963 for the first four months of 2012 compared to the first four months of 2011. Multi-family starts are up 20 per cent in that period to 4,987, while single-detached home starts are up one per cent to 976.

Adamache said that although the local market is doing well, she sees no danger of a potential glut of new condos saturating the market.

“I don’t see it,” she said. “The numbers are rising, but they’re nowhere near the numbers in 2007-08, when there were 20,000 units under construction. Now, we’re just over 11,000.”

Cameron Muir, chief economist for the B.C. Real Estate Association, agreed.

“The numbers can be volatile on a month-to-month basis, [but] overall consumer demand is trending on a 10-to-15 year average. We’re looking at the total housing starts for B.C. up 1.5 per cent over last year and up 3.3 per cent in Metro Vancouver. There have been moderate gains in construction activity. But, at this point, we don’t see that [a condo oversupply].”

Adamache noted that if the rest of 2012 plays out like it has so far, there would be 18,400 starts for the year in Metro Vancouver, just under CMHC’s forecast of 18,500 and above the 17,867 starts in 2011.

There are about 1,700 new condos unsold in the region, she added, far less than the mid-’90s peak when there were twice that many.

“All in all, the condo market is stable. Prices have been flat for some time and sales have been steady.”

Adamache said that the cities of Vancouver and Surrey continue to record strong new home construction activity, with condominium apartments accounting for most of the starts in Vancouver and townhouses the main type of new homes in Surrey.

Other hot spots, according to Canada’s national housing agency, include White Rock, New Westminster and Maple Ridge. For urban B.C., the seasonally adjusted annual rate rose 6.3 per cent to 22,100 in April, up from 20,800 in March. Actual numbers for urban B.C. in April were 1,867, slightly lower than 1,898 in April 2011.

Nationally, housing construction starts blew past expectations in April, with CMHC saying there was a season-ally adjusted annual rate of 244,900 housing starts last month. That was up 14 per cent from the previous month.

“While unseasonably warm weather has been helping starts in recent months, April’s return to more normal seasonal temperatures still saw home building soar,” CIBC World Markets economist Emanuella Enenajor said in a research note.

Construction on multiple-housing units in urban areas drove the overall gains. They were up 27.4 per cent to a rate of 158,500. Urban singles saw a gain of 0.6 per cent to 67,700.

Regionally, there was a surge of 56.5 per cent in urban housing starts in Quebec, and increases of 12.2 per cent in Ontario, 6.3 per cent in the Prairies, and 2.6 per cent in Atlantic Canada.

Mark and David Goodman have sold Lougheed Village for more than $80 million. The brokers say buyer Beach Properties wants to keep the exact figure confidential.

One of Metro Vancouver’s largest multi-family rental complexes has sold in what’s being called the third biggest transaction of its type in B.C. history.

The deal, worth more than $80 million, involved the sale of Lougheed Village in northeast Burnaby, a mixed-use rental development built in 1973 that includes two 24 storey and two eight-storey residential buildings, a two-storey retail village, and a multi-level parkade, all on a three-hectare site. It is home to 528 tenants, 21 commercial units and had gross rental income in 2011 of $7.4 million.

“This was the largest ever [sale] in Burnaby in terms of a purpose built [rental] property,” said apartment broker David Goodman, co-owner with his son Mark Goodman, of HQ Commercial Real Estate Services Inc., which conducted the transaction that closed April 30. “And it’s the third largest in B.C. history in terms of multi-family rental.”

Goodman said Wednesday that his client, Beach Properties, didn’t want to be more specific on the actual sale price, only that it sold for more than $80 million.

The property, which was previously owned by several members of the Lougheed family, was listed for $100 million.

Goodman said he expects Beach Properties, which has a diverse portfolio of properties, will spend up to $20 million over the next several years renovating and modernizing the buildings, but that any rent increases should be minimal.

He noted that there’s no room for further densification on the site.

“They’ll bring in significant improvements to the [properties], but not disturb the status of tenants,” added Goodman. “They’ll bring it back to its former glory.

“They’re wonderful, responsible owners [and] the objective is to keep the buildings full. There’s no intention of encouraging vacancies. There may be justification for modest rent increases. They don’t push the envelope.”

Goodman said the purchase sends a message that rental buildings are good investments, especially those such as Lougheed Village that are near the SkyTrain line.

He said the property is in a great suburban community and that, as the Lougheed Town Centre expands, the whole area will become more desirable.

He also noted that the new supply of rentals hasn’t caught up with demand and that a multi-family property is a very stable investment, particularly with today’s lower mortgage rates.

“There’s low vacancy rates [there] and there’s a large body of the population that opts for rentals. Either they can’t afford [to buy] or they prefer renting because they want to use their money for something other than ownership.”

Goodman said vacancy rates in the area are running in the one-to-1.5-per-cent range and that rental apartments are generally larger than nearby condo suites up for rent.

“Although they [rental condos] are new and gorgeous, they’re quite small. And rents are high.”

At Lougheed Village, Goodman noted, the average rent for one-bedroom 750-square-foot suites is $915. For a two bedroom 1,000-square-foot suite, that rises to $1,200, and for a three-bedroom 1,200 squarefoot, the average rent is $1,600.

He said the two biggest sales of rental properties in B.C., both in 2009, were Langara Gardens in southwest Vancouver for $157 million, and Beach Towers in the city’s west end for $117 million.

APARTMENT SALES

Previous top prices

Langara Gardens 2009, $157 million

Beach Towers 2009, $117 million

bmorton@vancouversun.com

For more information about Burnaby Real Estate and how this transaction affects you. Contact the Adam Chahl Group today at +1 778 385 6141.

Have a great day!

“We feel pretty good about the housing market,” Royal Bank of Canada Chief Executive Gordon Nixon said at a Bloomberg Canada Economic Summit in Toronto. “I would love to see the rhetoric come down a little bit,” he said.

While there may be “pockets” of concern, such as Vancouver’s condominium market, overall “we remain quite comfortable” with the housing and real estate market, he said.

Canada Mortgage and Housing Corp. said Tuesday there is “no clear evidence” yet of overheating in the country’s condominium markets, even though policymakers – most notably the Finance Minister – have raised concerns about the rapid pace of multi-unit construction projects.

(Paul Vieira contributed to this article.)

(Adds further comments from CEO starting in paragraph 5)

–RBC CEO says “we feel pretty good about the housing market’

–May be “pockets” of concern, but remains “quite comfortable” overall

–Nixon says condo market doesn’t reflect Canada’s overall housing market

TORONTO (MarketWatch) — Fears of a housing bubble in Canada are overstated, the head of Canada’s largest bank by assets said Tuesday.

“We feel pretty good about the housing market,” Royal Bank of Canada RY Chief Executive Gordon Nixon said at a Bloomberg Canada Economic Summit in Toronto. “I would love to see the rhetoric come down a little bit,” he said.

While there may be “pockets” of concern, such as Vancouver’s condominium market, overall “we remain quite comfortable” with the housing and real estate market, he said.

Canada Mortgage and Housing Corp. said Tuesday there is “no clear evidence” yet of overheating in the country’s condominium markets, even though policymakers – most notably Canada’s Finance Minister – have raised concerns about the rapid pace of multi-unit construction projects.

Nixon said the condominium market does not reflect the overall Canadian housing market.

He said the major risk or shock to the housing market is a “significant increase in interest rates over time,” which the bank doesn’t expect to happen. Royal Bank has just a small percentage of condominiums in its mortgage portfolio, Nixon said.

Asked about the possibility of RBC expanding into China, Nixon said it’s not part of the bank’s strategy.

“We won’t be buying a bank in China,” he said, adding that RBC will instead take advantage of its strengths to be an intermediary in capital flows between China and Canada.

He also said he doesn’t expect to see any “transformational acquisitions” in Canadian banking because of the more stringent regulatory climate and higher capital requirements.

(Paul Vieira contributed to this article.)

To put a team of Top Vancouver REALTORS to work for you, give us a call anytime at +1 778 385 6141, and let us show you the best Vancouver Real Estate deals, and how to profit in this market.

With the mainstream financial media now sounding a shrill alarm about the Canadian housing bubble, is it time to sell the house? Unless you’re transferring to a new job, or a retiree wanting to downsize or move to more favourable climes, you’re probably better off staying put rather than capitulating to the panic of articles like “Ready to be bold? Sell the house and rent.”

House prices may indeed stagnate or head south for a while, especially in the heated condo markets of Vancouver Real Estate and Toronto. Those kinds of fluctuations are part of the natural course of markets. But to say house prices are going to crash like they did in the U.S. is a stretch. Here are nine reasons why.

1. Behavioural finance tells us that when extrapolating into the future, people tend to give too much weight to recent events. Accordingly, a number of bloggers and many in the mainstream financial press presently appear to view a U.S.-style housing crash in Canada as a near certainty. But if one looks back in time over many decades, such calamities are rare, “fat-tail” events. On this basis, it seems importune to urge homeowners to sell for the sake of avoiding what historically is a low-probability event.

2. It is anomalous to see financial journalists talk about the futility of market timing in the stock market but then give the impression houses should be sold to avoid an anticipated collapse in prices. Why should trying to sell a home at the top and buying it back at the bottom work out any better than the dismal record of those who have tried timing the stock market? In fact, the comments section of the above mentioned article has many stories of people who did sell in past years because they thought house prices were too high, only to subsequently watch from the sidelines as prices continued to march upward. And even if one does exit at the peak, there is the tricky task of timing re-entry. Not to be overlooked, as well, is the extent to which the exorbitant transaction costs in the housing market may eat into any possible gains.

3. Selling one’s house to become, for example, a renter entails giving up the inflation hedge represented by a hard asset. Prices for gold bullion and other precious metals have climbed over the past decade to new heights as investors sought protection against the erosion of incomes and wealth by inflation. This is a material threat given the vast quantities of money that central banks are printing to keep the banking and government sectors from defaulting on their monumental financial obligations. Indeed, the response to huge debt burdens historically has been to inflate them away. Owning a home is an inflation hedge, and unlike precious metals, the owners get to live in their hedge.

4. Housing bears base much of their case on price-to-rent and price-to-income ratios showing substantial over-valuation. But as I suggested in “What the housing bears may be overlooking,” valuation isn’t extreme when looking at the yardstick most ordinary folk use: mortgage payments relative to family income. Over-valuation doesn’t look so severe by this measure because a big component of mortgage payments—interest rates—is very low and incomes have continued to rise over the years.

5. Housing doomsters argue that interest rates are abnormally low and poised to climb, which would make houses less affordable and result in a popping noise. However, as I wrote in “5 reasons why the housing market won’t crash,” the Bank of Canada will only allow its rates to climb as long as the economy is growing vigorously—which, in turn, means that employment and income levels are trending upward. Historically, job increases and wage gains have buoyed the housing market and served as an offset to rising mortgage rates, warding off extreme scenarios such as plunging house prices.

6. Before the U.S. crash, the general view was that house prices could only go up. Such a psychology led to reckless behaviour and contributed to the excesses now being worked off in the U.S. Their plight has largely cured Canadians of that dangerous mindset. In the old days, for example, the government responded to high prices by legislating tax breaks for first-time home buyers. This time around, Finance Minister Flaherty has taken steps to restrict the availability of mortgage finance, and just recently moved to put the Canada Mortgage and Housing Corp. (CMHC) under the supervision of the Office of the Superintendent of Financial Institutions (OSFI).

7. It hardly needs to be said, but housing should be considered primarily as a consumption item. Simply put, its main purpose is to provide shelter. Uprooting could mean leaving behind niceties such as good schools for your children and the circle of friends they have acquired—just to cite a couple of inconveniences. Taking an investment approach and trying to speculate on the ups and downs of prices can lead to undesirable outcomes both financially and in terms of quality of life.

8. The crash in the U.S. had a lot to do with circumstances unique to that country. The banking system was hyper-competitive and quick to take risks in pursuit of profits; policymakers aggressively pushed homeownership through measures such as tax breaks for mortgage interest payments; and weak recourse laws let mortgage defaulters off the hook. Canada has a different environment—a more stable and regulated banking sector, less of a policy push toward home ownership and recourse laws that allow wider latitude for mortgage lenders to go after delinquents.

9. What’s especially different is the phase the monetary cycle is in. When the U.S. housing market keeled over in 2008, the Federal Reserve was deliberately trying to slow down the economy. At first its higher interest rates had little impact because momentum in job and income gains were offsetting. But the Fed kept on tightening until short-term interest rates surpassed long-term rates, creating “inversion in the yield curve.” It was this severe degree of monetary restraint that ultimately punctured the mania. In Canada, monetary policy is currently highly expansionary, along with the rest of central bankers around the world. It is nowhere near an inversion of the yield curve—probably years away. The catalyst for over-valuation to end traumatically is missing, and will be for some time.

So relax, homeowners. There are many reasons not to put the ‘For Sale’ sign up. True, there could come a day when the yield curve in Canada inverts and there is a retreat in house prices. But even then, there is no inevitability to a housing catastrophe. A unique confluence of events came together in the U.S. during 2008—a once-in-a-lifetime event from which Canadians had the good fortune to be spared.

By Larry MacDonald