Housing Starts Continue to Drop

Last month, Canadian housing starts fell to their lowest level since 2001. New home starts fell 11 percent in January to 153,500 units on an annualized basis, the fifth straight decline, Canada Mortgage and Housing Corp. said today from Ottawa.

“Canada’s homebuilders are aggressively pulling in their horns on worries of a supply glut in a deteriorating economy,” Derek Holt, an economist at Scotia Capital in Toronto, wrote in a note to clients. Potential buyers of new homes are being discouraged by job losses in the country’s first recession since 1992, which has also triggered a rising stock of existing homes that they can buy instead.

Employers cut a record 129,000 workers in January, Statistics Canada reported Feb. 6. Work on new single-family homes in cities fell 20 percent to 50,000 units, the lowest since February 1996. Multiple-unit projects such as condominiums fell 12 percent to 76,700. New home construction declined in all five regions of the country in January, led by 30 percent drops in British Columbia and the western prairie provinces, the report said.

“Reduced sales and increased listings in the existing home market have led to reduced spillover demand in the new home market,” Bob Dugan, Canada Mortgage and Housing’s chief economist, said in the report. Existing home sales will fall 17 percent this year, the Canadian Real Estate Association said in a separate report today, blaming waning consumer confidence. Bankruptcies jumped 47 percent in December from a year earlier as more consumers struggled to pay their bills, the country’s bankruptcy superintendent reported on its Web site.

(Source: Bloomberg)

Heirs can benefit from capital loss on sale of principal residence

Source: Globe and Mail

It was two years ago in May that a good friend’s father died. William always had a sense of humour, which the family experienced once again when they read his will. He left his children a few things, including some advice. Their inheritance was not to be spent on “slow horses and fast women, and only a very small amount on booze.” And then there was the legacy he chose to leave to the “Royal Society for the Protection of Cruelty to Animals.”

Now, in addition to some money, William left his children his principal residence. His children came to me for advice on how to handle the home. You see, the kids wanted to sell the place and split the cash.

“No problem,” I said. “And if you do this right,” I continued, “you can also gain some tax savings.” Let me explain.

The Opportunity

William’s home had appreciated in value between the day he bought it, and when he died. At the time of his death, his home was worth $800,000, and he had paid just $400,000 for the home several years ago. At the time of William’s death, there was a $400,000 capital gain realized. Why? Simple. Under Canadian tax law you’ll be deemed to have sold all of your capital property at the time of your death, which can give rise to capital gains if the property has appreciated in value.

As an aside, you can defer this tax by leaving the assets to your spouse. In William’s case, he was the sole surviving spouse. So, his capital gain was sheltered from tax using his principal residence exemption instead. You see, each family unit is entitled to designate one property as its principal residence each year, and the exemption is also available upon death.

Aside from the principal residence exemption, there may be another opportunity to save tax if your executor sells your home after you’re gone. Back to William’s story. Once he passed away, his kids wanted to sell his home in order to divide up the assets of the estate. That sale took place shortly after William’s death. Whenever this happens, it’s quite possible that a capital loss may be realized by the estate of the deceased.

Top 10 Most Livable Cities in the World in 2008

Source: Economist

Vancouver remains the most liveable city; Harare is still intolerable

With a rating of almost 100, Vancouver is the world’s most liveable city according to the Economist Intelligence Unit’s latest liveability ranking (see full report). The city, which will host the Winter Olympics in 2010, achieves the best possible score for all indicators, with the exception of prevalence of petty crime. Canada and Australia perform strongly because they benefit from good infrastructure, plenty of recreational activities and relatively low population density. The threat of violence and instability puts half of the ten lowest scores in Africa, and continuing strife in Zimbabwe keeps Harare in last position.

The study looked at 5 broad categories

• stability
• health care
• culture and environment
• education
• infrastructure

and 30 subcategories to determine the ranking.  Below is the top 10 best and worst liveable cities.

National House Price Index Launched

National Bank Financial Group and Teranet announced yesterday that they have launched a National Bank House Price Index(TM). This index is the first independent, transparent and verifiable representation of the rate of change of Canadian single-family home prices. The measurements are based on the property records of public land registries. The indices, published on the last Wednesday of each month at www.housepriceindex.ca, cover six Canadian metropolitan areas – Calgary, Halifax, Montreal, Ottawa, Toronto and Vancouver – and are combined to form a Canadian Composite Index.

“Canadians will now be able to follow real changes in house prices in their city thanks to the reliable and independent sources of information used by Teranet: public land registries,” added Chris Valentine, Corporate Development Manager at Teranet Inc. “These indices provide an excellent opportunity to maximize Teranet’s expertise in real estate information and data management in association with National Bank, a leader in the derivatives sector.”

The index is based on the “repeat sales methodology,” which is widely accepted as the most reliable and robust approach for tracking the housing market. In fact, this same methodology is used for the house price benchmark index in the United States. To be included in the calculation, properties must have been sold at least twice. The two prices are used to measure the increase or decrease in property value in the period between the two transactions.

Indices are published two months after transactions are registered. For example, indices published in November cover the transactions registered in September. The actual and historical values of the index, as well as a description of the methodology, are also available on this site.

SOURCE: National Bank Financial Group and Teranet – National Bank House Price Index(TM)

Average Residential Sales Price Drops by $30,000

Last month, the average residential sales price in Canada was $30,000 lower than a year ago.

“Canadian home sales look to be one of the biggest casualties from the intense market turmoil,” BMO Nesbitt Burns economist Doug Porter wrote in a note.

“We declared early this year that the housing boom was over, and these figures on the surface would suggest the bust has begun.”

The average price of a home in October was $281,133, compared with $312,024 in October of 2007, according to figures released yesterday by the Canadian Real Estate Association.

In Ontario, the average price was down 10 per cent to $281,661 in October, compared with $312,937 in October of 2007.

Sales were also down by 14 per cent in October over September, the largest month-over-month decline in seasonally adjusted sales in more than 14 years.

“The dramatic fall-off in existing home sales and prices is clearly more profound than economic fundamentals would suggest,” says Millan Mulraine, economics strategist at TD Securities. “The exaggerated pace of deterioration suggested by this report is quite surprising, if not a little concerning.”

Fewer sales in the key Toronto market accounted for nearly one-third of the decline in national activity.

Sales declined by a stunning 35 per cent in the Toronto area in October compared with a year ago, while the average price was down 13 per cent to $376,896.

“The major drop in consumer confidence and a steady stream of economic bad news from the financial markets is taking its toll on the national housing market,” said CREA president Calvin Lindberg. “When consumers are not confident about their financial situation, they’re not active in the housing market, and that in turn impacts the economy more.”

The impact of the global credit crunch has had real estate economists busy revising their forecasts downward for next year.

“A strong likelihood of an economic recession has emerged from the crisis, and along with it dramatically weaker housing demand,” says a report by the Altus Group. “Expect sharply lower housing starts in 2009 as Canadian housing markets get pummelled by these forces.”

Ontario, which is bearing the brunt of the economic slowdown, “will continue to do so going forward,” says the report. “Weaker demand along with financing issues may put many planned projects on hold, particularly in the Toronto condominium apartment sector.”

Some analysts see the new-build condo sector, with almost 300 projects on the market, as particularly vulnerable to a downswing.

Some projects are not expected to go ahead as demand falls and financing gets harder to obtain.

Meanwhile, Porter says to expect a “further decline in sales and some further correction in prices in the year ahead, especially in cities that had the biggest booms.”

CMHC Releases 2008 Report on Housing in Canada

The Canadian Mortgage and Housing Corporation (CMHC) released their annual Canadian Housing Observer today. The 115-page report examines the state of Canada’s housing market from a variety of perspectives, combining national coverage with provincial and metropolitan detail. The report discusses influences on housing demand, current market developments, housing finance, housing affordability, sustainable communities, and other topics.

The report is full of useful statistics and analysis but fails to provide much insight into the global financial crisis and the effect that it may have on the Canadian market. The section of the report entitled Housing Finance, pg 41, discusses Canada’s exposure to the sub-prime mortgage crisis but rather unhelpfully concludes that “Canada’s housing finance sector and housing markets are relatively unscathed by the sub-prime crisis in the United States”.

It is true that Canada was not as exposed to the sub-prime market as many other western countries, however, we do not live in isolation and are therefore still susceptible to ripple effects. Statistics Canada, for example, reported on Thursday that Canada’s trade surplus declined by more than $1-billion in September, to $4.5-billion – a nine-month low – as exports declined and imports rose. It was also predicted today that almost 100,000 jobs will be lost in the first 3 months of 2009 as Canada enters its first recession in 17 years. Surely, such loses will have an effect on the Canadian housing market.

If you have an opinion please leave your comments below.

The CMHC Canadian Housing Observer report can be found at:
http://www.cmhc.ca/observer/

Government to purchase up to $50 billion more mortgages

The Honourable Jim Flaherty, Minister of Finance, today announced the Government will purchase up to an additional $50 billion of insured mortgage pools by the end of the fiscal year as part of its ongoing efforts to maintain the availability of longer-term credit in Canada.

This action will increase to $75 billion the maximum value of securities purchased through Canada Mortgage and Housing Corporation (CMHC) under this program.

“At a time of considerable uncertainty in global financial markets, this action will provide Canada’s financial institutions with significant and stable access to longer-term funding,” said Minister Flaherty.

“This extension of the program to purchase insured mortgages will further support the availability of credit, which will benefit Canadian households, businesses and the economy. In addition, it will earn a modest rate of return for the Government with no additional risk to the taxpayer.”

In addition:

• The Government will reduce the base commercial pricing of the Canadian Lenders Assurance Facility by 25 basis points. It will also waive the 25 basis point across-the-board surcharge for insurance provided under the Facility until further notice. This will make the Facility more competitive with similar programs offered in other countries. The term sheet for the Facility will be posted on the Finance Canada web site (www.fin.gc.ca) shortly.

• The Office of the Superintendent of Financial Institutions (OSFI) announced yesterday an increase in the allowable limit of innovative and preferred shares in Tier 1 capital. This will provide Canadian financial institutions with more sources of funds to support lending in Canada. This will also ensure that similar decisions in other countries do not place Canadian institutions at a competitive disadvantage. Further technical information is available from OSFI at www.osfi-bsif.gc.ca.

• As the Bank of Canada noted in its announcement on October 13, the Bank will continue to provide exceptional liquidity to the Canadian financial system as long as conditions warrant.

“The Government of Canada is prepared to take whatever steps are necessary to ensure that Canada’s strong financial system is not put at a competitive disadvantage by developments in other countries. The Government will not allow Canada’s financial system, which has been ranked as the soundest in the world, to be put at risk by global events,” said Minister Flaherty.

Housing Starts Remained Strong in October

OTTAWA, November 10, 2008 — The seasonally adjusted annual rate of housing starts was 211,800 units in October, down from 218,600 units in September, according to Canada Mortgage and Housing Corporation (CMHC).

“Housing starts remained strong in October and are consistent with our new home construction forecast for 2008,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “The slight decrease in housing starts is the result of declines in both single-detached and multiple starts in October.”

The seasonally adjusted annual rate of urban starts eased 4.2 per cent in October, compared to September. Urban multiples declined in October by 6.0 per cent to 115,300 units. Urban single starts decreased 1.1 per cent to 69,300 units in October compared to September.

October’s seasonally adjusted annual rate of urban starts moderated in three out of the five regions of Canada. Urban starts increased to 41,300 units in the Quebec region and to 9,600 units in Atlantic Canada. On the other hand, urban starts declined to 27,900 units in British Columbia, 26,900 units in the Prairies, and 78,900 units in Ontario. Single urban starts decreased in all regions in October, with the exception of Ontario, where they increased by 10.1 per cent.

Rural starts were estimated at a seasonally adjusted annual rate of 27,200 units in October.

For the first ten months of 2008, actual starts in rural and urban areas combined were down an estimated 1.6 per cent, compared to the same period last year. Year-to-date actual starts in urban areas have decreased by an estimated 1.3 per cent over the same period in 2007. Actual urban single starts for the January to October period of this year were 16.3 per cent lower than they were a year earlier while urban multiple starts were up by 11.6 per cent over the same period.

For more info see: CMHC

TREB: Return to a Balanced Market?

The Toronto Real Estate Board posted the following press release on their website yesterday. They mention that 2007 was a record year and that the decline we are seeing is a return to a more balanced market. What do you think? Post your thoughts below.

TORONTO, November 5, 2008 — The Greater Toronto Area resale housing market reported 5,155 sales in October, Toronto Real Estate Board President Maureen O’Neill announced today.

This represents a 35 per cent decline from the 7,915 sales reported in October 2007 and a 25 per cent decrease from the 6,876 transactions that took place during the same period two years ago.

In the City of Toronto, there were 2,136 sales, with sales activity down 38 per cent from the 3,455 transactions recorded last October.

In the 905 Region 3,019 sales were recorded, with sales activity down 32 per cent from a year ago when 4,460 homes changed hands.

With 68,570 transactions to date this year, sales are within 16 per cent of the 81,563 transactions noted a year ago. The 2007 market referred to was a record breaking year with each month breaking records for the entire year. Putting into perspective 2008 figures are indicative of a return to a more balanced market.

In the City of Toronto 27,324 sales year-to-date are within 18 per cent of the 33,441 transactions recorded last year at this time.

In the 905 Region the 41,246 sales to date are within 14 per cent of the 48,122 homes that changed hands up to this point a year ago.

In the City of Toronto, the current average price of a home is $376,896, down 13 per cent from last October’s average of $434,022 and within three per cent of the October 2006 average of $386,807.

In the 905 Region homes are selling for an average price of $336,049, a decline of eight per cent from October 2007’s average of $364,142. Prices in this area however, remain one per cent higher than the October 2006 average of $332,822.

“Earlier this year the International Monetary Fund undertook a study of housing markets in 17 countries and found that Canada was one of only two nations in which house prices are supported by the economy,” said Ms. O’Neill. “There’s no doubt that real estate will continue to be a solid long-term investment in our country.”

For more info: Toronto Real Estate Board

Housing Starts to Moderate in 2009 – CMHC

The Canadian Mortgage and Housing Corporation (CMHC) released a report yesterday stating that new home construction will moderate from historically high levels, to reach just under 178,000 units in 2009.

“High employment levels, rising incomes and low mortgage rates have continued to provide a solid foundation for healthy housing markets this year,” said Bob Dugan, Chief Economist for CMHC. “Housing starts will moderate to 212,200 units in 2008 and 177,975 units in 2009.”

Existing home sales, as measured by the Multiple Listing Service (MLS^®)¹, which reached a record level of 523,701 sales in 2007, will moderate in 2008 to 452,225 units. In 2009, MLS^® sales will move to 433,375 units. Despite a moderation in MLS^® sales, demand for existing homes will remain strong by historical standards. With housing markets having become balanced across Canada, the rate of growth in the average MLS^® price will moderate. Average prices will reach $306,500 in 2008 and $306,700 in 2009.