Wednesday, July 8, 2009

Good Housing Report - and it's from a bank!

The Royal Bank's Robert Hogue has put out a good report on Housing in Canada.

Most of it we have been saying on the blogs.

1) Sales and prices are up since March due to the unprecedented drop in interest rates improving affordability.
2) The best of the rates are probably behind us.
3) So from now the state of the economy and incomes will be the drivers.

BC specific: after the sharpest drops since 1991, it has rebounded and he sees a floor under prices from lower construction and listings.

The RBC affordability measure dropped for Vancouver dropped from a staggering 80-90% of household income to own a SFH to 70% or so. Still remarkably high. He notes the rebound DESPITE
a soft economy and surging unemployment.

Here is the whole report :

I agree with most of it. The drop in interest rates has had an incredible affect on affordability. It was like a price drop of 20-30% -except not quite. The asset you are buying is still over-priced even if the carrying costs are lower. Would you buy a car for 20% more than it is worth, just because the financing costs were low?

Nevertheless it has led to a major bounce. Now what? Well as he says now we have to wait and see what happens to the economy. The floor he mentions can easily be broken if the economy starts to wilt.

In fact I would say that after the Olympics, if the world economy does not rebound quickly, the price of housing will be the least of our worries as our unemployment continues to surge, and we have to deal with the Olympic cost over-runs and resultant cuts in spending.

I don't see any driver for improving the employment situation anytime soon and am concerned about another surge post Olympics.

Hat tip to Larry Yatter for posting the report.


  1. skiff said...
    This bounce is so strange. On the radio there is a story on how the economy is in the crapper and job losses are increasing, and the very next story is about record real estate sales! When I look around, nobody I know seems to be affected by the downturn. In fact, people are in a house-buying frenzy. It makes no sense.
    My wife and I are almost at the end of our patience with this city's real estate market. If things don't show some significant declines by fall we are going to make plans to move away.

    I pulled Skiff's comments from the previous post.

    Skiff- actually I know a LOT of pople who have been affected by this down-turn, unlike other recessions.

    I have friends who have been laid off, demoted, or taken pay-cuts. However the majority are still doing fine and with lower rates the buyers came out.

    If the economy weakens further, as I expect it to, then we will see wide-spread concern about jobs and income and no amount of low motgages will bring out the buyers...that is what is happening in the US.

    Will that happen here and when? Well we bears have been waiting for this for a long time, unfortunately it looks like if and when it does come, it will be riding on the back of the worst recession of the last 70 years.

  2. The latest one I heard is you have two options: layoff or 10% pay cut. That must do a lot for morale. Might as well just layoff, because everyone is already living beyond their means and can't do the pay cut.

    People are leaving this city. They are going back home if they are from elsewhere. Even back to "poorer" countries. I wonder if we'll see a significant population drop among young, mobile workers.

  3. We must be song, bears....It HAS to come down....

    I just crunched the number today to convince my wife not to jump in because everyone else is.

    We make $125K before taxes, and ONLY because of crazy-low variable rates can we afford to buy anything close to as good as the place we're renting for $1200/month. ING has posted 2.75% variable and 4.39% for 5 year fixed. That's a huge difference, and means risk. Risk that rates will go up, and equity will vanish. Alot of my friends (the people who suffer from innumeracy, and therefore think that now is a good time to buy) don't realize that.

  4. Man, I need to edit my comments before posting. Sorry about the spelling in the previous post.

  5. Wow, Anon. We could be twins. Our situation is about the same with $125k combined income, $1275/month rent, and the bear-skeptical wife. We are hoping to skip the condo stage (to avoid the whole strata "scene") and buy a house. Prices dropping to 2004 levels would let us into the market quite comfortably. As it stands, we are waiting and the difference between our rent and what we can afford for mortgage/ownership costs goes toward down-payment savings. If we do end up moving, we'll have a fat down-payment in any other market.