On days like today-freezing nostril hair alert days, many of us cocoon inside. We tend to hibernate, working from home and allowing some time for an extra cup of coffee or tea, maybe get a fire going in the fireplace or sitting in the formal living room, pj clad, reading the paper in a leisurely fashion.
What am I getting at here? We love to enjoy our home! Life is busy and sometimes we don't get the quality time at home that we dream about. But one thing is for sure, studies indicate, as do home sales, that we all dream about owning a home. A home provides stability, safety, a sense of accomplishment and yes, equity and an important investment. And so I thought it fitting to share this article which talks about balance and stability in reference to the housing industry.
So, get the hot chocolate brewing, put on your pj's and enjoy the read!
Joanne
PropertyWire,Ca's journalist, Heather Wright, has conducted exclusive interviews with Phil Soper, President of Royal LePage, Robert Hogue, Senior Economist with RBC and Jeffrey Schwartz, Executive Director of Consolidated Credit Counseling Services of Canada. Read their predictions for the 2011 Housing Market in Canada here:
Balance and stability, two words that recently seemed foreign and unlikely, at least in reference to the Canadian Housing Industry. Now that the economic downturn is fading in our rear view mirror, Canadians are beginning to rebuild their financial situations- and are finding themselves in new territory- in an economy that holds some muted promise, if not cautious optimism. Financial wounds are healing, but frail.
What is noteworthy though, is that it is not just the economy that has changed. Canadians and the Real Estate and Mortgage industries are also different post recession; in terms of economic expectations, consumer confidence and attitudes towards debt, from both a consumer, lending institution and policy maker standpoint.Looking forward to 2011, with conservative promises of growth, expectations for price appreciation brought back to earth, and aggressive mortgage provisions being rolled out, how is buying and selling a house in this country different than it was pre-recession? How have Canadians and our government’s attitudes changed toward debt and spending? What regions will expect growth in their market this year, and why? And how does this impact professionals in the Real Estate and Mortgage industries?
According to many, there will be modest growth through 2011. Robert Hogue, Senior Economist with the Royal Bank of Canada agrees, telling PropertyWire.Ca; “As an upwards force, we expect economic recovery to continue and generate more jobs- so that means more income available to households. Overall, we think that those forces on the housing market will be mostly offsetting—if anything, it might be a little more on the upside. We are expecting a very slight increase over the year, taking into account some volatility, around the trend- modest increase in resales in Canada. Probably around 1% or less.”
Royal Lepage also predicts good things in the pipeline for the housing industry, adjusting their 2011 forecast at the eleventh hour to reflect the positive trends they saw towards the end of 2010. Phil Soper, President of Royal LePage, told PropertyWire.Ca; "The change in our forecast from Q3 2010 to Q1 2011 was driven almost entirely by a combination of the global economy and prospect of continued inexpensive mortgage funding. Both improved from Q3 2010 to the end of 2010. That allowed us to take a more optimistic view with transaction levels and their impact on home prices in the next year.”
Soper believes that this positive trend for the housing market will spread across the country; "In general, the entire country is getting a lift from improved economic conditions. Employment levels, just general government revenues and corporate profits are rising right across the country. As a result, everywhere in Canada will see an improvement. That said, we don’t believe that the improvement will be entirely equal. We believe that, for example in Alberta, the housing slump that pre-dates the global recession is finally going to see some light at the end of the tunnel. Our forecast for Alberta is based upon those handsome corporate profits in the energy sector spreading to other sectors and that translating to increased hiring and the classic labour shortages and net migration that causes a housing shortage that puts upward pressure both on prices and unit sales- more people want to get in and sell their properties.”
Value = Stability
The challenge for Real Estate and Mortgage professionals may very well be changing clients’ perceptions and expectations in the new economic order. The concept of value has changed perhaps as well and homebuyers will need to shed their hopes of price appreciation that shot up unmanageably pre-recession.
The new reality, as the housing market returns to stability, is that slow and steady will be the order of the day, and people will have to be satisfied will more gradual movement in price appreciation. Says Soper; “Post- recession, the level of general price appreciation for the next few years will be less than people previously expected. Inflation is low, and real price increases are going to be in the low single digits. We will see a prolonged period where we see price appreciation on average (and there will be exceptions) of 5% or less vs. home appreciation that was more in the 2000’s. That lower house appreciation will bring with it a calmer housing market, because the rapid increase in housing prices brings about a number of unexpected and unwanted side impacts like runs on prices, bidding wars. I see less of that in the coming years.”
Soper says; "All things being equal we should expect housing sales activity to increase over time in Canada. We’ve got one of the most enviable immigration records in the developed world. Household formation is fairly healthy in Canada. We should see a gradual improvement and expansion of the housing market overall."
Interest Rates, Will They Or Won’t They?
There is no question that this sustained period of low interest rates that Canadians have enjoyed recently has encouraged spending and returned vitality to a sagging economy. But there are many fears that we have gone too far in the other direction.
Household debt is surging in Canada, to levels that are causing alarm bells to sound all the way to Parliament Hill, where fears of a U.S .style collapse of the housing market. Coupled with the knowledge that a rise in interest rates is an eventual certainty, these alarm bells launched policymakers into action to cut this swell of debt.
Adopting this slow and steady economic mantra for 2011, Jim Flaherty, Minister of Finance, has put forth lending restrictions for both mortgages and home equity lines of credits. What this move reflects is not just how the Government views debt- but is also a commentary on how Canadians and lending institutions view debt. It is the fiscal equivalent of binge eating at every opportunity during the holidays, and recognizing the error in excess, seizing the New Year to get back in shape.
Flaherty’s moves have been well received by many, mostly from a messaging standpoint, as it seems that the actual impact that they will have on the economy, lending and in turn, on the housing market itself will be negligible.
Spend Yes- Just Not Too Much
Jeffrey Schwartz, Executive Director of Consolidated Credit Counseling Services of Canada, applauds the changes, telling PropertyWire.Ca; "They are trying to prevent Canadians from going further and further into debt, especially as it relates to their mortgages. They want to make sure that Canadians take on about as much mortgage as they can handle and not push that envelope too much. Some of the changes will lead to that. Do they have a huge over arching impact? Probably not. But I think from the perception standpoint, the government is encouraging people not to take on more than they can handle."
And in fact, it seems that despite the swell in consumer debt, Canadians are not only listening, but are responding to the message. Commenting an a recently released report from RBC that examines attitudes and financial priorities for the younger generations (18-34), which indicates that that group is focusing on paying down current debt and saving for home ownership instead of saving for retirement, Schwartz said; "An argument can be made on both sides of that, but I think it is an excellent idea when someone in that generation is saying 'you know what, let’ pay down our debt, because it is too high.' That signals to me that maybe some of the messages are getting through.”
What material impact will these changes have on the industry? Very little as it turns out. Hogue told PropertyWire.Ca; "Of course, Flaherty’s announcement Monday put a bit more downward pressure on the market. We think it is going to hit first-time buyers more. But generally, the forces at play right now are mostly offsetting.”
Similarly, Soper feels that the changes will not drag the housing market significantly; "The changes are tweaks; they should not have a material impact on their own in terms of slowing or removing a significant number of transactions from the 2011 forecast. The change just wasn’t that dramatic."
“Policy makers are less worried about indebtedness that is tied to real property. They believe forecasters like us, who say that the real property in Canada will either not decline at all, or at least not very significantly. It is highly unlikely that property values in Canada will suffer large declines. Most trading areas in Canada, price values will continue to appreciate, as the beneficial factors such as an improving job picture, increasing wages and salaries will strengthen the housing market at the same time, eroding affordability that will play out in the natural cycle of expansion and back off periods that will play itself out.”
Even the real fears of rising interest rates may not have the doom and gloom effect that many are predicting for mortgage holders.
The Canadian Association of Accredited Mortgage Professionals recently released a report which examined the effects of a possible interest rate rise on homeowners who took out mortgages in 2010. Says Hogue: “Higher interest rates would put just a minority of recent mortgage holders in trouble. Their comment was that the lending practices of the last year have been prudent. Debt levels have gone up for a number of reasons, but not because financial institutions in Canada have loosened up their lending standards too much. If anything, over the last two years, they have tightened them- part of which was mandated federally.”
Confident Consumer
There are many indications too that consumer confidence and the willingness to spend is on its’ way up, and that unemployment- albeit slightly, is on its’ way down.
There are some that fear that looming interest rate hikes and Flaherty’s new mortgage and HELOC restrictions could stall an economy that is just revving up, but the numbers seem to indicate that will not be the case.
Hogue is encouraged by what they’ve seen recently; "As a reflection of the overall economic performance in Canada, we expect it to trend slightly higher. The unemployment rate, which is probably a good indicator of confidence, is going to trend down modestly through the year. That is seen as the positive prop to confidence going forward. We are expecting by the end of next year in Canada, unemployment rate to be at 7.4%, which is not that much lower than it is now- but certainly is heading in a direction that should be reflected positively on confidence.”
So then, it seems like 2011 will not be a year of fireworks and frenetic pace in the housing industry; rather it will be a slow, steady climb back to higher ground- which is more appropriate really, for a country that has been trying to find its’ feet again.
Hogue says; "We are on path towards a more stable and sustainable housing market in Canada. The 2000’s have seen very strong growth. 2008 was a wild ride. Now I think we are in a new part of the cycle which is going to be more sustainable and stable.”
This article has been reprinted with proper credit noted.
