Tags: United States

26 Jun 2009, Comments Off

Don’t believe the housing hype

Author: admin

Judging by the latest real estate data, the Canadian housing market could scarcely be better. Average home prices are up more than 16 per cent this year, and in May they hit an all-time monthly high, according to the Canadian Real Estate Association. By those numbers, Canada didn’t just sidestep the housing market crash that continues to plague the United States, it sailed right through it virtually unscathed. And yet, there are plenty of signs that the Canadian housing market is still sitting on some very shaky ground—and even the potential that Canada’s big housing crash is yet to come.

There is one particular statistic that suggests trouble could be brewing. Unlike in the U.S., Britain and most European countries, household debt in Canada is, incredibly, still growing. That rising debt is being driven largely by record-low interest rates. Canadians have been buying homes not so much because they can afford them, but because many believe there’s never been a better time to buy, with lending rates so low. “There is no doubt that record-low mortgage rates have juiced Canada’s housing market,” wrote BMO economist Sal Guatieri, in a recent newsletter. Houses are barely more affordable now than they were during the market peak. And as people keep buying, houses may only become less and less affordable.

Not everyone agrees with the CRE figures that suggest the market has managed such a quick and painless turnaround, either. According to the Teranet-National Bank housing price index, Canada’s housing market is not recovering yet. Home prices have been falling for the past eight months, according to its latest statistics. Vancouver, Calgary and Toronto have each experienced significant price drops compared to last year. This would seem more in line with what one would expect after an unprecedented six-year housing boom in which home prices shot up 80 per cent.

It is, of course, possible that the correction will, ultimately, be modest. Guatieri expects that interest rates will remain low and income growth will remain subdued this year, before picking up next year. That will keep housing prices down, but would likely mean the worst of the correction is behind us.

But if mortgage rates go up sharply then “affordability will get crunched again,” says Guatieri, in an interview. Things could get much, much worse. And that’s not an unthinkable scenario. Some banks have already boosted interest rates twice this year. Then there is the possibility that job losses continue and the economy doesn’t recover quickly, putting further strains on household finances. The low interest rates and continued debt problems mean that Canadians could find them themselves badly over-exposed.

Guatieri isn’t forecasting a housing market crash. But, as he wrote last week, “it’s worth remembering that the further house prices go up and the longer household finances get stretched, the greater the risk of a painful correction. Anyone who doubts that should talk to an American or British homeowner.”

http://www2.macleans.ca/2009/06/26/dont-believe-the-housing-hype/

brought by Moishe Alexander, CFC CEO

Canadian Columnists Linda Leatherdale on 2008-05-04 posted on Canoe Money a timely article on the Canadian Housing Market – “Opening door on market”

“Some feverishly argue there’s no way Canada’s real estate market will crash and burn like the U.S. market, where one prominent analyst warns that the meltdown is more fast and furious than during the Great Depression”.

“Others say, get real: Canada’s largest trading partner is the United States, and if this one-time economic superstar is in a recession, we’re going down, too”.

Read the full article here.

The Royal Bank of Scotland recently released an advisory to its clients to braise for a “global stock and credit crash” over the next 3 months. The UK housing market may not recover until 2015. The housing market and debts problems in the US and UK, record high energy and food prices could eventually drag Canada into a housing down turn as we experienced in 1995 to 2001. Except, this time the problem could be very much worse than what we experienced previously.

Greater Vancouver Housing Market

The Saunder School of Business’s housing chart for Greater Vancouver below shown that it took 8 years for the housing market to recover to it’s 1981 peak at around $240,000. The housing downturn from 1995’s peak at $420,000 took almost 9 years to recover. Using the charts presented here up to 2007, and plotting the trend lines for nominal and real prices, $540,000 seemed to be about the “right” price level where the Vancouver housing price should be. This represents a 30% to 35% price differential below the current Vancouver nominal and real housing prices.

The price gains over the past 30 over years is attributed to excessive liquidity and priming of the money pump, we have over-shot the price gain by 30% to 35%. If the housing down turn is going to hit Canada, we could be facing a more serious price decline from that happening in 1981 and 1995. Click here for the latest news on Richmond’s real estate market.

The chart below for Greater Vancouver from the Real Estate Board of Vancouver plotting housing data up to May 2008 confirmed the sharp housing price gains that are “unsustainable”. The escalation in prices since 2002 to present out-paced the gains in the past 25 years.

Last week’s 400 plus points drop in the Dow could signal the big one is coming. Canada is unlikely to be insulated and not affected by the financial meltdown.

The debate as posted by Linda Leatherdale will continue. My take is that our real estate market is not so different from the US and UK. Our housing market is way over-priced and overly propped up by past years price appreciation. It is a matter of time we will face a painful price correction resulting in huge financial losses by many home owners. You are welcomed to post your comments.

http://activerain.com/blogsview/573085/the-canadian-real-estate-debate-goes-on

INTRODUCTION

Inadequate control of airflow through the building envelope is often a primary factor contributing to premature building envelope failures. If moisture-laden air is permitted to travel through the building envelope, the moisture may, under certain environmental conditions, condense within the walls of the structure. In above-freezing conditions, this may cause corrosion or rotting of the structural components, staining of the interior and/or exterior facade, and may stimulate the growth of mold and mildew. In cold climates, accumulated moisture may experience numerous freeze-thaw cycles, which can precipitate spalling and the formation of icicles on the exterior facade.

Air leakage is also a concern in areas where interior temperatures differ greatly from exterior temperatures, such as the Prairie Provinces, which can experience periods of extreme cold during the winter and extreme heat during the summer. The excessive heating and cooling loads placed upon buildings in this type of climate leads not only to an increase in space conditioning costs to the owner, but also has a negative impact upon the environment through increased energy consumption and the emission of greenhouse gases. In fact, studies conducted on high-rise residential and commercial buildings in cold climates have shown that anywhere from 20 to 50 percent of heat loss can be attributed to air leakage.

In Canada, building rehabilitation for roofing and wall system repairs and replacement cost an estimated $7.5 billion annually. A conservative estimate of the premature failure rate is 3 to 5 percent, or $225 to $375 million per year, with premature failure defined as any performance condition requiring repair or replacement of the system before the benchmark date. The building envelope has been identified as being particularly vulnerable to durability problems.
It is the growing global awareness of these air leakage-related problems that is driving the federal governments in Canada and the United States to introduce more stringent codes and regulations to govern building air permeance. In order to improve occupant health and safety, revisions were made to the National Building Code of Canada (NBCC) in 1995 designed to reduce air leakage in buildings, including those buildings classified within Part 3 of the Code1. Public Works Canada also recently revised their National Master Specification to include air barrier inspection and testing. In the United States, Persily’s Envelope Design Guidelines for Federal Office Buildings: Thermal Integrity and Airtightness (1993) also documents the requirements as outlined in the NBCC. In addition, State Energy Codes are being adopted and/or revised, making air barriers a mandatory requirement in new construction and retrofits. ASHRAE/IENSA Energy Standard for Buildings Except Low-Rise Residential Buildings (90.1-1999) also governs building envelope sealing.
Recently, air barrier trade associations have formed in Canada and the United States with the objective to improve the quality of air barrier system installations by providing education and training for the workforce. For an installer to become ‘certified’ through the association, an applicant must possess the required knowledge of air barrier material and system theory, and demonstrate sufficient skills in practical applications. In addition, through the associations’ quality assurance programs, documented self-testing and on-site third party audits are performed to verify the quality of the installation, and confirm the certified installers’ ability to build to expected standards.

While there are numerous ASTM (American Society for Testing and Materials) methods, says Jan Luistermans, for testing air barrier systems and/or components, there is no generic regimen for the application of these techniques being utilized on a widespread basis. The need for a complete design, inspection and testing protocol for air barrier systems cannot be understated. A recent study concluded that even routine testing can have a significant impact upon the airtightness of a building. Where air leakage testing was conducted, there was an overall reduction in air leakage for the system, a significant decrease in heating and cooling loads, a reduction in greenhouse gas emissions, and an increase in the life cycle of the building envelope.
With the growing use of inaccessible air barrier systems (such as bituminous membranes), on-site inspection and testing during installation is necessary to identify problems before the system is covered with finishing materials. The cost to repair an air barrier system after it has been covered can be conservatively estimated to be 50-60 times the cost of a correct first-time installation. Hence, the need for inspection and testing is obvious.