There’s no sign yet of the market slowdown some experts have predicted

Eric Beauchesne
Sun

OTTAWA — The hot housing market — which was supposed to cool down this year — just keeps getting hotter, with the real-estate industry reporting that home sales continued to soar last month despite record-high prices.

Sales of existing residential properties hit a 14-month high in May of 28,288, up 0.7 per cent from April and the fourth highest monthly level on record, the Canadian Real Estate Association reported Wednesday.

Adjusted for seasonal ups and downs, sales hit all-time highs in Saskatoon, and surpassed all previous records for May in Vancouver, Calgary, Winnipeg, Montreal, Quebec City and St. John’s, Nfld.

And so far this year, sales are at an all-time high in 11 cities, including Victoria, Calgary, Edmonton and Montreal.

The average selling price hit a new all-time high of $269,127, up 8.2 per cent from a year earlier, and hit record highs in Vancouver, Edmonton, Toronto, Montreal and Halifax-Dartmouth. Helping push up prices was a 2.6 per cent drop in properties for sale from what had been a 14-year high in April.

“More news about high monthly sales activity and rising home prices might sound a bit like a broken record if it were not for the significant strength and stamina of housing demand,” said association chief economist Gregory Klump.

“The statistics speak volumes,” he said, noting that sales were just 2.8 per cent below the all-time high hit in July 2003 despite what has been a near 20-per-cent increase in the average selling price of a home since then.

Analysts have been forecasting a slowdown in housing this year because a lot of the pent-up demand has been met, while rising interest rates later this year along with the increase in housing prices that has already taken place will make home ownership less affordable.

And Bank of Canada Governor David Dodge warned again Wednesday that interest rates will eventually rise — although he refused to say when.

The news of the further surge in sales and home prices last month comes on the heel of a report from CIBC World Markets that warned that even a slowdown in the housing market would hurt the economy because real estate has been one of the “most powerful economic engines of recent years.”

However, Klump said the factors that have fuelled the housing boom over the past few years remain in place.

“We are continuing to see the powerful combined effect that low and steady interest rates, job growth and high consumer confidence have on housing markets,” he said.

“Recent cuts to mortgage interest rates will continue to support strong activity in the months ahead, especially now that short-term consumer lending rates are likely to remain stable over the summer.”

© The Vancouver Sun 2005

Other

PERHAPS the best evidence that America‘s house prices have reached dangerous levels is the fact that house-buying mania has been plastered on the front of virtually every American newspaper and magazine over the past month. Such bubble-talk hardly comes as a surprise to our readers. We have been warning for some time that the price of housing was rising at an alarming rate all around the globe, including in America. Now that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.

This boom is unprecedented in terms of both the number of countries involved and the record size of house-price gains. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history. The bigger the boom, the bigger the eventual bust.

Throughout history, financial bubbles—whether in houses, equities or tulip bulbs—have continued to inflate for longer than rational folk believed possible. In many countries around the globe, house prices are already at record levels in relation to rents and incomes. But, as demonstrated by dotcom shares at the end of the 1990s, some prices could yet rise even higher. It is impossible to predict when prices will turn. Yet turn they will. Prices are already sliding in Australia and Britain. America‘s housing market may be a year or so behind.

Many people protest that house prices are less vulnerable to a meltdown. Houses, they argue, are not paper wealth like shares; you can live in them. Houses cannot be sold as quickly as shares, making a price crash less likely. It is true that house prices do not plummet like a brick. They tend to drift downwards, more like a brick with a parachute attached. But when they land, it still hurts. And there is a troubling similarity between the house-price boom and the dotcom bubble: investors have been buying houses even though rents will not cover their interest payments, purely in the expectation of large capital gains—just as investors bought shares in profitless firms in the late 1990s, simply because prices were rising.

Homes as cash machines

One other big difference between houses and shares is more cause for concern than comfort: people are much more likely to borrow to buy a house than to buy shares. In most countries, the recent surge in house prices has gone hand-in-hand with a much larger jump in household debt than in previous booms. Not only are new buyers taking out bigger mortgages, but existing owners have increased their mortgages to turn capital gains into cash which they can spend. As a result of such borrowing, housing booms tend to be more dangerous than stockmarket bubbles, and are often followed by periods of prolonged economic weakness. A study by the IMF found that output losses after house-price busts in rich countries have, on average, been twice as large as those after stockmarket crashes, and usually result in a recession.

The economic damage this time could be worse than in the past because house prices are more likely to fall in nominal, not just real terms. Not only do houses in many countries look more overvalued than at previous peaks, but with inflation so low, prices would have to stay flat for at least a decade to bring real prices back to long-run average values. Most important of all, in many countries this house-price boom has been driven far more by investors than in the past, and if prices start to dip, they are more likely to sell than owner-occupiers. In America this could mean the first fall in average house prices since the Great Depression. Owners who have been using their home like an ATM to extract cash, or who were relying on rising house prices to provide them with a comfortable pension, will suddenly realise that they need to start saving the old-fashioned way—by spending less of their income.

The Fed frets

The lesson from recent experience in Australia, Britain and the Netherlands is that, contrary to conventional wisdom, a big rise in interest rates is not necessary to make house prices falter. This is bad news for America. Even if prices there initially just flatten rather than fall, this will hurt consumer spending as the impulse to borrow against capital gains disappears. It is by encouraging such borrowing that rising house prices have given a bigger boost to America‘s economy than elsewhere. Two-fifths of all American jobs created since 2001 have been in housing-related sectors such as construction, real-estate lending and broking. If house prices actually fall, this boost will turn into a substantial drag.

No wonder that the Federal Reserve is starting, belatedly, to fret about house prices. By holding interest rates low for so long after equities crashed, the Fed helped to inflate house prices. This prevented a deep recession, but it may have merely delayed the needed economic adjustments. Ideally, the Fed should have tried to cool the housing boom by raising interest rates sooner and by giving clear verbal warnings to buyers, as Britain’s and Australia’s central banks have done. Even now some stern words from Alan Greenspan, the Fed’s chairman, could restrain more house-price inflation.

Of course, by the time American prices begin to fall, probably sometime next year, they will not be Mr Greenspan’s headache. He will have retired and someone else will be in his job. If weaker house prices push the economy towards recession, the awkward truth is that America‘s policymakers will have much less room to manoeuvre than they did after the stockmarket bubble burst. Short-term interest rates of only 3% leave less scope for cuts. In 2000, America had a budget surplus. Today it has a large deficit, ruling out big tax cuts.

The whole world economy is at risk. The IMF has warned that, just as the upswing in house prices has been a global phenomenon, so any downturn is likely to be synchronised, and thus the effects of it will be shared widely. The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion.

Developer plans large houses at Celtic Shipyards site that businessman wants saved

Jennifer Miller
Sun

VANCOUVER – Ross Judge says the Celtic Shipyards — several warehouses on three hectares of land along the Fraser River — are historic buildings that should be saved for posterity.

But Bob McMynn, who supports a developer’s plan to buy the land, rezone it and build 12 large million-dollar-plus homes there, says Judge’s dreams are “laughable.”

Both will be at a Vancouver city council public hearing Thursday evening to voice their opinions on a proposal for rezoning the property.

The developer, Progressive Construction, is asking council to rezone it so it can be redivided into 12 similar-sized lots. The land is already made up of 12 lots — one large and 11 small.

Judge, who owns a furniture and prop rental business that operates out of a warehouse at the shipyards, has developed an alternative plan to turn the area into a cultural centre open to the public, including a pier and a public mooring facility.

“I want people to come down there and to be able to experience the absolute beauty and pristineness that is abundant in the area,” he said in an interview Tuesday.

He is planning to approach the federal government with his proposal — and ask it to declare the shipyard, located across the Fraser from the airport, a historic site. His online petition to save the shipyard had more than 200 names as of Tuesday.

The buildings were constructed by the B.C. Forest Service and used to build and repair boats used in forestry, Judge said. “That played a pivotal part in the building of our province.”

But McMynn, the president of a Southlands property owners association, says the buildings don’t have historic merit.

“They’re just an eyesore in the neighbourhood,” he said. “The property for a long time has been a real problem with drug dealing, prostitution, unsavoury commercial uses, et cetera.”

Progressive’s proposal includes plans for a riverside pathway and more than $1 million for Southland projects it would provide in exchange for approval to build homes larger than usually allowed.

The land is currently owned by the Musqueam First Nation, which has been negotiating for about three years to sell the land to Progressive.

McMynn said the original asking price for the land was $8.5 million, but it has gone up substantially since negotiations began.

Negotiations for the land will continue even if council doesn’t approve the rezoning, said Steve Kurrein, manager of development for Progressive.

Under the current zoning, the property owner could demolish all the existing buildings and file development applications for houses, according to city planner Rob Jenkins. The applications would likely be approved and the matter wouldn’t go to council, he said.

McMynn described Judge’s proposal, which was delivered to his home, as “laughable” because it doesn’t include any details of funding.

“I’m looking at something there that would take probably $15 million to do — they don’t say where they’re going to get $100,” he said.

Judge said he’s been contacted by several groups interested in funding the project, and he’s hoping for some government money.

“It’s just something that I feel I have a connection to, and if somebody doesn’t stand up and really make a stand for this place, it’s going to go and we’re going to lose a historic site for 12 houses.”

© The Vancouver Sun 2005

Eric Beauchesne

Sun

OTTAWA — This housing boom won’t go bust, as did the last one in the late 1980s, but even a slowdown will hurt the economy, CIBC World Markets warned Monday.

“Never before has the housing market been so important to the Canadian economy,” it said, warning that if interest rates rise this year they will hit the real estate market next year just as it will be running out of steam.

Most analysts expect the Bank of Canada to start raising interest rates this fall to head off inflation down the road, although CIBC economists aren’t so sure, and add that any increase will be small.

“We believe that any increase in Canadian mortgage rates — short and long — in the coming 12 months will be minimal at best,” it said.

The strong dollar has been “real estate’s best friend” as the dramatic appreciation of the dollar put the brakes on interest rate increases by the Bank of Canada and helped to keep long-term rates near historic lows, it said. And with cheap credit being the lifeblood of the housing market, prices continue to surge.

However, in the past few months there has been some softening in the rate of growth of house prices, home sales and housing starts, it noted.

“The year-over-year rate in house prices is now at around eight per cent, well below the pace seen in early 2004,” it said. “At the same time, housing starts are running seven per cent behind year-ago levels.

“Not that we are predicting a crash in the housing market, but even a soft landing, as projected by virtually everybody in the industry, would conspicuously damage the economy,” it said.

Real estate has been one of the “most powerful economic engines of recent years,” it said.

Not only is residential investment, as a share of total economic output, 20 per cent above its long-term average, there are the indirect positive impacts on the economy from the hot housing market including the so-called housing wealth effect, record-high home equity withdrawal, and strong housing-related spending, such as on furniture, appliances and so on.

“Even a leveling off in real estate activity will bite significantly into 2006 GDP growth,” it said, adding that’s not the ideal environment for aggressive interest rate increases by the Bank of Canada.

© The Vancouver Sun 2005

Sun

The cost of new housing in B.C.’s two largest cities were up yet again in April, as the price of land, construction materials and labour continued to climb. Here are the year-over-year numbers, as well as the Canadian cities with the biggest increases:

© The Vancouver Sun 2005

A host of major changes are in the works for the east end of False Creek where 2,200 Olympic athletes will be housed

Frances Bula
Sun

Welcome, ladies and gentlemen, to the beating heart of the 2010 Winter Olympics in Vancouver.

Here in east False Creek, where we expect the world to arrive in just under five years, we have on our south shore a dirt-dumping facility, the about-to-fall-down buildings of the city works yard, and a decor best described as “early abandoned industrial gone to seed.”

On the north bank, which 2,200 Olympic athletes living in our village will see every morning, we have an equally compelling expanse of industrial fill, whose main feature is the large rectangle of asphalt used previously as a storage space for the Molson Indy — our own little piece of south-central L.A. right here in Vancouver.

Looks bleak, you say? Well, yes.

But these Cinderellas and their pumpkins are about to be transformed in a fashion that will be startling even for a-new-building-a-day Vancouver.

In fewer than 1,800 days, this forgotten corner of the city will arrive at the ball decorated with parks, seawalls, refurbished streets, community centres, boathouses, banners, and a shiny new “green” athlete’s village — an environmental model of sustainable development — with a mini-shopping complex attached.

Condos will sprout, new roads will materialize, and by February 2010, the harbour will bustle with water shuttles carrying thousands of people between the village and the downtown.

All of that will happen at the same time as a raft of city projects surrounding east False Creek also come to a head: the ambitious Woodward’s complex, the Richmond rapid-transit line with a stop at Second Avenue, the Carrall Street greenway, the plan to introduce more housing into Chinatown, a remake of Second Avenue, so that it becomes part of a U-shaped “great boulevard” that connects with Pacific, the creation of a new identity for the formerly industrial False Creek Flats, and the redevelopment of the Plaza of Nations.

The whole image of the downtown’s eastern end will change, says the city’s director of current planning, Larry Beasley.

“It will turn from an image of crisis to an image of optimism. And the Woodward’s project will be a beacon for that.”

But, ironically, the Olympics may actually force some plans for transforming this part of the city’s mini-harbour to be put on hold temporarily, particularly on the north side.

One of the biggest questions is what will happen to the park planned for the northeast corner of False Creek, a park that Citygate residents have been waiting for with growing impatience over the past several years.

The park board’s director for the Stanley district, Jim Lowden, has always had dreams of turning that part of that area into a unique space for city celebrations and events.

“The city lacks formal celebration sites,” says Lowden, who jokes that he’s been working on False Creek for 20 years and he’s not going to retire until he sees the park finished. “This area makes a nice amphitheatre for the east end of the creek — it’s like a giant set of naturalized bleachers.”

It could become the home to dragonboat festivals and any number of water-oriented events.

But he says the indications he’s had so far from the Vancouver Olympic Organizing Committee — Vanoc — are that it wants a big, clear space of hard surface. As well, there’s been talk of Concord Pacific temporarily relocating its sales centre to that final piece of its land.

“It’s kind of up in the air now. We’re all wrestling with how much we can get done, given Vanoc’s needs and Concord‘s sales needs. Unfortunately, they don’t produce a single, clear answer.”

That same uncertainty is surrounding the Concord site just east of the Plaza of Nations, which is supposed to see either a commercial or residential development.

The city’s director of real-estate services, Bruce Maitland, said Olympic planners are excited about the idea of being able to shuttle athletes by ferry to the north side for B.C. Place events and for entertainment in Yaletown.

“If we bring athletes across on a ferry, we would have to have a security zone on the north side,” he said. “We would also need a large area behind B.C. Place for staging and that would have to be secure too. So that area may not be much more attractive than it is now because of the need for ‘back of house’ space.”

None of that is welcome news to Concord.

“We would like to see those lands developed,” says company spokesman Matthew Meehan.

Finally, on the south side, private developers are still in negotiations over what they will be allowed to build — if anything — inside the area defined as the Olympic security zone. Those developers are champing at the bit to get going on projects that promise to go for prime prices.

Realtor Bob Rennie says that area is going to become the city’s new Coal Harbour, with stunning views of the city. For those who get to build ahead of 2010, it will also provide front-row seats for the Olympic bustle around False Creek.

Some owners along Second Avenue are free to go ahead. But Olympic planners have set up a 100-metre “security zone” around the athletes village where they have said no new building can take place. The line means that owners with property along First are inside the zone.

But while some pieces of the puzzle are uncertain so far, what is guaranteed is that the city’s $50-million investment in this first part of southeast False Creek, along with the Olympic money that will be poured in, will set the stage for everything that follows.

“Through the village,” says Beasley, “you’re going to be able to discern the neighbourhood of the future.”

BIG CHANGES IN STORE BEFORE OLYMPIC ATHLETES ARRIVE:

The east end of False Creek now described as ‘early abandoned industrial gone to seed’ is to be transformed in a way that will be startling even for a-new-building-a-day Vancouver. In less than 1,800 days it will get a shiny new athletes’ village, new roads, parks and condos.