IMF puts latest meltdown at top of the heap

Jacqueline Thorpe
Province

TORONTO — The International Monetary Fund said yesterday that losses stemming from the U.S. subprime-mortgage meltdown could swell to nearly $1 trillion US, far outstripping the Asian banking crisis, the U.S savings-and-loan crisis and even the Japan banking crisis of the 1990s.

The estimate of losses is the biggest to date, eclipsing a recent projection of $600 billion from UBS AG, and dwarfing the $232 billion in losses financial institutions have announced so far.

“The current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,” the fund said in its twice-yearly global financial-stability report.

The Washington-based body, which gathers for its spring meeting at the end of the week, forecasts losses for U.S. residential loans and securities will hit $565 billion, losses on commercial real estate will hit $240 billion, corporate-loan losses will rise to $120 billion, and consumer-loan losses will reach $20 billion.

Global banks would shoulder $440 billion to $510 billion of the losses, with insurance companies, pension funds, money-market funds, hedge funds and other institutional investors accounting for the balance.

A total of $945 billion would surpass losses of roughly $275 billion stemming from the S&L crisis from 1986-95, the Asian banking crisis of 1998-98 that reached about $400 billion, and the Japanese banking crisis at about $740 billion.

The IMF said a deeper credit crunch could develop, hitting household borrowing, business investment and asset prices, and feeding back onto employment in a vicious cycle.

Furthermore, signs of a housing downturn are surfacing in certain European markets including the U.K. Canada, however, still pumps out solid housing numbers.

© The Vancouver Province 2008

Drop follows a month of unusually high residential building activity in February

Sun

B.C. urban housing starts dropped by 37.1 per cent for March, further emphasizing that February had been a month of unusually high activity, Canada Mortgage and Housing Corp. reported Tuesday.

In February, 47,400 urban starts were reported in B.C. — 2,446 in Metro Vancouver alone, about 96 per cent more than the 1,248 units in February 2007.

But B.C. urban starts dropped to 29,800 last month, part of a nationwide cooling that saw residential construction slipping to 254,700 units from 255,600 in February. Still, that strong February helped Metro Vancouver’s home builders start 2008 with the strongest first quarter since 1990, preliminary figures from CMHC show.

Starts of all home types in Metro Vancouver increased by 19 per cent over the first quarter of last year, led by multiple-unit starts, up by nearly 25 per cent.

But Peter Simpson, chief executive officer of the Greater Vancouver Home Builders’ Association, cautioned that a strong start doesn’t guarantee that pace will continue throughout the year.

“Housing starts reflect yesterday’s sales, and sales have moderated in recent months, so although a strong first quarter is encouraging, there is no guarantee the strength in starts can be sustained for the next nine months,” Simpson said by e-mail. “However, if the current pace continues to the end of the year, 2008 will end up the best year for starts since 1993.”

He added that, judging by the more than 700 people who had signed up for an association seminar for first-time home buyers Tuesday night, “there is still a strong interest in homeownership, despite the affordability challenges so prevalent in the Vancouver-area market.

“Multi-family starts continue to outpace single-family starts by a wide margin. First-time home buyers have lowered their expectations, realizing their first home will likely be a townhome or apartment condominium. In fact, today’s generation of Vancouver-area home buyers might live their entire lives in some form of multi-family housing.”

While building activity slowed across the country in March, it was still stronger than most analysts had expected, given recent indications that Canada‘s hot market is beginning to retrench to more realistic levels. Forecasts ranged from 218,000 to 222,500 new units in March.

“The high level of starts posted in February continued in March, thanks to the multiple segment and particularly condominium starts, which registered a significant rise in Alberta,” said Bob Dugan, chief economist at CMHC’s Market Analysis Centre. “Nevertheless, the single-detached component, which is usually a strong trend indicator, decreased slightly. This is consistent with our view that the housing market will moderate gradually throughout 2008.”

The seasonally adjusted annual rate of urban starts declined in three of Canada‘s five regions in March, CMHC said.

© The Vancouver Sun 2008

East-side story

Real Estate Board of Greater Vancouver
Sun

Condos on the east side of Vancouver offer an affordable alternative to an address along False Creek or Coal Harbour, but east-side condo prices are rising faster than anywhere else in the Real Estate Board of Greater Vancouver’s region.

Condo benchmark price*,

% change March-March

Vancouver East +14.9

Coquitlam +12.7

Richmond +12.7

Port Coquitlam +11.8

South Delta +11.6

Vancouver West +11.5

Burnaby +11.2

North Vancouver +10.9

New Westminster +10.0

Maple Ridge/

Pitt Meadows +5.3

Port Moody +4.6

West Vancouver +4.0

*The price of a condo typical for that area

© The Vancouver Sun 2008

Builders switch emphasis because of higher prices

Wendy McLellan
Province

Concrete is poured at the site of the Victoria-Cherry Bank condo development, evidence that B.C. homebuyers outside the Lower Mainland are embracing multi-family-housing lifestyles. — CNS

B.C. homebuyers outside the Lower Mainland are embracing the multi-family-housing lifestyle as home prices continue to climb, according to new statistics released yesterday.

In Kelowna, multi-unit housing starts nearly tripled in March compared to March 2007, and in Abbotsford, multiple starts increased by 216 per cent last month compared to the same period last year, according to Canada Mortgage and Housing Corp. figures.

Most B.C. urban centres saw single-family housing starts decline last month as it has every month so far this year while multiple starts increased in several centres.

“This surge in multiple-unit starts reflects the increased demand for semi-detached, row and apartment condominium units by price-conscious consumers,” said Carol Frketich, CHMC’s regional economist.

“In response to high home prices, builders are focusing on denser housing forms.”

Overall, housing starts in B.C. are up 14.7 per cent in the first three months of 2008 compared to the same period last year, says the CMHC report. Single-detached home starts are the same as last year’s figures, while multiple starts are up by 20.3 per cent.

Across the country, total housing starts slipped last month to 254,700 from 255,600 units in February. In urban centres, single-family starts declined 2.9 per cent while multiples edged up 1.1 per cent.

But last month’s building activity was still stronger than most analysts had expected, given recent indications that Canada‘s hot market is beginning to retrench to more realistic levels. Forecasts had ranged from 218,000 to 222,500 new units in March.

“With this brisk rate of activity in the first three months of the year, the housing sector will provide a boost to Canadian GDP,” said Millan Mulraine, economics strategist at TD Securities.

“On balance, we expect the Canadian housing sector to remain on a fairly strong footing through 2008, though it must almost surely fall from the current elevated level to bring it to a more sustainable path.”

Despite national concerns about a slowdown in housing construction, B.C. is still going strong, said Peter Simpson, chief executive officer of the Greater Vancouver Home Builders’ Association.

Last year, the Lower Mainland recorded the highest number of total housing starts since 1993 and this year’s first-quarter figures are better than the same period in 2007. Eighty per cent of starts are multi-family units.

“If we continue at this pace, we’re going to be close to that strength again,” Simpson said. “We’re hearing stories about the slowdown in the U.S. and in different parts of Canada, but we don’t see any evidence of that here.”

© The Vancouver Province 2008

Building starts are off 19 per cent but in line with the rest of Canada

Derrick Penner
Sun

Contractors in Metro Vancouver took out substantially fewer building permits in January and February this year than they did in 2007, Statistics Canada reported Monday.

Municipalities issued permits for $872.7 million worth of work over the first two months of the year — 19 per cent below the $1 billion worth of work approved in the same months of 2007.

Nationally, Statistics Canada said construction intentions cooled off for the fourth straight month in February, when municipalities issued permits for $5.8 billion worth of work, down one per cent from January and off the $7 billion peak of May and June in 2007.

In B.C., however, “[the] construction market has been overheated for several years, so a decline in building permits isn’t necessarily a bad thing,” said Philip Hochstein, president of the Independent Contractors and Business Association of B.C.

The “hectic pace of the past few years” has driven labour rates and materials up sharply, Hochstein added, so “a moderation in activity will bring back some certainty,” to contractors and their clients.

Some 835 large construction projects remained somewhere in the planning phase in B.C., according to the ministry of economic development’s major projects inventory, enough for Manley McLachlan, president of the B.C. Construction Association, to estimate sustained activity through at least 2011.

However, at the start of 2008, Metro Vancouver saw permit values for both residential and non-residential construction in January and February decline with non-residential permits showing the biggest drop.

Across B.C., builders took out permits on nearly $1.8 billion in work during January and February, a decline of 6.1 per cent from the first two months of 2007.

Residential construction permits in B.C. were up 15 per cent to $1.4 billion in the first two months compared with the start of 2007.

Among major centres, Kelowna posted an almost doubling of activity in the first two months of this year compared to last year, with permits on nearly $158 million in construction.

“Nationally, a marked increase in residential intentions [in February] was not enough to offset a decline in intentions in the non-residential sector,” Statistics Canada said.

Most analysts had expected the value of building permits to rise by more than one per cent in February. Values fell 3.5 per cent in January.

“Despite the weak headline number, the housing sector remains on solid footing in Canada,” said Jacqui Douglas, economics strategist at TD Securities.

© The Vancouver Sun 2008

With top rents higher than last year, many firms are scouting space in suburbs

Derrick Penner
Sun

Lots of buildings, little space: While vacancy is down, there are no plans for a large increase in downtown office towers. Photograph by : Stuart Davis, Vancouver Sun files

Vancouver‘s downtown office vacancy rate fell to its lowest level in a generation during the first quarter of 2008.

Colliers International estimates downtown office vacancy at two per cent, the lowest since 1981 when vacancy hit 1.8 per cent. Across Metro Vancouver, Colliers estimated vacancy at 4.2 per cent, compared with the all-time low two per cent, which was again in 1981.

Downtown, Colliers said some top Class AAA rents have topped $50 per square foot per year on lease renewals, noticeably higher than a year ago, research analyst Shawna Rogowski said.

However, Jeff Rank, managing director of Cushman & Wakefield LePage, said leasing activity in the tight downtown market has slowed, and landlords “haven’t been able to [increase] their [rents].”

One of the reasons Rank thinks leasing activity has slowed is because companies are holding back on decisions about their real-estate needs unless their leases expire, or they are expanding.

“There are still some in that category,” Rank said.

Computer gaming firms were among the tenants taking up any space they could. Electronic Arts leased 22,000 square feet of additional space at 1110 Hamilton Street and Next Level Games took on 24,550 square feet in the Raffles building at 811 Cambie Street, the Colliers report noted.

Rogowski added that many companies “rushed to do lease renewals and expansion deals” while vacancy rates falling over the past couple of years.

“Now that they’ve done that, [leasing activity] is a bit quieter with not a lot of space to lease.”

Rogowski said many firms are scouting out Metro Vancouver’s suburban markets, where new office buildings are being built.

Rank said most of the companies leasing the new suburban office space being built in Burnaby, Richmond and even the Fraser Valley are firms oriented to those markets rather than companies priced out of downtown.

Metro Vancouver‘s suburban markets, where new office buildings are being built, are where rents are rising.

Rank said Burnaby‘s top rents have reached around $30 per square foot per year in new buildings. In Richmond, new buildings are fetching up to about $25 per square foot.

“New inventory is definitely moving the market up,” he added.

Colliers said the suburbs continue to attract attention because while rents are going up, gross rents can still be half of those charged downtown.

© The Vancouver Sun 2008