Wait until 2011, Pomeroy advises first-time buyers

John Bermingham
Province

A housing expert figures the Vancouver housing bubble will burst after the 2010 Olympics.

Steve Pomeroy said people are buying properties, hoping to flip them before the Games, which has pushed prices higher.

“In the Vancouver market, there’s going to be a correction,” the Ottawa consultant said yesterday.

Pomeroy said the Olympics will create 3,000 new housing units, which will flood the market.

“I think the bubble will burst when you see that large supply at the same time,” he said.

He said the underlying conditions for a bubble-burst are arriving — income stagnation, rising interest rates and over-supply of units.

“I would say wait — buy in 2011,” he said.

Pomeroy was among housing experts gathered in Vancouver to discuss housing affordability at the Canadian Housing and Renewal Association’s 40th annual congress.

Sharon Chisholm, the association’s executive-director, said she worries mostly about the young college graduate, saddled with student loans and working in a low-paying job.

“We’re coming up with a whole generation of people, the Y Generation, who have debt, and won’t be able to take a mortgage on a house,” she said.

Those young people go into the rental market, she said, but even rental units are declining.

Chisholm said globalization has allowed offshore investors to snap up property here.

The latest figures show that it takes 79.2 per cent of the average Metro Vancouver income to buy a 1,500-square-foot house, an 18-year-high.

Metro Vancouver‘s median income of $59,000 wouldn’t qualify for a mortgage on the average house, now $648,592.

Duncan Maclennan, professor of urban economics at the University of Ottawa, said people are investing in buy-to-let homes in Metro Vancouver, pushing prices up.

“You certainly also displace first-time buyers, because you have pushed up the price of housing,” said Maclennan.

The same thing happened in cities such as Melbourne and Auckland, where governments put in programs to create affordable housing, he said. The federal government has no such plan.

Delegates at the conference called for a federal plan on affordable housing.

“Affordability is the predominant issue,” said Bob Hawkesworth of the Federation of Canadian Municipalities.

Two days ago, after a meeting with Housing Minister Monte Solberg, provincial housing ministers stated their disappointment with Ottawa‘s inaction and called for a long-term housing strategy.

© The Vancouver Province 2008

Other

Market to soften as U.S. troubles seep into Canada

John Morrissy
Province

OTTAWA — Strong local economies, high immigration levels and low interest rates helped the Canadian real-estate market post a first quarter of moderating price gains in 2008, Royal LePage said in its latest house-price survey.

The greatest advances made in smaller cities with relatively affordable housing and resource-based economies, the report said.

“The country has returned to an environment characterized by moderate house-price increases,” said Phil Soper, president and chief executive, Royal LePage Real Estate Services.

Such conditions, he added, are “more sustainable in the long term than the sharp price increases recently experienced.”

Soper said Royal Lepage expects the market to continue to soften as slowing in the U.S. economy spills into Canada, but to be counterbalanced as interest-rate cuts and tax-stimulus measures there take hold.

Nationally, the value of detached bungalows grew 8.3 per cent on an annualized basis to $336,834, standard two-story properties were up 7.1 per cent to $400,647, and standard condominiums rose 6.9 per cent.

Although global demand for Canada‘s natural resources has slowed, the strongest real-estate markets have been in smaller cities in exporting regions where homes are more affordable than in the rest of the country, the study said.

Saskatoon posted year-over-year increases as high as 66 per cent, and areas in Newfoundland posted gains of 20 per cent or more.

Atlantic Canada is benefiting from oil-expansion projects, Saskatchewan from gold, diamond and uranium mining, as well as agriculture, and Winnipeg from grain prices and the farming industry.

© The Vancouver Province 2008

Ozzie Jurock
Sun

Yes, affordability is a real issue…it takes 67 per cent of our income in Vancouver to buy the average priced property. Clearly and substantially out of whack. But supply and demand is in check, we have large inward migration, huge capital investment in the province and we live clearly in a (largely) unreported inflationary environment.

We do love owning and buying real estate, we love to own and buy it in Canada. But – in any market – pick your real estate carefully. Go back to the basics.

Understand yourself first.

Are you a flipper or an investor? It’s all good but make sure that you understand what you are and what your expectations are.

If you are a flipper, you may still play very well in the downtown Vancouver/Edmonton/Calgary/Montreal or small town ‘with future potential’ markets. There’s nothing wrong with being a flipper downtown. In fact, as a flipper you want to be playing where most people are located.

Also remember at this time: big price – big upside and big downside, when prices go against you. Low price, low upside, low downside.

We have seen flippers make $80,000 on a flip in a downtown condo (this year); we have also seen them lose an average of $46,000 (on 36 sales) in just one building at City Gate in 1997. Conversely, at the Lougheed Mall a 1-bedroom condo rose by $15,000 so far this year and in the worst year (1994) lost $7,000.

That is the thrill a flipper lives for — fast cash. But don’t fool yourself: A flipper is not an investor looking for safety first. Paying $800,000 for a condo downtown and renting it for $2,500 is not an investment, it’s a gamble on a higher priced sale in the future. Flippers often get caught in downturns, you must be able to weather one, when it comes.

Generally, if you need cash flow now, if you wish to be an investor you are likely best off in suburbia or the smaller towns. Coquitlam, New Westminster, Surrey, Abbotsford or selected small towns with good population bases, good employment and a strong base of renters (like Kamloops or Nanaimo) are good bets. Now you are safe, whether prices rise or rents increase becomes irrelevant. It is a bonus. You have somebody paying for your property. Someone else is creating passive income for you – eventually.

The question of where to buy is always personal. Even in investment. Clearly, if you believe that all that exploration, all that gas and oil investment is going to continue, then buy in Fort St. John, Dawson Creek, Smithers or Terrace. If you believe that the new container port in Prince Rupert will be come a Superport, then Prince George and Edmonton are worth another look. For people that want to benefit from small town living, look at Nanaimo, Courtenay and Qualicum. In the Interior look at Vernon and Salmon Arm for recreation.

If you believe in recreation, look at Mt. Baldy, Look at Kimberley and Rossland. Look at Harrision Hot Springs, Pemberton, the Sunshine Coast, all of Vancouver Island, all of our islands with regular ferry traffic … In that regard buy any waterfront anywhere if it is a good deal. (We have said this for 10 years!)

In the Lower Mainland, buy anything anywhere, but get a good deal. Even if you pay too much, you just will have bought it too soon. We are limited geographically, unlike Calgary or Edmonton where new suburbs can be created ad infinitum; Vancouver is bordered on three sides, mountain, sea and the U.S.

Speaking of the U.S. – look at Point Roberts, where you can still buy relatively inexpensive recreational property – but make sure you have good water.

Yes, these are troubled times, we also may be getting closer to the end of this particular cycle but long term we will be just fine.

To buy real estate in 2008 will feel as troublesome as it did in 1966 or 1975 or 1983 or 1988 or 1991 or 2001 when we had all these troubled events (stock crashes, crisis, troubles) the previous year. And aren’t you happy you bought then?

For all the 38 years I have been in this business there are the same stories every year.

There are too many Realtors in the business.

No young couple can afford to buy anymore.

I wish I bought 5 years ago.

Every Year!

© The Vancouver Sun 2008

LORI McLEOD
Other

Toronto — Home prices continued to rise in Canada in the first quarter of 2008 in every major market except Edmonton, according to a Housing Price Survey report released Thursday by Royal LePage Real Estate Services.

Detached bungalow prices showed the largest gain across Canada in the first three months of the year, rising by 8.3 per cent from the year before to $336,836. Two-storey homes rose by 7.1 per cent to $400,647, and standard condo units by 6.9 per cent to $240,423.

“Canada‘s housing market remains on solid footing. With the notable exception of a handful of small western cities, the country has returned to an environment characterized by moderate house price increases,” said Phil Soper, president and chief executive of Royal LePage. “These conditions are far more agreeable to those searching for a home, and are more sustainable in the long term than the sharp price increases recently experienced.”

In Edmonton prices dropped for each type of housing measured in the study, with the sale price of a standard condo unit falling by 7.7 per cent to $235,000. The average bungalow fell by 4.9 per cent to $330,000, and the price of a two-storey by 3.7 per cent to $363,707.

“Despite a strong economy, consumer confidence began to waver as global oil prices continue to fluctuate; area buyers have grown weary of a housing market that is closely tied to the oil and gas sector,” the report said. “Employment levels in the area remain at all-time highs, which, when combined with low lending rates, positioned housing conditions slightly in the favour of area buyers.”

The only other city to see a decline was Fredericton, where the condo market saw prices fall by 3.8 per cent to an average of $126,000.

While home prices continued to rise at a more moderate pace in Calgary, a glut of listings made that city a buyers’ market in the first three months of the year, the report said.

Smaller cities with fairly affordable housing and strong, resource-based economies made the biggest price gains in the first three months of the year. The largest increases year-over-year price increases were in Saskatoon and Regina for all three housing types measured in the report. In Saskatoon the price of a bungalow rose by 50.3 per cent to $340,000, a two-storey rose by 53.4 per cent to $395,000, and a standard condo unit by 41.9 per cent to $220,000.

In Toronto price gains came in near the national average, with bungalows appreciating the most year-over-year to $432,679, an 11.3 per cent increase. Two-storey home prices rose by 8 per cent to $544,150, and condos by 6.9 per cent to $298, 662. While demand is still strong and inventory limited, bad weather in Toronto caused many sellers to hold off on open houses in the first quarter, the report said.

Vancouver remained the priciest city in the country by far in which to own a home. The price of a bungalow was nearly double that of the next most-expensive city in Canada, coming in at an average of $852,750, up 12.5 per cent from last year. Two-storey homes in Vancouver averaged $948,750, up 13.3 per cent, and standard condos averaged $455,750, up 12.9 per cent.

© The Globe and Mail

Matt Woolsey
USA Today

Tel Aviv, Israel’s leading real estate market, is still finding its legs following a late ’90s and early 2000s price slump. But conditions in Israel favor more wealth creation, as the economy has corrected its deflation problems and grown at a 5% rate for two years.

Although the worldwide real estate market is softening as credit reservoirs dry, some spots are poised for growth.

To find them, we looked at economic expansion, inflation rates, strength of individual property rights and access to lending in emerging markets, to examine housing conditions in capital cities and business centers. These markets are not expected to explode in value in the next six to 12 months, but in the next five years, they will likely have proved to be worthy investments.

Take Tel Aviv. Israel‘s real estate market struggled in the late ’90s and early 2000s as the country grappled with deflation. As late as 2006, market weakness had pushed prices down 4%, according to Knight Frank, a London-based real estate research company. But last year prices climbed 2%. That is expected to continue, given the country’s robust 5.1% 2007 growth in gross domestic product and a 3.8% projection for this year, according to the International Monetary Fund.

Or consider Kuala Lumpur, the capital of Malaysia and one of the biggest winners in global trade, where economic growth has kept up with neighboring Southeast Asian countries but where inflation and consumer prices are becoming some of area’s lowest. That means more money in the economy, and a bigger share of it in people’s pockets. Home prices in some spots in Kuala Lumpur are going for 50% to 70% above initial asking price, according to Knight Frank, and builders are rushing to keep up with demand.

The methodology

We defined emerging countries as those transitioning from developing to advanced. Brazil, Russia, India and China (often abbreviated to BRIC) are the most commonly cited examples. We relied on Morgan Stanley Capital International’s list of emerging markets, the most commonly used, in forming our top 10.

We discounted developing markets, as they are often highly volatile. For example, investors salivated over the Baltic states in 2006, when, according to Knight Frank, home sales prices in Latvia and Estonia appreciated at 66% and 24%, respectively. In 2007, prices swung the other way, depreciating 7% and 14%. Knight Frank Research Director Liam Bailey calls this an “astonishing reversal of fortune” and cites “uncertain employment conditions, rising interest rates and household indebtedness” as reasons for the turnaround.

To compile our list, we turned to data on individual property rights and access to loans from the World Economic Forum’s 2007 “Global Competitiveness Report” and the World Bank Group’s 2007 “Doing Business” study, provided by the Institute for Liberty and Democracy (ILD), a Lima, Peru-based research organization that focuses on the economic benefits of property rights in emerging and developing markets.

The strength of individual property rights is an important real estate investment driver. In China, where land is state owned and leased, there isn’t as much incentive for some to invest. Consider 2002, when the Chinese government wanted to expand the Yangshan deep-water port near Shanghai. The authorities simply demolished residents’ homes and sent those who protested off to labor camps.

This isn’t to say that luxury properties in Shanghai or Beijing won’t appreciate; in fact, high-end homes have done well in wealthier enclaves like these. But it’s difficult for a market to gain broad-based stability if only a sliver of it prospers. Besides, the wealthy in developing countries are not always spared the burden of a rights-limited government. In Romania, Dominic von Hapsburg would like nothing more than to sell his $100 million-plus castle, but the government has pre-emptively invalidated its sale, claiming it as a state asset.

In an emerging market, perhaps more important than property rights is access to capital. If people can’t find lenders, the market breaks down because no one, except those with deep cash reserves, can buy property. When a housing market stagnates and capital becomes tight, you get a situation like South Florida, where hundreds of thousands of homes sit empty on the market and lower the values of surrounding homes.

“Ease of loan access speaks to the strength of capital markets in a given country,” says Satya Thallam, a fellow at ILD. “But it also tells you how much transparency there is … how much transactions cost, how hard it is to get a bank manager on the phone, how many palms you have to grease. It’s as crucial as any direct measure.”

Lastly, we mixed in growth and inflation figures from the International Monetary Fund. Economic growth is among the single biggest drivers of real estate value growth, and the rate at which inflation increases drastically alters the value of an investment. Take Kiev, Ukraine, or Moscow as examples. Both have seen double-digit inflation averages over the last three years and in projections for 2008. When home prices go up accordingly, for investors, it’s not much of a win.

But in markets like Santiago, Chile, or Aman, Jordan, where inflation hasn’t been as out of pace with growth, economic expansion represents a greater value in the real estate market because it speaks to what people can afford in the loan market. If inflation isn’t driving up consumer prices, then residents have more money in the bank at the end of every month, which means they can afford to pay for and command better housing.

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