Derrick Penner
Sun

Prices for new homes in Vancouver dipped slightly between April and May but still remain higher than a year ago, Statistics Canada reported Friday.

The latest housing price index report showed the national rate of price growth for new homes — at 4.1 per cent — had shrunk to its lowest level since 2002, largely because of softening markets in the west.

In Vancouver, new home prices rose 2.7 per cent in May from the same month a year ago. Yet this is a far cry from May last year, when new home prices jumped 8.8 per cent from the same month in the previous year, said Statistics Canada analyst Neil Killips.

“The index had been rising steadily until about a year ago,” Killips said, “and it’s been a steady decline since then.”

In Victoria, by comparison, new home prices were unchanged from a year ago.

Cameron Muir, chief economist for the B.C. Real Estate Association, said slowing sales and an increase in the number of resale homes on the market is having an effect on prices and making it tougher for builders.

“Builders and developers have to sharpen their pencils, as [resale] home sellers are doing, in order to have their product priced to today’s market and get their units sold,” Muir said.

Peter Simpson, CEO of the Greater Vancouver Home Builders’ Association, said some smaller companies that had listed projects at prices “a little higher than they perhaps should have,” may be reducing their asking prices.

“But I’m certainly not seeing that in any wholesale manner for sure,” Simpson said.

He added that builders do not have a lot of room to discount prices because of high land costs and rising labour rates and material costs.

Elsewhere in Canada, new housing prices also dropped between April and May in Edmonton and Calgary. In Edmonton, however, prices were still up 3.3 per cent in May from one year ago. In Calgary, prices were still up 0.6 per cent from the same month in 2007.

The federal agency said May’s weak performance continues “a deceleration that started in September 2006.” In April, the year-over-year increase in prices was 5.2 per cent.

While prices in Alberta and B.C. slowed from their previous highs, Saskatchewan continued to experience the largest increases, with Regina posting a 30.4 per cent’s annual increase in May.

“Builders reported that higher labour and material costs have pushed prices higher over the past year,” Statistics Canada said.

© The Vancouver Sun 2008

Sun

MARK VAN MANEN/VANCOUVER SUN

MARK VAN MANEN/VANCOUVER SUn

MARK VAN MANEN/VANCOUVER SUN

MARK VAN MANEN/VANCOUVER SUN

When the Shangri-La project is completed later this year it will stand 201 metres tall and consist of 62 storeys, making it the tallest building in Vancouver and the ninth-tallest building in Canada. The first 15 floors will be occupied by the Shangri-La hotel, with condos taking up the remaining floors. Vancouver Sun photographers caught the building from a variety of vantage points earlier this week.

© The Vancouver Sun 2008

Shangri-La tower construction reroutes traffic

Cheryl Rossi
Van. Courier

A crane stationed at the Shangri-La, the city’s tallest tower, will be dismantled this weekend. Photograph by : Photo Jason Lang

The tallest crane in the city will be dismantled slowly and surely from Shangri-La, the city’s tallest tower, this weekend. But for drivers, traffic will be no paradise.

Georgia Street is scheduled to be closed between Burrard and Bute from 4 a.m. to 9 p.m. Saturday and Sunday. Only local traffic can travel east on Georgia to Bute.

“The reason is it’s so windy up there,” said John Clelland, a communications officer with the city for street projects. “They have a cable from the top of the building right down to the road that everything will be sort of anchored to, so if the wind comes, it can sway a little bit, but it’s not going to be falling.”

Parking will be barred from Pender to allow two lanes of traffic in each direction. “They did look at a helicopter option, but it just wasn’t feasible,” said Alan Reese of engineering development services with the city. Using a helicopter would have meant more street closures because the Ministry of Transportation doesn’t want the craft hovering over people.

“[The helicopter] would have done it in pieces, but it just wasn’t feasible because of timelines and how long it’s allowed to hover and how long it takes to dismantle the bolts,” he said.

Dismantling a 700-foot-tall crane isn’t a swift process. In fact, it’s a multi-crane deal.

A mini climber crane will be built on the roof and attached to the side of the 61-storey building. It will remove the main tower crane and lower it down. Once it’s finished, this crane will pull up another side climbing crane, which will dismantle the roof crane and lower it down. Then the final crane will be dismantled and ride down in an elevator.

Reese said watching the crane come down won’t be a scintillating sight. “These movements of this crane, they’re so high, it’s going to take an hour for this crane to lower with weight, and then it still takes an hour for this crane to go back up,” he said. “It’s such a height and this is a very slow-moving apparatus that they’re using.”

Clelland said if everything goes well, Georgia Street could open in the afternoon. “They’ve allowed themselves extra time in case there’s problems or high wind or whatever.”

The lofty crane has been in place for three years while the Shangri-La Hotel has been under construction. A 119-room luxury hotel will occupy the first 15 floors of the tower at Georgia and Thurlow, with live/work condos, a sculpture gallery curated by the Vancouver Art Gallery, high-end retail shops and restaurants included in the mixed-use complex. The hotel is set to open in January.

Developers have to pay for permits, for meters to be hooded to cover parking meter revenue loss, and for police costs. They work out scheduling with the city.

“Because a lot of the developers, they’d like to do it in the middle of the week, and we make them wait until the weekend,” Clelland said. “We just make sure the public’s interests are well taken care of and we’re not getting pushed around by anybody.”

The Courier couldn’t reach Don Weavers of Ledcor Construction Inc., who is co-ordinating the take down. But Reese said he’s likely busy co-ordinating the whole affair. “We have police coming, we have traffic re-routing, we have message boards in North Vancouver, we have message boards in Vancouver,” he said.

Reese couldn’t say how much the crane dismantling will cost the developers, which are Peterson Investment Group and Westbank Projects Corp.

© Vancouver Courier 2008

Some owners of U.S. rental property have run afoul of U.S. labour laws

Ray Turchansky
Sun

Is it time to take advantage of a crisis in the U.S. housing market and a strong Canadian dollar by buying property south of the border?

Some advisers, including Brad Willock, a vice-president with RBC Asset Management, say it is. He expects the flood of vacated houses in the U.S. to peak during the last half of this year. That makes 2009 and 2010 the perfect time to buy.

“The Canadian dollar is expensive, U.S. people are distressed sellers and afraid to buy, while you shouldn’t be,” he said.

Willock suggested Canadians should thoroughly research U.S. properties, and noted that planeloads of Europeans are also arriving there with chequebooks in hand, anxious to take advantage of a depressed housing market.

Most people buying U.S. property find that if they do their due diligence they have a satisfactory experience. Many even marvel at how efficiently and cheaply they can hire people there to do renovations, ranging from landscaping to changing appliances.

But there have been problems with some U.S. purchases. People who made a down payment on a house in a planned development have had the developers walk away from the project as local market conditions or credit availability deteriorated. Some U.S. sellers have tried to change the deal at the last minute. And some Canadian owners of U.S. rental property have run afoul of U.S. labour laws.

One reader told me that he and wife visit the Phoenix area regularly and decided to buy property there. After more visits and much research, they became interested in a house with a listed price that had fallen from $284,900 US to $224,900 to $212,900.

After counter-offers, the parties agreed upon a sale price of $205,500. As the buyers were placing $5,000 in escrow, they discovered the sellers were in fact a group of investors who had 20 such homes.

Then before the closing date of the deal, the sellers sent an e-mail saying they were $25,000 short of financing, and wouldn’t be able to close unless the buyers would pick up $13,000 of the cost — essentially increasing the sale price to $218,500 — and delay the closing date. When the buyers refused, the sellers got realtors representing both sides to each kick in $2,000 to try to close the deal.

But the Alberta couple refused to pay any additional amount, the deal fell through and they got their $5,000 deposit back. However, they remain out of pocket for various costs of the attempted purchase, including two trips to research the property and facilitate the deal.

An immediate question is whether this was an organized strategy on the part of the sellers: get buyers attached to a property, get some money down, then try to recoup any shortfall between the outstanding mortgage principal and the purchase price by hoping the buyers will pay it at the last minute rather than have the deal fall apart. The couple said they have heard of similar situations.

A reader from Vancouver warns that buyers of U.S. property should be aware of various laws and regulations.

He writes: “Let us assume you can find a renter with a solid income stream who will happily rent your new U.S. property and help you with your investment. Once you rent out this property, you must not be tempted to even so much as cut your grass or paint a fence as, according to federal law, you must hire a U.S. citizen to do any work on your income property. You will be in for a nasty surprise if you believe your unemployed or jealous neighbours will not contact the IRS.”

An Edmonton resident recently completed his purchase of a Phoenix property without any problem, but cautioned that if a person is trying to buy a home that has been foreclosed, there can be holdups at the bank while the is are dotted and ts crossed on the paperwork. He also noted that some U.S. developers, in a move to avoid speculators, have a clause in their contracts that if you go to sell within the first year or two of possession, the developer has the first right to buy the house.

And buyers are forewarned that America is the land of class-action lawsuits, where you could fall victim to one or be seduced into joining one. That being said, you will likely make your house purchase using an escrow agent rather than a lawyer.

If you are buying a U.S. house with the idea of moving there permanently, a good reference book is The Canadian in America, by Brian D. Wruk with Terry F. Ritchie. It discusses everything from Canada-U.S. differences in medical coverage to auto ownership to rules for pets.

© The Vancouver Sun 2008

Don Cayo
Sun

I feel for young people trying to get their toe in the door of today’s overpriced housing market. But the feds are right to pull the plug by withholding guarantees on 40-year, no-down-payment mortgages.

Because, while buying a home may be the best investment many of us will ever make, it is never a sure thing. And there are times when people are better off not owning a home.

Broadly speaking, there are two sets of circumstances where it’s best not to own.

One was sadly common in both the Prairies and Atlantic Canada when I lived in those regions, and we can expect to see more of it here as the economic lifeblood drains from some of B.C.’s forest-dependent towns. In a place with no jobs and flagging real estate sales, a home is no asset. It’s deadweight, an anchor around the neck. It just holds people back from moving somewhere they can find a job.

Of course, the problem of having an unsaleable home in a waning markets isn’t caused by 40-year mortgages. But the other main circumstance in which a home becomes a burden — when it’s bought by someone who can’t afford it — is tied tightly to this ill-advised policy.

The appeal of this kind of mortgage is two-fold. You don’t need money in your pocket to buy. And the payments will be as low as they can possibly be — though the need to keep making them goes on, and on, and on.

So you’ll love it if you’re a speculator who wants the most-possible property for the least-possible cash outlay in the expectation that prices will continue to rise. Who cares about paying down principal in order to build equity if you’re counting on ever-higher prices to do that for you?

You might also embrace a 40-year mortgage if you want maximum flexibility in how much you pay each month. It offers the lowest mandatory payment so, as long as you can overpay at will, you can have the best of both worlds. You can pay the bare minimum when money’s tight, and overpay to gnaw down the principal when you’ve got some extra.

Not a bad plan — as long as you actually make those extra payments whenever you can.

Finally, you’ll accept a 40-year mortgage — though you may not like the thought of such daunting debt looming so far into your future — if you’re desperate. If you can’t pay rent and save, if you can’t see home ownership within your grasp any other way, you may see this as your last hope.

If there was ever a justification for a public policy to foster these mortgages, it’s to make money available to this last group. The speculators and those who find it a convenient money-management tool are merely free riders; it’s not a good use of public money to support them.

But nor is it good use of public money, I would argue, to lure people into buying homes they might not be able to hang onto. As is illustrated by the U.S. mortgage crisis — a catastrophe that finally spurred Ottawa to rethink its mortgage guarantees — the economy takes an immense hit when a lot of people find themselves with debts larger than the value of their homes.

Conventional wisdom holds that no similar meltdown can take place in Canada, but I wouldn’t bet the farm (or my home).

With as many as 90 per cent of first-time homebuyers reported to be choosing 40-year repayments, what happens if interest rates soar by the time they have to renew? If prices suddenly plummet? If people start losing jobs in a recession?

Unless enough time has passed for no-down-payment buyers to build some substantial equity — and equity builds painfully slowly with a 40-year mortgage — a lot of people could be in trouble.

Federal mortgage insurance would help protect the lenders in these situations, of course, but only at great public expense.

A better option, I think, is for people to wait until they can afford to buy. And, in an odd way, this policy change will help them.

One of many factors that drive Metro Vancouver home prices is the number of buyers. And it’s an artificially high number as long as people are enticed into the market with no down payment and lowest-possible repayment schedules. If those kinds of would-be buyers no longer qualified to borrow, there’d be a little less pressure on prices.

© The Vancouver Sun 2008

Only one thing is important, experts say — the state of the economy

Fiona Anderson
Sun

While the U.S. housing market continues to see mounting foreclosures, the number of mortgages in Canada and British Columbia that are in trouble are near all-time lows.

While the U.S. housing market continues to see mounting foreclosures, the number of mortgages in Canada and British Columbia that are in trouble are near all-time lows.

The introduction of 40-year amortization periods and zero-down mortgages two years ago appears to have had no negative effects.

And that’s because only one thing is important when it comes to foreclosures — the state of the economy, experts say.

In the U.S., almost one per cent of mortgages went into foreclosure in the first quarter of 2008, a record high, Sal Guatieri, a senior economist with BMO Capital Markets, said in an interview.

“And the scary thing is that the rate of change, quarter to quarter, was quite steep,” Guatieri said.

In Canada, foreclosure statistics are not readily available. Instead the Canadian Bankers Association tracks mortgage delinquencies — which occur when mortgage payments are three or more months in arrears. The numbers are from Canada‘s seven major banks, which together issue about 60 per cent of the country’s mortgages.

In B.C., only 0.15 per cent of those mortgages were in arrears in April 2008, the last month for which data is available. That number has steadily declined from about 0.65 per cent in 2001.

Meanwhile, 0.26 per cent of mortgages nationally were in arrears in April, a number that has held fairly steady since 2004.

“And by implication, the foreclosure rate remains quite low — if not historically low — in Canada,” Guatieri said. “And it’s miles different from the U.S. situation.”

That’s because of Canada‘s economic situation, which has been “markedly different” than the U.S. situation, he said.

“We’ve seen much stronger job growth in the first half of this year while the U.S. has faced a steady loss of jobs,” Guatieri said. “And Canadian home prices are still rising, although barely now, as opposed to falling over 15 per cent over the past year in the U.S.“

With rising house prices, Canadians who get in trouble can sell their houses and move on, Guatieri said. That hasn’t been the case in the U.S. where as many as eight million households are what Guatieri calls “upside down” with mortgages greater than the value of their homes.

“And that means there’s just greater incentive for the homeowner to walk away from the mortgage [in the U.S.],” he said.

Canada‘s situation is different, and a housing market problem here would more likely stem from a general economic downturn.

The Bank of Canada has numbers for how many sub-prime mortgages are in arrears. In the first quarter of 2008, 1.6 per cent of mortgages issued by Canada‘s top three sub-prime lenders were behind by at least three months. That’s up from 1.0 per cent in the fall of 2006, when longer-term mortgages and zero-down mortgages were introduced. But it’s still a lot lower than the rate of about 16 per cent in the U.S.

And the sub-prime market in Canada is much smaller than that in the U.S. Last year the Canadian Association of Accredited Mortgage Professionals estimated that less than five per cent of Canadian mortgages were alternative, as they are called in Canada, compared to 20 per cent in the U.S. That number is even lower now as credit has become tighter because of the sub-prime crisis in the U.S., the association’s president and CEO Jim Murphy said in an interview.

Because the sub-prime mortgages are aimed at borrowers with lower credit ratings, “there’s no question that among those types of products you’d probably have a higher arrears rate,” Murphy said.

But it’s unlikely that the federal government’s decision to no longer guarantee mortgages with 40-year amortization periods or zero down payments will affect the delinquency rate, said Michael Gregory, also a senior economist with BMO Capital Markets.

For there to be a rise in delinquencies “you’d probably have to wait for the economy to really weaken, the unemployment rate to rise sharply and then people have a harder time,” Gregory said.

“And that’s not necessarily a function of the innovations that have been happening over the last couple of years,” he said.

Instead it will be a “typical response due to the normal economic cycle.”

© The Vancouver Sun 2008

Sun

It may be a black day for real estate agents, but the federal government crackdown on mortgage lending is good public policy that reduces risks to the economy, to taxpayers and even to potential home buyers who will find themselves locked out of the market.

In recent years, the mortgage market had become a free-for-all that allowed buyers to put no money down, pay interest only for 10 years and extend amortization periods to 40 years. Some financial institutions permitted buyers to tack on closing costs, such as land transfer and legal fees, raising the amount of the mortgage well above the value of the property. These mortgages required government-backed insurance from Canada Mortgage and Housing Corp. or a private-sector insurer, shifting all the financial risk to Canadian taxpayers.

The Vancouver Sun has sounded the alarm several times over the last few years. In his Everybody’s Business column of July 21, 2006, Harvey Enchin wrote: “Home ownership should lead to security and stability, not life on the edge.” He said paying interest without building equity was a financial plan built on a flimsy foundation. An editorial on May 10 this year warned of “future shock” if highly-leveraged buyers ran up against a market slump, higher interest rates or income setbacks.

Bank of Canada governor Mark Carney and his predecessor David Dodge both warned that the new mortgage products could fuel inflation and drive house prices higher rather than make home ownership more accessible. They were right to be concerned.

Last year, 37 per cent of new mortgages were for terms longer than 25 years as buyers sought to buy more expensive homes than they could otherwise afford and to lower their monthly payments. However, as the Sun articles pointed out, the insurance premium on a $450,000 mortgage with no money down and a 40-year amortization would add $16,650 to the purchase price. At current interest rates, it would take a decade to pay off just the insurance premium and 30 years before the amount paid in interest dropped below the amount applied to principal. While longer amortization periods reduce monthly payments, they dramatically increase the cost of a mortgage over its lifetime.

The lessons of the sub-prime mortgage crisis in the United States were not lost on Canadian policymakers. Giving money to borrowers who don’t qualify for conventional mortgages and have no stake in their property is a recipe for trouble. Last month, one out of every 501 U.S. households received a notice of default, auction sale or bank repossession and the number of foreclosures was up 53 per cent from a year earlier. The percentage of mortgages in arrears in Canada is low and stable at 0.27 per cent.

Canada was not likely to experience anything like the U.S. sub-prime loan crisis that spawned a derivatives debacle still reverberating in credit markets today, but this week’s move by the Department of Finance was necessary and perhaps overdue.

The new rules set a minimum down payment of five per cent on all mortgages and require that insured mortgages have an amortization period no longer than 35 years. It also establishes a minimum credit score for borrowers.

These moves will help ensure that home buyers are not over-extended, that Canadian taxpayers are not put at greater risk of mortgage defaults and that an overheated housing market — already cooling — doesn’t add to inflation.

© The Vancouver Sun 2008