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In this file photo, a construction worker nails plywood to the roof of a new home in Richmond, Va.

WASHINGTON (Reuters) — Construction of new homes fell to a 17-1/2 year low in September and consumer confidence suffered its steepest monthly drop on record in October, according to two economic reports that added to investor pessimism Friday.

The Reuters/University of Michigan Surveys of Consumers said its index of confidence plummeted to 57.5 in October from 70.3 in September.

The University of Michigan confidence index dates back to 1952. Its record low was 51.7, in May 1980.

Consumers rated current economic conditions the worst on record, with this gauge falling to 58.9 from September’s 75.0.

The housing report said the worsening housing slump and growing turmoil in financial markets helped pushed building permits for new construction to a nearly 27-year low.

The Commerce Department said starts on new homes fell 6.3% to a seasonally adjusted annual rate 817,000 units, slowest pace since January 1991 and well below the 880,000 rate economists expected.

The September rate of starts on single-family homes fell 12% to a 544,000-unit annual rate, slowest pace since August 1982.

With falling home prices, soaring foreclosures and financial turmoil curtailing the availability of mortgages for prospective home buyers, builders in September were clearly bracing for a deeper downturn.

Applications for building permits fell 8.3% in September to an annual rate of 786,000.

This was the weakest rate for permits since November 1981, and was below forecasts for an 850,000-unit rate. The rate of new permits was in September was 38.4% below September 2007, while total housing starts for the month showed a 31% drop from a year ago.

“Obviously weaker than expected in terms of the consensus, however it is not necessarily a surprise following yesterday’s resumed drop in home builder sentiment,” said Stephen Malyon, chief currency strategist at Scotia Capital in Toronto. “With mortgage rates once again climbing, housing related numbers are likely to disappoint in the months ahead.”

Construction starts for multifamily units rose 7.5% to an annual pace of 273,000 units. Multifamily permits for future construction, however, fell 16.4% to a 254,000-unit rate.

Single-family home starts in the Midwest, Northeast and West all registered their lowest rate since records started being kept in 1959. The Northeast pace fell 4.8%, the Midwest pace fell 24.1% and the West pace fell 17.7% t. The South’s single-family housing start pace fell 6.3%, slowest pace since January 1991.

Infinity development set to showcase tallest buildings between Vancouver, Calgary

Katie Mercer, The Province; with files from Staff Reporter Glenda Lyumes and from Canwest News Servi
Province

An artist’s depiction of the five-tower Infinity development near Surrey Central SkyTrain station, the largest in the city’s history.

The credit crunch hit home in Surrey yesterday, with the largest residential complex in the city’s history filing for court protection from bankruptcy.

PriceWaterhouseCoopers is scrambling to attract new developers to refinance the $350-million Infinity project.

Robert Millar of Fasken Martineau DuMoulin LLP, the law firm representing Jung Developments Inc., said the Korean company has been granted interim relief from its creditors while it tries to attract new developer interest.

“There are extraordinary credit conditions affecting many businesses around the world and they do not reflect the reality of local conditions, which remain strong,” he said.

Jung Development’s Hee Yong Yang, who also goes by the name Edmond Yang, is “yet another reputable developer” who has been impacted by worldwide tightening in the credit and financial markets, Millar said.

Three unnamed Vancouver-based development companies have reportedly expressed interest in becoming financial partners with Jung Development, he added.

But Infinity’s financial woes may be more concerning for the 560 pre-sale buyers who have already handed over their deposits.

Millar said the deposits are “safe” and that the developer is “moving quickly to protect the interests of these pre-sale customers” by ensuring the project is completed on time and on budget.

The so-called Sky Towers in the Infinity project would be the tallest buildings between Vancouver and Calgary, creating a new Surrey downtown core in the Whalley area.

The first of five towers in the 1,400 residential-unit project, a 36-storey tower, is already completed and occupied. Two further towers are three-quarters built. And zoning has been approved for the final two towers.

The development is planned for three hectares at the Surrey Central SkyTrain Station and Surrey‘s Simon Fraser University campus.

Sales for the towers still under construction are expected to yield about $170 million, including the pre-sale agreements. The cost to complete the project is estimated at less than $100 million.

There are reportedly no construction-cost overruns.

Surrey Mayor Dianne Watts blamed the development’s financial problems on “what has been happening on Wall Street and the market.”

She said she’s optimistic new partners will join the development and that buyers will receive their units on time.

Infinity is just one of 45 planned developments for central Surrey, she said.

“It’s sort of a gateway project, so it is in everyone’s best interest to ensure they get the financing,” said Watts.

“Given what happened in the market, I think people are being cautious . . . I know they’ll get this resolved.”

© The Vancouver Province 2008

More than 20% of home loans are unprofitable

Garry Marr
Sun

TORONTO — Canadian banks are trying to convince consumers to lock in their mortgage rates because more than 20 per cent of the home loans they have negotiated have become unprofitable, according to industry sources.

The push has come after the banks cut the discount they offered to consumers with variable-rate products tied to the prime lending rate. Two weeks ago, a consumer could get a variable rate product at 0.60 percentage points below prime; today it is one percentage point above prime.

“Banks are scaring people and those people are calling us asking whether they should lock in,” said Vince Gaetano, a vice-president with Monster Mortgage, a mortgage brokerage firm.

His advice is pretty emphatic. Anybody with a mortgage negotiated in the past two years would be out of their mind to lock in to, say, a five-year term, he said. They would be going from a rate as low as 3.35 per cent to 5.79 per cent. Lines of credit previously negotiated at a rate below prime are also still valid.

“If you’ve got a mortgage rate negotiated below prime, you have a dinosaur. It doesn’t exist anywhere. You should hold onto it until the end of the term,” said Gaetano. “The banks propped up all their rates 160 basis points because they knew the Bank of Canada would be lowering rates.”

Last week, the Bank of Canada lowered interest rates by 50 basis points only to see the major banks cut their prime lending rate by half that amount. After some pressure, most of the banks cut their prime lending rate by the full 50 basis points.

Joan Dal Bianco, vice-president of real estate-secured lending with Toronto-Dominion Bank, said the banks were reluctant to pass on the full 50-point rate cut because they were losing money on variable-rate products.

“At the prime minus rates we were basically earning zero or negative. We kept holding off (cutting the discount),” said Dal Bianco, adding that in the past year 50 per cent of her bank’s new mortgages were variable-rate products.

With a cost of funds generally above four per cent because of the lack of liquidity in the market, the mortgages previously negotiated ended up below water after the latest rate cut.

Prime is now 4.25 per cent at TD but two weeks ago the bank was offering a variable rate of 60 basis points below prime, meaning the consumer was borrowing at 3.65 per cent.

For those now entering the housing market, the rate is 5.25 per cent for a variable rate product but Dal Bianco said that might not be high enough. “We are not making much money on those if anything,” she said. The move into variable mortgages tied to prime has come in the last five year with many of the banks promoting products that allow consumers to float with prime but lock in a rate at any time during the term of their mortgage.

The Canadian Association of Accredited Mortgage Professionals says, as of 2007, 21 per cent of mortgages were variable rate, 72 per cent were fixed rate and seven per cent were a mix of the two.

Asked whether the banks are actively encouraging consumers to convert variable rate products, Dal Bianco said that hasn’t happened. “We are making sure (staff) have the right conversations if people are really nervous and do not want to see their payment moving.”

© The Vancouver Sun 2008

Derrick Penner
Sun

Falling sales and declining prices in British Columbia‘s high-priced Vancouver, Kelowna and Fraser Valley markets helped cut the national average home price by 6.2 per cent in September compared with the same month a year ago, the Canadian Real Estate Association reported Wednesday.

The average Canadian Multiple Listing Service-recorded home price this September was $315,461, compared with $336,321 in September 2007.

“Price declines in some of Canada’s more expensive housing markets will outweigh further price gains in other markets and continue pulling the national average price lower over the rest of the year and into 2009,” Gregory Klump, chief economist for the Canadian Real Estate Association, said in a news release.

Across B.C., the average MLS home price in September was down 7.4 per cent to $412,149 compared with the same month a year ago, the B.C. Real Estate Association also reported Wednesday.

Provincewide sales of 5,107 in September, the B.C. association said, were one-third lower than September 2007.

“We’ve seen weakness [in B.C.’s market] for a number of months now,” Cameron Muir, B.C. Real Estate Association chief economist said in an interview.

“And when we look at consumer confidence, which is very low in the province, that means households are less likely to make major purchases.”

Home prices peaked in most markets during the spring of 2008, Muir said, and he expects prices to decline further until “consumers become a bit more confident.”

Muir said gyrations in world financial markets and the uncertainty that has instilled in consumers hasn’t helped ease any worries.

While economic growth in B.C. has slowed, Muir said it hasn’t slowed to the point that there have been large-scale job losses that would put homeowners under the financial stress that would force them to sell.

And for now, the demand from buyers has fallen faster than the supply of property listings, though Muir expects the inventory of unsold homes to decline as sellers take them off the market to wait for better conditions.

Among B.C.’s 13 real estate boards, which represent the province’s licensed realtors, the Greater Vancouver board saw its average home price of $535,598 slip eight per cent below the September 2007 MLS average price. Sales of 1,620 units were 43 per cent below September 2007 levels.

The Fraser Valley‘s $413,837 September MLS average was 3.4 per cent below that of September 2007. Sales of 924 units were 27 per cent below those of the same month a year ago.

Klump said the supply-demand balance has shifted in other markets to more neutral territory, most notably in Edmonton and Calgary, “where a sharp drop in new listings and rising sales activity has firmed up the resale housing market considerably since the beginning of the year.”

Across Canada, listings in the third quarter of 2008 fell by a seasonally adjusted 3.3 per cent from the record level set in the spring quarter, indicating housing markets have become more balanced, it said.

This caused the balance of sales-to-new-listings in the market for resale homes to tighten on a quarter-over-quarter basis for the first time since the beginning of 2007.

Nationally, home sales also edged up in September from August, though the Canadian Real Estate Association said the influx of buyers could be related to the elimination of mortgage-insurance availability for buyers with less than a five-per-cent down payment and 40-year amortizations, which took effect Wednesday.

In the meantime, housing starts across B.C. remain at elevated levels compared with 2007, though the rate of starts has slowed.

Canada Mortgage and Housing, in its latest reports, said contractors started work on 15,663 new units of housing over the first three quarters of 2008, a five-per-cent increase from 2007, thanks to a large number of multiple-unit housing projects.

Other construction activity, however, has eased. Statistics Canada on Wednesday reported that non-residential construction in B.C. posted the biggest decline among provinces in the third quarter because big projects that were started in 2006 and 2007 are now nearing completion.

“Current non-residential investment is strong, but trending down after exceptionally high levels in early 2007,” Keith Sashaw, president of the Vancouver Regional Construction Association said in a statement. “Spending declines are expected during the credit squeeze and the economic slowdown underway.”

Across the province, spending on non-residential construction declined marginally from the second quarter to $1.36 billion. However, that represented a 7.3-per-cent drop from the same quarter a year ago.

In Metro Vancouver, non-residential construction was up from the second quarter to $803 million, but that was almost eight per cent below construction levels in the same quarter of 2007.

© The Vancouver Sun 2008

Paul Luke
Province

Consumer jitters are putting a chill into the B.C. housing market.

The average home price across the province slumped 7.4 per cent between last month and September 2007, the B.C. Real Estate Association said yesterday.

Average home prices in Greater Vancouver tumbled eight per cent to $535,598 last month from $582,354 a year earlier, the association said.

And sales volume on the Multiple Listing Service in Greater Vancouver plunged 47.8 per cent to $867.7 million between last month and September 2007.

Association chief economist Cameron Muir said consumer confidence in B.C. is at a five-year low, prompting people to put off making major purchases such as houses and cars.

The storms sweeping global financial markets are not exactly helping to boost that confidence, Muir said.

“Weaker consumer demand and a large number of homes for sale are having an impact on home prices in the province,” Muir said.

“Despite relatively strong fundamentals, consumer confidence is low.” Affordability, on the other hand, is improving.

“The carrying cost of the average home in the province is now lower than at any time since the end of 2006,” Muir said. Prices will continue to move downward until supply and demand come into balance, Muir predicted.

The number of active MLS residential listings in Greater Vancouver soared 72.6 per cent on a year-over-year basis. Across B.C. they jumped 63.4 per cent.

“Looking at the number of listings out there, it’s unlikely that we’re going to see home prices edge up again until at least the spring of 2009,” Muir said.

On a year-to-date basis, the average home price for Greater Vancouver — and for the province as a whole — climbed 5.7 per cent.

© The Vancouver Province 2008