Canadian Funding Corp Reviews CMHC Affordable Housing Reports

Slap Upside the Head

A cod fish in the face might be more subtle!

For Ever and Ever

Robert Hogue of the Royal Bank of Canada in his latest report “Housing Trends and Affodability”, should be a heads up to those house buyers who think Vancouver real estate market in its present form, will go on forever.

Between the Scales

While telling us that which we already know, that “housing affordabiltiy greatly improved in the Q1-09 the teeth of his report lie buried between the scales.

Good News Old News

Sure we have experienced a windfall in affordability, in fact according to Hogue “in most areas of the country we have returned to or are near to long term averages” that he claims are “consistent with solid market fundamentals.”

Fish Story

This is all good news except that – though “the market ‘appears’ to be generally on the mend in Canada, the road to full recovery still has obstacles”. Locally, we’re all happy about the Vancouver real estate market being abuzz. However, it’s those silly little global crisis reminders that haunt us.

For those who have taken advantage of low interest rates and have netted a Vancouver home, congratulations!

Cod Filets

Hogue slaps us with the notion that affordability based on cheap rates is behind us. Noted, is that we got a few scales thrown at us as a warning in the early part of June when the 5 – 10 year rates increased.

Hogue’s fish filet tells us that “Further improvement depends on greater gains in family income.” Which he claims “SHOULD (emphasis mine), be supported by an improving economy in the second half of the year.”

Ok this is all good and hopeful – but here’s the jig.

Vinegar on your Fish and Chips

At the current G8 conference British prime minister Gordon Brown served up a well battered filet with dire warnings that as the title of the Globe and Mail article screams, a “Second wave of economic crisis coming.” Brown is not talking about fish and chips wrapped in news print.

Where are the Jobs

Quoting Brown, “I would say that in April we were having to deal with the problems that were caused by the failure of banks. Now we have to deal with the challenge of resuming growth in the world economy.” He adds that “we must do something to help the million[s of] unemployed across the world.”

Forgetful

What might that be? Brown’s solution – government regulation. It’s that stuff we had before that was designed to protect us from this mess and that conveniently everybody forgot about.

No Guarantees

If you’ve been around a while you know that everything governments do takes a long time – certainly longer than six months as hopeful Hogue suggests. Left we are, confused in finding balance with the idea that all is not as rosy as Hogue might have us believe. Concerned we are for Vancouver’s mountains and oceans those natural barriers that isolate us from the world, may not be as protective as hoped.

Faith

Look around. How many of your friends have lost their job? What are their prospects of replacing the former high pay scale career with another. On balance, if housing affordability as Hogue implies, is going to be a reflection of an improved economy, who are we to believe in light of Prime Minister Brown’s warning?

Out in the stormy cold Atlantic ocean, a Newfoundland cod fisherman worth his salt would tell you that – Yah gotta have faith!

http://www.yattermatters.com/real-estate/vancouvers-fish-story/

reviewed by Moishe Alexander, canadian funding corp CEO

CMHC and
the Canadian Housing Bubble

The key difference between Canada and other markets is that in Canada
the cost of bad home loans have been socialized in advance. In Canada, we didn’t need to disguise our sub-prime excesses within dubious mortgage-backed securities. Why create an alphabet soup of bogus AAA paper when our government provides seemingly limitless quantities of underpriced mortgage insurance? As a formula for creating housing froth it has been virtually unbeatable. Housing markets may be cratering throughout the world, yet one observes a perverse new high in Canadian real estate prices in May of 2009.

The key to Canada’s bubbly housing success been the CMHC . The Canada Mortgage and Housing Corporation writes guarantees on most Canadian mortgages originated at greater than 80% Loan-to-Value. This agency has been on a massive expansion binge of late. In 2008, a year of synchronized global recession, the CMHC expanded its
mortgage insurance in force by a whopping 18%. CMHC now guarantees $407.7 Billion of high loan-to-value
mortgages and an additional $233.9 Billion of securitized
mortgages.

In all, the CMHC mortgage guarantees are equal to slightly more than half of Canada’s GDP. Against this total, CMHC has miniscule equity capital of $8.1 Billion. How is it that more than $630 Billion of dodgy
mortgages can be guaranteed by an entity posting just over 1% in equity? This is a question that curiously appears to have escaped the notice of Canada’s top notch financial regulators.

The role of
the Canadian banks has been to commit capital to CMHC-insured
mortgages as quickly as they receive applications. It is not mortgage lending in the traditional sense, more like underwriting government bonds and taking a 150 basis point spread as compensation. In this way, the Canadian real-estate bubble looks a lot like its American cousin. Home loans are being written for those who likely cannot pay by lenders who pass through the credit risk to a third party. However, in the case of Canada, the third party is our own government and not the Chinese or Saudis who snapped up American mortgage paper.

http://thecomingdepression.blogspot.com/2009/07/canadian-real-estate-and-banks-ready-to.html

bad news reviewed by Moishe Alexander, CFC CEO

Single starts activity moderates in 2009 but growth returns in 2010

Moishe Alexander, CEO, Canadian Funding Corporation reports that after the strongest two-year performance since the late 1970’s, Saskatoon single detached housing starts will decline to 600 units in 2009 and bounce back to 725 units in 2010. The 2009 singles forecast represents the lowest number of housing starts since 2001 when 542 single starts took place.

The moderation in activity compared to 2007 and 2008 is due to the effects of price escalation from previous years, heightened competition from resale housing, and a build up in the supply of new housing units. Reduced in-migration and lower employment gains in 2009 and 2010 will also play a role in this market adjustment.

Single-detached starts in the first three months of 2009 were below last year’s levels. To the end of March, there were 77 foundations poured compared to 284 in 2008, a decline of nearly 73 per cent. Single starts have shown year-over-year declines in activity since June 2008.

In terms of total supply, there were more than 800 single-detached units both under construction and completed and unoccupied at the end of the first quarter. Supply has been in decline, on a year-over-year basis, since December 2008 and on a month-over-month basis since June of last year. The bulk of single units in supply are those in various stages of construction. After peaking at close to 1,300 units in June 2008, the number of single units under construction has seen monthly declines. The combined effects of slower starts and increased absorptions have reduced the total supply on a month-over-month basis over the last nine months.

The number of single units that are completed and unoccupied now lies at close to 200 units, up from only 14 one year earlier. The number of completed and unoccupied single units is at a record high and builders will be restraining production until the excess inventories are absorbed.

Monthly single absorptions were achieving year-over-year gains starting in November 2008 but March 2009 brought slower absorptions compared to a very strong March 2008. Year-to-date, single absorptions now stand even with the first quarter of 2008.

At the present trended absorption rate of 110 to 115 units monthly, the supply of ownership (mainly single-detached) units at various stages of construction as well as those that are complete and unoccupied is sufficient to last seven to eight months. This is down from the 2008 first quarter figure of 11 to 12 months.

Starts in bedroom communities slower in 2009

Single starts in Saskatoon’s bedroom communities fell 62 per cent in the first quarter compared to the previous year. So far this year, these communities have captured 33.8 per cent of total single starts. At this time in 2008, 24.3 per cent of starts were outside the city limits. Over the last five years, bedroom communities have seen an average of 38 per cent of single starts fall within their boundaries. The share of units within the city has fluctuated over the last few years due to the availability and price of developed land within the city limits versus the bedroom communities.

Average price to decline in 2009 but return to growth in 2010

We forecast the average price of a new single-detached home will be $352,000 in 2009, a four per cent decline from the 2008 annual figure. The average new house price will ease due to the historically high number of units that are completed and unoccupied and competition from the resale market. Builders advise that in some new subdivisions, their newly completed homes are competing with homes sold to buyers in the previous year. As a result, builders will be offering incentives and price reductions in order to liquidate their excess inventory in 2009. Provided inventories sufficiently decline, the average price will then see an uptick of two per cent in 2010.