September - October 2012 Volume 02 Issue 11
Tan and the
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CONTENTS September - October 2012 Volume 02 Issue 11 FEATURED CONTENT pg 4-5
Five Houses Later: A Consumerâ€™s View
Sell or Stay? How to decide what is best for you
Think Canadian housing wonâ€™t crash? Buy Genworth Shares
FEATURED PROPERTY LISTINGS pg 12 High Desirable Area - Gorgeous property comes with modern open concept kitchen complete w/centre island, upgrd. washroom, hrdwd floors, & spacious rooms. A quiet, neighbourhood in the John Fraser/Gonzaga school district...
pg 12 Move In Condition! - A gorgous 4 bedroom and 4 bathroom detached in the New David Suzuki (9-11) school zone. Recent upgrades to property. To take a peek at this lovely property call Tan now @ 416-669-1748
pg 13 Comfort Living - Marvelous home in the Riverview Heights Area. Property boasts walkouts to new deck and inground pool, large
kitchen, open concept living room, bright finished basment, gas fireplace, & more! Walk to schools + close to major hwys 401/403. Take a look at what comfort living is, call Tan now @ 416-669-1748
7DQĂ•JD]LQH1(:6 pg 14-15 pg 16-17
Mid-Month Resale Market Figures Back-to-back Market Watch Back-to-back double issue
Sales Down; Prices Up: Does that make sense?
Canadaâ€™s Housing Market Expects Slower Growth As Global Sales Continue Decline
Housing Crash Predictions Using â€œWrongâ€? Indicators
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Five houses later:
A consumer’s view “Why don’t you build the house of your dreams?” A brilliant suggestion now in hind-sight despite the fact that we had never built a house before nor considered doing so! Ed Janzen - Real Estate Consumer September 25, 2012
“All our purchases and sales were managed by competent Realtors.”
Our first purchase happened in the state of Georgia in 1964. After having lived in rentals all our married life, it was time. My first academic job had begun and our son was almost a year old. We could have been convinced to buy anything but the development name caught our fancy: Green Acres. The house came parked on Greencrest Drive. What could be better than that? On walks through the neighbourhood a huge side-split set back nicely from the street grabbed my attention as the next possible acquisition, should it ever come up for sale. And glory be, it did. By now promotion was promised, a daughter had been born and the house of my dreams was available. My wife thought it was a little too big and too expensive but I was the risk taker. We signed the deal and moved in 1968. It served us marvelously well. Time passed and things turned sour at work. I began to look elsewhere. My professor in Iowa had said a successful academic scientist should move every 10 years. This was 1974. Exactly 10 years. Fortuitously, a letter inviting an application for a position at the University of Guelph arrived next year. I got an offer and we planned to move.
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The dean recommended a few Realtors in town who respectfully took us around. Our (or rather my) requirements were stiff: roomy garage for old car restoration and parking space in the back for a boat. This meant a sizable lot with space available to go beside the house to the back. Two days of looking turned up nothing my wife liked. On the last day a woman whose name I cannot remember tried her best and finally said, “Why don’t you build the house of your dreams?” A brilliant suggestion now in hind-sight despite the fact that we had never built a house before nor considered doing so! She showed us an available lot and introduced us to the owner, who would be our builder. By December 1975, the house was completed enough so we could move in. This started our new life back in Canada. But in Georgia we still had an unsold house. Suddenly a buyer appeared who over night was in urgent need of a place for himself and seven kids. His wife had left him. Now the big house came ready and he could function without interruption. It was the generous size that attracted him. The Guelph builder had been challenged to enlarge the two-car garage by two-cars deep. With an additional garage door in the back, four cars could be stored inside and messy old car activities could be moved to the backyard for further work if desired. The city provided a letter of approval after fire extinguishers were shown duly mounted next to the doors. From the front it looked like a normal side split with a two-car garage.
Maria Tse, AMP
Owner/Mortgage Broker Licence #: M08004027 CENTUM Direct Financial Inc. 2900 Steeles Avenue East Suite no. 214, Thornhill ON L3T 4X1 T. 416.817.3803 F. 866.612.9959 E. email@example.com W. www.centum.ca/Maria_Tse
Upon retiring we decided to move into the country. Something near Lake Belwood attracted our interest since water skiing had been my hobby for years. This decision was jump-started by purchasing a one-acre lot. We talked to a builder who was willing to build according to our design. Work began. Since the lot came with a slight drop, a three-car garage two cars high was planned so a hoist could be accommodated some day. Inside all the usual amenities were constructed into the floorplan, including a huge master bedroom and large ensuite on the first floor. My wife likes ground-floor master bedrooms. The Realtor of the Guelph house set a reasonable price according to the market and immediately had two responses each from men who wanted the large garage. One of them bought it without fuss or bother. This was 1999. As age crept up it came time to downsize. We looked back to Guelph. We came back home as it were, after 13 years “in the country”. We accepted a “live-by-the-lake” bungalow and are happily making it work for us. Our house in Belwood sold promptly aided by an excellent Realtor who found out that the woman who bought it wanted a large ground-floor bedroom with a generous ensuite. Size matters. All our purchases and sales were managed by competent Realtors.
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11.24.12 RSVP With Tan and or The Tan Team By November 10, 2012 WDQ#SHQJKRFNWDQFRPĚ˝
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Dear Customer, :KHWKHU\RXDUHDÍ¤UVWWLPHEX\HURUDVHDVRQHGKRPHRZQHUDUUDQJLQJDPRUWJDJHFDQ EHDYHU\FRQIXVLQJDQGGDXQWLQJWDVN:LWKRYHU\HDUVH[SHULHQFHLQWKHÍ¤QDQFLDO LQGXVWU\,WDNHJUHDWSULGHLQSURYLGLQJSURIHVVLRQDOÍ¤QDQFLDODGYLFHDQGH[FHSWLRQDO FXVWRPHUVHUYLFH 0\UROHDVD0RELOH0RUWJDJH6SHFLDOLVWZLWK7'&DQDGD7UXVWLVWRZRUNH[FOXVLYHO\ ZLWKPRUWJDJHFXVWRPHUVZKHWKHU\RXDUHSXUFKDVLQJORRNLQJWRWUDQVIHUDPRUWJDJH RUUHÍ¤QDQFHDQH[LVWLQJPRUWJDJHWRFRQVROLGDWHGHEW$VDORQJWHUPUHVLGHQWRIWKH 0LVVLVVDXJDDUHD,KDYHDWUXHXQGHUVWDQGLQJRILWVUHVLGHQWÌµVQHHGV(DFKLQGLYLGXDO ZLOOKDYHDXQLTXHVHWRIQHHGVDQGZDQWVDQGWKHHDVLHVWZD\WRÍ¤QGWKHULJKW PRUWJDJHIRU\RXLVWRHQJDJHWKHDVVLVWDQFHRIDTXDOLÍ¤HG0RUWJDJH6SHFLDOLVW 1RPDWWHUZKDWW\SHRIPRUWJDJHÍ¤QDQFLQJ\RXDUHORRNLQJIRULWPDNHVVHQVHWRVSHDN WRPHÍ¤UVW,DPDYDLODEOHRXWVLGHRIQRUPDOEDQNLQJKRXUVZHHNHQGVDQGHYHQLQJVWR VXLW\RXUVFKHGXOH,ZHOFRPHFDOOVIURPWKH(QJOLVKDQG7DJDORJVSHDNLQJFRPPXQLW\ 6LQFHUHO\ Raymond Daez
Manager, Residential Mortgages
Telephone: (416) 705-3239 Fax: (905) 824-2174
penghocktan.com | 7
6HOORUVWD\" How to decide what is best for you Farhaneh Haque
September 19, 2012
Homes are rarely, if ever, one-size-fits-all. As your life changes, so can your housing needs. At some point, the big question arises: Should we stay or should we go? A layout that's spacious and convenient to a first-time buyer can seem cramped and congested by the time you add kids, pets or a home office to your life. Whether to sell or to stay put depends on many factors, both financial and emotional. Consider these key questions before staking the "For Sale" sign. Will your current home fit your changing lifestyle? "A new job, a growing family, an empty nest — these are a few of the most common triggers for moving," says Sheila Johnson, a TD Canada Trust Mobile Mortgage Specialist based in Toronto. "And financial priorities are most often changing right in step with household needs, so it makes sense to look at your whole picture with respect to housing and financing costs," she says. Could renovation be the answer? If lack of space is your biggest concern, options may include finishing the basement or attic, adding an extension or reconfiguring a floor plan to suit your needs. Or, if it's a change of scene you're looking for, think about whether an updated décor, new appliances or finishes would be enough to help you fall in love with your dwelling all over again. "The equity you've already built in your home may be able to help secure financing for the renovations you want," says Johnson. Would it be more cost-effective to renovate or move? It could be cheaper to buy your dream home ready-made rather than create it, depending on the features you're
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looking for. Visiting open houses that meet your wish list, and then comparing those prices with what you'd have to spend to get similar results in your existing home, may prove helpful. What’s the market like in your area? When considering whether or not to put a home up for sale, a market analysis may be a good early step to take. The biggest factor in your home's sale could be the market conditions in your neighbourhood — even on your particular street — compared with other homes. Your professional real estate agent should be able to help you with these comparisons. How attached are you to your neighbourhood and your neighbours? Sure, you'll plan to keep in touch, but moving away from a beloved community can be a big change for family members. How much do you each rely on your neighbours and local amenities like schools, churches, libraries and shops? Are you willing to take on a new mortgage? Stepping up the property ladder can be a way to build more equity for the future, while downsizing can help you work toward becoming mortgage-free sooner. "Mortgage options aren't 'one-size-fits-all' today," says Johnson. "While homeowners might be focused on the property search, we try to look for financing ideas geared to individual goals and circumstances."
Think Canadian housing won't crash? Larry MacDonald
August 09, 2012
Buy Genworth shares
Shares in mortgage-insurance company Genworth MI Canada Inc. have become a vehicle for short sellers to bet on a hard landing in Canadian house prices. The company will be overwhelmed by insurance claims on a raft of mortgage defaults, goes the thinking. What's more likely, in my view, is a soft landing that dissipates gloomy sentiment and allows Genworth's deeply discounted shares to spring back, especially considering restrictions on the growth of Canada Mortgage & Housing Corp. (CMHC). 5 reasons why Canadian house prices won't crash any time soon While Canadian house prices have a few pockets of excess and could drift modestly lower at the national level, there are many reasons not to fear a hard landing. First, affordability indexes indicate that Canadian housing is only modestly overvalued at the national level, not excessively so as the housing bears' less-applicable yardsticks indicate. Second, the U.S. housing market collapsed when the Federal Reserve tried to cool off an overheated economy with a severe tightening of monetary policy. In Canada and around the world, monetary policy is now highly expansionary. There is no catalyst for a hard landing; if anything, there is a basis for prices to begin rising in weak markets (like the U.S. recently) and to remain strong in countries like Canada. Third, mortgage rates may eventually have to go up but the increases need not trigger a meltdown. Interest rates normally trend upward when there is also growth in incomes and jobs, factors that add to housing demand and offset the impact of rate increases. Fourth, the tightening of mortgage-lending rules over recent months should not be a threat. I concur with Genworth's second-quarter financial statements, which note: "As market conditions evolve ... the Government of Canada will revisit
these rules and make any necessary amendments deemed appropriate to ensure the long-term stability of the housing market." Fifth, I agree with Sasha Peter, author of the insightful Divestor.com blog. He notes: "I suspect Canada is less vulnerable to what happened in the U.S.A. due to the fact that mortgages are, in most cases, full-recourse, which gives a significant disincentive toward performing a strategic default." Bargain-priced Genworth to gain business from CMHC Another problem with a bearish stance on Genworth shares: the company is poised to pick up business from CMHC. The government agency is pressing against a $600-billion cap on its mortgage-insurance book but as Genworth CEO Brian Hurley said in a conference call to analysts earlier this year, his company still has lots of room to grow since it is some distance from its $250-billion ceiling, and a parliamentary bill is scheduled to raise it to $300-billion before year's end. Indeed, Genworth's second-quarter results (released Aug. 1) show some migration of business already. Thanks to CMHC's pullback from the niche of bulk insurance earlier this year, there was a big jump in Genworth's bulk premiums in the quarter (bulk insurance is purchased by financial institutions when they package mortgages for sale to institutional investors). Lastly, the company's valuation is very low. Its shares trade about one-third below book value. And they pay an oft-raised dividend, currently yielding more than 6 per cent. As concerns over the Canadian housing market dissipate, the wall of worry surrounding Genworth should be dismantled and allow its stock price to rally. Also, the bargain-priced mortgage insurer is poised to scoop up business from CMHC.
penghocktan.com | 9
Sales Down; Prices Up: Does That Make Sense? Across The Board Magazine September 16, 2012
Since Finance Minister Jim Flahertyâ€™s stricter mortgage lending guidelines came into effect on July 9 of this year, sales through the TorontoMLS system have been down on a year-over-year basis. This makes sense. The new rules resulted in increased costs to home ownership. Some households decided to take a step back, putting their decision to purchase a home on hold until they saved a larger down payment and/or waited for their household income to increase. As sales declines have been reported, many stories in the media and opinions from housing market analysts and bloggers have suggested that the dip in transactions should be correlated with a dip in the
average selling price. To date, this has not come to pass. Whether you look at the overall average selling price reported by the Toronto Real Estate Board (TREB) or the MLSÂŽ Home Price Index (MLSÂŽ HPI), which provides benchmark home prices for TREB each month, prices have been up well above the rate of inflation. As Figure 1 shows, this was certainly the case in September, even while sales were off by 21 per cent year-over-year. The reason why the price trend has not followed the sales trend is that sales represent only one half of the price equation. We talk about it all the time, but sometimes it is important to remind ourselves that price growth is all about the relationship between supply and demand. So, while sales (demand) are down, we need to take a closer look at the trend for listings (supply) to determine whether selling prices should be following suit.
Each month, TREB provides a snapshot of active listings by home type and geography. Figure 2 shows the trend for active listings over the past decade. What becomes immediately apparent when you look at this chart is that while listings have trended upward in 2012, they remain below annual pre-recession peaks. This suggests that even with the decline in sales, the market remains tight from a historic perspective. We can look at market tightness explicitly through the use of the months of inventory (MOI) indicator. To calculate MOI, active listings are divided by sales. With MOI, you can answer this question: if we saw no more listings come into the
market, how long would it take to exhaust all active listings given the current level of sales? It is always best to compare the MOI result for a given month with a longer-term norm. An MOI result lower than the longer-term norm would suggest that market conditions are tight with strong competition between home buyers. This situation would generally lead to above average rates of price growth. An MOI result above the longer-term norm, would suggest that the market is well supplied with less competition between Buyers. Normally, this situation would result in a slower pace of price growth.
Figure 3 shows the MOI trend together with year-over-year average price growth since 2004. Two things should be noted: first, the average MOI reading between 2004 and the present was
approximately three months; and second, over this same time period, the average rate of year-over-year price growth was approximately six per cent. Given that the MOI indicator was reported at 2.4 months in September, it makes sense that the rate of price growth was above average at 8.6 per cent. This analysis can be taken a step further to break down the market in terms of low-rise (e.g., single-detached and semidetached houses and townhomes) and high-rise home types. While the average annual rate of price growth for condo apartments has been somewhat volatile in 2012, it is reasonable to state that price growth for condo apartments has not been as brisk as price growth for low-rise home types. This continued to be the case in September where average price growth for singles and semis in both the ‘416’and ‘905’ area codes outstripped average price growth for condo apartments. This makes sense when we see the diverging trends for the MOI indicator presented in Figure 4. In recent months,
MOI for condo apartments was trending near four months, whereas MOI for low-rise remained well below three months for low-rise home types. In sum, the decline in sales reported in recent months will not necessarily translate into a decline in average selling prices. This is because market conditions still remain quite tight from an historic perspective, especially for low-rise home types. However, it should be noted that MOI has been trending upward, which suggests that the market is becoming better supplied compared to 2011 and the first half of 2012. Looking forward to 2013, a better supplied market will likely result in a slower rate of average price growth compared to 2012, but with low-rise home types continuing to be the driver of this growth.
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High Desirable Area Mississauga
Gorgeous property comes with modern open concept kitchen complete w/centre island, upgrd. washroom, hrdwd floors, & spacious rooms. A quiet, neighbourhood in the John Fraser/Gonzaga school district, near major hwys, shopping & transit systems. Move today! Call Tan now @ 416-669-1748
Move In Condition!
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A gorgous 4 bedroom and 4 bathroom detached in the New David Suzuki (9-11) school zone. Recent upgrades to property. Home features sweeping oak staircase and spacious bedrooms. To take a peek at this lovely property call Tan now @ 416-669-1748
Beautiful & well matained 3-bedroom townhouse. Complete with sunny rooms, large kitchen w/granite countertops and breakfast area. Located in high demand area. Backing onto open space! Finished walk-out from rec. room to private backyard! Close to major hwy’s and conveniences. Call Tan now for more information!
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Marvelous home in the Riverview Heights Area. Property boasts walkouts to new deck and inground pool, large kitchen, open concept living room, bright finished basment, gas fireplace, & more! Walk to schools + close to major hwys 401/403. Take a look at what comfort living is, call Tan now @ 416-669-1748
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Tan.gazine NEWS Greater Toronto REALTORS® Report September Mid-Month Resale Market Figures September 18, 2012 -- Greater Toronto Area (GTA) REALTORS® reported 2,544 transactions through the TorontoMLS system in the first 14 days of September. This result was down by 15 per cent compared to the 2,995 sales reported during the same period in 2011. “The combination of stricter lending guidelines, rising home prices and the added upfront cost associated with the land transfer tax in the City of Toronto resulted in a slower pace of sales during the summer of 2012 compared to a year ago,” said Toronto Real Estate Board (TREB) President Ann Hannah. The average selling price for sales during the first two weeks of September was $496,786 – representing an annual rate of increase of more the 9.5 per cent. Average selling prices were up for both low-rise and high-rise home types, including condominium apartments sold in the ‘416’ area code. “Price growth continued to be strongest for low-rise home types during the first two weeks of September. This segment of the market has been very tight, with months of inventory remaining low from a historic perspective,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
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Tan.gazine NEWS Low-Rise Home Sales Drive August Price Growth In August, the median price was $479,095 from the $450,323 recorded during August of 2011 Toronto, September 6, 2012
Greater Toronto Area (GTA) REALTORS® reported 6,418 sales through the TorontoMLS system in August 2012, representing a year-over-decline of almost 12.5 per cent compared to 7,330 sales reported in August 2011. The number of new listings reported in August was down by 5.5 per cent compared to the same period in 2011.
driven by the low-rise home segment in the City of Toronto, including single-detached homes with an average annual price increase of 15 per cent. The MLS® Home Price Index (MLS® HPI)* composite index, which allows for an apples-to-apples comparison of benchmark home prices from one year to the next, was up by 6.3 per cent year-over-year.
“Residential transactions were down in August compared to last year. Stricter mortgage lending guidelines, which came into effect in July, arguably played a role. In the City of Toronto, the additional impact of relatively higher home prices coupled with the upfront cost associated with the City’s Land Transfer Tax led to a stronger annual decline in sales compared to the rest of the GTA,” said Toronto Real Estate Board (TREB) President Ann Hannah.
“While sales were down year-over-year in the GTA, so too were new listings. As a result, market conditions remained quite tight with substantial competition between buyers in the low-rise market segment,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
The average selling price for August 2012 transactions was $479,095 – up by almost 6.5 per cent compared to August 2011. The annual rate of price growth was
“The trends for sales and new listings are moving somewhat in synch, suggesting that the relationship between sales and listings will continue to promote price growth moving forward.”
penghocktan.com | 15
Tan.gazine NEWS Greater Toronto REALTORS® Report October Mid-Month Resale Market Figures October 16, 2012 -- Greater Toronto Area REALTORS® reported 2,961 sales through the TorontoMLS system during the first 14 days of October 2012. The number of transactions was down by 10.5 per cent compared to the same period in 2011. New listings were up by 5.5 per cent year-over-year to 6,505. “Some households have put their home purchase plans on hold in response to the higher cost of home ownership brought about by the recent changes to mortgage lending guidelines. Both first-time buyers and existing home owners have been affected, given that sales were down across house types and geography,” said Toronto Real Estate Board (TREB) President Ann Hannah. The average selling price for sales reported from October 1 through October 14 was $501,146 – up by almost six per cent in comparison to last year. “The average selling price grew well above the rate of inflation in the first half of October due to relatively tight market conditions from a historic perspective. However, the market continued to become better supplied, pointing toward a slower pace of price growth as we move into 2013,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.
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Tan.gazine NEWS Strong Average Price Growth in September In September, the median price was $508,622 from the $463,916 recorded during Septemberof 2011 Toronto, October 5, 2012
Greater Toronto Area (GTA) REALTORS® reported 5,879 transactions through the TorontoMLS system in September 2012. The average selling price for these transactions was $503,662, representing an increase of more than 8.5 per cent compared to last year. The number of transactions was down by 21 per cent in comparison to September 2011. However, it is important to note that there were two fewer working days in September 2012 compared to September 2011. The majority of transactions are entered on working days. On a per working day basis, sales were down by 12.5 per cent year-over-year. “While sales have been lower due to stricter mortgage lending guidelines, we continue to see substantial competition between buyers. The months of inventory trend remains low from a historic perspective, which explains the strong price
increases we are experiencing,” said Toronto Real Estate Board (TREB) President Ann Hannah. September average selling prices were up compared to last year for all major home types. Price growth was strongest in the City of Toronto, including for condominium apartments with eight per cent year-over-year growth. All benchmark home types included in the MLS® Home Price Index (MLS® HPI) experienced year-over-year price increases, with substantially stronger increases for low-rise home types. “Barring a major change to the consensus economic outlook, home price growth is expected to continue through 2013. Based on inventory levels, price growth will be strongest for low-rise home types, including single-detached and semi-detached houses and town homes,” said TREB’s Senior Manager of Market Analysis, Jason Mercer
penghocktan.com | 17
Canada’s housing market expects
slower growth as global sales continue decline Susan Pigg - Business Reporter
September 14, 2012
Housing markets continue to hurt in much of the world with the list of countries seeing price declines outnumbering those with price increases by two to one, according to the latest Scotiabank Global Real Estate Trends report released Friday.
The U.S. housing market is showing the most hopeful signs: Average inflation-adjusted home prices rose three per cent in the second quarter of 2012 over a year earlier, following prices declines from 2006 to 2011 that saw average prices drop 35 per cent from their peak.
“Weak consumer confidence, high unemployment and tight credit conditions continue to weigh heavily on housing demand and pricing,” says Adrienne Warren, senior economist at Scotiabank. The Canadian housing market remains “relatively buoyant,” the report notes, although it’s “shifted to a slower growth trajectory.”
Ireland’s battered housing market slumped 17 per cent in Q2, just slightly less than the 19 per cent decline in the first quarter of 2012. The average house in Ireland is now worth less than half its peak 2007 value, says the global trends report.
Canadian house prices fell two per cent in the second quarter of 2012 over the same period a year ago, the report says. Housing demand has dampened because of slower job growth and tighter mortgage insurance rules which have made it tougher for first-time buyers. A more balanced supply of housing has kept price increases “restrained” in much of the country, it adds. There are signs of “modest improvement” in major markets such as the United States, the United Kingdom, Australia and China, says Warren. But it will take “considerably more time” for a sustained recovery, the report says.
Nader Kanaan Mortgage Specialist Scotia Bank
Fax: 416.744.8928 Email: firstname.lastname@example.org Web: www.mdm.scotiabank.com/nkanaan
Spain’s house prices fell 10 per cent in the second quarter as economic chaos, 25 per cent unemployment and a large inventory of unsold houses added up to a more than 30 per cent decline in prices over the last five years. European countries where the economies remain relatively stable are showing “some tentative signs of improvement,” says Warren, and prices in Australia appeared to be stabilizing although they are still down slightly. A growing number of Asian cities are seeing price appreciation, but many others are still seeing prices at levels below Q2 2011. Average house prices in Mexico remain flat after a one per cent decline in the first quarter.
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Housing crash predictions using “wrong” indicators Larry MacDonald June 14, 2012
“According to Statistics Canada's numbers, Canadians hold a 67% equity stake in their residential properties. Therefore, we see little evidence that the ability of the existing-homeowner segment to bring in a substantial equity stake in the purchase of a residential property has deteriorated that much over time.”
Some people say Canadian house prices are about to experience a U.S.-style crash, even though indicators like the RBC Housing Affordability Measures show overvaluation is modest (except for a few areas, like Vancouver). They claim flaws in RBC's methodology exaggerate affordability, so the measures should take second place to the price-to-income ratio and other indicators showing substantial overvaluation. I disagree with that view. Here’s why. The 25% downpayment argument One of the more comprehensive presentations of the bearish position is to be found in "Why housing affordability is a misleading indicator," by Ben Rabidoux. His big claim is that RBC indicators overestimate affordability because they assume buyers make downpayments of 25%, when 5% (and consequently higher monthly mortgage payments) is now closer to the norm.
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The problem with this statement is that it refers only to first-time homebuyers. But the homebuyer population also includes those homeowners who are buying a house to move to another location or a different type of house. If this second group is factored in, a downpayment of 25% is a reasonable representation of the typical homebuyer. That’s because homeowners—by far the majority of households in Canada—have a substantial amount of equity they can bring to the purchase of a residential property. In an interview with me, Robert Hogue, a senior economist with Royal Bank of Canada, said, “According to Statistics Canada's numbers, Canadians hold a 67% equity stake in their residential properties. Therefore, we see little evidence that the ability of the existing -homeowner segment to bring in a substantial equity stake in the purchase of a residential property has deteriorated that much over time.”
Tan.gazine NEWS Do RBC measures under or overestimate affordability? Rabidoux also mentions the RBC measures have other “flaws” that contribute to the overestimation of affordability. But if one looks closely at the data, a case can be made that the RBC measures may actually underestimate affordability - depicting houses as more expensive than they really are. Of note, they assume buyers take out 25-year amortizations when 30-year amortizations (and lower monthly payments) are currently permitted. To their credit, Rabidoux and other critics do mention this offsetting factor. What is odd is their failure to mention another important offset: the RBC indexes assume buyers pay posted, 5-year, fixed-mortgage rates (mortgage rates were predominantly of this kind when the indexes began). Such rates will generally be higher than what home buyers currently pay, not only because banks now offer substantial discounts from posted rates, but also because many buyers (40% according to a July 2011 TD Bank report) take mortgages with variable rates, which are lower than fixed rates at least 85% of the time. The use of posted rates alone could be quite significant and swamp other factors. “Our use of posted mortgage rates, as opposed to market rates, in the calculation of affordability leads to a significant underestimation,” Hogue said. “And this 'bias' has become much more of a factor over time—discounts from the posted rates have increased quite noticeably since the late 1990s.” In fact , there are a variety of factors at play within the RBC indicators and it would appear nothing definitive can be said of the net bias until an empirical study (comparing various analytical indexes) is performed and published. In the interim, neither housing bears nor bulls would seem to be in a position to make conclusive claims on how reliable the measures are.
One thing may be said, however. When it comes to making statements about the future direction of house prices, the ratio of house prices to income and other indicators favoured by the housing bears appear to constitute less reliable signals. By leaving out mortgage rates, they omit a major component of the ability to pay, a key driver of house prices. How can forward -looking statements on house prices be made based on a model that excludes a main determinant of house prices? The inclusion of mortgage rates in the RBC measures may be imperfect, but at least there is an accounting for this vital element. The risk of rising interest rates At this juncture the housing bears may argue that it is imprudent to use RBC affordability measures given interest rates are low and most likely to go up. But interest rates normally trend upward when there is growth in incomes and jobs, factors that add to housing demand and offset the rate rises. About the only time interest rates pose a substantial risk of precipitating a crash is when central banks become concerned about overheating in the economy and are willing to provoke a recession to cool things off. This was, in fact, the catalyst that pricked the U.S. housing bubble in 2007. In Canada, and around the world, such a catalyst is absent as of 2012. Indeed, monetary policy is hyper-expansionary, making it difficult to see any kind of a Canadian housing crash on the horizon. A few years down the road, there may come a time when the monetary cycle turns hostile, but there is no telling that far in advance if overvaluation will be so extreme that the inevitable outcome is a housing meltdown. Some of the possible excess in house prices could in the interval be tempered by factors such as income growth, regulatory changes and modest price corrections along the way.
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DIY - Recipe For October 2012 Check out food.chatelaine.com for more cool recipes
October 16, 2012
SANTA F recipes
Letâ€™s Get Cookinâ€™ 1. Lightly oil grill and heat barbecue to medium-high. Core and seed jalapeno. If you like hot peppers, use whole jalapeno. If not, use only have and refrigerate or freeze other half. Finely mince jalapeno. Place in a small bowl. Add cilantro. Squeeze 1/3 cup juice from limes and add. Stir in olive oil and salt. Slice avocado in half. Discard pit, then peel. Thinly slice. 2. Brush tops and sides of fish with a little oil. Place fish, skin-side up, on grill. Barbecue, lid closed, 5 minutes. Turn over and continue grilling until a knife tip inserted into centre of fish comes out warm, 5 to 10 more min, depending on thickness of fish. Place salmon on dinner plates. Drizzle with jalapeno mixture. Spoon salsa overtop. Finish with avocado slices, then drizzle with more jalapeno mixture.
Food For Thought Fresh fish contains high levels of omega-3s, and research suggests these fatty acids can lower your heart attack risk. So cast a line and reel in a cold-water wonder like salmon, trout or sardines.
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FE Grilled Salmon Roberto Caruso
Preparation time: 10 minutes Cooking time: 10 minutes Makes 4 Servings Ingredients 1/2 to 1 jalapeno pepper 1/3 cup finely chopped fresh cilantro o 2 limes 2 tbsp olive oil 1/2 tsp salt 1 avocado 4 salmon fillets, each 180 to 250 g and about 1 1/2 in. thick 1/2 salsa, preferably chunky Nutrients per Serving 393 calories 27 g protein 7 g carbs 29 g fat 3 g fibre 434 mg sodium
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