U.S.-Style Home Price Correction Unlikely in Canada

The Canadian Real Estate Association (CREA) released a new report today indicating that home prices will stabilize, and will remain stable for some time. This means that Canadian homeowners are unlikely to experience a U.S.-style decline in the value of their homes. “The relationship between average price and income has recently been cited as portending a U.S.-style correction in Canadian home prices,” said Gregory Klump, Chief Economist, CREA. “However, such warnings ignore the longer-term relationship between prices and income, and disregard typical Canadian housing market cycle dynamics.” Home prices tend to rise in cycles, characterized by periods of sharp growth and periods of stability. By contrast, income generally follows an orderly upward trend over time. For home prices to keep pace with incomes, they must rise faster during housing booms to make up for periods of little or no price growth. Canadian home prices were stagnant throughout most of the 1990s, while incomes continued rising, making housing more affordable. Over the past decade, home prices have climbed sharply as mortgage interest rates declined. Klump adds: “The Canadian housing market is now widely thought to be at, or very near, the top of a cycle, and the ratio of home prices to incomes is currently high. This ratio will revert to its long-term average as it always does as part of a normal housing market cycle. History suggests, however, that it will not do so by means of a significant correction in home prices. The more likely scenario is that home prices will stabilize, giving incomes a chance to catch up again.” The bursting of the U.S. housing market bubble has sparked fears that Canadian home prices may share a similar fate. However, according to Klump, “warnings to this effect ignore solid Canadian mortgage market trends.” Conservative lending practices in the mortgage industry combined with prudent borrowing and accelerated payments among Canadian mortgage holders have been seen throughout the recent housing market cycle. Accelerated accumulation of home equity will provide options for the small proportion of homeowners who may face financial difficulty when their mortgage is renewed at a higher interest rate. These trends are expected to help Canada avoid a U.S.-style housing crisis. The correction in U.S. home prices is set against a massive oversupply of homes due to distress sales, combined with a drop in housing demand due to unemployment. The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices.

New Rules for First Time Buyers

Stefania Moretti with QMI Agency reported recently that Tighter lending rules and rising interest rates means Canadians looking to buy their first home may face an uphill battle. New government-backed mortgage lending rules aimed at protecting Canadians from getting in over their heads with debt once rates comes off historic lows came into effect just recently. All homeowners must now qualify for a five year fixed mortgage rate, even if they are choosing a shorter term product. Other new rules on mortgage lending include higher minimum down payments on investment properties,lower refinancing maximums and eligibility changes related to the stated income program. Also self employed Canadians are only eligible for the program during their first three years of business. there is also the HST coming in July that will increase costs slighlty.

Construction on the Main Street of Grand Bend

With spring finally here the Main Street reconstruction is progressing at high speed... just click here to see the progress.

March Sales were great!

The London Free Press today reported that March was another solid month for London-area home sales, boosting confidence the real estate market is back to pre-recession levels. The London and St. Thomas Association of Realtors said 859 homes sold last month, up 28% from the same month last year when the market was still in the grip of the recession. The association said the March totals were in line with average sales for the month over the last 10 years. "It's a question of recovering lost ground rather than any kind of boom," said association president Richard Thyssen While real estate crashed in most major markets last year, sales in London and St. Thomas dipped only 3.42% overall, compared to 2008. "Now, we're pretty much back where we were before the financial meltdown and gaining momentum," Thyssen said. He noted the number of homes listed for sale is also up, 20.6% for detached homes and 6.3% for condos. "That's good news for our spring market and for our local economy as a whole, given the considerable economic spin-off of real estate sales," he said.

Great Easter Weather

Wishing everyone a Happy Easter and may they enjoy this fantastic weather we are having...The beach has been busy, Main Street is a mess with the detours and construction going on and all the visitors trying to get around the town on the back streets, makes for a very busy town these days.

Canadian economy grows fastest in 3 years

Tavia Grant of the Globe and Mail reported that the Canadian economy began the year with a bang, expanding the most in three years as manufacturing, mining and construction activity quickened. The country's gross domestic product, the broadest measure of all produced goods and services, rose by a better-than-expected 0.6 per cent in January on widespread gains, Statistics Canada said Wednesday. It was the fastest growth since December, 2006, the fifth month in a row of increases, and the latest in a string of economic reports to top expectations. The Bank of Canada said earlier this month the economy has been hotter than it had anticipated, putting additional pressure on the central bank to begin hiking interest rates in the coming months. “Barring some major unexpected economic shock, it is hard to imagine the Bank of Canada raising rates any later than July, and it must be conceded that June is at least theoretically possible,” said Eric Lascelles, chief macro strategist for Canada at TD Securities.

Tundra Swans are Back

Spring is finally here with the return of the Tundra Swans to Lake Smith, south of Grand Bend near the Pinery Provincial Park. The swans are stopping over at the former Lake Smith before they head north to their nesting area in the Arctic. It was reported that over 40,000 swans are in the area this spring. Click here to see the video.