Newfoundland Housing Starts Soar in May

June 9, 2008 · Filed Under Market Trends and St. John's Real Estate · Comment 

Newfoundland urban housing starts soared during the month of May, according to preliminary data released today by Canada Mortgage and Housing Corporation (CMHC). May’s total housing starts soared 49 per cent, with 230 posted within Newfoundland compared to 154 a year ago. A total of 224 of the 230 starts were within St. John’s metro versus 124 last May, a record increase of 81 per cent.

Year-todate, there have been 471 new homes started across the province versus last year’s total of 395 homes during the same period. A total of 456 of these starts occurred within St. John’s metro, for a year-to-date increase of 33 per cent.

“With pent-up demand for newly built homes within the local housing market, May’s notable increase in housing starts is an example of the impact that a limited supply of current listings available for sale can have on residential construction activity,” said Chris Janes, Senior Market Analyst with CMHC in Newfoundland and Labrador. “With a buoyant sellers market, the current supply of active listings is approximately 50 per cent lower than a year ago, so buyers are shifting to new homes, simply because they cannot find a suitable existing home in the resale market,” added Janes.

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Canadian Economic & Financial Market Outlook

April 12, 2008 · Filed Under St. John's Real Estate · 1 Comment 

RBC Economic & Financial Market Outlook

Debt load rising, but so are asset values

Household balance sheets remain in fair condition with the ratio of debt-to assets remaining within the range of the past 40 years. Still, with debt service costs high relative to personal disposable income, the recent tightening in credit conditions does present some downside risks for the outlook for consumer spending this year. Mitigating this, however, is the strong growth in asset values — house prices have recorded gains of about 10% for six years running and the TSX posted a decent 7.2% return in 2007 despite a soggy fourth quarter. However, if the weakness in equities evident late last year and early this year persists, it would present a clear downside risk to household spending during the forecast period.

Stretched affordability to exert modest downward pressure on housing market

The rise in house prices has stretched affordability. RBC’s housing affordability index showed that conditions were the worst since early 1990 for homebuyers in last year’s fourth quarter.  Our view that the Bank of Canada will continue to lower interest rates, with attendant easing in credit market tightening, and that the pace of house price increase will slow this year both point to a modest improvement in affordability. There were 227,000 new homes started in Canada last year, marking the sixth year that starts were greater than 200,000 units. The erosion in affordability and uncertain global economic environment will likely result in slower housing market activity in 2008, although, with interest rates declining, the weakening is likely to be relatively modest.

Bank of Canada to cut rates to mitigate impact of trade drag

The Bank of Canada cut the policy rate by 25 basis points at each of its December and January fixed action dates, concluding that “further monetary stimulus is likely to be required in the near term” to mitigate the downside risks coming from the widening in credit spreads and the weakening U.S. economy. The Bank picked up the pace of easing in March to 50 basis points, sending the overnight rate down to 3.50% as concerns about the U.S. economy escalated. Continuing concerns about the downside risks to growth will send this policy rate down to 2.75% by mid-2008.

U.S Housing recession to continue in 2008; market to stabilize in 2009

The U.S. housing market is showing little sign of recovery. The stock of homes available for sale stands very close to record-high levels and, as a result, new residential construction continues to contract.  In February, the level of housing starts was 54% below the recent peak level and the pace of new and existing home sales was the slowest since the mid-1990s. The inventory overhang and slow sales pace point to construction activity contracting at a double-digit annualized pace for at least the first half of 2008. We estimate that the decline in residential construction spending will trim slightly under one percentage point from the 2008 growth rate. Weakening demand will continue to push prices lower, pointing to a mild deterioration in housing-related net worth in the quarter.

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The dream of homeownership

February 26, 2008 · Filed Under First Time Buyers, Mortgages and St. John's Real Estate · Comment 

Why not put your rent money into an appreciating asset instead of in your landlord’s pocket?

Do you cringe every month when it’s time to write that monthly rent cheque? Like many other renters, you probably wish that your hard earned money was being put towards something that has potential payback but haven’t explored your options because you don’t think homeownership is within your reach. If you are currently renting you may be surprised to learn that there have been recent mortgage product innovations such as a minimal down payment (0%-5%) and extended amortization that can make owning your first home more than a pipe dream.

This is a great time to get into the St. John’s housing market. House prices are expected to appreciate by 12% in 2008 according to Remax. 2-apartment homes and condos are in demand but when it comes to first time buyers, many renters hesitate because they are concerned about two things. The first is that they may not have enough for a down payment. The second is that they are afraid that they may not be able to carry their monthly mortgage payments. Today, these concerns can be addressed with the minimal down payment and extended amortization options that are available to first time home buyers. Renters can now buy their first home with very little down and also not have to worry about high mortgage payments.

With minimal or zero down payment products, many financial institutions will provide you with 100% financing for the purchase price of the house. Some lenders may also let you borrow close to 100% in financing and offer you a small percentage back as cash. You are able to borrow 95% of the purchase price to put towards your down payment, closing costs, or other costs associated with purchasing a home. Do keep in mind that with minimal down payment you will most likely need to purchase insurance and also have to commit to a longer mortgage term.

Remember that if you do have money set aside for a down payment or have RRSPs you should still consider putting a larger down payment because this does lower your total mortgage amount and ultimately the amount you will pay in interest.

If on the other hand you are concerned that you will not be able to make your mortgage payments, then you should consider extended amortization products that lower your monthly payment amount. This is done by having the mortgage paid back over an extended period of time. Your monthly payments on a 35 or 40 year mortgage will be lower than the payments on a traditional 25 year mortgage.

You should note that with extended amortization products, you will be paying more interest over the long run but there are definite benefits to getting into a hot housing market early. Plus, you always have the option of decreasing your amortization period by exercising your prepayment options or by increasing monthly principal and interest payments.

A valuable resource for information on homeownership is the Canada Mortgages and Housing Corporation (CMHC) website. You will find publications such as Bringing Home Ownership Within Reach.

Given the availability of these new options and the resources to support tomorrow’s homeowners, it’s easy to see why many renters may be switching their rental payments to equity building mortgage payments within the next year.

Credit: www.newcanada.com

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