The Royal Bank's Robert Hogue has put out a good report on Housing in Canada.
Most of it we have been saying on the blogs.
Most of it we have been saying on the blogs.
1) Sales and prices are up since March due to the unprecedented drop in interest rates improving affordability.
2) The best of the rates are probably behind us.
3) So from now the state of the economy and incomes will be the drivers.
BC specific: after the sharpest drops since 1991, it has rebounded and he sees a floor under prices from lower construction and listings.
The RBC affordability measure dropped for Vancouver dropped from a staggering 80-90% of household income to own a SFH to 70% or so. Still remarkably high. He notes the rebound DESPITE a soft economy and surging unemployment.
Here is the whole report : http://www.rbc.com/economics/market/pdf/house.pdf
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I agree with most of it. The drop in interest rates has had an incredible affect on affordability. It was like a price drop of 20-30% -except not quite. The asset you are buying is still over-priced even if the carrying costs are lower. Would you buy a car for 20% more than it is worth, just because the financing costs were low?
Nevertheless it has led to a major bounce. Now what? Well as he says now we have to wait and see what happens to the economy. The floor he mentions can easily be broken if the economy starts to wilt.
In fact I would say that after the Olympics, if the world economy does not rebound quickly, the price of housing will be the least of our worries as our unemployment continues to surge, and we have to deal with the Olympic cost over-runs and resultant cuts in spending.
2) The best of the rates are probably behind us.
3) So from now the state of the economy and incomes will be the drivers.
BC specific: after the sharpest drops since 1991, it has rebounded and he sees a floor under prices from lower construction and listings.
The RBC affordability measure dropped for Vancouver dropped from a staggering 80-90% of household income to own a SFH to 70% or so. Still remarkably high. He notes the rebound DESPITE a soft economy and surging unemployment.
Here is the whole report : http://www.rbc.com/economics/market/pdf/house.pdf
............................................................................
I agree with most of it. The drop in interest rates has had an incredible affect on affordability. It was like a price drop of 20-30% -except not quite. The asset you are buying is still over-priced even if the carrying costs are lower. Would you buy a car for 20% more than it is worth, just because the financing costs were low?
Nevertheless it has led to a major bounce. Now what? Well as he says now we have to wait and see what happens to the economy. The floor he mentions can easily be broken if the economy starts to wilt.
In fact I would say that after the Olympics, if the world economy does not rebound quickly, the price of housing will be the least of our worries as our unemployment continues to surge, and we have to deal with the Olympic cost over-runs and resultant cuts in spending.
I don't see any driver for improving the employment situation anytime soon and am concerned about another surge post Olympics.
Hat tip to Larry Yatter for posting the report.
