Key Points From Benjamin Tal, CIBC Economist

  • The U.S. housing collapse won’t rebound anytime soon.
  • Tal predicts it will take until 2017 for U.S. home prices to rise enough to bring the average person with negative equity back to even.
  • That matters because America’s housing market is driving its economy, which in turn impacts Canada’s economy and interest rates
  • M1 velocity of money is the “most important indicator” that Canada’s mortgage market should be watching because it’s the top signal of U.S. inflation. U.S. and Canadian inflation are closely linked. Higher inflation leads to higher interest rates.
  • Tal says rising M1 velocity of money will be the “#1 signal” that mortgage rates will rise. When this happens, the U.S. Fed’s Bernanke will need to "remove liquidity from the system very quickly"
  • 5-year yields will “have to” increase in the next few years because the market is under-pricing inflation.
  • “The Chinese consumer will be the most important force in the global economy for the next 10 years.”
  • The Chinese are “starting to demand quality.” That’s positive for North America because the Chinese will increasingly buy our goods.
  • China’s demand for commodities (like oil) significantly influences financial markets. Oil has a 93% correlation with the S&P 500, for example.
  • If China expands, oil (and other commodities) will rise and 5-year mortgage rates “will go up.”
  • China will slow in the next 12 months, predicts Tal. But after that, it will resume growth and put pressure on 5-year rates.
  • “I’m almost positive the (U.S. Federal Reserve) will not change rates until mid 2012,” Tal said.
  • The BoC won’t “take chances” and raise our rates significantly above the U.S.
  • “The next few quarters are safe” from BoC rate hikes.
  • Consumers are “exhausted” due, in part, to a 146% debt-to-income ratio. As a result, it won’t take many rate hikes to slow the economy.
  • The “forward curve” (i.e. implied interest rates based on derivatives pricing) implies that 5-year fixed mortgages will be slightly cheaper than variable mortgages over the next five years. Tal put up a chart to this effect and 2011 is the first year in 10 years that this is expected to be true. (Take that for what it’s worth.)
  • When rates rise we may see mortgage defaults drop. That’s because rising rates imply rising employment, which influences defaults more than anything.
  • Only 4.1% of households have less than 20% equity and total debt ratios over 40%.
  • The quality of mortgage debt is improving says Tal. Specifically, the ratio of mortgage holders who are 35+ years old and making over $50,000 (adjusted for inflation) has steadily risen in the last 5-10 years.

Maritz Research

  • Overall broker market share was 26% in 2010.
  • Industry projections over the next five years are for a 9% point increase.

*CAAMP Forum 2010 Winds Down- Canadian Mortgage Trends – November 24, 2010

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Property Photo: 803 2612 109 ST in EDMONTON
Please visit our Open House at 803 2612 109 ST in EDMONTON.
Open House on Saturday, November 27, 2010 2:00 pm
Fantastic location for this luxurious PENTHOUSE!! Priced $10,000 Below Showroom Pricing!! Soaring ceilings with a wall of windows in the prestigious Century Park complex. This gorgeous condo has it all. This 1 bed, 1 bath luxury suite has upgraded ceramic tile and upgraded beautiful hardwood floors. Top of the line appliances, granite counter tops, spacious living room, alarm system, large sunny balcony, underground heated parking and storage. Superior concrete construction. You can walk to shopping, dining, and the new LRT line. Any reasonable offer will be considered.
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Property Photo: 804 2612 109 ST in EDMONTON
Please visit our Open House at 804 2612 109 ST in EDMONTON.
Open House on Saturday, November 27, 2010 2:00 pm
Fantastic location for this luxurious PENTHOUSE!! Priced $10,000 Below Showroom Pricing!! Soaring ceilings with a wall of windows in the prestigious Century Park complex. This gorgeous 2 bedroom, 2 bath condo has it all. This luxury suite has upgraded ceramic tile and upgraded beautiful hardwood floors. Top of the line appliances, granite counter tops, spacious living room, alarm system, large sunny balcony, underground heated parking and storage. Superior concrete construction. You can walk to shopping, dining, and the new LRT line. Any reasonable offer will be considered.
Read full post

Property Photo: 806 2612 109 ST in EDMONTON
Please visit our Open House at 806 2612 109 ST in EDMONTON.
Open House on Saturday, November 27, 2010 2:00 pm
Fantastic location for this luxurious PENTHOUSE!! Priced $10,000 Below Showroom Pricing!! Soaring ceilings with a wall of windows in the prestigious Century Park complex. This gorgeous condo has it all. This 1 bed, 1 bath luxury suite has upgraded ceramic tile and upgraded beautiful hardwood floors. Top of the line appliances, granite counter tops, spacious living room, alarm system, large sunny balcony, underground heated parking and storage. Superior concrete construction. You can walk to shopping, dining, and the new LRT line. Any reasonable offer will be considered.
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Property Photo: 806 2612 109 ST in EDMONTON
I have listed a new property at 806 2612 109 ST in EDMONTON.
Fantastic location for this luxurious PENTHOUSE!! Priced $10,000 Below Showroom Pricing!! Soaring ceilings with a wall of windows in the prestigious Century Park complex. This gorgeous condo has it all. This 1 bed, 1 bath luxury suite is upgraded with ceramic tile and beautiful hardwood floors. Top of the line appliances, granite counter tops, spacious living room, large sunny balcony, underground heated parking and storage. Superior concrete construction. You can walk to shopping, dining, and the new LRT line.
Read full post

Property Photo: 803 2612 109 ST in EDMONTON
I have listed a new property at 803 2612 109 ST in EDMONTON.
Fantastic location for this luxurious PENTHOUSE!! Priced $10,000 Below Showroom Pricing!! Soaring ceilings with a wall of windows in the prestigious Century Park complex. This gorgeous condo has it all. This 1 bed, 1 bath luxury suite is upgraded with ceramic tile and beautiful hardwood floors. Top of the line appliances, granite counter tops, spacious living room, large sunny balcony, underground heated parking and storage. Superior concrete construction. You can walk to shopping, dining, and the new LRT line.
Read full post

Property Photo: 804 2612 109 ST in EDMONTON
I have listed a new property at 804 2612 109 ST in EDMONTON.
Fantastic location for this luxurious PENTHOUSE!! Priced $10,000 Below Showroom Pricing!! Soaring ceilings with a wall of windows in the prestigious Century Park complex. This gorgeous 2 bedrrom, 2 bath condo has it all. This luxury suite is upgraded with ceramic tile and beautiful hardwood floors. Top of the line appliances, granite counter tops, spacious living room, large sunny balcony, underground heated parking and storage. Superior concrete construction. You can walk to shopping, dining, and the new LRT line.
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Weekly Market Insight

October 29, 2010

NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS

Foreclosing Foreclosures—The Impact

By Benjamin Tal

The foreclosure fiasco that has seen paperwork errors paralyze the process in the US is another symptom of thedisease that has crippled the US housing market. While both the Administration and commercial banks fully realize that a complete moratorium on foreclosures will devastate the housing market, the inevitable delay in the process will add another roadblock on the way to recovery to a market that is already suffocating under the weight of an unprecedented amount of negative equity and a mounting stock of shadow inventories.
At this point, it is difficult to see what will prevent prices from heading lower again in the coming months.
 
Negative Equity
 
A real estate market cannot even remotely function in a normal way when no less than one in four mortgages are under water. Close to eleven million households owe more on their loan than their homes are worth at current market prices, and close to five million are in negative equity positions of more than 20%. Nevada leads the upside-down parade with a crushing 68% of mortgages under water, followed by Arizona, Florida, Michigan and California.
 
Negative equity is the main catalyst of distressed sales, which now account for one-quarter of all sales in the US housing market—five times the share seen before the crisis. Roughly one-third of distressed sales are in the form of short sales (in which sale proceeds fall short of the balance owed)—and these sales are now rising at year-over-year rates of more than 20%—the fastest pace on record. It’s no surprise then that short sales have doubled their share in total distressed sales in the past 18 months. With an average discount of close to 15% on each short sale, the acceleration in that process does not bode well for the trajectory of real estate prices in the near-term.
 
But even more damaging to near-term housing prospects is the high and rising correlation between negative equity and foreclosures. Greater negative equity increases the risk that a household will be in serious delinquency and a later default, and decreases the likelihood that a loan will be successfully modified. In fact, despite the high publicity regarding the Home Affordable Modification Program (HAMP) the reality is that to date, this program was ineffective in improving the situation materially. As of the second quarter of the year, the number of new foreclosures rose by just over 500,000, while the number of permanent modifications hasrisen by only 160,000. Note, however, that more than 50% of these modified mortgages end up defaulting after all, which means that at this point, the HAMP was able to deal with less than 15% of new foreclosures—not even close to the target for this program.
 
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Month-over-month price drop brings properties to 2009 housing price levels

Edmonton, November 2, 2010: Although the all-residential average price dropped 3% in October, average prices are almost exactly what they were a year ago. Single family dwellings were sold on average for $365,691 which is just $1,434 less (-0.39%) than October 2009. Condos sold in October for about $2,000 less (-0.9%) than a year earlier at an average price of $235,893.

“Stability is the key word for the Edmonton housing market,” said Larry Westergard, president of the REALTORS® Association of Edmonton. “Prices this fall are matching almost dollar for dollar with prices for the past two years. But I am pleased to report that the inventory dropped 10.6% in October, and as it returns to a more normal level, prices will start to move.”

The average* all residential price in October was $317,422 as compared to $327,235 in September. It was less than one percent lower than the October 2009 price of $320,184. Listing activity continued to slow with just 2,269 residential properties added in October. There were 1,077 residential sales for a sales-to-listing ratio of 44.5%. Total residential inventory was 7,689 properties at the end of October as compared to 8,602 the month prior. The average days-on-market went up to 60 days from 56 last month.

The all-residential median price rose from $306,500 in October 2009 to $308,000 last month. “This rise in the median price stretched the range of the lower end of the market,” said Westergard. “Yet REALTORS® still found 529 properties priced under $300,000 for buyers with smaller budgets or modest housing needs in October. There is still a home suitable for every buyer in this market.” There were 32 sales of residential properties priced at over $750,000 during the same month.

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Property Photo: 10933 133 ST in EDMONTON
I have listed a new property at 10933 133 ST in EDMONTON.
1400 sq. ft. Cape Cod style Semi Bungalow in a great North Glenora neighborhood. Beautifully refinished original hardwood covers the main floor. Large bright living room with huge picture window and built in cabinet. Family size dining room with patio doors leading to a huge covered deck. The kitchen has been updated with new cabinet and counter tops. The main floor master bedroom has been converted from 2 rooms to one very spacious master bedroom. Upstairs are 2 more large bedrooms and a bathroom. Great pitched ceilings and dormer windows. Double over sized garage and a private backyard with a new fence. The basement is fully finished with space for a pool table (which will stay!!), bar and recreation room. Newer furnace and hot water tank.
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