Last week on Friday Terrance Belford of the Globe & Mail published an article entitled Condo resales are on a roll . The article had a very upbeat feel to it, spewing out positive sales data, interviewing the likes of Brad Lamb and the general under lying tone of the article is that the good times of real estate are back in Toronto & especially in the Condo market. The article generated some very colorful commentary from readers... an entertaining read for anyone with the time.
Don't get me wrong, my fate is tied to a healthy economy. When people are buying houses that is good for my mortgage business however at the same time we need to be realistic and call things the way they are with some perspective. One client who is currently in the market for a condo picked up on the buzz coming from the realtor community and expressed some fear that she has missed the boat. To which I replied "Non Sense!". Lets face it... you know we are in a recession when CBC is airing stories entitle "Wedding Bills" about how brides are cutting back on their wedding due to tough economic times!
In previous posts I talk about the conflicting sound bites coming from the media regarding the economy and the Globe article I mention at the beginning is a case in point.
I am not trying to dispute the great sales numbers from the past month ( i think it was an unexpected and delightful surprise to the real estate community who are trying to get as much leverage out it as possible) and I am not a doomsday sayer but with my back ground in economics and simple observation I am making a case for caution.
I did plenty of reading this weekend and let me present some of the tastiest bits for your reading pleasure:
Irresistable Rates Drive Canadas Recovery-Globe & Mail "Crisis averted in the housing market? Forget it. Prices may be climbing in some markets, but so are the interest rates that have fed the recent rise in sales. Meanwhile, incomes are stagnant, and jobs are disappearing in bunches; Fixed-rate mortgages with a five-year term can be had for about 4.25 per cent with a top discount right now, compared with 5.5-to-6 per cent in spring, 2008. A couple of months ago, five-year mortgages were less than 4 per cent"
Garth Turner, author of Greater Fool: The Troubled Future of Real Estate feels that the bubble we are experiencing is fueled by interest rates. “They're so irresistible, especially to inexperienced first-time buyers. That's what's propelling the market.”; Mr. Turner's concern is that rising rates will eventually propel the market lower by making houses less affordable. His level of confidence that the boom will last? Zero; After a peak-to-valley decline of almost 14 per cent in Canada's national average price, he's predicting another plunge for home prices that will be triggered in large part by rising interest rates; -Rob Carrick, Globe & Mail.
In the article Canadians Hoarding Cash- Globe & Mail my favorite economist Benjamin Tal of CIBC warned that the Canadian economy is going to be subdued due to less consumer spending. Consumers are afraid to spend more in case they lose their jobs or face another bout of steep losses in financial markets; and the people who have most of the excess cash are not the people who do all the spending.
Opinions columnist Derek DeCloet wrote "While a lack of confidence is a terrible thing, overconfidence in the recovery might be just as dangerous if it prompts Canadians to do the wrong thing.; Canadians are starting to save more. But the personal savings rate was still below 5 per cent in the first quarter, and it's going to have to go higher, for longer, before a strong recovery can truly take hold"
Make your own conclusions from the cross section of articles that I have presented. It would be easy for me to keep my opinions to myself and write mortgages for anyone who requests one...but I feel it is my obligation to at least help you try and make sense of the market confusion.
Please feel free to leave your comments and if you would like to speak to me about your mortgage call 416.461.0204ext2.
-Chris Molder
Mr. Molder,
You are very correct in your observations and conclusions. The consumer public looks to many different sources for their news and opinions.
Agents have been especially surprised at the resilience of the spring market carrying us into the month of June.
There were some oddities that occurred that blended together to make the spring market happen. The US Economic situation continues but the money for the stimulus started to flow post the innauguration of President Obama. Interest rates continued at a softened price point that has recently seen increases. [3.6 to 4.4% fixed could be termed a 25% increase]
Inventory [available homes for sale] declined by almost 20% in the west Toronto area that I service. The result? A firming of the prices. Additional Buyers are watching homes selling without the prices collapsing so they venture in.
New clouds on the horizon? It will be the additional HST (Harmonized Sales Tax). Now we have a partial rebate to ease the acceptance, nevertheless a new tax. People need to buy before the new tax is implemented July 2010.
The combination of lower rates with impending taxes and continuing low available inventory levels will keep us in good stead.
Garth Turner and The Greater Fool has been promoting "The Bubble" for the last 3 or 4 years and indeed he eventually will be right.
Will it be this year or the next no one knows.
David Pylyp
http://BuyinginToronto.ca
http://twitter.com/dpylyp
Posted by: David Pylyp | June 23, 2009 at 08:10 PM