Saskatoon real estate: Week in review (February 16-20 2009)
Sales were sluggish for the third week of February with Saskatoon real estate agents reporting firm sales on a total of forty-nine residential units including thirty-six single-family homes, nine condominiums, three semi-detached homes and one mobile. At just forty-five houses and condos (the units we track here), that number represents a drop of fifteen properties compared to last week, and a fifty-four percent decline from the same week last year when ninety-eight homes traded hands.
Residential listing activity remained brisk as 127 properties were placed on the Saskatoon multiple listing service, among them, thirty-four condos and eighty-seven single-family detached houses. That’s fairly even with the numbers posted during the previous week, and represents about a twelve percent increase compared to the same week last year. Total active residential listings crept higher again finishing the week at 1,242 properties, up twenty-nine units from 1,213 last week. The current Saskatoon housing inventory includes 753 houses and 409 condominiums. At this time last year, there were 189 houses and 135 condominiums for sale in the Saskatoon real estate market.
Click the image for a larger version of the graph.
Fifty-one price changes occurred over the course of the week and seventeen of twenty-seven cancelled listings came back to the system as a new listing, most showing a new price.
Once again, with the majority of the week’s sales being captured by detached houses (80% houses, 20% condos), and a strong median of $285,000, prices remained strong. The weekly average sale price pushed higher to settle at $295,014, up from $278,727 last week. The six-week average selling price moved a small amount to $283,609, up approximately $1,800 from last week, but ahead by nearly $27,000 compared to the same week last year when it was just $256,860. The four-week median made larger gains finishing at $265,500, up $6,500 from the previous week and gaining $18,500 over the same week last year when it closed at $247,000. Please refer to last week’s review for a bit of an explanation of how the average is staying high, while prices are more or less level with last year.
Click the image for a larger version of the graph.
While nearly everything that sold traded below the seller’s asking price, the average underbid declined to just $12,294 and reached its lowest level since the week of September 8-12. The percentage of deals that were struck within $5,000 of the asking price declined from 27% last week to just 20% this week, but the $5,001-$10,000 category ballooned to 44% from just 17% the previous week. All other categories, except the $25K+ that grew from 7% to 11%, shrunk this week.
See a Google map displaying the boundaries of Saskatoon real estate “areas” here
Data collection and calculation for our statistical reports
I’m always happy to answer your Saskatoon real estate questions. All of my contact info is here. Please feel free to call or email.
Norm Fisher
Royal LePage Saskatoon Real Estate
91 comments so far. We'd love to hear your thoughts.
April 15th, 2009 at 3:24 PM
Norm,
The mix of 80% houses and 20% condos is unlikely to shift higher than this 4:1 ratio. Given the rising inventory and lower sales this year I suspect that the 4 week average residential price will probably stay fairly flat for a few months . This means by April you will see negative year-over-year YOY) prices in Saskatoon. When that hits the newspapers there will be a shift in market psychology. This will occur at the same time that the national news is reporting a spring market housing fizzle across the rest of the country.
April 15th, 2009 at 3:25 PM
hmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm…………………. very interesting….
April 15th, 2009 at 3:25 PM
Wesco,
Mmmmmmmhhmmmmmmmm.
April 15th, 2009 at 3:25 PM
Wesco, very interesting indeed. It certainly looks like a lot of buyers are anticipating a further softening of condominium prices this year. Condos currently represent 33% of total inventory yet only account for 20% of sales. At the current sales level for condos, we have over 45 weeks of inventory.
Roger, I agree; the first week of March is where listings really take off, and I anticipate we’ll end February with close to 1,275 listings. If the same rate of new listings holds again this March (and all indications are it will, since we’ve exceeded the rate of new listings every single week this year) we could be looking at close to 1,500 listings by the start of the prime selling season.
Norm, something that might be worth exploring is the average price of all MLS listings and see how that corresponds to the average sales price at the end of each week. For instance, this would give a better glimpse of the spread between the price asked and received, as well as the direction that asking prices are moving in relation to the sales price.
April 15th, 2009 at 3:25 PM
Norm — Why are there still overbids and higher prices in Area 1? Are the sales mostly being run by builders, or is there something else going on?
It just seems odd: all other areas are down, some substantially, but Area 1 is up…
April 15th, 2009 at 3:26 PM
The gloom and doom spooked me, so I started keeping a weekly record of listings and asking prices on MLS and SH for the three areas where I own property. After 6 weeks the listings are quite flat or even a little down, and the asking prices holding, so maybe you have to take into account the neighbourhood (they are 40 yr old neighbourhoods). I expect them to fall in line with the graphs here eventually, but maybe the trend will be less pronounced than the newer areas.
April 15th, 2009 at 3:26 PM
Norm,
Given your emphasis that the house (detached SFH) and condo market are distinct market segments, why don’t you completely separate them in your statistics and analysis?
That way instead of reporting some numbers and cautioning that year-over-year comparison is misleading (therefor useless), you could provide a meaningful number and a meaningful comparison of the market segments to themselves and each other over time.
Many major institutions seem to segment their info this way already (using benchmark condos, townhouses, one-story, and two-story homes). I think segmenting into houses and condos would be enough given the size of the Saskatoon market.
April 15th, 2009 at 3:27 PM
Somebody,
Thanks for the feedback.
I understand where you’re coming from, though I probably wouldn’t have gone so far as to call the numbers “useless.”
I do a fairly extensive review of the numbers on a monthly basis that breaks condos and houses into two distinct categories measuring changes to values in several different ways.
http://www.teamfisher.com/blogs/norm_fisher/archive/2009/02/11/a-closer-look-at-the-saskatoon-real-estate-statistics-for-january-2009.aspx
Others have made the same suggestion for weekly reviews in the past, but even when we were selling 70-100 homes a week the samples just felt too small to break them down further. Most weeks lately, I’d have fewer than 10 condos to work with and I just think that would be a little thin for a “meaningful comparison” from one week to the next.
“That way instead of reporting some numbers and cautioning that year-over-year comparison is misleading (therefor useless)”
Until the end of time, “averages” will be thrown around as a primary method of valuation in media reports on housing. My “emphasis” on this particular point is intended to bring some clarity and understanding of how the market has changed so that Saskatoon home buyers and sellers are not misled.
April 15th, 2009 at 3:27 PM
Retail numbers for December look nasty, as the consumer retrenches:
Retail sales drop most in 15 years
http://tinyurl.com/bqelso
Retail sales in Saskatchewan were down month-over-month by 5.8%, and down year-over-year by 3.1%. Interestingly, BC had a massive YOY slide of –11.8%, the largest of all the provinces.
http://tinyurl.com/de8t5n
“Canadian retail sales fell twice as fast as expected in December, and posted the biggest drop since January 1991, as consumers curtailed spending on cars, building supplies and clothes. Retail sales tumbled 5.4 percent from December, the third straight drop, to C$33 billion ($26.5 billion), Statistics Canada said today in Ottawa. Sales fell 2.4 percent in November. Economists expected a 2.7 percent drop, based on the median of 17 estimates. The drop in retail sales follows reports of the country’s first trade deficit since 1976 in December and record job losses in January, as Canada suffers its first recession since 1992. The central bank’s monetary policy panel, led by Governor Mark Carney, lowered its benchmark interest rate to a record-low 1 percent on Jan. 20, and said more rate cuts may be needed to jolt the economy.”
The central bank’s next rate decision is March 3. The central bank will likely cut its key rate by half a percentage point to 0.5 percent.
April 15th, 2009 at 3:27 PM
Crikey, and the really interesting aspect is that these are only *December* numbers… Saskatchewan has the third-highest month-over-month drop @5.8% ( along with Ontario, Alberta and BC). These four provinces are also projected to see the largest housing correction this year as well, incidentally. Nationally, new vehicle sales are off 15.1% month-over-month and a whopping 23.1% year-over-year.
“Canadian consumers continue to be distressed by declining home prices, the decline in equity markets (and) losing their jobs,” Millan Mulraine, economic strategist with TD Securities, said prior to Monday’s retail numbers.
So if the Bank of Canada reduces its rate to 0.5% March 3, will Canadian banks extend this full 50-basis points reduction to the consumer?
April 15th, 2009 at 3:28 PM
“So if the Bank of Canada reduces its rate to 0.5% March 3, will Canadian banks extend this full 50-basis points reduction to the consumer?”
I’m guessing they’ll do with they did with the last rate cut and cut their prime rate the full 0.5% but increase their prime based mortgages by 0.2% or so (so prime + 0.8% to prime + 1.0%). That way “investments” based on prime (such as my savings account) will drop the full 0.5%, yet variable rate mortgages will only effectively drop (0.5 – 0.2 = ) 0.3%. More money for the banks.
April 15th, 2009 at 3:28 PM
As I have indicated before, I have been looking at mortgage renewals for the last couple of months, as mine is due in early March.
My experience is exactly the opposite of what Matthew wrote above; when the last rate correction hit, the places I had been looking at NOT ONLY dropped their prime by the same amount, BUT ALSO dropped the variable rate from Prime +1% to Prime +.8% (or thereabouts).
Of course, this could easily be accounted for by the fact that the variable rate skyrocketed from (P-0.75%) to (P+1.0%) in the last eight months, and this is an inevitable correction to the overshoot, but that’s what I saw and when.
April 15th, 2009 at 3:28 PM
Interesting, Bookrat. Where did you see that? My example was taken from RBC’s play book. Their 5 year closed went from prime + 0.5% to prime + 0.8% on the last rate cut.
April 15th, 2009 at 3:29 PM
My mortgage provider is ING Direct, and that’s where I took my example from. So I guess it just depends on who you were looking at.
April 15th, 2009 at 3:29 PM
“My experience is exactly the opposite of what Matthew wrote above”
It’s amazing how rates and rate policies can vary from one lender to the next. I mentioned before that our mortgage recently came up for renewal and we signed a three-year term with Merix at 3.75%. We were with MCAP before we switched. They wanted 6.25% for the same term.
“and the really interesting aspect is that these are only *December* numbers”
Yes, wouldn’t *December* typically produce some of the highest retail sales figures? I’m completely speculating but that makes sense to me. Is it starting to look like Saskatchewan may not be “an island” after all?
April 15th, 2009 at 3:29 PM
Norm, yes, in theory the December numbers should look a *lot* better. From everything I’m reading the next big economic hit will be with commercial real estate and I can’t imagine if that happens that we’re going to see any improvements in the retail sector in 2009 or early 2010.
April 15th, 2009 at 3:29 PM
TD Economics reports Saskatchewan’s $2B surplus to be depleted by 2009-2010 with a deficit possible in 2010-2011 unless spending increases are contained.
http://www.thestarphoenix.com/Days+could+numbered+Sask+surplus/1321351/story.html
April 15th, 2009 at 3:30 PM
Norm or anyone who knows,
For February, how does 753 houses and 409 condominiums on the market compare to an average year? Over the last 15 years or so?
Also, how much of a downpayment does a person need to put down to avoid the evil CMHC fees? (I believe they are 3% of the mortgage)
April 15th, 2009 at 3:30 PM
Jason,
That “rainy day fund” was at $3.1 billion mere months ago. A few weeks ago the Star Phoenix reported that it was nearly down close to $1 billion. Guess what! It seems to be raining. At this rate it will be gone by spring.
http://tinyurl.com/busw25
Commercial real estate is apparently still quite strong here with very few empty spaces, but yes, some of my commercial colleagues do see some clouds forming. If consumers decide to start saving and stop spending it won’t take long for business to start hurting some.
Potential buyer,
“For February, how does 753 houses and 409 condominiums on the market compare to an average year? Over the last 15 years or so?”
I don’t think anyone has ever recorded and saved the data that finely sliced, at least not over the long term. I can tell you, as I mentioned in the post that last year at this time we had 189 houses and 135 condos. These levels were ridiculously low by the way, hardly a month’s worth of inventory.
Total active residential listings is a number that has been around a little longer. At my fingertips right now, for the end of January in each of these years:
2009 – 1,156
2008 – 324
2007 – 272
2006 – 504
2005 – 589
2004 – 496
If you look back to 2004-2006 you are probably looking at fairly “normal” inventory levels for the end of January, so while we are up about 3.5 times over last year we are likely about double what we should be.
On CMHC fees: You can normally avoid them with a 20% down payment, but the premium charged does decline as the down payment increases. 5% down will result in a premium of 2.9%, while the charge at 15% down is 1.75%
April 15th, 2009 at 3:30 PM
Norm, (first point) the most recent numbers that Stats Can has published indicated that the personal savings rate dropped from 3.5% at the start of 2008 to 3.0% Q3 2008. It’s projected that it will have increased in Q4 2008 and will be a lot higher by the end of 2010.
http://www40.statcan.gc.ca/l01/cst01/indi02a-eng.htm
http://www.rbc.com/economics/quicklink/pdf/economy_can.pdf
I don’t necessarily agree with the RBC forecast because I think we’re entering a period of declining consumer spending (certainly in the auto and housing sectors), and I think the personal savings rate could actually wind up being a lot higher.
On the flip-side, the US has clearly moved from a negative consumer savings rate of -0.5% in 2005 to a current rate of about 3.6%. Of fairly important significance is that this has only happened twice before in history, from 1932-1933 during the Great Depression. This article on MSNBC from January 2006 is quite ominous in its foreshadowing…
http://www.msnbc.msn.com/id/11098797/
(second point) Looking at the historical starting numbers for January that you posted, it would seem reasonable that we’re going to see an unusually high number of listings again in 2010 as well before there exists the potential to return to a more balanced housing market.
April 15th, 2009 at 3:31 PM
I think Macleans doesn’t like Saskatoon.
http://blog.macleans.ca/2009/02/19/what-can-500000-buy-you/
Look at those pictures… they go shopping for a half-a-million dollar house in Saskatoon, and they choose to show a downtown loft-style condo with one bedroom and two bathrooms? (Yes, that’s what it says) I know that Saskatoon housing is pricey, but the only other city IN THE WHOLE COUNTRY where they showed a condo was Vancouver… and that, I can understand.
I just went to mls.ca and searched for wht’s available between 475k and 500k. How about any of these as more representative samples?
http://www.realtor.ca/propertyDetails.aspx?propertyId=7787864
http://www.realtor.ca/propertyDetails.aspx?propertyId=7872542
http://www.realtor.ca/propertyDetails.aspx?propertyId=7758517
(Norm, I hope tht linking these doesn’t offend or break any real or implied TOS. If so, please remove.)
April 15th, 2009 at 3:32 PM
Why are prices not coming down? Inventory is rising and the prices have remained fairly level at the average and median levels.
What am I not getting?
April 15th, 2009 at 3:32 PM
cyn_d,
averages and median only give a person an idea on what is actually happening in the housing market. I would venture that all properties have lost market value compared to last year.
Why is that? There are fewer entry level homes (condos and starter homes) selling percentage wise compared to last year. This is skewing the average price, by how much? Norm?
Last year there was still the hype of being priced out forever and unfortunately some first time buyers could only afford a condo. Investors were also buying condos.
I think these types of buyers are non-existent for condos this year so far. But I do have to say that the new Stonebridge 2 bedroom condos going for 189k are getting close to rent payments, so we may see more sales in the condo department but I would not hold my breath.
April 15th, 2009 at 3:33 PM
Norm,
Here’s my question, when it comes to inventory levels and sales trends why are we comparing everything to last year or the preceding year there was nothing normal about them.
It strikes me as a means to sensationalize rather than to represent truth, I realize that “a fifty-four percent decline from the same week last year ” makes for heated conversation but really it is a useless point is it not? other than to get people talking negatively about our great city.
In comparison to other centers in stable times is our inventory truly climbing to outrageous levels? On a listings per capita homes? With a relatively strong economy in our province should those not be the comparisons we look at?
The other thing I’d love to see taken into consideration is the abundance of poorly done, tasteless flips, the overabundance of new builds sitting due to poor planning on the part of greedy developers.
Maybe most of you are negative, maybe I’m optimistic, and maybe the answers in the middle somewhere, I don’t know.
cyn_d asked why are prices not coming down, my argument would be because there is no reason for them to do so, yes there may be those who deperately need to sell off their houses but it’s not abnormal for some houses to sit on the market for a while.
Not finding the right buyer for a property right away does not mean the property is worth less – selling a home is not about bribing the buyer to take it off our hands by lowering the price.
April 15th, 2009 at 3:34 PM
Brian –
Current total residential inventory is 1200, more or less. We haven’t seen the spring spike of listings yet.
The *highest* inventory in 2004 was 729, in August 04.
The highest inventory in 2005 was 738, in May 05.
The highest inventory in 2006 was 650, in May 06.
The highest inventory in 2007 was 650, in October 07,
I think that answers your question, eh?
April 15th, 2009 at 3:35 PM
cyn_d, several reasons. Prices have fallen – it’s just not reflected in the average selling price (see Norm’s January analysis for specifics). Sellers are still largely in denial and buyers are not convinced (yet) that even better opportunities await just around the corner. Once the reality (and finality) of the worldwide economic crisis fully impacts this province, that blissful optimism is going to be quickly replaced by cold, stark fear, and then we’re going to see movement in this housing market like nothing before.
April 15th, 2009 at 3:35 PM
jrochest, what was the highest inventory in 2008? Did we break 2,000 at any point?
April 15th, 2009 at 3:36 PM
Bookrat,
Interesting story, and I agree that they really went all out to find something that didn’t look all that great for the money. I was just looking at a nicely finished 2300 square foot two-storey split (brand new) for $499,900.
cyn_d,
Prices are down significantly from the peak. It’s not so obvious because the house to condo sale ratio is 4:1 this year compared to 3:2 last year. This change is contributing to a higher average. Apples to apples, prices were pretty much identical across the last two Januarys.
Brian,
You’re right that when we compare to last year things look a helluva a lot worse than they do if we talk 5 year averages and I have stressed that point repeatedly in recent weeks even insisting that demand is reasonably good. Whether or not last year is a good benchmark really isn’t the point. Buyers and sellers are probably both best served if the understand the truth about how things are changing. Consider that we did have very few listings last year at this time. Consider that demand was remarkably strong at this time last year. Consider that we still managed to hit 1200 listings and lose about 15% in value. Now consider that sales are down year-over-year and new listings are up year-over-year. These are things I think I’d like to know as a buyer. As much as I might hate what’s happening as a seller, the info would be even more valuable to me in that case.
April 15th, 2009 at 3:36 PM
Jason,
We did not break 2,000 units at any point last year but peaked somewhere just over 1,800 units.
jrochest,
The year-over-year comparison is definitely the appropriate measure for comparing inventory, unit sales and prices as it takes “seasonality” into account. The bears hated it when it painted a rosy picture and the bulls will hate it when it looks bleak, but it’s still valid (though I accept Brian’s point that it may be fairly useless when comparing one week’s sales, listings, etc.).
With that in mind let’s look at the active inventory for the past five years at the end of February.
2008 – 369
2007 – 252
2006 – 526
2005 – 615
2004 – 528
Today – 1274.
April 15th, 2009 at 3:39 PM
I read this in the Maclean’s magazine. http://blog.macleans.ca/2009/02/23/the-shocking-truth-about-the-value-of-your-home/
Basically says that reports put out by real estate associations are biased and those who put their money where their mouth is (investors) are betting that the Canadian housing market is going to get hit hard.
Sorry for contributing to the doom and gloom (it’s too easy!) but I think it’s interesting to know how investors see the situation. They don’t care about real estate market itself, they just care about the direction of prices, when to get in, when to get out… money.
April 15th, 2009 at 3:39 PM
“Not finding the right buyer for a property right away does not mean the property is worth less”
Brian,
No, less demand does not mean your property is “worth” less, any more than increased demand means your property is “worth” more. Your property is only worth what a buyer is willing and able to pay for it at the time that you sell, like anything else that might be sold in the marketplace.
“selling a home is not about bribing the buyer to take it off our hands by lowering the price”
Perhaps not, but if your house is not competitively priced in this market, it may be on the market for quite some time, and you may run the risk of “riding down the market”. This strategy can be very risky if you *have* to sell. If you don’t *have* to sell, by all means, try to wait it out.
April 15th, 2009 at 3:39 PM
I just found a couple of clips from BNN’s show “The Close”: they’re doing a series on real estate this week, all week. Nice, balanced and intelligent coverage for much of the hour. Yesterday they talked to a bear, Brian Ripley:
http://watch.bnn.ca/the-close/february-2009/the-close-february-24-2009/#clip142895
And they followed it with a report on Saskatchewan: apparently, a bungalow goes for 300K here! Who knew?
http://watch.bnn.ca/the-close/february-2009/the-close-february-24-2009/#clip142904
And a discussion of the Teranet futures market:
http://watch.bnn.ca/the-close/february-2009/the-close-february-24-2009/#clip142918
The “Stars and Dogs” sections (at the close of the show) are debates on housing — will prices rise, will they fall, should you buy or rent…
The “Bull” side was dealt with today — Don Campbell from REIN (a pretty sane bull, and I speak as someone wearing a Grizzly suit — he’s buying for long-term cash flow, not looking for appreciation):
http://watch.bnn.ca/the-close/february-2009/the-close-february-24-2009/#clip143315
And the other is David Foot, the demographer who wrote “Boom, Bust and Echo”:
http://watch.bnn.ca/the-close/february-2009/the-close-february-24-2009/#clip143313
Two *very very* bearish bulls: it’s quite balanced.
April 15th, 2009 at 3:40 PM
Oh, and I wasn’t trying to make things look worse, exactly, Norm — just pointing out that the highest inventories of the previous years are much less than what we have now.
April 15th, 2009 at 3:40 PM
I just wanted to comment that I love to read this blog, even though I am not involved in real estate.
A big thanks to Norm for the effort to provide much needed information. Also thanks to all the commentators, which are often just as interesting as the initial post.
April 15th, 2009 at 3:41 PM
Wow! Some interesting inks there. Thanks Matthew and jrochest.
jrochest,
I understood what you were doing. I just wanted to point out that while our inventory is high in comparison to peak months in previous years it’s really high when compared to previous Februarys.
Crikey and Brain,
“Not finding the right buyer for a property right away does not mean the property is worth less”
That’s exactly what it has meant for countless sellers over the past eight months. If property values are falling steadily, your house is worth a little less as each month passes. Unless there is something very unique and special about the property that protects it from falling with the rest of the market, the longer it takes to find the right buyer, the less it is likely to sell for.
Christinerg,
Thanks very much!
April 15th, 2009 at 3:41 PM
jrochest,
Some pretty fascinating video that you posted there. You have to wonder why the media was not going so deep on housing while prices were climbing.
I thought that “stars and dogs” was particularly interesting but why the heck would they pick Gregory Klump, Chief Economist for the Canadian Real Estate Association as their judge? I have never seen a judge dance around a question like that before, but in the end he did pick go with the dog argument.
In the Saskatchewan video, I thought Andy made a good point that “small markets can turn on a dime.”
By the way, what has to happen for Sask to not be “booming” anymore? Not that I want it to be over, I’m just curious how I might know when it is.
April 15th, 2009 at 3:41 PM
Norm,
I’m certainly not going to argue that prices are highly likely to continue coming down in this market. I’m getting the feeling that we’re working from a different definition of “worth”, here… I guess I’m not equating “worth” with “price”. Most people do, perhaps. My point to Brian was that houses don’t increase in intrinsic value- a 70-year-old house’s “worth” in sheltering you is exactly the same as it was 70 years ago. It did not increase in value by itself at all. If you have renovated or upgraded the house (productive work was added to it), then yes, that may increse the house’s “worth”. Unless there’s a bubble or a crash, over the long term house *prices* tend to simply reflect current salaries, interest rates, and rate of inflation. If prices and salaries fly out of whack, they tend to revert to the mean. No question, this is particularly nasty for those that paid peak prices of the cycle and need to sell into a falling market.
April 15th, 2009 at 3:42 PM
Wow, there sure are a lot more listings this February than in the past. I’m wondering, though, what proportion of those listings are rentals/condo conversions compared with in the past. If I owned rental property, I’d probably have put it up for sale last spring and retired from being a landlord! If it didn’t sell, I would still be trying to sell it today.
April 15th, 2009 at 3:42 PM
Federal debt clock returns
http://network.nationalpost.com/np/blogs/fpposted/archive/2009/02/25/federal-debt-clock-returns.aspx
Where are we going?
April 15th, 2009 at 3:43 PM
George, back to the 90′s, I suspect… although I can’t help but wonder how with close to one third of the population set to retire we’re going to manage the increased debt load with the reduced tax base (also note: the “your share” isn’t per taxpayer but per citizen).
April 15th, 2009 at 3:43 PM
Jason,
there are two ways, higher taxes down the road and higher inflation down the road. But inflation is really just a tax. I believe all governments will have coordinated attempts of inflating their way out of this mess, there is no other way. In the end if it does not work, they will say at least they tried.
April 15th, 2009 at 3:43 PM
Wow, it’s quite amazing to see what’s happening with the relationship between new and existing home sales down south. Check this out:
http://tinyurl.com/dl4rxr
“For a number of years the ratio between new and existing home sales was pretty steady. After activity in the housing market peaked in 2005, the ratio changed. This change was caused by distressed sales – in many areas home builders cannot compete with REO sales, and this has pushed down new home sales while keeping existing home sales activity elevated.”
A large percentage of existing home sales (45% according to the NAR) are distressed sales: REO sales (foreclosure resales) or short sales.
April 15th, 2009 at 3:44 PM
Norm — yeah, I thought the same thing, and I was delighted to see that he finally cracked and went with the ‘dogs’ side of the debate. Poor sod; his inbox is probably overflowing right now.
It was the most reluctant judgment I’ve ever heard, though
The next day the “Stars and Dogs” was a debate on buy/rent, and the woman who was judging went with ‘buying’ (“Renting is throwing your money away!”).
Today they’re talking about the condo market, which will be really, really interesting — Toronto has a whole bunch of big holes that were supposed to turn into big monuments to, well, stuff.
My favorite is One Bloor East, which was supposed to be an 80 story behemoth with 600 condos and a 150 room hotel, but is now The World’s Most Valuable Vacant Lot. Given that the development company is based in Kazakhstan (“Borat”, that Kazakhstan), that funding from the project came from Lehman Brothers, and that the city hasn’t even issued a shoring permit, I have my doubts about the project…
April 15th, 2009 at 3:44 PM
George, so basically higher taxes. A lot of the major economies seem headed towards some period of deflation, and I agree that governments will try to inflate sooner as opposed to later. What are your thoughts on where interest rates might be 1-5 years out? Are we headed for double-digit interest rates again like the mid-80′s?
April 15th, 2009 at 3:44 PM
Jason:
Forget double digits – if mortgage rates go up even to mid or high single digits then you get a lot more insolvent people and a lot lower house prices. Many people with mortgages are, I’m sure, blissfully unaware that we are at historical lows for mortgage rates.
Let’s look at some numbers. Take that ‘average’ $290k Saskatoon house. With 20% down, that leaves $232k of mortgage. Assume a 25-year amortization.
At 4.5%, monthly payment is $1284. It will take 8.5 years to pay off the first 20% of the mortgage.
At 7.5%, monthly payment is $1697. It will take 10 years to pay off the first 20% of the mortgage.
At 9.0%, monthly payment is $1920. It will take 11 years to pay off the first 20% of the mortgage.
At 10.5% monthly payment is $2153. It will take 12 years to pay off the first 20% of the mortgage.
Flip that on its head. Keep the carrying costs relatively stable ofer a 25 years mortgage
At 4.5%, $1284/mo gets a $232k mortgage, which will buy a $290k house.
At 7.5%, $1287/mo gets a $176k mortgage, which will buy a $220k house.
At 9.0%, $1291/mo gets a $156k mortgage, which will buy a $195k house.
At 10.5%, $1290/mo gets a $139k mortgage, which will buy a $174k house.
Pay close attention to this: if mortgage rates go up by just three percent to 7.5% then the average price of a house has to plummet by SEVENTY THOUSAND DOLLARS in order for people to maintain the same debt load to buy it. Doubling the current mortgage rate would require a haircut of almost a hundred grand.
(Assuming that the conditions remain the same, of course. Which they didn’t – ‘teaser’ rates, 30-, 35- and 40-year amortizations, and all sorts of other tricks allowed the carrying costs to stay low while the prices kept spiralling higher.)
Most people have no concept of how hard math hits you in the face if mortgage rates go up — or makes things look cheap if the rates are low. Cheaper carrying costs is one of the significant factors that fuelled the bubble.
April 15th, 2009 at 3:45 PM
What happens if Saskatoon gets to 2000 listings? Does City Hall throw a party? Will there be cake? I get the impression that the number of listings more indicates how many people think that their house is a guaranteed 649 ticket than the real state of the market.
For such a large number of listings, there really isn’t that much to look at for first time buyers. Don’t get me wrong, there’s better pickings than last fall, but its still not easy, especially if you don’t want a condo or to be a landlord yourself.
April 15th, 2009 at 3:45 PM
Jason,
I think we will see major inflation down the road, but because the government uses the CPI ( bogus!) to measure inflation I don’t think rates will go to double digits.
I believe there will be more money pumped into the system percentage wise in this era than the 80′s. But I do not believe we will see 80′s interest rates.
April 15th, 2009 at 3:46 PM
“I think we will see major inflation down the road…”
I agree. Perhaps, some would argue, all the more reason to grab a house when the market seems to bottom a bit,and rates are still low, some delicate combination of the two, maybe this summer or fall in Saskatoon, lock in for ten years at 6 percent, and hedge that coming inflation. Your principle will be a much smaller percentage of the nominal value of your house when the ten years is up. Making you that much richer. That, or buy gold. But a bank won’t lend you 80 percent of the purchase price to buy gold.
April 15th, 2009 at 3:46 PM
Bookrat, I think you’ve clearly illustrated how even a small interest rate increase of just a few percentage points could substantially increase the monthly payment. And, in addition, how a lot of these 30, 35 or 40-year “creative” mortgages have the potential to reset to much higher values when the current “teaser” interest rates expire in a few years (not unlike sub-primes in the US, really).
Macleans ran an interesting article the other day (definitely a must-read):
http://blog.macleans.ca/2009/02/23/the-shocking-truth-about-the-value-of-your-home/
With your last statement, do you think there’s a lot of probability that we’ll see optimal conditions for the “perfect housing storm”? ie: gradual interest rate increases accompanied at the same time by falling housing prices.
George, I would tend to agree that it’s unlikely we’ll see a return to the high double-digit rates of the 80′s. I do feel that there is the potential for rates to return to the high single-digits within the next 5 years (and some of the brokers I’ve spoken with don’t anticipate rates remaining this low for more than another year or two, at most).
April 15th, 2009 at 3:49 PM
Mark, not that I disagree, but I can’t help but wonder how many buyers could afford the monthly payment at 6% over a longer term vs. a lower monthly payment at some of the current teaser rates, ie: 3.75% (etc.)?
April 15th, 2009 at 3:49 PM
Jason,
Why are you calling them “teaser rates?”
My 3.75% interest rate is good for the entire term. When it matures I have every option I’d have at the outset of a 6% mortgage rate package.
Teaser rate implies that it’s only good for a portion of the mortgage term and then “resets” to a higher rate locking the buyer in. Do you know of Canadian offerings that are truly “teaser rate” offerings?
April 15th, 2009 at 3:49 PM
Norm,
Some developers here in BC are “buying down” mortgages in order to sell without discounting the property. Here is an example. A local developer is offering mortgages, up to 385K, at 1.95% for a three years with only 5% down. For all intensive purposes this is a “teaser mortgage” because at then end of 3 years the homeowner will have to refinance at much higher rates. If they only put 5% down and amortize over 35 years their payments are going to jump up considerably.
This is the same kind of foolishness that got the US housing market in trouble.
April 15th, 2009 at 3:50 PM
What’s the lowest mortgage rate anyone has heard of?
Floating, 5 year fixed or longer?
What is the longest fixed rate available?
April 15th, 2009 at 3:50 PM
Good discussion going on of late. Well as I’ve mentioned before, I’m an American living in Canada, so all I can offer is an American perspective about rates.
You see, all this massive spending by the bankrupt US government requires money from the capital markets. Increased supply+less demand=high rates. The more stimulus packages get passed, the more treasury supply is necessary, which starves the futures markets.
Once an auction fails, bond yields in the US will go up, crushing the mortgage market. How high will they go? It won’t have to be much: high single digits will do enough damage. And I’m sure an auction will fail, because the number of dollars circulating is scarce, due to the fact of the economic slowdown (see Japan’s recent GDP disaster).
Now, what kind of effect will an US failed auction have on Canada? It’s probably safe to assume that rates in Canada will rise, but not as high. Still might be bad enough to hurt real estate down for some time. Keep an eye on those bond yields. And if you have money in the stock markets, be careful. This is the mother of all bear markets. Chow!
April 15th, 2009 at 3:50 PM
Norm, no one offers a closed or variable rate mortgage at these rates for periods of more than 5 years, which means you’ll essentially be refinancing every few years at whatever the best rate/term is at the time. And should we enter a period of inflation with higher interest rates the net end result will be the same as an Alt-A or sub-prime.
April 15th, 2009 at 3:53 PM
Roger, thanks — that’s an excellent example!
Potential, I’m not sure how comprehensive this is, but I was just referencing this website (http://www.canequity.com/). From what I gather a 25-year closed is still the longest, setting you back 9.45%! I think Norm indicated he was able to secure a 3.75% rate, but I don’t recall if this was for a term of 3 or 5 years.
The_Chartist, and not just stimulus packages, but for future budget deficits as well. It’s either that or some fairly significant tax hikes… I think your analysis is bang-on and the only additional point that I would add is that I believe demand is going to vastly outstrip supply, thus compelling a considerable degree of competition.
April 15th, 2009 at 3:53 PM
That is an excellent example Roger but I think it’s a fairly unusual example as well. Obviously it’s specific to a certain project (or seller) as opposed to a lender’s policy, and I suspect that the buyer for these homes would have been qualified at the full rate? I understand that some 40% of U.S. mortgages were “sub-prime” and one of the problems was that people didn’t have to qualify at all. No employment verification, no income verification, no verification of assets.
Jason,
Suggesting that my 3.75% (three-year) mortgage is “sub-prime” because rates might rise some day is a bit of a stretch. It’s simply a term during which I’ll enjoy a lower rate than I did during the last term, and quite possibly better than I’ll enjoy during the next term. Nothing kinky about that.
April 15th, 2009 at 3:53 PM
Jason,
Lol…and then I read this at the link you posted.
“DOOM and GLOOM Be Gone!
Don’t listen to everything you hear. Be informed and keep things in perspective. Remember, rates haven’t been this low in over 50 years! Plus, the price of homes in Canada has come down. That means you CAN afford to own again. With the combination of low rates and lower housing prices, you might miss the boat if you wait to buy a home’; If you have bills that are piling up or too much credit card debt, imagine the feeling of keeping hundreds of dollars more in your pocket because you chose to roll all that debt into your existing mortgage. We do this everyday and we are saving people thousands in interest.”
Certainly I do accept that our world is full of shysters that will go to any length to make a deal work.
April 15th, 2009 at 3:54 PM
Norm, that’s the textbook definition of spin, isn’t it…
I’d actually heard of a few developers in Alberta offering to make the mortgage payments for one full year. But to your first point, take these two examples for comparison:
1. Existing homeowner (pre-boom) who utilizes the lower short-term interest rates to make the same (or greater) monthly payment to build up more equity in their home. If interest rates increase they will have some degree of flexibility to refinance.
2. New homeowner (who bought at the peak), except even with the lower interest rate their monthly payment is still the maximum they can afford. If interest rates increase, they may not be able to afford the new monthly payment and may not have any flexibility or option to refinance.
Combine the latter example with a 30, 35 or 40-year amortization and you’ve got the equivalent of a sub-prime. This is currently happening with a lot of non-CMHC loans that are now resetting after their initial period. Based on the new lending requirements many homeowners no longer qualify for refinancing and face foreclosure.
April 15th, 2009 at 3:54 PM
Jason,
Here is an actual example to back up the statements you made in your post.
A buyer puts 5% down on a 420k property and gets a five year, fixed 400K mortgage for a great rate of 4%. The amortization is for 35 years. Payments will be $1763 per month. They are tight financially and have no money to make extra principal payments during the initial 5 year term.
What happens when they go to renew? Does anyone think rates will be this low after the recession ends?
Click may name to see what will happen if rates are 5-7%. Note after 10 years they will still owe around 340-350K on the property. What will the property be worth after the recession?
April 15th, 2009 at 3:54 PM
Jason,
Here is an actual example to back up the statements you made in your post.
A buyer puts 5% down on a 420k property and gets a five year, fixed 400K mortgage for a great rate of 4%. The amortization is for 35 years. Payments will be $1763 per month. They are tight financially and have no money to make extra principal payments during the initial 5 year term.
What happens when they go to renew? Does anyone think rates will be this low after the recession ends?
Click may name to see what will happen if rates are 5-7%. Note after 10 years they will still owe around 340-350K on the property. What will the property be worth after the recession?
April 15th, 2009 at 3:55 PM
Jason,
“Based on the new lending requirements many homeowners no longer qualify for refinancing and face foreclosure.”
I doubt this would start to happen. Worst case, if a homeowner is underwater, the bank might renew a mortgage to the value of the house and then give an unsecured line of credit for the remainder. I don’t think there are many homeowners under water in Canada that are due for refinancing unless they bought at the peak with a one year term. One second thought there might be quite a few investors who had open mortgages for 6 months and thought they could sell but haven’t. I know in Edmonton there are properties that have been on and off listed for over the last 18 months. So these could be the properties under water.
April 15th, 2009 at 3:56 PM
Mark,
while it is possible house prices may double in 10 years because of the inflation we will see down the road, we would need to see a few years of average wage gains of at least 10% for houses to do that. But to buy in anticipation of the possibility of that happening is not the best investment idea. People should buy only if it is affordable, plain and simple.
April 15th, 2009 at 3:56 PM
“People should buy only if it is affordable, plain and simple.”
I agree. But if prices slide another 10 percent in Saskatoon over the next six to nine months, a good strong bid on the right house with a low long term fixed rate might be a better move than waiting for a bigger correction down the road and 8 percent interest rates. A potential home buyer might not neccesarily find a better market to buy in 24 months from now, and going forward. If I was in Saskatoon, and could afford the median house, I probably wouldn’t buy today, unless I found the house I really wanted. But I might seriously start looking at this fall. Interest rates should still be pretty low then and prices should be better. But, then again, who knows.
April 15th, 2009 at 3:56 PM
Roger, excellent (thanks!)
Norm, let’s not forget that up until recently, Canadian homeowners were able to obtain 0% down/40-year mortgages with less credit requirements (albeit more than sub-prime) than previously. The 5% down/35-year mortgage is not that much of an improvement and still gives homebuyers enough rope. And there were sub-prime mortgages available in Canada, btw (see following).
George and Norm, I can’t recall which issue, but I believe there was an article in Business Week magazine a few months back that discussed the private mortgage lending industry in Canada. In a nutshell, several of the smaller players (Accredited, GMAC, Ge Money, Home Trust, MGIC, PMI, Xceed, etc.) have folded up shop and/or moved away from sub-prime mortgages to traditional mortgages that qualify for default insurance under CHMC.
http://www.realestatetalks.com/viewtopic.php?f=8&t=36743&start=15&st=0&sk=t&sd=a#p123993
So for homeowners that obtained a sub-prime mortgage in Canada, or for anyone speculating with a short term (as George has suggested), depreciating housing values in situations where there is little or no equity could easily place homeowners underwater and make refinancing an issue.
Mark, I’ll just reiterate my point that I don’t think a lot of first time homeowners can really entertain (or afford) the monthly payment on a more traditional 10, 15 or 25-year mortgage, due to the higher rates. That being said, up until recently housing prices have continued to increase year-over-year, and no one’s really given a lot of consideration to what it really means to be “underwater”. Those holding mortgages with little or no equity may not be able to refinance without additional capital, which would potentially lead to sale or foreclosure (both at a loss).
April 15th, 2009 at 3:59 PM
Norm, I know you don’t like referencing individual listings, but the greatest one just came up on Points 2 in City Park!
Check it out quick before its gone!
‘Can you tell me how to get, how to get to Saskatoon!’
April 15th, 2009 at 4:23 PM
Roger,
You said:
“Here is an actual example to back up the statements you made in your post.
A buyer puts 5% down on a 420k property and gets a five year, fixed 400K mortgage for a great rate of 4%. The amortization is for 35 years. Payments will be $1763 per month. They are tight financially and have no money to make extra principal payments during the initial 5 year term.”
Unfortunately, you are right. But what I’m not clear about in your statement is, are you blaming banks or homebuyers for this predicament?
Frankly, why on earth would any reasonable person put themselves into this situation!! So what if the banks were lending the money. The reality is that new home buyers have to be responsible.
We’ve become a society of “must have now”, and living beyond our means. When I bought my first place, (which was in Vancouver by the way) I made sure that even if interest rates doubled by the time my mortgage term came due, I could still afford the payments.
It is beyond me why first time home buyers feel they are entitled to buy $400k homes when there are plenty of perfectly good homes (many with revenue suites) in the $250k range.
Anyway, that’s my rant for the day!
April 15th, 2009 at 4:23 PM
Jason,
“Norm, let’s not forget that up until recently, Canadian homeowners were able to obtain 0% down/40-year mortgages with less credit requirements (albeit more than sub-prime) than previously. The 5% down/35-year mortgage is not that much of an improvement and still gives homebuyers enough rope. And there were sub-prime mortgages available in Canada, btw (see following).”
While there were by definition some “subprime” mortgages available in Canada. You don’t seem to be getting the fundamental differences in Canadian and American housing. CMHC and Fannie-Mae/Freddie Mac are about as different as they could be. CMHC while not perfect acts as a safety net for lenders while in reality Fannie-Mae and Freddie-Mac were simply there to create a “successful mortgage market” i.e. to create investment opportunities through mortgages. This is one difference.
Another MAJOR difference is that in the US their mortgage interest is tax deductible. Therefore, they are “rewarded” for borrowing against their home equity! Actually to the extent that many lenders were taking these tax benefits into account when calculating what people could “afford”!
The whole subprime mortgage debate is much deeper even than this, and we could argue for hours, but the point is that so-called Canadian subprime mortgages should not be lumped in with what is going on in the US.
April 16th, 2009 at 9:26 AM
Laura,
Too funny! I had no idea that Sesame Street was in Cty Park.
http://homes.point2.com/CA/Saskatchewan/Saskatoon/City-Park/2240994-Real-Estate.aspx
http://homes.point2.com/CA/Saskatchewan/Saskatoon/City-Park/2242959-Real-Estate.aspx
Dana,
You’ve made the very points I didn’t have time to make today. Thank you. The U.S. sub prime mess is a work of massive corruption. Buyer stupidity is not the same thing.
April 16th, 2009 at 9:26 AM
What we really need to know to estimate what will happen is actual immigration to Saskatoon on a more current basis than yearly. If the demand is there, the prices may be “real”.
My feeling is that the prices are significantly off-base right now, and realistically, does anyone, including the experts know where to correctly estimate where the prices should be at? Historical values, and I agree with Crikey – based on salaries, inflation and real value of a home.
In Saskatoon there is no limit to the size the city can grow to based on surrounding mountains or oceans. The little blip that was 2007-2008 is likely to cost many people a lot of money. The warning signs were there, months before prices started to decline. People now just have the mindset that the value is truly there, when it wasnt just a few years ago.
Think of what will happen as baby boomers retire, move to different locations, downsize to smaller lower mainenance homes. A younger generation burdened by debt that cannot afford the current asking prices on their current salaries.
My best advice would be to NOT buy until 2012. Saskatoon in particular seems to be a year or so behind other places. Rent will look awfully nice compared to 20% drops in equity.
April 16th, 2009 at 9:27 AM
Dana, the only essential difference between the US and Canadian markets is that our banks had (and enforced) tighter financial requirements. The housing bubble in Canada was still created by the same vehicle: wide availability of cheap credit. A 40-year/0% down variable-rate mortgage (essentially interest-only) is really different in name only; they basically function the same.
And in actuality, CHMC bears a huge amount of responsibility for this fiasco: when the government expanded private mortgage insurance in Canada, CHMC (to prevent loss of market share) set the ball in motion with an unheard of 30-year mortgage. Fannie-Mae/Freddie Mac may have started out differently, but their mortgage portfolios are now 100% government-backed.
If you have the money in an investment account to pay off your mortgage, you can do that, then refinance and reinvest the money, making the interest tax deductible (but generally speaking, this option wouldn’t be available to everyone). I’ve seen enough chrome rims wheeling around Saskatoon that would seem to point to more than a few people being rewarded for borrowing against their home equity too…!
Anyway, my main point with that post is that we did have bona-fide sub-prime mortgages in Canada (not CHMC-backed) in addition to the traditional mortgages (including 30, 35 and 40-year variants) that were backed by CHMC, AIG, CFC, etc. Perhaps only 5% of the market, but imagine what it could have looked like if our housing boom had happened a few years earlier in parallel with the US…!
April 16th, 2009 at 9:27 AM
Dana said:
“Unfortunately, you are right. But what I’m not clear about in your statement is, are you blaming banks or homebuyers for this predicament?
Frankly, why on earth would any reasonable person put themselves into this situation!! So what if the banks were lending the money. The reality is that new home buyers have to be responsible.”
I am not blaming banks at all. They will do whatever they can, legally, to make a buck. I put the blame squarely on the shoulders of CMHC and the federal government for allowing less than 10% down and over 25 year amortizations.
To answer your second question – people are not reasonable and many are foolish. They only think about the monthly payment and not about the debt that they are taking on. They live for today and sabotage their financial future. This behaviour is encouraged by the real estate industry (developers, CMHC, banks, realtors, mortgage brokers). Norm is exempted from this blanket statement :>)
April 16th, 2009 at 9:27 AM
Vancouver housing slump evident with cancellation of $500M Ritz-Cartlon project
http://finance.sympatico.msn.ca/investing/news/businessnews/article.aspx?cp-documentid=18120865
Foreshadowing for several of the high-end condo projects in Saskatoon…? (King George, Luxe, River Landing)
April 16th, 2009 at 9:28 AM
There have been several questions about mortgages in Canada (rates, subprime, stats etc.) The best blog about this topic is run by a team of Mortgage brokers in Ontario. They are very unbiased in theirview and have lots of useful info and stories. You can read their archives and find the answers to just about any question.
Click my name and you will get their site.
April 16th, 2009 at 9:28 AM
hanks guys – my 3 year old squealed in delight when those pic’s popped up!! She’s wondering if anyone can find Zoe . . . I’ll help her out on that one lol.
April 16th, 2009 at 9:30 AM
Laura: shouldn’t that first property be described a little differently?
Lot size 2′x 2′. Lot shape: ’round’. Exterior finish: aluminum siding. Roof: metal lid.
Property features: Alley view, open plan layout, central air.
Do NOT disturb tenant!
April 16th, 2009 at 9:31 AM
What’s hilarious to me is that for the past month my 3yr old daughter has been insisting that Elmo lives downtown!
April 16th, 2009 at 9:31 AM
Lots of great discussion here! Further to the discussion, there are a couple more structural differences between Canadian and US housing/mortgage markets:
-Most US mortgages are non-recourse; ours aren’t. I believe in most provinces (I honestly don’t know about Saskatchewan) home mortgages are full recourse loans. This means that if a borrower defaults on his mortgage, the bank can come after not only the home collateralizing the mortgage, but also most other types of assets owned by the borrower, e.g. bank accounts, brokerage accounts, etc. (certain assets in retirement accounts etc. may be shielded from creditors under Canadian law). In the recourse case, there’s much more to lose by defaulting if you are underwater on your mortgage. Then again, there are both non-recourse (California) and recourse (Florida) states in the US, and I’m not sure if there’s been an appreciable difference in default rates or price declines. This would be interesting to find out!
-Our banks have faced less political/legal pressure to give mortgages to riskier borrowers.
The CMHC started to do 5% down mortgages in 1999, Fannie and Freddie had been offering these since 1993 and had already moved up to 3% down mortgages by 1996. CMHC introduced 100% mortgage products in 2006 (no down payment). Fannie and Freddie had pioneered those products in 2001 and 2000 respectively.
MBS as a percentage of outstanding mortgage debt was never higher than 20% in Canada. It hit 50% in the US at one point, if I’m not mistaken.
Jason,
I’m not sure about the others, but I drive by the Luxe every day, and it appears to plodding along slowly but surely.
April 16th, 2009 at 9:31 AM
The Luxe is going up: so is the King George, which is near completion.
I admit to grave skepticism about River Landing moving forward, which is very sad: I think it would be a much needed shot in the arm in that neighborhood, and it would complete the riverfront.
Many of the other planned units and lots of the bigger condo conversions (the Milroy?) will probably never happen.
April 16th, 2009 at 9:32 AM
It seems to me that the net effect of Canada’s current mortgage-interest arrangement (vs allowing borrowers to lock-in their rate for 30 years, as in the US) is simply to shift the burden of future interest rate risk onto the borrower rather than the bank.
Although with size of the bailouts in the US, the taxpayer is pretty much back-stopping their banking and mortgage industry anyway… just a different way of socializing losses, I suppose.
April 16th, 2009 at 9:32 AM
Crikey, I agree it’s unlikely that Meridian won’t complete the Luxe; I do wonder how long it will take to sell those penthouses, though. I think the River Landing Village is DOA and has the biggest potential for a walled-in pit to complement the scenic river view; from what I recall they still haven’t secured financing or purchased the land.
April 16th, 2009 at 9:32 AM
Crikey,
You were talking about U.S. mortgages bring “non-recourse.” This came up last week and I posted the following comment regarding the “rules” in Saskatchewan.
“In Saskatchewan, the “Limitations of Civil Rights Act” would prevent a lender from seeking a “deficiency judgment” following a foreclosure if the purchaser is a natural person (as opposed to a corporation) and if the mortgage proceeds were used to pay the purchase price of a principal residence. I believe that’s the way it works, but again, people facing foreclosure should speak with a lawyer who specializes in this kind of thing.”
It’s very easy for a home owner to walk away here if they find themselves seriously underwater. Hard to get CMHC to take another serious look at you for some time though.
April 16th, 2009 at 9:33 AM
Thanks for that, Norm. I was aware that it varied from province to province (and state to state in the US). I’m just not sure what the consequences of the ability to walk away might be. Any thoughts? Just to be clear, does this mean a mortgage borrower that is significantly underwater on their property here can simply walk away from their home and leave the key to the bank, even without having to declare bankruptcy (i.e. they may have the *ability* to continue to pay the mortgage but choose not to)? Do you know whether or not HELOCs/second mortgages are recourse or not? I’m thinking that they are, but perhaps it depends on the lender.
April 16th, 2009 at 9:34 AM
Crikey,
“I’m just not sure what the consequences of the ability to walk away might be. Any thoughts?”
Some people will walk away if the situation gets bad enough that it looks really challenging to get out of.
“does this mean a mortgage borrower that is significantly underwater on their property here can simply walk away from their home and leave the key to the bank, even without having to declare bankruptcy”
That’s my understanding but I’m not positive. I know there are some lawyers who visit. Can someone answer that question?
“Do you know whether or not HELOCs/second mortgages are recourse or not?”
I believe the act protects homeowners “if the mortgage proceeds were used to pay the purchase price of a principal residence.” Does raise some interesting questions, particularly about 2nd mortgages. If proceeds are short to cover 1st mortgage which was used to pay for house. 1st mortgagee would have no right of recourse, but perhaps the 2nd would?
Help! Need a lawyer.
April 16th, 2009 at 9:34 AM
Flaherty warns of sharp drop in economic activity (Monday)
http://www.calgaryherald.com/Flaherty+warns+sharp+drop+economic+activity/1337077/story.html
April 16th, 2009 at 9:42 AM
First mortgages to buy a home in Sask. are non-recourse. Yes, you can walk away without declaring bankruptcy. Your credit rating is the only thing that suffers, but all your other investments and possessions are intact.
A re-finance, however, or second mortgage, is not the same. It is a recourse loan.
April 16th, 2009 at 9:46 AM
Sask Revenues holding steady, over 2 billion surplus still projected for debt paydown as well
http://www.leaderpost.com/Business/Saskatchewan+revenues+holding+steady/1335776/story.html
April 16th, 2009 at 9:47 AM
Mark, what about a home equity line of credit in addition to the initial mortgage?
Regarding the surplus, it’s actually only $1.2B; they’re drawing down the Growth and Financial Security fund by $1.1B to arrive at the $2.3B total. I’m still glad to see that they’re using this fleeting opportunity to pay down the deficit. It would be nice to see this province debt-free and building a Heritage Fund similar to Alberta.
April 16th, 2009 at 9:55 AM
“Mark, what about a home equity line of credit in addition to the initial mortgage?”
Probably the same as second mortgage, so recourse. But not sure.
April 16th, 2009 at 9:55 AM
My understanding is that the mortgage monies have to have been used to pay the purchase price in order for that protection to be extended to the home owner. For that reason, no second charge against the title should apply.
Really interesting though that in Saskatchewan, the second mortgagee might actually have more clout than the first mortgagee in chasing a shortfall.
April 16th, 2009 at 9:55 AM
Sales down and listings climbing again … wonder how long before prices fall to try to snare some buyers?