Royal LePage - Your Community Realty, Independently Owned and Operated, (905) 731-2000
Jim Reid, Broker, (905) 731-2000
|
INSIDE THIS ISSUE: |
MARKET FACTS: |
|
1. MY CRYSTAL BALL 2. MORTGAGE NEWS 3. MARKET ACTIVITIES 4. INFLATION/ DEFLATION |
1. GTA UNITS SALES DROP 50% IN NOVEMBER. 2. GTA AVG. PRICE SLIPS 2% BELOW 2007 PRICE. |
1. MY CRYSTAL BALL
Although there is some snow making the view into our future somewhat fuzzy, it appears that the stock markets will start to experience a short-term recovery by January 2009. The 43% drop to 8000 since the TSE's peak, suggests more fear than reality in values.
Thus, there should be some cautious hope by then and the real estate market should hold steady for December, January and February.
BUT, by March, the severance payments will run out for many of those laid-off from September thru December. Thus, we can expect property listings to accelerate throughout the Spring. Average prices may not fall much further because only the updated homes will sell. Also, the Banks aren't yet ready to sell any foreclosures at prices that would drive market prices down.
Another area to watch is new homes and new condominium prices.
Builders and Condominium Developers will have to get in line for funds when it comes time to renew their construction loans. Unless the government offers some loan guarantees, we may see some of these projects collapse and there could be quite a scramble to recover purchasers' deposits. Also, any finished inventories will have to be discounted and will represent good value for those able to afford them.
It would also appear that the Spring market might be an excellent time to invest in that second property. Cottages and Chalets will be put up for sale before principal residences. So those hit soonest and hardest by this economic crisis may decide to let these investments go.
We might also see more people opting out of the downtown lifestyles and joining the suburbs. Mayor Miller is planning major infrastructure projects that will create even more traffic chaos. The recession will influence more "work from home" activity, which is ideal for suburban lifestyles.
Following the probable TSE stock market recovery to above 9500 in January, we might expect another "stock shock" to hit before the Summer of 2009. When this occurs, consumer confidence will plummet and property values will likely ratchet down another price point. Thus, if you intend to sell, there are some prudent reasons to list your property sooner than later.
Clearly, there is more downside than upside potential at present.
2. MORTGAGE NEWS
Since November 11th, five year fixed mortgage rates have slipped from the 5.7% to the 4.9% level as the government eases its' borrowing rates by Banks from the Bank of Canada. The Variable rate rose during this period from 4.25% to the 4.65% level by December 2, 2008, although the CIBC just announced a new variable mortgage rate that is below 4%.
As the central banks massively increase the money supplies to lenders, the lenders are able to roll-over their debts for a few months. But, when they re-lend these funds, the lenders will need to try to get high interest rates to improve their earnings to cover their massive losses on their balance sheets. (This is why the new Variable rate mortgages were temporarily increased.) But, massive capital injections will reduce rates.
My concern is that property appraisals for new and renewal mortgages will soon be reflecting drops in property values. When this happens, Buyers have to cough up larger down payments, as the Banks expect purchase prices to decline and thus deflate their collateral.
If you have a mortgage renewal coming, it makes sense to renew while you still have your job and before your property drops in value.
Clearly, property values are higher at the beginning of a recession than at the end. Even an interest penalty from an early renewal would be better than having to renew at lower property values and a distinct possibility of higher interest rates later.
Also, even if you don't need to renew your mortgage, you should get your line-of-credit maximized by a new property appraisal if you haven't had one in a couple of years.
The time to get your financial house in order is quickly running out. Make sure you call me if you have any questions. Although I don't personally practice mortgage brokerage, I'm qualified to do so. Call me.
3. MARKET ACTIVITIES
In November, Richmond Hill's Heritage Estates' statistics followed the GTA's 50% market contraction, but their average YTD selling price growth of almost 10% may be misleading local homeowners.
This year has seen several sales of the largest homes in the area and thus the average sales values are skewed upwards. Also, many homes listed this year were over priced by $30k, and then after this was taken off, they sold at a fairly normal 4.8% below the new asking price. Due to the lack of buyers the average listing took 74 days to sell.
Around the GTA, we have seen the share of listings sold each month drop from 36% in April to 13.5% in November. Psychologically, everyone has decided to entrench where they are now.
Also, there's a lot of resistance to price reductions from the $376k level reached in 2007. November prices were down only 2% from this level. With tough times ahead, owners are reluctant to take more losses on the equity they have built-up in their homes. Their RRSP values also fell.
The real estate industry, the media and the politicians will be putting a positive spin on everything they can. The bottom line is that we consumers have already seen a chunk of our net worth stolen from us. By doing nothing, the markets may restore some of it within five years, but by acting prudently, there will be some excellent chances to grow the family's wealth during this world-wide depression.
4. INFLATION/DEFLATION
Why anyone would want to govern Canada right now is beyond me! Hopefully, the politicians will go home and change their diapers and let us get on with getting our country back on its' feet.
Most people understand inflation. It is the rise in prices whilst our incomes are flat. The CPI, consumer price index, measures inflation and it is up 2.6% this year.
But, for families we know that essentials such as our shelter costs are up 3.8%, (interest costs +7.2%, natural gas +11.1%, fuels +30.1%, ppty. taxes +3.2% etc.). Also, food prices are up +7.3%, (cereals +19.2%, bakery +14.2%, dairy +5.4%, fruits +13.7%, vegetables +12.3%).
Declines in clothing, footwear, car leasing and electronics may hold down the average inflation rate, but they have a high discretionary value in our household budgets. In fact, our "cost-of-living" is inflating at a rapid rate. Our dollar is purchasing fewer and fewer essentials.
Deflation is also happening. Our assets are worth less now. House prices are declining, land values are slipping, and our car trade-in values are dropping faster. Similarly, our RRSP's are being deflated by plummeting stock prices.
The problem with deflation is that the assets on company balance sheets decline in value, so the company's liabilities that were secured by these assets, have less security and thus become more risky in the minds of their creditors. In fact, a major player in the economic crisis is deflation.
The $trillions being created by central banks around the world are a desperate attempt to restore the percentage of capital and equity on the mega Bank and mega corporate balance sheets. They are trying to stop further deflation.
In fact, many economies are approaching insolvency. The solution taken by many countries after WWI, was devaluation of their currency. Just like companies in receivership, their creditors were offered 50 cents on the dollar. Rather than devalue the "global" currency, it looks like the USA will just have to print more money and deal with inflation later.