Alberta Real-estate coming back with a BOOM

Alberta real-estate

Alberta Real-estate coming back with a BOOM!

 

Is Alberta, or maybe even Canada, in for another Real-estate Boom?  With less and less on the market many Albertans are turning towards new builds.  Some reports are stating developers scramble to respond to a supply shortage that has prices steadily increasing for existing homes.

 

But any increase in construction of new homes will likely not surface fast enough to feed the demand for housing still pumped up by record low interest rates.  By the time these new homes are built I doubt it if the current interest rates will still be so low. 

 

Canada Mortgage and Housing Corp. said yesterday 157,300 units were built last month on a seasonally adjusted annualized basis, a 5.4% increase from a month earlier. Annualized starts dropped as low as 118,500 in April.

 

“There is not a lot of inventory around,” said Gary Friend, president of the Canadian Home Builders’ Association, adding his industry has been careful not to speculate. “We have to watch our Ps and Qs, as we try to meet this demand.”

 

Any increase in supply would be welcomed as a shortage of new listings has caused a spike in prices. The Canadian Real Estate Association said last month existing home prices across the country were up 13.6% in September from a year ago as supply was short in almost every city.

 

“The existing-homes market is in short supply so we’ve gone from a buyers’ market to sellers’ market,” said Bob Dugan, CMHC’s chief economist. “The way it gets linked is you get some spillover into the new-homes market and that’s starting to happen.”  Where early this year you were hard pressed to get an offer on a house selling.  Talking with Realtors in many cities around Alberta many are finding that a well priced homes is now coming in contact with multiple offers!  Some even selling for over list prices.  

 

Here is a warning about financing.  Pre-approvals mean nothing.  Just because you are pre-approved don’t think you can go in with no financing conditions no matter what anyone tells you.  You have to make sure that whoever you are dealing with has all your documentation and it has been reviewed.  Remember that everything might be great with you but the mortgage will be secured against the property, so the property has to be approved.  Approving the property may not just be the value, it could be square footage, location, age restrictions, foundation, and hundreds of other things.  We saw a lot of this happening in 2005 and 2006 but very careful and consult with your mortgage broker before just signing on the dotted line. 

Financing for new homes!

For those who are buying a brand new home

Financing for new homes! 

 

 

CMHC has upped its forecast for new-home construction for 2010 to 164,900 from 150,300 though that’s still off the 211,000 starts of 2008.  Will there complete craziness scheduled for end of 2009 and for 2010?  Time will tell but one thing to be very careful about is getting mortgage financing.  Lenders are still very cautious about foreclosures and are still very tight on their lending guidelines.  Even CMHC and most lenders will be more restrictive then their advertised guidelines which can leave Alberta home buyers in a pickle if they go in with short or no financing terms.  Another caution is don’t get sucked into the word pre-approval!  Many banks and lenders will go for a pre-approval thinking that it means something when most mortgage lenders will not underwrite the paperwork until it is a live deal.  You may be thinking then what is the point of a pre-approval? – it is a rate hold and generally not much better.  Make sure you deal with a Mortgage specialist or a Alberta Mortgage Broker who will go through the documentation up front which will limit your risk on getting the approval. 

 

I also should mention that most Brokers and Lenders have a max of a 120 day rate hold on mortgages for new construction.  I have access to a major lender that will do it for a 6 month hold rate hold.  I just had one client that went through the builders “mortgage specialist”  oh they did a rate hold but they did it at 6.4% on a 5 year fixed.  That is over 2 full percent where all the other banks are at.  Some service that is. 

 

Other quick warnings

 

- If your house takes 6 months – 12 months to build you can only get financing of the lesser of the two purchase price or appraised value.  (a lot can happen in a year)

 

- Make sure you are reviewing your credit at the beginning and during the process.  Make sure that you are very careful with your credit because even if it is a mistake, if you credit doesn’t show well you could lose your deposit.

 

- Make sure your income is as secure as can be.  If you think there is a chance of job less or going from a double income to a single income talk to your broker.  I don’t suggest those just barely fitting under the wire to wait 6 months to actually move in. 

 

- Be aware pre-approvals mean nothing!  What guidelines the banks have now can change at any time.  If you are basing your qualifying on a 35 year amortization and it gets restricted again to 30 or 25 years you could be in trouble.

 

- Make sure that the property fits the bank – Square footage, location, type of home, ext can all change at any time so make sure you aren’t on the line. 

 

- Home builder sales agents are just sales people they are not licensed and so might not follow the same guidelines.  Note that you can bring a realtor to protect you even if it is through a builder. 

 

 

RBC - Economic Report on Mortgage rates!

Excerpts from RBC’s  Economic Updates

U . S . H I G H L I G H T S

The U.S. economy grew at a 3.5% annualized pace in the third quarter backed by a rebound in consumer spending and surging residential investment, which ended 14 quarters of decline.

Early reports on fourth-quarter activity point to another increase in output, with the ISM manufacturing
index driving solidly into expansionary territory in October and housing indicators pointing to firming sales against a shrinking inventory overhang.  However, emerging from the deepest recession since the Great Depression, the U.S. economy remains fraught with uncertainty about the health of the financial system and pockets of weakness outside of housing.

Our forecast is that the first rate increase will come late next year with the funds target ending 2010 at 75 basis points and then rising to 2.75% by yearend 2011.

G L O B A L   H I G H L I G H T S

The tide has turned for the global economy with U.S. real GDP posting a strongerthan-expected increase in the third quarter, the Reserve Bank of Australia (RBA) citing Australia’s good economic performance as a reason for raising the policy rate and China recording a breathtaking 8.9% increase in third-quarter output.

Canada, the United Kingdom and the Eurozone have yet to produce clear indications that their economies are out of recession, but conditions are improving and we expect reports of positive growth soon. Central banks are cautious, however, with only the RBA of the major central banks we cover starting to unwind monetary policy stimulus. Given the deep hole in economic activity, it is likely to be a long time before other banks will be in a position to follow the RBA’s lead, with hikes expected to come in the latter part of 2010 and continuing in 2011.

C A N A D A ‘ S   E C O N O M I C    P I C T U R E 

Unlike the United States where the data point to the end of recession, Canada’s numbers are less clear-cut. The third quarter showed stronger-than-expected gains in employment and housing, but both July and August’s GDP reports disappointed.  Our estimate that the economy expanded in September will skate GDP
back into positive territory, but the risks are that the rebound will fall short of the consensus forecast for a 2% annualized gain. Our reckoning is that on an expenditure basis,real GDP growth was 0.5% to 1% at an annual rate in the quarter.

The rebound in U.S. growth, low rates combined with government spending augur well for an improving trend to emerge in quarterly growth rates in the latter

C A N A D A    H I G H L I G H T S

Unlike the United States where the data point to the end of recession, Canada’s numbers are less clear-cut.
The economy shrank by 0.1% in August after posting no growth in July.  We think that the economy will
skate back into positive territory in September, but the risks are that the rebound will fall short of the consensus forecast for a 2% annualized gain.

Our reckoning is that on an expenditure basis, real GDP growth was 0.5% to 1% at an annual rate in the third quarter.  For the Bank of Canada, the road to the normalization of interest rates will be long. Our forecast is that the Bank will boost the overnight rate to 1.25% by the end of 2010 with further increases in 2011, yielding a policy rate of 3.5% by year-end.

L O O K    A H E A D    T O    2 0 1 0    A N D    2 0 1 1

While near-term indicators signal an end to the global recession, markets remain worried about the durability of the upturn as fiscal and monetary policy support subsides. In Canada, the recovery started with a whimper rather than a bang, but we expect the momentum to build, spurred by a strengthening U.S. economy, low interest rates and a steady influx of government spending. Consumer confidence increased for seven months and, although the index edged down in October, it remained near the highest level since early 2008. With asset values recouping part of their losses and interest rates extraordinarily low, we expect consumer spending will recover in 2010, helped early in the year by government programs like the Renovation Tax Credit. We forecast that the economy will grow by 2.6% in 2010 with the unemployment rate peaking early in the year and then drifting lower.

I N T E R E S T    R A T E   F O R E C A S T S

Quarter	Q4-09	Q1-10	Q2-10	Q3-10	Q4-10	Q1-11	Q2-11
Overnight Lending Rate	.25	.25	.25	.75	1.25	2.75	3.50
5 Yr GoC bonds	2.75	2.80	2.85	3.10	3.40	3.70	4.05

 

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