- TSX +154.57 to 13,334.73 (CP) as the U.S. Federal Reserve ended months of speculation and announced it will start cutting back on its monthly asset purchases. The Fed also went to some pains to assure financial markets that short-term rates aren't going up any time soon. It plans to hold its key short-term rate near zero “well past” the time when U.S. unemployment falls below 6.5 per cent.
- Dow +292.71 to 16,167.97 The central bank said at the end of its two-day interest rate meeting that it would cut its US$85 billion of bond purchases by $10 billion — half Treasuries, half mortgage-backed securities — starting in January. It will make further decisions on tapering based on how economic data looks, particularly in regards to employment and inflation.
- Dollar -.07 to 93.55 US as the greenback gained in value and the loonie fell
- Oil +.58 to $97.80 US amid data showing oil inventories rose 2.94 million barrels last week, less than the four million barrels that analysts had expected
- Gold +$4.90 to $1,235.00 US
Canadian 5 year bond yields markets +.02 to 1.82. The spread (obtained by subtracting the bond yield above from the industry average 5 yr rate published mortgage rate of 3.59) is close to the profit range at 1.77. If the increase in bond yield continues upward, the spread shrinks, which could prompt interest rates to rise. The range for investor desired profitability is currently a bit lower in the region of 1.80 and 2.00.
CHMC draws a line under condo bubble fears
Andrea Hopkins and Leah Schnurr, Reuters | Financial Post 18/12/13
Canadian condominium construction has surged but population growth has kept oversupply in check, the federal housing agency said in a report on Wednesday that also showed declining mortgage arrears and high home-equity levels.
In its annual report on the housing market, the Canada Mortgage and Housing Corp pointed to steady mortgage debt and an increasing number of households as evidence that residential real estate is in good shape, despite warnings from observers that the market is overheated.
Canada’s housing market avoided the crash experienced in the United States five years ago, due in part to more conservative lending standards and a stronger economy. While economists have long predicted an eventual correction in Canada, they are divided over whether prices will drop sharply or simply stagnate in a so-called soft landing scenario.
The agency’s report showed some 41% of homeowners have no mortgage, while the rest typically have solid equity levels, accelerated mortgage payments or declining arrears.
As of June 2013, 0.31% of residential mortgages were three or more months in arrears, compared with 0.33% 12 months earlier, CMHC said. Arrears averaged 0.41% in the decades 1990-2010.
About 31% of recent buyers made lump-sum payments or increased their regular payment in 2012 to pay off their mortgage sooner, and 44% had their payment set above the minimum, the report showed.
The average amount of equity for homeowners with mortgages was 47%, and 71% have at least 25% equity in their home. Only 7% had less than 10% equity as of April 2013, suggesting only about 7% of homeowners would be “under water” if prices dropped more than 10%.
CONDOS DOMINATE HOMEBUILDING
With the once-booming but cooling condominium market widely perceived to be the weak spot in Canada’s urban housing market, the CMHC said condo construction was far outpacing construction of detached homes. Even so, there were no signs of oversupply yet because of the growing population, mostly because of a strong influx of immigrants and an increase in the number of people living alone.
While single-detached dwelling starts rose just 1.5% to 83,657 in 2012, multiple-dwelling starts — typically condos — rose 17.6% to 131,170 units. Condos comprised 61% of all construction in 2012, continuing a trend that began in 2002.
The surge was most notable in Canada’s biggest cities, where cranes dot the skylines and tens of thousands of new units come on line every year. The share of condominium starts out of total starts was highest in Vancouver at 64%, followed by Toronto at 59% and Montréal at 58%.
While the number of starts suggests huge supply in the pipeline that will come to the market in the next year or two, the building boom has begun to slow and CMHC said inventories so far are not above historical levels.
Housing starts began moderating in the last half of 2012 and the first quarter of 2013, with multiple-dwelling starts declining for three straight quarters before rising modestly in the second quarter of 2013.
In 2012, urban inventories averaged 4.7 units per 10,000 people, only slightly above the long-term average of 4.6 from 1992 to 2012. By the second quarter of 2013, however, inventories were at 5.1 units per 10,000 people.
CHMC said population growth and a shift in the way people are living suggests the demand for smaller housing, including condos, will grow.
“As a consequence of population aging and the increased tendency to live alone, one-person households are expected to show the fastest pace of growth to 2036, making it the single biggest type of household by the 2020s,” CHMC said.