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Notable News of the Week: May 11, 2012

At the end of the work week, will summarize the most notable news, to keep you up-to-date with the latest info from the Canadian mortgage and housing industry. Canada made international noise this past week as we were rated the 7th hottest real estate market in the world as well as dominating the top ten list for the strongest banks in the world.

Canada Ranks 7th in World’s 10 Hottest Property Markets –

According to MSNBC, Canada ranks in the top ten of the World’s Hottest Property Markets. Tied with Norway for 7th, Canada experienced a five-year price growth in housing of 28.7%. National housing starts exeeded expectations this year largely due to a surge in condo construction. The average Canadian home price is $358,261, according to CREA, however, the International Monetary Fund feels that Canadian homes are overpriced by an average of 10%.
China took the top spot with an incredible five-year price growth of 110.9%, followed by Hong Kong and Israel. Asian cities made up half of the top ten.

Ottawa to consider further changes to the CMHC – The Globe and Mail

The government is considering further changes to the CMHC as a result of the heated housing market. The corporation is currently under the watchful eye of Canada’s banking and insurance regulator, OFSI, to ensure their decisions will not negatively impact the economy. Ottawa is keeping a keen eye on household debt and Toronto’s heated condo market. Finance Minister Jim Flaherty fears that the rapid development of condos could exceed the buyer rate, resulting in a housing crash. Canadian bank CEOs have told him that ultra-low mortgage rates are largely responsible for the heigthenend household debt.

Costco to push their mortgage campaign in the US – The Montreal Gazette

Costco recently announced a new campaign to promote its financial services, including mortgage products in the US; although they do not plan to make the same push in Canada. However, Canadian Costco members have been able to acquire mortgages through the big-box retailer since 2010.

Condo boom causes housing starts to soar – CBC News

Canadians are crazy for condos! Condo sales have been sky-rocketing, surpassing economist expectations with an annual pace of 244,900 as opposed to the 214,800 that was originally forecasted. The increase in housing starts was due to the high level of condos pre-sales.

Torontonians are leading the craze. In the city alone, Urbanation reports a total of 29,059 new condo units sold over the past year, hitting an all-time record of 6,070 sold in the first quarter of 2012.

Some fear that supply is exceeding demand as the CMHC estimates that 22% of condos are not owner occupied and a quarter of Toronto condos are owned by investors. However, CMHC’s senior market analyst, Sean Hildebrand, assures us that the demand for condos remains strong. Hildebrand, says that it’s still too early to suggest we’re “creating a condo bubble.” He goes on to say, “it’s probably not going to lead to a situation where condo prices need to come down by any sort of considerable amount.”

Canadian banks are better than most  – Investor Place

Here is another reason for Canucks to celebrate: Canadian banks dominated the top 10 list of the ‘World’s Strongest Banks’, conducted by Bloomberg Markets. So what are we doing right? With a banking system that is national in scope, we are protected against regional downturns across the country.

The differences between Canadian and American banking:

  • 94% of Canadians use debit cards compared to 70% of Americans. Debit cards are more popular here because of the increased security and protection, as well as the reduced fees when compared to the US
  • Canadian banks have been putting aside at least 10% of their total capital to protect against loan losses since 1999 at the request of OFSI
  • Canadian banks tend to avoid risk.

Canadians’ appetite for debt weakens – The Wall Street Journal

Canadians are starting to reduce their household debt – and it shows! Consumer credit is crawling at the slowest pace since the early 1990s, while the mortgage market shows early signs of moderation. Total household credit, including consumer and mortgage debt, is rapidly decreasing at just over 5% — its slowest pace since 2002.

Building boom or bust? – CTV News

Fear of a bubble forming in the condo market because the increase in condo construction could lead to over-supply. In an interview with CTV News, Brad J. Lamb suggests that the vertical growth of a city like Toronto is  “sustainable”, because condo construction allows large cities to grow. The real estate mogul made a bold claim by stating “prices are unlikely to drop.” He does not believe a bubble is forming at all. Lamb ends the interview with words of advice: “People need to realize real estate is a long-term asset. You need to stop counting your net worth right after you purchase.”