VANCOUVER, B.C. — It is becoming even more affordable to own a home across Canada these days but the costs could creep up again soon as the real estate market rebounds, a new report shows.
RBC senior economist Robert Hogue said home ownership became more affordable for the fifth straight quarter in Canada, and has been restored to pre-housing boom levels.
But Hogue warns the trend of increased affordability, driven by low interest rates and falling home prices as a result of the recession, could soon reverse as the real-estate market recovers.
"Overall in the second quarter we are still seeing some improvement in affordability. That being said, We are probably at the tail end of that phase of the market," Hogue said after releasing the quarterly RBC Housing Affordability survey.
Hogue said house prices are firming up in many parts of Canada and mortgage rates are not expected to fall further.
But Hogue said home owners shouldn't expect a steep jump in the cost of home ownership either. That's because of high unemployment and Canada's slow crawl out of the recession.
"That will weigh a bit on consumer confidence," he said.
The RBC index examines the proportion of pre-tax household income needed to service the costs of owning a home, such as a mortgage, property taxes and utilities.
During the second quarter, the national index fell to 39.1 per cent for a detached bungalow, 31.5 per cent for a standard townhouse, 26.9 per cent for a standard condo and 44.4 per cent for a standard two-storey home.
The report found that measures fell nationally by 0.4 percentage points for standard condominiums and 0.6 per cent for two-storey homes, detached bungalows and standard townhouses.
RBC calculates its index numbers based on an estimated average home price and estimated qualifying income that varies by location and type of property.
Vancouver remained the most expensive place to own a home, where 63.4 per cent of average household income went into home ownership costs, Hogue said.
"The cumulative declines in home ownership costs over the past five quarters have been the sharpest since 1991, which has helped revitalize B.C.'s resale housing market," Hogue said.
"Nonetheless, affordability levels are still above long-term averages, which suggests that affordability in B.C. has yet to be fully restored."
In Toronto, Hogue found 46.5 per cent of household income went towards owning a home, followed by 38.6 per cent in Ottawa, 37.3 per cent in Montreal and 35.7 per cent in Calgary.
"The latest figures show property values are still generally languishing in Calgary, but we believe that, as confidence gradually returns in the city, the stage will be set for a turnaround," added Hogue.
While the costs of owing a home are expected to rise again, Hogue doesn't believe that will stop the "impressive resurgence" in the housing market in recent months.
"Supply of properties for sale is dropping as demand bounces back, which is working to heat up prices again in many parts of the country," he said.
More signs of a real estate rebound came Wednesday when the national housing agency said new home construction increased 12 per cent in August compared to the previous month.
Canada Mortgage and Housing Corp. said the annual rate of housing starts increased to 150,400 units in August from 134,200 in July, with improvements in both the single-and multiple-housing segments.
August's annual rate of urban starts increased by 56 per cent in British Columbia, 16.1 per cent in the Prairies, 13.8 per cent in Ontario, 9.6 per cent in Atlantic Canada, and 2.5 per cent in Quebec.
BMO Capital Markets economist Robert Kavcic said the better-than-expected starts show the Canadian housing sector "is fully in recovery mode."
Kavcic said both sectors have now risen in four of the past six months, with singles sitting at the highest level since the end of 2008.
"While residential building permits have rebounded, resurgent existing home sales have been the real show-stopper," Kavcic said.
He said sales tend to lead starts by a few months, and have surged by more than 60 per cent through July from their winter low.
"With early reports pointing to further strength in August, watch for continued improvement in residential construction activity in the months ahead," he said.
Source
Monday, September 28, 2009
Monday, September 14, 2009
Safe at Home
THE financial crisis has given rise to all sorts of wrongheaded ideas, among which is the notion that we should not subsidize the “losers” who can’t make their mortgage payments. In fact, the solution to our troubles is not to restrict homeownership, but to expand it.
The timing is right. Now that prices have collapsed in many areas, low-income Americans might be able to afford to purchase homes for the first time in years. Sales of new homes in June were down 21 percent from last year. This would seem an ideal time to encourage low-income families to buy homes — if we weren’t haunted by misconceptions about the roots of the subprime mortgage crisis.
This “blame the victim” mentality is hardly new. It goes back to the 1960s, when the anthropologist Oscar Lewis wrote an article whose title took root in the American public consciousness: “The Culture of Poverty.” His basic argument was that poor people adopt certain practices that differ from those of “mainstream” society in order to survive. These might include illegal work, multifamily households or serial relationships in place of marriage. Once these survival strategies are in place, the argument goes, they take on a life of their own and lead to missed opportunities.
The popularity of the “culture of poverty” theory has had ups and downs over the decades; for example, in the 1980s the scholar Charles Murray argued that the poor responded as rationally as everyone else to economic incentives.
But Lewis’s theories seem to have gained new life in the notion that a certain stratum of Americans just aren’t capable of homeownership, and that the increase in homeownership rates contributed to the real estate bust. The “natural” rate should be around 60 percent of American households, some analysts say, not the 70 percent it reached in 2004. That’s an unfortunate argument, because owning a home can be one of the best ways for a poor family to save and accumulate assets: recent history aside, the value of a house does typically rise, and its owner avoids paying rent and gets a tax break.
We could improve the housing market as well as the security of poor families by making homeownership more attainable. Currently, the biggest policy to support homeownership other than the mortgage interest deduction is the Federal Housing Administration’s mortgage program, which works by insuring loans made to buyers through traditional lenders (that is, it decreases risk to lending agencies by underwriting the loan). However, many of the most disadvantaged Americans, and minorities in particular, do not qualify for F.H.A. loans because of their low net worth and other factors.
Into this breach stepped a North Carolina organization called Self-Help. In 1998, Self-Help received a $50 million grant from the Ford Foundation. The money was used to insure the mortgages of low-wealth families that aspired to homeownership, but had trouble getting loans in the private market. More than $2 billion in mortgages were guaranteed over five years, making homeownership possible for 27,000 families that might not have qualified for conventional loans.
This experiment of sorts provided evidence that there was a market failure in mainstream lending that was shutting out deserving borrowers. The foreclosure rate of lenders participating in the program was below the national average. This tells scholars of finance that something is not working in the traditional loan market. Many borrowers who should have been able to qualify for traditional mortgages have been shunted into the subprime market, where higher interest rates and other disadvantageous terms produce a self-fulfilling tendency of loan default.
By expanding the Self-Help program “to scale” — by underwriting mortgages for people who are now excluded from F.H.A. — the government could not only support affordable refinancing of existing mortgages but could also extend the dream of homeownership to households now shut out of the market.
Instead of critiquing low-income buyers who may have made reasonable calculations in an upbeat housing market, we should focus on building a more comprehensive system to aid low-income purchasers and repair the housing market in the process. Otherwise, we are squandering an opportunity to move past ill-formed moral discourse about poverty and its causes.
Source
The timing is right. Now that prices have collapsed in many areas, low-income Americans might be able to afford to purchase homes for the first time in years. Sales of new homes in June were down 21 percent from last year. This would seem an ideal time to encourage low-income families to buy homes — if we weren’t haunted by misconceptions about the roots of the subprime mortgage crisis.
This “blame the victim” mentality is hardly new. It goes back to the 1960s, when the anthropologist Oscar Lewis wrote an article whose title took root in the American public consciousness: “The Culture of Poverty.” His basic argument was that poor people adopt certain practices that differ from those of “mainstream” society in order to survive. These might include illegal work, multifamily households or serial relationships in place of marriage. Once these survival strategies are in place, the argument goes, they take on a life of their own and lead to missed opportunities.
The popularity of the “culture of poverty” theory has had ups and downs over the decades; for example, in the 1980s the scholar Charles Murray argued that the poor responded as rationally as everyone else to economic incentives.
But Lewis’s theories seem to have gained new life in the notion that a certain stratum of Americans just aren’t capable of homeownership, and that the increase in homeownership rates contributed to the real estate bust. The “natural” rate should be around 60 percent of American households, some analysts say, not the 70 percent it reached in 2004. That’s an unfortunate argument, because owning a home can be one of the best ways for a poor family to save and accumulate assets: recent history aside, the value of a house does typically rise, and its owner avoids paying rent and gets a tax break.
We could improve the housing market as well as the security of poor families by making homeownership more attainable. Currently, the biggest policy to support homeownership other than the mortgage interest deduction is the Federal Housing Administration’s mortgage program, which works by insuring loans made to buyers through traditional lenders (that is, it decreases risk to lending agencies by underwriting the loan). However, many of the most disadvantaged Americans, and minorities in particular, do not qualify for F.H.A. loans because of their low net worth and other factors.
Into this breach stepped a North Carolina organization called Self-Help. In 1998, Self-Help received a $50 million grant from the Ford Foundation. The money was used to insure the mortgages of low-wealth families that aspired to homeownership, but had trouble getting loans in the private market. More than $2 billion in mortgages were guaranteed over five years, making homeownership possible for 27,000 families that might not have qualified for conventional loans.
This experiment of sorts provided evidence that there was a market failure in mainstream lending that was shutting out deserving borrowers. The foreclosure rate of lenders participating in the program was below the national average. This tells scholars of finance that something is not working in the traditional loan market. Many borrowers who should have been able to qualify for traditional mortgages have been shunted into the subprime market, where higher interest rates and other disadvantageous terms produce a self-fulfilling tendency of loan default.
By expanding the Self-Help program “to scale” — by underwriting mortgages for people who are now excluded from F.H.A. — the government could not only support affordable refinancing of existing mortgages but could also extend the dream of homeownership to households now shut out of the market.
Instead of critiquing low-income buyers who may have made reasonable calculations in an upbeat housing market, we should focus on building a more comprehensive system to aid low-income purchasers and repair the housing market in the process. Otherwise, we are squandering an opportunity to move past ill-formed moral discourse about poverty and its causes.
Source
Tuesday, September 1, 2009
Revisiting the American Dream
WASHINGTON - In most towns and cities across the country, owning a little patch of real estate probably embodies the central tenet of the American Dream. It’s been that way for generations, going back to the nation’s agrarian roots.
After World War II, the federal government gave homeownership a huge boost by offering returning veterans assistance with getting a mortgage. When added to the home mortgage-interest deduction, the veterans’ benefit led to the suburbanization of cities around the country.
Many political leaders continue to believe that federal incentives for homeownership are in the national interest. Civic boosters say homeownership leads to greater stability and civic participation; you get your own home, you maintain your property, you register to vote, you care more about your community.
Or so the thinking does.
But the housing meltdown has led some economists to question the federal government’s ongoing mission of encouraging homeownership. Though boosting rates of owner-occupied housing has retained its appeal through a succession of Democratic and Republican presidents, some farsighted thinkers are beginning to wonder whether that idea makes sense in a modern economy of highly mobile workers.
Let’s look beyond the housing bust for a moment. While it has forced the economy into a steep recession, the housing market will eventually recover.
Meanwhile, however, the economy is undergoing a permanent change of seismic proportions. The typical college senior will have several jobs - perhaps several careers - in his or her lifetime. That will require not only a commitment to continuing education and retraining, but also a willingness to relocate whenever the economy requires it.
Homeownership restricts the ability to pick up and go when a new job beckons. Some economists have even argued that the unemployment rate in certain areas - such as Michigan, where the rate now hovers around 15 percent - would be lower if homeownership were not restricting workers’ ability to relocate to a state with more opportunities for employment.
I have a personal interest in the issue of housing and mobility since my move to Washington all but assured that I’d be burdened with a new mortgage up here even as I try to sell a house back there - in a barely thawing market. My circumstances are not as dire as those of some would-be sellers: I’ve owned the house since 1992; I’ve kept my home equity loans manageable; I’ve paid down the principal significantly.
Yet, the experience has left me wondering about the advantages of homeownership. I’m currently a renter in a lovely Washington neighborhood; in fact, because of its transient population of political aides, diplomats and military personnel, Washington offers a network of desirable rental houses. After I sell my Atlanta house, I’m not sure I’ll rejoin the community of homeowners.
Or maybe I will. My parents, who bought their first home in the 1950s as a young married couple, believed in homeownership as the foundation of financial stability. (Of course, they weren’t members of a mobile generation. My father was born and died in the same small town; my mother still lives there.)
Source
After World War II, the federal government gave homeownership a huge boost by offering returning veterans assistance with getting a mortgage. When added to the home mortgage-interest deduction, the veterans’ benefit led to the suburbanization of cities around the country.
Many political leaders continue to believe that federal incentives for homeownership are in the national interest. Civic boosters say homeownership leads to greater stability and civic participation; you get your own home, you maintain your property, you register to vote, you care more about your community.
Or so the thinking does.
But the housing meltdown has led some economists to question the federal government’s ongoing mission of encouraging homeownership. Though boosting rates of owner-occupied housing has retained its appeal through a succession of Democratic and Republican presidents, some farsighted thinkers are beginning to wonder whether that idea makes sense in a modern economy of highly mobile workers.
Let’s look beyond the housing bust for a moment. While it has forced the economy into a steep recession, the housing market will eventually recover.
Meanwhile, however, the economy is undergoing a permanent change of seismic proportions. The typical college senior will have several jobs - perhaps several careers - in his or her lifetime. That will require not only a commitment to continuing education and retraining, but also a willingness to relocate whenever the economy requires it.
Homeownership restricts the ability to pick up and go when a new job beckons. Some economists have even argued that the unemployment rate in certain areas - such as Michigan, where the rate now hovers around 15 percent - would be lower if homeownership were not restricting workers’ ability to relocate to a state with more opportunities for employment.
I have a personal interest in the issue of housing and mobility since my move to Washington all but assured that I’d be burdened with a new mortgage up here even as I try to sell a house back there - in a barely thawing market. My circumstances are not as dire as those of some would-be sellers: I’ve owned the house since 1992; I’ve kept my home equity loans manageable; I’ve paid down the principal significantly.
Yet, the experience has left me wondering about the advantages of homeownership. I’m currently a renter in a lovely Washington neighborhood; in fact, because of its transient population of political aides, diplomats and military personnel, Washington offers a network of desirable rental houses. After I sell my Atlanta house, I’m not sure I’ll rejoin the community of homeowners.
Or maybe I will. My parents, who bought their first home in the 1950s as a young married couple, believed in homeownership as the foundation of financial stability. (Of course, they weren’t members of a mobile generation. My father was born and died in the same small town; my mother still lives there.)
Source
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