Metro Vancouver housing starts showed another substantial drop in April leaving new-home construction at about one-third the level it was a year ago, according to figures from Canada Mortgage and Housing Corp.

Builders started work on 483 new homes across Metro Vancouver in April, almost 70 per cent fewer than April, 2008.

To the end of April they'd started 2,302 new housing units, some 66 per cent fewer than the first four months of last year.

Starts were down in every municipality except Delta, which has seen construction start on 93 new homes up to the end of April, a 75-per-cent increase from a year ago.

"New home construction is facing competition from a well-supplied resale market and a growing inventory of unsold new homes," Robyn Adamache, a Canada Mortgage and Housing Corp. analyst said in a news release.

"Builders will remain on the sidelines until some of the existing new and resale supply is absorbed."

Construction across B.C.'s urban areas remained depressed in April with builders starting only 842 new homes during the month, down 73 per cent from the 3,092 started in the same month a year ago.

Once booming Kelowna saw the steepest decline with only 29 new starts in April, down 88 per cent from the 249 started in the same month a year ago.

In Victoria, starts were down 87 per cent at 54 units, and in Chilliwack starts were down 87 per cent at 21 new units.

Vernon was the only urban area to see an increase in starts with 64 new units reprsenting a 16 per cent increase from a year ago.

Overall, however, builders started work on just 3,363 new homes to the end of April compared with 11,385 in the first four months of last year.

More people are seeing condominiums as an attractive investment opportunity than was the case a year ago, according to a survey released Monday.

TD Canada Trust said 44% of respondents in a survey of urban Canadians said conditions had improved over the last year with regard to the prospects of buying a condo for investment purposes. That was up from 21% in a similar survey done last year.

The bank said lower prices and Canada mortgage rates are the main reason people are being drawn to condos as a way to make money over the longer term.

"This is a good time to explore a condo purchase given that mortgage rates are very attractive right now and many condos have dropped significantly in price," Joan Dal Bianco, the bank's vice-president of real estate secured lending, said in a statement

In fact, 43% of the respondents said if they couldn't afford a condominium right now, they'd consider partnering with a friend or relative to buy one for investment purposes.

But there were other reasons than investing people had for wanting to buy a condo. The most popular one, cited by 39 per cent of survey takers, was that condos require less maintenance than house do. The second most cited reason for buying a condo, a 21 per cent, was that they're more affordable than houses.

The survey, done by Angus Reid Strategies, involved 200 respondents in the cities or surrounding areas of Vancouver, Calgary, Toronto, Montreal and Halifax between March 30 and April 7.

The closest thing to a real estate crystal ball in the last few years has been the house auctions that are regularly held around the country.

In 2006 and early 2007, the official housing statistics were still showing that house prices were holding up. But that was largely because so many sellers were refusing to sell. The auctions, made up mostly of foreclosed homes, showed the truth: house values were starting to plummet in many places.

So a few weeks ago, I decided to go to an auction at a hotel ballroom in Washington — and to study the results of several others elsewhere — with an eye to figuring out whether prices may now be close to bottoming out.

That’s clearly a huge economic question. Last week, JPMorgan’s chief financial officer told Eric Dash of The New York Times that JPMorgan, and presumably other banks, would be under pressure “until home prices stabilize and unemployment peaks.” As long as home prices are falling, foreclosures are likely to keep rising and the toxic assets polluting bank balance sheets are likely to stay toxic.

There are reasons, though, to think that prices may be on the verge of stabilizing. Relative to fundamentals, like household incomes and rents, houses nationwide now appear to be overvalued by only about 5 percent. You can make an argument that the end of the housing crash is near.

But that’s not what I found at the auctions.

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“This is a perfect storm of opportunity,” Bob Michaelis, goateed with a shaved head, told the 300 or so people who had come to downtown Washington for the auction.

Mr. Michaelis, the auction manager, spoke from a lectern on stage, and his goal seemed to be to persuade people that they might never see a buyers’ market as good as this one. Prices have plunged, and interest rates, he said, are at “generational lows.”

“Look around to your left and your right, and you’ll see someone who sees an opportunity just like you do,” Mr. Michaelis said. “We’re approaching the bottom of the market, I think. We’re approaching the bottom of the market, if we’re not there already.”

He then told the audience that, in the last 100 years, house prices have recovered from every downturn and gone on to reach record highs. Oh, and Wells Fargo and Countrywide were standing by, ready to offer financing to qualified auction buyers.

If nothing else, this sales pitch certainly had chutzpah. It combined the old bubble-era notion that house prices always rise over time (ignoring the fact that incomes, stock values and the price of bread do, too) with the new postcrash idea that houses must be a bargain because they’re a lot cheaper than they used to be. Even Countrywide, which was taken over by Bank of America after so many of its subprime mortgages went bad, is still part of the housing pitch.

Yet as soon as the auction began, it was clear that the pitch wasn’t working.

The winning bid on the first home auctioned off, a two-bedroom townhouse in Virginia Beach, was $115,000. Just last July, it sold for $182,000, according to property records. A four-bedroom brick house with a two-car garage in Upper Marlboro, Md., went for $375,000. Last year, it sold for $563,000.

Throughout the evening, such low-ball prices continued to win the bidding. At one point, the auctioneer, Wayne Wheat, interrupted his sing-song auction call to cheerfully ask, “Where are my investors?”

The tables that had been set up around the edges of the ballroom, reserved for people planning to buy multiple houses, were mostly empty. Many audience members, like the man in a camouflage baseball cap just in front of me, were attending their first auction.

On Sunday, my colleague Carmen Gentile went to a larger auction, in Miami, to see if my experience had been unusual. It wasn’t. The homes there also sold for just a fraction of what they would have even a year ago. The rate of decline in Miami hasn’t even slowed noticeably in recent months, according to data kept by Real Estate Disposition Corporation, known as R.E.D.C., which runs the auctions.

A recently transplanted New Yorker named Michael Houtkin won the bidding on a one-bedroom condominium on the outskirts of Boca Raton, a few blocks from three golf courses, for the incredible price of $30,000. “Things were almost being given away,” he said later.

As is often the case at these auctions, the seller of the condo — Fannie Mae — retained the right to refuse the winning bid and keep the property. But Mr. Houtkin told me he was optimistic his bid would be accepted. An R.E.D.C. employee suggested to him that $30,000 wasn’t much below the minimum price that Fannie Mae had hoped to receive.

How could that be? Because Fannie Mae, like many banks, is inundated with foreclosed properties. In recent weeks, banks have begun accelerating foreclosures again, after having held off while waiting to find out which homeowners would be eligible for the Obama administration’s assistance program.

The glut of foreclosed homes creates a self-reinforcing cycle. Falling prices lead to more foreclosures. Foreclosures lead to an excess supply of homes for sale. The excess supply then leads to further price declines. Jan Hatzius, the chief economist at Goldman Sachs, says that the “massive amount of excess supply” means that home prices nationwide will probably fall an additional 15 percent.

This estimate hides a lot of variation, too. In Miami, Goldman forecasts, prices could drop an additional 33 percent, which is pretty amazing since they’ve already fallen 50 percent from their 2006 peak.

Nor is excess supply the only reason prices still have a way to fall. Nationwide, homes may not be overvalued by much. But in some cities, including New York, San Francisco, Los Angeles, Boston, Chicago and Miami, they remain very expensive. So while Mr. Hatzius and his Goldman colleagues are somewhat more pessimistic than most forecasters, the difference isn’t enormous.

I’ll confess that this bearish picture isn’t exactly what I had hoped to find. A year ago, as part of a move from New York to Washington, my wife and I bought our first house. We did so fully expecting prices to continue falling (though perhaps not as much as they ultimately will, given the severity of the financial crisis). But we decided they had fallen enough for us to take the plunge. We preferred buying before the bottom of the market instead of renting and having to move again in a year or two.

Still, when I wrote about that decision last spring, I argued that anyone who didn’t have to move probably should not buy yet. Prices still had a way to fall.

The world needs a new way to supervise and regulate financial systems to restore stability and might want to follow Canada's example, the governor of the Bank of Canada said yesterday.

In a lecture to the University of Alberta's school of business, Mark Carney said Canada has weathered the financial storm better than most.

"Our system is better,'' Carney said. "Regulation has been more consistent. Our banks have been more conservative.

"Credit conditions in Canada remain superior to those in virtually every other industrialized country," he said.

"Canada is in a good position to offer sound advice as leaders of the G20 prepare for this week's summit in London. The core of our system has many -- although not all -- of the elements of a more sustainable, global financial system.''

Carney said that all financial activities that can pose a major risk to stability should be regulated.

However, he disagreed with the idea that banks should be tightly restricted to their core functions -- taking deposits and making loans -- and kept away from financial markets.

"To this way of thinking, banks could not then get themselves into trouble, or if they did, their demise could be safely managed," Carney said.

"But this is impractical, because banks and their roles are vital to the existence of markets. They are agents and underwriters and traders of most government and corporate debt.

"They provide cross-border financing products which are key services in a world of global corporations."

The better solution, he said, is to expand the perimeter of regulation to better supervise more players.

Carney placed much of the blame for the present financial crisis on the rise of a so-called shadow banking system, which appeared in recent years and usurped many of the functions normally provided by banks.

Canadian Mortgage brokers, finance companies, hedge funds, structured investment vehicles and the like grew enormously, but were performing without a safety net. The shadow system was wholly reliant on the continuous availability of funding markets.

As liquidity began to dry up last August, the whole structure tottered.

"The regulatory system neither appreciated the scale of this activity, nor adequately adapted to the new risks created by it," he said. "The shadow banking system was not supported, regulated or monitored in the same fashion as the banking system. With hindsight, the shift toward the shadow banking system that emerged in other countries was allowed to go too far for too long."

"It's time to regulate this system and this week's G20 meeting will have to start that process,'' he said.

"Canada will contribute an important perspective on these issues."

Canadian housing starts fell by a greater-than-expected 12.3 percent in February on declines from the single and multiple dwellings sectors, Canada Mortgage and Housing Corp. said on Monday.

New home construction dropped to a seasonally adjusted annualized rate of 134,600 units from 153,500 units in January, CMHC said.

The number of starts in February was below the consensus expectations of analysts who had called for 145,000 starts.

Urban single family home construction declined 11 percent to 44,500 units last month from 50,000 units in January. New construction of multiple dwellings, such as condos, fell 17.5 percent to an annual rate of 63,300 units.

Rural starts were estimated at a seasonally adjusted annual rate of 26,800 units in February.

The Bank of Canada should cut interest rates to a record low next week to stimulate the economy, a panel of private-sector economists said Thursday as evidence of a deepening recession - globally and in Canada - mounted, including a major drop in Canadian home sales and home prices.

The C.D. Howe Institute panel called for a further half-point cut next Tuesday in the bank's trendsetting target rate to one per cent. One of the 10 members called for a full-point reduction, and another for a whopping 1.25-point drop to just 0.25 per cen

The half-point recommended by the panel would likely trigger a matching cut in the chartered banks' blue-chip prime rate - to which business and consumer floating-rate loans, including mortgages, are tied - to three per cent from an already all-time low of 3.5 per cent.

The need for further housing-market stimulus was highlighted by the Canadian Real Estate Association, which reported that home sales in December fell 1.8 per cent from November to their lowest level since 2000.

And the average price of a home plunged 11 per cent from a year earlier in December, and was down for the year as a whole, ending the nine-year housing boom of steady price gains.

"Average prices will remain under pressure during the Canadian economic recession," warned association chief economist Gregory Klump.

"There has been a fundamental shift in consumer confidence, with job insecurities prevailing in every region Canada. That is unlikely to change until the worst of the recession is behind us."

The industry association appealed to the federal government to include measures in its Jan. 27 budget to stimulate housing, including an increase from $20,000 to $25,000 in the amount homebuyers can draw tax-free out of their RRSPs for a down payment, and expanding the provision to include more than just first-time home purchasers.

However, association president Calvin Lindberg cautioned that "moderating home prices in Canada should not be confused with the downturn in the U.S. housing market" that pushed that giant economy, and in turn the global and Canadian economy, into recession.

The U.S. recession is still deepening, reports Thursday suggested.

"Consumer sentiment reached a six-year low as Americans continued to be rocked by increasing job losses, poor holiday-shopping season reports, and the ongoing inability of the government and the private sector to stabilize the economy," RBC said in a report based on a survey of U.S. consumer attitudes and spending.

Considering the U.S. consumer accounts for 70 per cent of that economy's GDP, and the U.S. accounts for 75 per cent of Canadian exports, that doesn't bode well for Canadians either.

Still, there was a hint of hope amid the rubble of the RBC survey's findings - a marginal increase from 29 per cent to 30 per cent of respondents who expect their local economy will be stronger in six months' time.

The analysis said this may reflect an enthusiasm for soon-to-be-inaugurated U.S. president-elect Barack Obama and "Americans' openness to the stimulus proposals coming out of Washington rather than any expectation that local economies will improve quickly."

In light of the deepening slump in the U.S. economy and consumer confidence, it's not surprising the mood of Canadian exporters has also hit an all-time low.

But it was concerns about domestic sales prospects that weighed most heavily on exporters, Export Development Canada chief economist Peter Hall said Thursday in releasing results of the fall survey on the confidence of exporters.

Just 28 per cent - the lowest share ever by a wide margin - expected a near-term increase in domestic sales, while only 12 per cent expected an improvement in the domestic economy, while a record high 57 per cent expected a further deterioration.

"Over the past five years, exporters were able to count on a strong domestic market to tide them through the relentless rise in the Canadian dollar," Hall said.

"Last fall, that upbeat view of the domestic scene soured considerably."

Underscoring their pessimism about the domestic economy was news from Statistics Canada of a further seven per cent drop in new car sales in November, the steepest monthly plunge in three years.

Meanwhile, showing the growing global concern about the economic crisis was a decision by the anti-inflation-focused European Central Bank to cut its trendsetting interest rate to two per cent.

Canada, the best performing among the G7 economies, is officially in recession and there will no growth in 2009, the country's top bank has said in a new report.


The Royal Bank of Canada (RBC), the country's number one bank, said the US downturn and credit squeeze have led Canada's economy into recession.

The economy will grow by 0.6 percent in 2008 and post no growth in 2009, the report released Friday said.

Craig Wright, senior vice-president and chief economist at the RBC, said the US economy has fallen into a deep recession, dragging the Canadian economy along.

"However, we expect the slowdown in Canada not to be as severe as in other countries since the imbalances plaguing other countries are more pronounced. We expect to see a moderate, though sustained, recovery in the second half of 2009," he said.

After six years of solid gain, the report said, falling commodity prices will cut domestic income that has supported consumer, business and government spending for the past several years.

The outlook for 2009 is very bleak as the combination of falling domestic income, credit squeeze, and a rising debt-to-asset ratio will curb consumer spending, it said.

The bank said though negative growth is only expected to last the next two quarters, its impact will be far reaching, with the unemployment rate climbing to 7.4 percent in 2009.

On the economic deterioration in the US which accounts for more than 85 percent of Canada's global trade, the report said the real GDP in America will decline by 1.5 percent in 2009 because of slower export growth and weakening in global economic activity.

Though the Bank of Canada has reduced the overnight rate to 1.5 percent to stimulate the economy, the report expects the rate to be further reduced to one percent as the economy enters the weakest period for growth.

The Toronto Stock Exchanger's main index fell more than 200 points on Friday as financial issues were hurt by inflation fears and worries over more mortgage-related problems, while consumer stocks also weakened.

The S&P/TSX composite index <.GSPTSE> fell 209.48 points, or 1.42 percent, to close at 14,580.67.

Inflation worries weighed on both financials and consumer stocks, after Bank of Canada Governor Mark Carney said late on Thursday that strong energy prices could lead to higher inflation.

"There's some worry that interest rates may not fall any further, and may even start to rise, which in turn would squeeze the banks' margins," said Gavin Graham, chief investment officer at Guardian Group of Funds.

The heavily-weighted financial subgroup fell 2.34 percent, while the consumer discretionary and consumer staples groups fell 2.61 percent and 2.46 percent, respectively.

Also hurting bank shares were rumors that U.S. commercial bank Merrill Lynch may issue a profit warning and take additional writedowns on its mortgage holdings.

Among financials, Canadian Imperial Bank of Commerce fell C$1.87, or 2.9 percent, at C$61.63, while insurer Manulife Financial dropped C$1.12, or 2.9 percent, to C$37.13.

Homebuyers have several loan options. Hence, purchasing a new home has never been easier. Individuals who cannot afford a down payment or closing costs may take advantage of loan programs that offer assistance. Furthermore, those hoping to obtain a low rate mortgage may consider a loan with an adjustable rate. Because of the initial low cost of adjustable rate mortgages, monthly mortgage payments are also lower. However, low rate mortgages are short term. To avoid an interest rate hike, homeowners should refinance before rates begin to increase.

Advantages of Adjustable Rate Mortgages

There are several advantages to accepting an adjustable mortgage. For starters, a low rate mortgage allows buyers to purchase pricier homes, while maintaining an affordable monthly payment. Moreover, because of record low rates, homebuyers who obtain an adjustable rate mortgage can enjoy falling rates without refinancing their mortgage. Thus, they avoid closing costs and other fees.

Adjustable rate mortgages are also ideal for individuals who plan on moving in a few years. Some people enjoy the stability of living in one place for many years. In this case, refinancing for a fixed rate is a wise choice. However, if you prefer the flexibility of moving every three to five years, you will save money with an adjustable rate.

Pitfalls of Adjustable Rate Mortgages Montreal

While adjustable rates offer many attractive features, one major drawback is that low rates are temporary. If interest rates continue to fall, you will not be subjected to the dangers of these loans. However, if rates begin to climb, so will your mortgage payment. Homebuyers who cannot afford an increased mortgage are at risk of losing their home. Thus, if your goal is to remain in your current home for many years, refinancing for a fixed rate will offer predictable mortgage payments.

How Soon Can You Refinance a Mortgage?

Fortunately, home mortgage loans can be refinanced whenever you like. Some lenders suggest allowing the loan to mature at least 12 months. However, if you detect a change in market trends, refinancing shortly after purchasing your home is a smart maneuver. Those contemplating refinancing must be prepared to pay additional closing fees. Moreover, contact your current lender and inquire of prepayment penalties.

Many people are starting to ask why they are unable to obtain a mortgage; it is not just those who have an adverse credit history who are being affected. So why are mortgage lenders so unwilling will to let people borrow their money?

Well it is all down to the now infamous credit crunch. These lenders are finding it extremely hard to borrow money themselves or at least at a worthwhile interest rate. Despite the governments of the Canada and USA slashing interest rates the market is showing no signs of picking up. It is as if there is some kind of stalemate taking place. Many of the mortgage lenders have been reluctant to pass on these interest rate reductions with the majority of them even increasing the interest rates on their fixed rate mortgages.

For the average man in the street this seems rather unfair. How often does a lender keep their rates unchanged when the Bank of Canada increases interest rates? Never is the answer, they are very efficient at increasing their rates. In my opinion there should be a rule which states that they have to pass the interest rate reductions on to their customers.

Governments around the world are trying to find a solution to this stalemate; they need to find a way to get the whole lending business moving again. For now people will just have to make do with that they can get, hardly an ideal situation, but that's just the way it is.

Financial experts are saying that there is a house price crisis, with prices likely to fall in a major way over the next couple of years. I personally believe that the fundamentals are fine but that the credit crunch and the affect that it is having is making it virtually impossible to buy and sell houses. There is likely to be some more bad news to come but within a couple of years the housing market will start to boom as people start to be able to borrow money again.