Daily Archives: February 2, 2012

Housing need goes beyond role of politics | Katonah NY Real Estate

Photo / APN

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Photo / APN

The competition for scarce rental housing in Auckland has been intense for several years and appears to be getting worse.

This week we have reported the lengths that accommodation seekers are having to go to in the hope of impressing an owner or letting agent. Being well-presented and employed is just the beginning.

Hopeful tenants are sending full CVs and photographs in advance of the viewing, when they are likely to be in a crowd of hopefuls, all “explaining your professional job and how you are hardly ever home and just want a clean and tidy place”, as one flat-hunter told us.

They are, of course, making offers above the stated rent. They have bid up the average weekly rent for a three-bedroom home in Auckland to $500, compared with $350 in the country overall. Many of these people are obviously in a position to buy a home but, as we reported yesterday, there is a shortage of houses offered for sale and that also is getting worse.

Normally in these circumstances the demand would bid up the price of houses too but that is not happening. Auckland house prices went so high during the last property boom that they far exceeded sensible affordability levels as a proportion of incomes.

In the four years since the bubble burst, house prices in this country have dropped only 4.4 per cent.

In December the Economist calculated that New Zealand homes are overvalued by 25 per cent, putting it in the company of Australia, Canada, Britain and much of western Europe where house prices have not plummeted as they did in the United States.

The financial magazine said householders in these countries still carried extremely high debt and it believed the “bursting of the housing bubble is only half-way through”.

Four years seems a long time to hold an investment home if it has been highly geared with debt for a quick capital gain. Doubtless rent increases have helped sustain the property in the meantime but clearly New Zealand investors are not as vulnerable to debt as the Economist supposed.

First-home seekers waiting for prices to collapse might wait a long time.

The Real Estate Institute’s index for Auckland was back at its 2007 peak in December and more houses were sold than in any December since the crash.

But the excess of demand over supply remains so great that agents are listing buyers rather than sellers and cold-calling property owners in an attempt to find stock.

The only practical answer to high rents and unaffordable prices is to increase the supply of new houses.

If young adults today are to aspire to home ownership as their parents could, the building industry has to be expanded and governments must ensure that nothing stands in the way of construction of the type of houses these people want.

Their need is too important to be fodder for a political argument between land developers and city planners as to whether urban limits or land banking are aggravating the housing shortage.

Nor should their plight be made an argument for the “compact city” plan, as Auckland’s mayor has claimed.

Some home-seekers might like the high-density developments the Auckland Council wants to encourage in places well served by public transport, others might have other plans.

The Productivity Commission has recently reported on the limited capacity of the country’s building industry and the high costs of materials, problems that will be exacerbated by the scale of reconstruction needed in Christchurch eventually.

But with a concerted effort by planners, bankers, building companies and council consents, the supply of sought-after houses could surely be improved.

It would be a stimulant for the rest of the economy too.

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    Housing bubble is really a balloon | Waccabuc NY Real Estate

    OTTAWA — It’s not a bubble, it’s a balloon. Unlike the catastrophic decline the U.S. housing market experienced in 2008, Canada’s housing market is expected to deflate slowly rather than pop, according to BMO Capital Markets chief economist Sherry Cooper.

    Cooper’s report says that despite rising household debt, low interest rates and rising home prices, it is unlikely that a sudden correction will take place.

    "The main take-away is that the national housing market appears somewhat pricey, but is far removed from bubble territory," Cooper said in the report, titled Will Canada’s Housing Boom Forge On, Fizzle Out, or Flame Out?

    The study, co-authored by BMO senior economist Sal Guatieri, says that despite rising home prices in most of Canada’s major cities, that growth doesn’t seem to be excessive.

    On average, home prices have risen 104 per cent in the last 10 years. Along with that, the average price of a home has risen against the average income in Canada. In 2001 the price-to-income ratio was 3.2 nationally, rising to 4.9 in 2011.

    "Elevated valuations, however, do imply a risk of material correction in the event of a shock," the report says. If interest rates were to spike by about four percentage points the affordability of homes would quickly drop throughout the country.

    However, the authors say the chance of a four-point spike are unlikely in the next two years based on projections of low inflation and low growth in the economy.

    "Although growing debts are a concern, we do not believe that most households are close to an American-style ‘debt wall’, or that they will run into one when rates climb," it says.

    Two-thirds of mortgages in Canada are fixed term, and the report says most homeowners with variable rates will be able to lock in when rates begin to climb.

    "Except for a few remaining hot spots, the national housing boom has already cooled. Sales and price growth has moderated this year, and there are few signs of market imbalances or overbuilding," the report says.

    Cooper and Guatieri point specifically to Vancouver where, along with the rest of British Columbia, housing prices have begun to decline.

    The BMO report points to four urban centres where the price-to-income ratios have increased beyond most of the country: Victoria, Vancouver, Toronto and Montreal.

    Vancouver, the authors say, has had the highest jump in housing prices — up 159 per cent in the last decade — and has seen the price-to-income ratio in the city double to 10.

    Even though Toronto has seen the relatively modest rise to home prices since 2001, 84 per cent, the city’s price-to-income ratio is now 6.7, up from 4.3 10 years ago.

    The authors say that much of the increases in Toronto and Vancouver are due to the influx of immigrants from China and the great deal of capital that they bring with them.

    According to the report sales in the real estate market will be mostly flat through 2012. She says Alberta will likely lead the way in home sales, while British Columbia will show continued weakness through the year.

    rhiltz(at)postmedia.com

    Twitter.com/robert_hiltz

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