Real Estate Information

Home sales for April came out in the last two days. As usual, the message and headline presented by the media substantially deviated from the truth.

New Homes

Yesterday s new home sales figures earned the headline, New home prices plunge, sales soar. That doesn t sound too horrible. Prices are down, sales are up. That stands to reason. The truth is prices are down and sales are down. Let s look at the data.

A big drop in the price of the typical new home sold in April spurred much better-than-expected sales, according to the latest government reading on the battered real estate and home building market released Thursday.

New homes sold at an annual pace of 981,000 in April, up 16.2 percent from the revised 844,000 pace in March. Economists surveyed by Briefing.com had forecast an 860,000 rate in April.

Great news, right? So what if there were more new homes sold in April than March. That stands to reason. How did April 07 compare to April 06 - the most important comparison available? Up? Nooooo.

But even with the April spike factored in, April sales came in 10.6 percent below year-earlier levels.

So now how was that headline “Sales soar” truthful? Maybe if the writer considers a 10.6% drop soaring.

There was some good news in this report though. The months of inventory available has dropped by over two months. This is significant as it means prices should begin to stabilize for new homes. I would expect sales will continue to level off for much of this year until demand and consumer sentiment picks up again.

Kasriel pointed out that the median number of months it takes builders to sell a completed home has risen every month for the past seven. It now stands at 6 months, the longest time it takes them to move a completed home since 1993, and it s almost double the 3.4 months it took them to sell a home as recently as September.

However, the faster sales pace in April helped take the estimated months supply of homes on the market down to 6.5 months from 8.1 months in the March report.

Existing Homes

This morning April s existing homes report came out. The headlines were equally inconsistent with the data. CNN s Money section screamed, Weakest home sales since 03 hit values! While the trend is dipping down, I m not concerned, yet, that a housing crash is in progress. The volume of sales slowed in the existing home market and the median price fell slightly.

The group s closely watched report showed the annual pace of existing home sales fell 2.6 percent to 5.99 million in April, down from a revised 6.15 million pace in March. It s the first time the pace of sales fell below the 6 million level since June 2003. Economists surveyed by Briefing.com had forecast a little-changed sales rate of 6.13 million.

The median price of a home sold in the month was $220,900, down 0.8 percent from the $222,600 price for a typical home sale a year earlier.

Again, I m not bothered too much because the comparison is 2006 s record high. New home s median price dropped nearly 11% in April and had a 10% loss in volume, while existing homes had a price drop of only .8% with a 2.6% drop in volume. Very interesting.

What I am concerned with is the amount of existing home inventory. That has indeed jumped to glut levels.

The slower sales pace and a 10.4 percent increase in the inventory of homes on the market in the last month to 4.2 million means there is now an 8.4 month supply of homes for sale nationwide, up from a 7.4 month supply in March.

It is encouraging to know the inventory levels of new homes is dropping as that should place residual inventory pressure on existing homes. Apparently market conditions and consumer sentiment are saying it s a good time to buy a new house over existing older inventory. Time will tell as we move deeper into the summer home buying season.

A niche market that never seems to slow down.

Many of us have fond childhood memories of dad loading up the station wagon or van and heading out of town for a long week-end.

For some the destination was a lakeside campsite, but for many it was the summer cottage or cabin by the lake. For others it was a Winter activity that brought with it the long-anticipated excitement of driving up to the favourite mountain and throwing open the doors to a modest old ski lodge that one could call home for the next week or so. But unless one was lucky enough to inherit dad s cabin, the thought of purchasing one piece of recreational paradise can be daunting for most young families.

With prices still

on the rise and demand for vacation homes brisk notwithstanding the general slowdown in real estate, there are a few bright lights for homeowners looking to pick up a second home or recreational property.

The Canadian Mortgage And Housing Corporation has instituted recently a new program that will provide Homeowner Mortgage Loan Insurance for borrowers with more than one residential property. This means that Purchasers can now obtain a mortgage insured by the Canadian Mortgage And Housing Corporation on a recreational property with as little as five percent down.

Traditionally getting institutional financing for a vacation property was a challenge, because lenders typically based their lending decisions on the risk of reselling this type of properties. As many second homes are located outside urban centers and, more often than not, in remote rural or coastal areas they might have limited resale potential, which from a mortgaging point of view increased the risk of financing. To mitigate this risk, lenders would require borrowers to put up more money down - as much as thirty-five percent or more, in fact. Even well-known and popular destinations such as Whistler, British Columbia required a minimum of twenty-five percent downpayment.

But lifestyles are changing and these changes affect decisions that real estate consumers make regarding how and where to live. So the Canadian Mortgage And Housing Corporation has made a move to put vacation properties within reach of more people. With a constant and steady increase in demand for this type of properties, the Canadian Mortgage And Housing Corporation has determined that the market is such that it is willing to insure lenders against potential losses. This is welcome news for those who have been longing to get a recreational property but did not want to wait until retirement to come up with the downpayment.

All Canadian Mortgage And Housing Corporation s products are permitted to be used with the Homeowner Mortgage Loan Insurance and since most major institutional lenders already have their own recreational property mortgage products, consumers have the flexibility to choose the type of financing that is right for them.

However, as with most types of financing, there are some key limitations that is important to be clear on. The purpose of the Homeowner Mortgage Loan Insurance is to make it more feasible for consumers to purchase a second home. It is important to distinguish between a second home and a rental property. The Homeowner Mortgage Loan Insurance is not intended to allow an investor to purchase a rental property with five percent down. The guideline states that at initiation the real capital asset that secures a mortgage insured by Canadian Mortgage And Housing Corporation must be intended for occupancy at some point during the calendar year by the borrower or a relative of the borrower on a rent-free basis. If a rental income is anticipated from the property at a future date, it will not be calculated for the purpose of assisting the Purchaser to qualify for the loan.

The location of the property is not restricted to major resorts or popular vacation spots, but there are some general requirements that apply as well. For instance, the recreational property must be suitable for and available for year-round occupancy. Properties that are constructed for seasonal use or have seasonal access are not eligible. As such, vacation cottages located on an island must have year-round bridge or ferry access. And finally, timeshare interests, life leases and properties in rental pools are not eligible.

The Canadian Mortgage And Housing Corporation s website can be found at http://www.cmhc.ca/

Luigi Frascati

luigi@dccnet.com

www.luigifrascati.com

Real Estate Chronicle

Labels: REAL ESTATE # posted by Luigi Frascati @ Saturday, May 26, 2007