Will Wall Street’s woes eat Canadians out of house and home?
Carol Matchett rests a hand on the tiny “FOR SALE” sign that sticks out like a sore thumb on her front lawn.
Her sore thumbs and fingers, flared up from arthritis, would have made driving that post into the neatly trimmed grass in front of her home for the past 26 years too big of a chore. But there’s a bigger reason why it would have been so painful.
“All the memories are here, and part of me is never going to be ready to go,” she says softly, her gaze trailing from the front porch to the edge of the forest nearby.
“Every day that goes by I want someone to come and take a look. It’s frustrating when no one bites, but at the same time part of me is always relieved when no one does.”
She’s spent many days facing that dilemma – five months later, Matchett’s home is still on the market.
She said she’s left with an uneasy feeling, just like millions of other Canadians facing the tumultuous state of real estate.
he Canadian Mortgage and Housing Corporation released their fourth quarter report for 2008 last month, and it reflects some of the sources of that uncertainty.
The resale market has slowed considerably, thanks to record high numbers of listing across the country, having a direct impact on sellers like Matchett.
That isn’t the only aspect of the market that shifting.
Canadian housing starts – how brokers refer to new private homes under construction – will fall 16 per cent by this time next year, from 212,188 units to 177,975.
Last Wednesday, the federal government announced they would purchase $50 billion worth of mortgages, finance minister James Flaherty saying it is the government’s role to step in only when the markets are “profoundly disrupted.”
The CMHC has attributed the shrinking growth of new Canadian houses to several factors- the main one being that demand for new houses has fizzled because of strong house price growth over the last six years, especially in the western provinces that have been booming for over a decade.
However, Alex MacDonald CMHC’s regional economist for Atlantic Canada, said that Canadians shouldn’t fear a having disaster like the sub-prime mortgage crisis south of the border.
“We have more prudent lending and mortgage insurance practices, and stronger regulations, which I think has helped to maintain that Canadian lending standard at this point,” he said.
Years of less prudent lending practices in America have snowballed into a housing crisis in 2008.
Banks doled out more and more high-risk sub-prime mortgages, which have much higher interest rates but are easier to acquire for clients with bad credit.
This, along with a lasting trend of rising house prices, left many borrowers reaching past their grasp for risky mortgages in the hopes of refinancing them in the more favorable future.
That future turned out to be anything but- housing prices began to fall and interests rates swelled as the market grew more feverishly competitive.
Through 2007 nearly 1.3 million houses were subject to foreclosure, up nearly 80 per cent from the year before.
But MacDonald insisted that, even though house starts and resales are down, Canadians won’t be left homeless by such a financial plague.
At around five per cent, Canada’s share in sub-prime mortgages are extremely low.
“I think Canada is very different, the quality of our mortgage credit is very high,” MacDonald said. “And the Atlantic provinces in particular are staying strong.”
Housing starts are expected to decrease across the country next year, especially in Alberta at 38.5 per cent and British Columbia at 8.7 per cent. But those numbers should be far less staggering in most of Atlantic Canada, like a decrease of one per cent in New Brunswick, and even an increase of 17 per cent in Newfoundland and Labrador, the highest jump in the nation by far.
“We have more of an equilibrium out here in the east,” MacDonald said. “Builders and buyers are more cautious because they realize this is a smaller economy, and that gives us more sustainable opportunities.”
Over the next few quarters he said that national price growth is expected to be 0-2 per cent, neck in neck with inflation’s 2-2.5 per cent. But eastern Canada’s houses should grow as much as 3-4 per cent.
“It’s a buyers market out here right now,” he said.
“They can be more cautious with the offers they put on the table. And that’s not the situation you see in U.S.”
But Matchett wishes buyers could be a little less cautious with her house, no matter what offer they put on the table – her starting price was around $109,000, now she’s asking for $104,000.
She said the house’s two stories, and the two acres of property that surround it, are just too much for her to manage on her own.
“When I realized that, and when I started to get ready to sell, I’d pack a bit and I’d cry a bit. I want to live here, but I just can’t.”
“But if the market right now means buyers will take their time,” she said with wink and a faint smile, “I guess I can live with that too.”