Condominium Sales Slow

According to the Quebec Real Estate Association, condominium sales fell by 8% year over year in Montreal, and there was a corresponding increase in the number of condos on the market. The number of sales in the residential market fell by 7% in Montreal in August 2012 (versus 2011).

Decrease in Housing Starts

The number of new condos expected to come to market next year is 15,000 units, compared to 14,000 units for freehold homes. These numbers represent an 11% decline over total numbers from last year.

Impact of Tighter Mortgage Rules

I believe that the changes recently made to mortgage borrowing rules are well thought out and sensible. Allowing people to finance virtually the total purchase price of a home and pay it back over thirty-five years was just nuts. The maximum amortization was reduced to thirty years and more recently reduced again to twenty-five years, and the minimum cash down payment is now ten percent. These are all sensible changes to rules that shouldn’t have been allowed in the first place. The impact is forecast to reduce the number of sales by five percent – maybe… but maybe not. First time buyers are often able to get some assistance from family for their down payment. The option of borrowing your own money from your RRSP interest free and repaying it over fifteen years is also an excellent program. I believe that people should have to work hard and save in order to move forward in life… anything that comes too easily has no perceived worth.

Canada

Now, Vancouver has started the downhill road. First sales slow, then they slow dramatically, then prices start to fall and then they may even fall dramatically. I believe this is inevitable in Vancouver, and Toronto has the beginnings of the same problems, mostly in the condo market, which has exploded with new units and thousands more next year. The freehold market will come next. How much will the adjustment be? Condos could be -20%, freehold -10%. Generally speaking, the Montreal market should see a ripple from Toronto, usually about 4-6 months later. I believe this will occur with an adjustment of max -5%. Because we don’t get the crazy highs, we don’t get the crazy lows either.

I’m assuming that interest rates are going to stay very low at least until 2014. If the rates start to move sooner….all bets are off. I am also considering that Ms. Marois gets some rational thought regarding tax rates, because implementation of her tax policies could fuel an exodus which would further depress Montreal’s west end market.

** John Deakin **