Dupuis: Is the 'hot' housing market a boom, bust or bubble?
November 21, 2009
Stephen Dupuis
November 21, 2009
Stephen Dupuis
I can't believe how often I have heard the B-word of late. No, I'm not talking about "B" as in housing "boom," I'm talking about "B" as in housing "bubble."
Considering that we are barely six months out of what was looking like a prolonged housing "bust," it's hard to fathom how the "experts" can already be warning that the housing market is too hot for its own good.
I'll be the first to admit surprise at just how buoyant the resale market has been. Then again, should there be any surprise that after six months of paralysis during the height of the global economic crisis, homebuyers would react to a reprieve by rushing back into the market.
Frankly, I'm delighted the resale market is doing so well because a healthy resale market drives renovation as well as new home sales as all boats rise with the tide. That said, I have a lot of empathy for the homebuyers who are getting caught up in bidding wars. That's a situation that will be resolved when listings increase, as they always do.
To the homebuyers that find resale bidding wars distasteful, I would note that at least with new homes and condos, the price is the price and right now, new home prices are extremely competitive.
Although it took a little longer than the resale market to recover, the lowrise new housing market picked up in late spring while the highrise market came back to life this fall. On an overall basis, it looks like total new home sales in 2009 will end up just slightly ahead of 2008, with last year ending on a down note and this year ending on an up note.
Is the new housing market booming? Far from it! So where are the "bubble" theorists coming from? For the most part it seems they are concerned with the extent of mortgage insurance in the market as well as the potential impact of higher interest rates down the road.
The concern with the prevalence of mortgage insurance ignores the fact that it has always been a major and important part of our housing finance system. Frankly, so long as banks are prevented from lending to anyone with less than 20 per cent down, mortgage insurance will continue to be a growth industry.
The irony is that we have mortgage insurance to thank for the fact that our banks are lending to homebuyers, enabling the recovery we have been experiencing in our housing markets.
That said, homebuyers still have to qualify for mortgage insurance and if anything, that's become more difficult since federal finance Minister Jim Flaherty clamped down on mortgage insurers.
In July 2008, Flaherty imposed a number of restrictions on mortgage insurers including a prohibition on insuring mortgages with amortizations longer than 35 years, a minimum 5 per cent downpayment, minimum credit score requirements, maximum debt ratios and new loan documentation standards, all good things as far as I'm concerned.
As for low mortgage rates, it seems the experts are concerned that homebuyers might have difficulty carrying their mortgages should interest rates be higher at renewal time. This ignores the reality that most homebuyers these days are smartly locking in their mortgages for five years during which they will increase the equity in their homes and/or enjoy income growth.
To be on the safe side, homebuyers that pay down as much as they can during those all-important first five years will be in a far better position to ignore the experts as well as the columnists.
Stephen Dupuis is president and CEO of the Building Industry and Land Development Association. The views expressed are those of the president.
Considering that we are barely six months out of what was looking like a prolonged housing "bust," it's hard to fathom how the "experts" can already be warning that the housing market is too hot for its own good.
I'll be the first to admit surprise at just how buoyant the resale market has been. Then again, should there be any surprise that after six months of paralysis during the height of the global economic crisis, homebuyers would react to a reprieve by rushing back into the market.
Frankly, I'm delighted the resale market is doing so well because a healthy resale market drives renovation as well as new home sales as all boats rise with the tide. That said, I have a lot of empathy for the homebuyers who are getting caught up in bidding wars. That's a situation that will be resolved when listings increase, as they always do.
To the homebuyers that find resale bidding wars distasteful, I would note that at least with new homes and condos, the price is the price and right now, new home prices are extremely competitive.
Although it took a little longer than the resale market to recover, the lowrise new housing market picked up in late spring while the highrise market came back to life this fall. On an overall basis, it looks like total new home sales in 2009 will end up just slightly ahead of 2008, with last year ending on a down note and this year ending on an up note.
Is the new housing market booming? Far from it! So where are the "bubble" theorists coming from? For the most part it seems they are concerned with the extent of mortgage insurance in the market as well as the potential impact of higher interest rates down the road.
The concern with the prevalence of mortgage insurance ignores the fact that it has always been a major and important part of our housing finance system. Frankly, so long as banks are prevented from lending to anyone with less than 20 per cent down, mortgage insurance will continue to be a growth industry.
The irony is that we have mortgage insurance to thank for the fact that our banks are lending to homebuyers, enabling the recovery we have been experiencing in our housing markets.
That said, homebuyers still have to qualify for mortgage insurance and if anything, that's become more difficult since federal finance Minister Jim Flaherty clamped down on mortgage insurers.
In July 2008, Flaherty imposed a number of restrictions on mortgage insurers including a prohibition on insuring mortgages with amortizations longer than 35 years, a minimum 5 per cent downpayment, minimum credit score requirements, maximum debt ratios and new loan documentation standards, all good things as far as I'm concerned.
As for low mortgage rates, it seems the experts are concerned that homebuyers might have difficulty carrying their mortgages should interest rates be higher at renewal time. This ignores the reality that most homebuyers these days are smartly locking in their mortgages for five years during which they will increase the equity in their homes and/or enjoy income growth.
To be on the safe side, homebuyers that pay down as much as they can during those all-important first five years will be in a far better position to ignore the experts as well as the columnists.
Stephen Dupuis is president and CEO of the Building Industry and Land Development Association. The views expressed are those of the president.
