Canadian resale home prices will be lower than previously predicted, according to revisions made by CREA to its 2010 forecast, due in large part to B.C. sales.

“Lower expected activity in British Columbia accounts for more than half of the downward revision in national sales activity,” the group said.

CREA cut its sales view to 490,600 units from their previous figure of 527,300. It also expects the average price to rise 1.6 per cent nationally in 2010, an almost four per cent drop from its previous forecast of 5.4 per cent.

According to the industry group, the decline in affordability in B.C. hurt sales in the province during Q1, but added sales in Ontario were on point with their predictions.

CREA now expects sales in B.C. to fall 5.9 per cent this year to 80,000 units.

Canada could be facing a mortgage nightmare in the next few years with an estimated 30,000 subprime loans - now dubbed “orphan loans” - coming up for renewal in the next few years, according to a report in the Financial Post.

So concerned about the situation at hand, the industry recently approached the federal government with a request for a bailout - specifically to participate in a $1-billion fund to help finance the coming flood of orphan mortgages. Several alternative mortgage lenders began lobbying the government in the spring 2009 on the same issue but still have not gotten a response.

“This thing is a wave and it’s just starting,” Eric Putnam, formerly with a subprime lender, now managing director of Debt Coach Canada, told the Post. “Investors are no longer willing to continue on and these mortgages were not insured by the CMHC so the borrowers are not going to be able to move to another lender in today’s environment.”

Subprime loans have dried up in the wake of the financial crisis. There were at least a dozen sub prime lenders here in Canada and was forecast as the fastest growing sector of the entire mortgage market, Benjamin Tal, senior economist at CIBC World Markets, told the Post - who pegged it at being about five per cent of the total market.

The general term subprime refers to high interest loans made to people who are unable to get a better deal at any one of the big banks.

It looks as if the Canadian market is making way for Islamic Finance, an issue being explored since earlier this year. Global bankers, politicians and lawyers recently gathered at the Usury Free Association of North America (UFANA) to discuss the issue.

The two-day conference, held in downtown Toronto last week, saw big-name attendees as senior representatives from four of the big five Canadian banks were present, as well as representatives from the Ontario Ministry of Finance and the Federal Ministry of Finance, all of whom are busy preparing internal reports focusing on the potential of this alternative financing.

“Islamic financial products should not present any particular difficulties under Canadian accounting standards,” said Guy David, a speaker at the conference representing the Canadian law firm Gowling Lafleur Henderson LLP.

Other attendees present were representatives from the Ontario Division of Federal Trade Commissioner’s office as well as Toronto Financial Services Alliance (TFSA) - both of which are also said to be preparing soon-to-be-released reports.

Earlier this year, a report concluded that while Islamic financing would be legal in Canada, the CMHC has no plans to insure Shariah-compliant mortgages. This would open the door to private lenders who would be free to pursue this type of financing. 

Proposals on global financial reforms by an international committee are raising concerns among Canadian bankers that lenders will be forced to resort to more mortgage securitization, according to a report in the Financial Post.

The reforms, entitled Basel III, are part of an effort to prevent another credit crisis by setting international regulations. But the Post reports the reform proposals - which specify stricter capital requirements for banks - don’t take into account that insured Canadian mortgages are guaranteed by the federal government through CMHC. This could force lenders here to securitize and sell more mortgages as opposed to holding them on their balance sheets.

“Our unique Canadian mortgage market was one of the important reasons why we did so much better than others, and this now may be in peril due to several proposed rules that go over and above the requirements for more capital,” said Bank of Nova Scotia chief executive Rick Waugh during the bank’s annual meeting. He added that banks, regulators and the Canadian government must “rigorously state our case and protect our interest” to global policymakers.

Finn Poschmann, vice-president of research at the C.D. Howe Institute told the Post that the proposed rules could put Canadian banks in a potentially troubling scenario where they could face slower asset growth on their business or be forced to securitize things that are relatively easy to sell, such as high quality mortgages.

The preliminary new rules by the Basel Committee are scheduled to be released by the end of the year.

After two months of housing start increases, national starts dipped 1.5 per cent in March, according to CMHC, with the biggest decreases in B.C. and Ontario.

“The moderation in March housing starts was due to a decrease in the volatile multiple starts segment,” said Bob Dugan, chief economist at CMHC’s Market Analysis Centre. “Helping to offset this was an increase in singles starts a well as more activity in rural areas.”

Single urban starts increased by 6.9 per cent to 97,700 units, while urban multiple starts like condos decreased by 15.2 per cent to 77,500. The seasonally adjusted annual rate of urban starts decreased by 4.2 per cent to 175, 200 units in March, but markets some markets like Quebec and the Prairies saw gains (13.5 per cent and 7.3 per cent, respectively).

Rural starts were estimated as a seasonally adjusted annual rate of 22,100 units in March. National housing starts increased by 7.5 per cent in January and six per cent in February.

The housing market is overheated in Vancouver, Victoria and Toronto, according to a new house price survey by Royal LePage, while other cities have seen more modest and sustainable growth.

“In Vancouver and Toronto, the dramatic unit sales fluctuations exhibit a significant degree of market irrationality: inordinately fearful when faced with poorer markets; and overly enthusiastic when the tables turned,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services. “Montreal is an example of a city where the market has been much more stable and homeowners there seem quite happy with the relatively slow pace of change.”

The report identified three house price trends. The first was the roller coaster effect seen in Toronto, Vancouver and Victoria. Then there were the “non-stop growth” areas where housing markets were resilient during the economic downturn and saw steady price increases over a two-year period, including Halifax, Ottawa, Regina, Saint John, St. John’s and Winnipeg. Lastly were the “level markets” where prices stayed relatively unchanged - Calgary, Edmonton, Moncton and Montreal.

Despite continued price and sales jumps in most cities, Soper said he expects calmer activity in the months to come.

“Even in our most frenzied pockets of market activity, the inevitable rise in interest rates coupled with home price appreciation will rein in demand as affordability erodes,” he said. “Expect house prices to continue to rise, but the rate of appreciation should ebb steadily, month by month, throughout the remainder of the year, as balance returns to the industry.”

One in four Canadians rely on subsidies or spend over 30 per cent of their pre-tax income on housing costs, including mortgages and rent, according to a report by the Conference Board of Canada.

According to the report, a household is unaffordable if more than 30 per cent of its pre-tax income is spent on household costs - a situation that more than three million Canadians find themselves in. The typical household spends 50 per cent more on shelter than on food and over five times more on shelter than on clothing.

“The quality and cost of housing are major factors in the health of Canadians,” said Diana Mackay, conference board director of education and health. “However, about one-fifth of Canadian households do not have the resources to afford both good-quality homes and other health-enhancing expenditures, such as nutritious food or access to recreational activities.”

The report warned that the high number of Canadians stretched too thin negatively affects their health, productivity, and national competitiveness, and increases the cost of health-care and welfare.