That’s the title I’d have given it.  We literally went from “The End is Nigh” to near daily reports of bubble fears in the mainstream media.  How is that even possible?  really.  Think about it.  Could we have had a more bipolar year in housing?  I doubt it.

Enough of that.  The December stats have been released to a fairly collective yawn.  It’s December and it was good.  But now is January 2010 and it isn’t just the start of a new year/decade.  No, this is the year we host the Olympics.  It’s also a year that will see the arrival of the HST.  And it is the year that many are expecting big changes in financing to occur.  There have been rumblings of increasing interest rates, increasing the amount that is required for downpayment, and possibly a decrease in amortization periods to a max of 30 years.  Me?  Those who know me or have read here for a while know that I am terrible at stating my predictions clearly but it’s pretty obvious what might happen:

I think it is pretty safe to say that we are near the limits of affordability again.  Even with these low interest rates when a small but decent one bed condo requires $40-50k in pretax income and two beds require $72k+ that the odds of prices moving up much more are slim.  Not impossible but slim.  Interest rates will not be dropping.  That is almost certain.  So we are near the top of affordability.  Limited choice has maintained a scarcity driven prices up when assisted by low interest rates.

But get this:

For every 1% increase in mortgage rates you can pretty much expect a 12.5% decrease in affordability.

A decrease of 5 years on the amortization period would also result in about a  7.5% decrease in affordability.

Do both and you have a 17.5% decrease in affordability.

(Based on every $100k borrowed at 4% over 35 years vs 5% and 30 years).

Now, the HST is actually likely to encourage people to buy resale rather than presale.  After all, a just possessed and resold or a used home vs a brand new first titled home, all other things being equal, and valued at the minimum $525k is about $63k less just by avoiding the obscene 12% HST.  Sixty Three Thousand Dollars!  Seriously?!  What are they thinking.  Oh, yeah, don’t forget the PTT on that home (which also applies to resales) and you’re looking at $71,500 total.  And that cannot be financed.  And that is in addition to the downpayment you will be required to have.

But, hey, the Olympics are coming.  And that is going to make a mess of getting around the city to buy or sell homes, so I will predict a delayed spring market.

I will also predict that the government does only one of the three above financing possibilities.  Most likely they will up the downpayment requirements or lower the amortization.  This has the effect of slowing down a hot housing market while not affecting interest rates and hurting the valuable manufacturing voter base in Ontario.  If they are really serious then they will decrease the amortization period.  Changing the downpayment structure just encourages creative financing.

So, is this post as muddy as past prediction posts?  Good.  Because that is the reality.  We got a lot of great things going on but the future is cloudy.

What do you think is going to happen?  What will December 2010′s stats say?

For inspiration here are the December 2009 Vancouver Real Estate Stats

Related posts:

1. June 2009 Vancouver Real Estate Statistics Released
2. May 2009 Real Estate Board of Greater Vancouver Stats
3. April Real Estate Board of Greater Vancouver Statistics Released