WEEKLY RESIDENTIAL MARKET UPDATE
Industry & Market Highlights
Good News for Homeowners
A report by Canada Mortgage and Housing Corp. says a recent drop in Ontario home prices isn’t expected to persist.
It says moderate economic growth in the Greater Toronto Area and Ontario generally will provide support for provincial real estate prices in 2018 and 2019.
CMHC expects inflation-adjusted home prices in the province will remain relatively stable and close to the levels of last year’s fourth quarter.
It anticipates prospective buyers will face fewer bidding wars and feel less urgency to act, allowing them time for more informed decision making.
On the flip side, CMHC says home owners may see their properties on the market longer than usual. By The Canadian Press.
The Spring Housing Market Continues To Be Weak
As we said last month, April is usually the start of a spring housing market ramp-up, but this year the new mortgage stress test and rising mortgage rates have continued to be a negative factor. Those expecting an early-stage pick-up marking an end to the payback for sales pulled forward into the fourth quarter of last year have been sorely disappointed. With another month of data released by the Canadian Real Estate Association (CREA) on Friday, it is evident that the disappointing housing picture continued in May. There is no indication of any real rebound in home resale activity through May.
National home sales via the Canadian MLS Systems remained little changed from April to May. Having slipped 0.1% lower, it marked the lowest level for national sales activity in more than five years. Slightly more than half of all local housing markets reported fewer sales in May compared to April, led by the Okanagan region, Chilliwack and the Fraser Valley, together with the Durham region of the Greater Toronto Area (GTA) and Quebec City. Declines in activity were offset by gains in Calgary, Thunder Bay, Brantford, London and St. Thomas, Oakville-Milton and the Quinte Region west of Kingston. A small increase in GTA sales also supported the national tally.
On a positive note, sales have stabilized suggesting that buyers could be adjusting to the impact of tighter mortgage rules and higher interest rates. After all, sales did climb 1.6% in Toronto, after falling to recession-era lows in April.
Still, CREA cut its 2018 sales forecast to 459,500 nationwide, which would represent an 11% decline from the 2017 pace. In March, the group had predicted a 7.1% slide.
Existing home sales in Canada remain stuck at a six-year low of 436,500 units on a seasonally adjusted annualized basis in May, representing the fifth consecutive monthly decline. The stress test, along with higher mortgage rates and new market-cooling measures in British Columbia continue to keep homebuyers on the sidelines. Not even a material rise in new listings (up 5.1%) enticed them back into play. Activity was at a virtual standstill last month in all three of Canada’s largest markets— Vancouver, Toronto and Montreal.
Actual (not seasonally adjusted) activity was down 16.2% compared to May 2017 and reached a seven-year low for the month. It also stood 5.5% below the 10-year average for the month of May. Activity came in below year-ago levels in about 80% of all local markets, led overwhelmingly by those in and around the Lower Mainland of British Columbia and the Greater Golden Horseshoe (GGH) region in Ontario.
“This year’s new stress-test became even more restrictive in May since the interest rate used to qualify mortgage applications rose early in the month,” said, Gregory Klump, CREA’s Chief Economist. “Movements in the stress test interest rate are beyond the control of policymakers. Further increases in the rate could weigh on home sales activity at a time when Canadian economic growth is facing headwinds from U.S. trade policy frictions.”
The number of newly listed homes rose 5.1% in May but remained below year-ago levels. New listings rose in about three-quarters of all local markets, led by Edmonton, Calgary, Montreal, Quebec City, Ottawa and the GTA.
With new listings up and sales virtually unchanged, the national sales-to-new listings ratio eased to 50.6% in May compared to 53.2% in April and stayed within short reach of the long-term average of 53.4%. Based on a comparison of the sales-to-new listings ratio with its long-term average, about two-thirds of all local markets were in balanced market territory in May 2018. There were 5.7 months of inventory on a national basis at the end of May 2018. While this marks a three-year high for the measure, it remains near the long-term average of 5.2 months.
On a national basis, the Aggregate Composite MLS Home Price Index (HPI) rose only 1.0% y/y (year-over-year) in May 2018, marking the 13th consecutive month of decelerating y/y gains. It was also the smallest annual increase since September 2009.
Decelerating year-over-year home price gains largely reflect trends among GGH housing markets tracked by the index. While home prices in the region have stabilized and begun trending higher on a monthly basis, rapid price gains recorded one year ago have contributed to deteriorating y/y price comparisons. If recent trends remain intact, year-over-year comparisons will likely improve in the months ahead.
Condo apartment units again posted the most substantial y/y price gains in May(+12.7%), followed by townhouse/row units (+4.9%). By contrast, one-storey and two-storey single-family home prices were down (-1.5% and -4.7% y/y respectively), very much in line with what we saw last month.
Benchmark home prices in May were up from year-ago levels in 8 of the 15 markets tracked by the index (see Table below).
Composite benchmark home prices in the Lower Mainland of British Columbia continue to trend upward after having dipped briefly in the second half of 2016 (Greater Vancouver (GVA): +11.5% y/y; Fraser Valley: +20.6% y/y). Apartment and townhouse/row units have been mainly driving this regional trend while single-family home prices in the GVA have stabilized. In the Fraser Valley, single-family home prices have also started rising.
Benchmark home prices were up by 11.5% on a y/y basis in Victoria and by 18.1% elsewhere on Vancouver Island.
Within the GGH region, price gains have slowed considerably on a y/y basis but remain above year-ago levels in Guelph (+3.8%). By contrast, home prices in the GTA, Oakville-Milton and Barrie were down from where they stood one year earlier (GTA: -5.4% y/y; Oakville-Milton: -5.9% y/y; Barrie and District: -6.3% y/y). This reflects rapid price growth recorded one year ago and masks recent month-over-month price gains in these markets.
Calgary and Edmonton benchmark home prices were down slightly on a y/y basis in May (Calgary: -0.5% y/y; Edmonton: -0.9% y/y), while prices in Regina and Saskatoon were down more noticeably from year-ago levels (-6.2% y/y and -2.7% y/y, respectively).
Benchmark home prices rose by 8.2% y/y in Ottawa (led by a 9.5% increase in two-storey single-family home prices), by 6.7% in Greater Montreal (driven by a 7.3% increase in two-storey single-family home prices) and by 4.3% in Greater Moncton (led by a 4.8% increase in townhouse/row unit prices).
Housing markets continue to adjust to regulatory and government tightening as well as to higher mortgage rates. The speculative frenzy has cooled, and multiple bidding situations are no longer commonplace in Toronto and surrounding areas. Home prices in the detached single-family space will remain soft for some time, and residential markets are now balanced or favour buyers across the country. The hottest sector remains condos where buyers face limited supply.
Owing to the housing slowdown, a general slowing in the Canadian economy and significant trade uncertainty, the Bank of Canada has taken a very cautious stance. However, at their last meeting, monetary policymakers have signalled that a rate hike is coming, likely when they next meet on July 11.
Five-year fixed mortgage rates have already risen roughly 110 basis points, while rates for new variable mortgages rose by close to 40 basis points. Since the implementation of new mortgage standards, nonprice lending conditions for mortgages and home equity lines of credit have also tightened.
In the Bank of Canada’s recently released Financial System Review, the central bank analysts observed that the updated Guideline B-20, which took effect at the beginning of this year, “is dampening credit growth and improving the quality of new mortgage lending, especially in regions with the highest house prices. For example, because of the new mortgage interest rate stress test, the size of a 5-year, fixed-rate mortgage with a 25-year amortization that a median-income borrower in Canada can qualify for dropped by about $82,000 to $373,000. The stress test will have more significant effects in markets such as the Greater Toronto Area (GTA) and Greater Vancouver Area (GVA), where house prices are higher relative to incomes and low-ratio mortgages are more common. By Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres.
CREA modifies forecast
The Canadian Real Estate Association is lowering its national home sales forecast for this year due to weaker sales in B.C. and Ontario.
The industry association says it now expects home sales this year to fall 11 per cent compared with a year ago to 459,900 units this year.
The prediction compared with a forecast for a 7.1 per cent decline the association released in March.
The updated forecast came as CREA reported actual home sales in May hit a seven-year low as they fell 16.2 per cent compared with a year ago.
The national average price for homes sold in May was just over $496,000, down 6.4 per cent from a year ago.
Excluding the Greater Toronto and Greater Vancouver areas, the average price was just over $391,100, down two per cent. By The Canadian Press.
This Canadian housing price index is on the rise, as condo prices shoot upwards
A major Canadian housing price index continued to rise in May, boosted by strong condo sales in major markets.
The Teranet-National Bank Composite National Price Index rose 1 per cent in May, following a 0.2 per cent rise in April.
“May’s rise in the Teranet-National Bank HPI confirmed the stabilization of home prices that took place since the end of last year, following a correction in [the second quarter of 2017],” writes National Bank senior economist Marc Pinsonneault, in a recent note.
Ten of the 11 markets covered by the index saw price increases last month. Vancouver and Victoria led the charge with 15.4 and 10.3 per cent increases, respectively.
The reason for the boost? A new mortgage stress test introduced in January has taken a bite out of Canadian home buyers wallets, causing a surge of demand — and prices — in the country’s condo market.
“It is true that this stabilization was accompanied by a shift of price momentum in favor of condos in Toronto and Vancouver,” writes Pinsonneault. “Given the high price level for other types of dwellings in these cities, rising interest rates and tighter mortgage underwriting standards, this shift should not be surprising.”
Pinsonneault notes that the bump in prices could be a sign that the market has largely adjusted to the new mortgage rules, after its first quarter price drop.
“In other regions covered by the Composite index, prices have regained most of the ground lost in Q1 [of 2018],” he writes.
And while it’s possible that prices could fall again later in the year, Pinsonneault writes that they’re unlikely to dip too much farther in the coming months.
“Given that interest rates are likely to continue to increase, a relapse of home prices over the next few quarters cannot be ruled out,” writes Pinsonneault. “But their resilience so far suggests that price declines would then be limited in scope.” By Sarah Niedoba.
Honeymoon Over for Homeowners
Through most of this decade, Canadians have taken advantage of historically low interest rates and splurged on housing. Except now rates are rising and new regulations are making qualification arduous.
In other words, the honeymoon is over and the hangover has begun.
According to the Bank of Canada, Canadians owe about $1.70 on every after-tax dollar of income they earn annually. It stands to reason, then, that rate hikes could be too much to bear for many homeowners in this country.
According to Neville Joanes, chief investment officer at WealthBar, that would be deleterious to the housing market.
“If interest rates increase and individuals are not able to service their debt, it will lead to an increase in supply over sales and foreclosures, and that will lead to a decrease in the housing market from a residential perspective because supply will increase,” he said.
He also believes that homeowners with significant home equity or mortgage insurance would enjoy a measure of protection.
However, should things go awry in the housing market—In April, home values plunged 11.3% from a year earlier, according to Canadian Real Estate Association statistics—banks would reduce what they’re willing to lend against equity. Moreover, in a rising rate environment, borrowers attempting to refinance or access home equity to service household debt may find those options restricted.
“Selling may be their only solution,” said Joanes. “For an individual with a high level of consumer debt who’s unable to access the equity in their home and unable to meet their payment obligations, the only way to access equity may be to help refinance their personal circumstances or reduce their personal debt load. There are debt management services out there that help individuals reduce levels of high household debt.”
But Rakhi Madan, a Dominion Lending Centres Key Mortgage Partners broker, says household debt concerns are overblown in no small part because the Bank of Canada omitted a salient distinction.
“What the Bank of Canada is not addressing is how much of that $1.70 is unsecured and how much of it is from mortgages,” she said. “Secured debts you can get rid of. It’s an asset you’re holding. Every payment you make on a mortgage, depending on your interest rate, half is coming back to the equity in your house. You can sell secure debt but unsecured you pay from your income. That $1.70 is pretty nominal, so that’s why I feel like this is overblown.”
The ramifications of household debt levels, exorbitant as they may be, will likely remain shielded by steady housing appreciation.
“I don’t think Canada is headed for a housing-led recession simply because, even though household debt is high, housing prices are high and cities are transforming,” said Joanes. “If you compare major metropolitan hubs in Canada to those in the U.S. and those in Europe, they’re still not priced to that level and there’s still space for price appreciation in major Canadian cities.” By Neil Sharma.
What is the latest interest rate and economic news?
All weeks are created equal. They all have seven days, 168 hours and 10,080 minutes. What isn’t equal, is the amount of groundbreaking mortgage and interest rate related news that comes out in said week. Unfortunately for someone who writes commentary on exactly those topics, this very well could be one of those weeks. However, fortunately for our loyal readers, our sophisticated research and writing methods will still allow me to disseminate all the pertinent information you didn’t know you needed to get you through this weekend. In the words of Superman, “No need to thank me, I’m only doing my job”.
All benchmark yields are lower today as bonds have been bid the last few days. The benchmark 5 year bond is currently yielding 2.08% and the 10 year is yielding 2.21%. Compare this to last Friday, where the 5 year closed at 2.16% and the 10 year closed at 2.32%.
Similarly, the Canada Mortgage Bonds have moved in a similar fashion. The current 5 and 10 year CMB’s are lower by 10 bps and 12 bps respectively since last Friday. The 5 year CMB is yielding 2.37% and the 10 year CMB is yielding approximately 2.57%. It is worth highlighting, we are now sitting approximately 30 bps lower in all the bonds mentioned since a month ago. Clearly, it’s as good a time as ever to utilize the early rate lock option First National offers to take advantage of these low rates and no longer fret about any volatility to come.
Canada’s data this week was what economists and pundits like to call ‘soft data’, where the outcomes of the data can be interpreted in various ways. Statistics Canada released their equivalent of tissue paper this morning with manufacturing sales and existing home sales. Manufacturing data came in weaker than expected. The manufacturing survey run by Statscan showed that April manufacturing sales slowed to -1.3% versus what the market was expecting of +0.6%. Piling on the slow sales was manufacturing volumes, which were also down by 1.9%. Existing home sales only edged lower by 0.1% in May versus the expected -1.7%. Currently, the year over year decline in national home sales is sitting at 16.2%, which was helped by the May release from a 19.7% decline. Interestingly, Toronto sales were up 1.6% month over month, this first time that has happened since December. As an aside, if you recall, December was also the last time BitCoin was interesting. The cryptocurrency is down to ~6500 from the 18,000 (USD) it was in December. Ouch.
Currently, the market is pricing in about a 72% chance of a BOC rate hike on July 11th. It would probably take a lot of poor economic data going forward to push the hike into September but the manufacturing numbers today was a start. Looking forward, before July 11th we have: Retail Sales, CPI (Inflation numbers), a speech by Poloz, wages, employment and the Business Outlook Survey. You will read about it all here first.
On Wednesday the Federal Reserve in the USA decided to increase their fed funds rate to a range of 1.75-2%. The last time the rate topped 2% was in the late summer of 2008, which was in the midst of the global economy shrinking due to the pending financial crisis. The US economy is firing on all cylinders. One statistic that stands out, is that for the first time, job openings in the USA actually outnumbers job seekers. Hence, many are expecting the fed to continue their course of monetary policy and increase their fed funds rates two more times this year. I would expect this can also push the BoC further towards hiking as well.
In other news, by now the tit-for-tat, war of the words with Trudeau and Trump has passed and you probably have read all about it. So too has the momentous meeting between Kim-Jung Un and Trump in Singapore. The G7 meetings that also happened over the weekend also provided some great photos which I highly recommend googling. In my opinion, the most important information actually came out this morning, as the USA officially enacted tariffs of 25% on about $50 Billion of Chinese imports. To no one’s surprise, China immediately vowed to retaliate with measures of similar scale against the USA. The headlines read this as being the beginning of a trade war and all major equity indices are lower as of writing.
Finally, the World Cup started yesterday and as an added bonus, Canada, the USA and Mexico were announced as the 2026 co-hosts. No word on if that’s going to help in the NAFTA negotiations but one thing is for sure, side of the road flag sales will be at a 4-year high this summer. By Capital Markets Update First National Financial LP
Mortgage Interest Rates
No change to Prime lending rate currently at 3.45%. Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.34%. Fixed rates are holding steady, no change in fixed rates. Deeper discounts are are available for variable rates making adjustable variable rate mortgages very attractive again.
|Please Note: Payment per $100K and possible savings shown above are based on a 25-year ammortization. Rates are subject to change without notice and the rate you receive may vary depending on your personal financial situation. *OAC E&OE. Please reply to this email and I will be happy to provide you with greater detail and determine the best rate available for you.|
|This edition of the Weekly Rate Minder shows the latest rates available for Canadian mortgages. At Dominion Lending Centres, we work on your behalf to find the best possible mortgage to suit your needs.
Explore mortgage scenarios using helpful calculators on my website: http://www.iMortgageBroker.ca
Other Industry News & Insights
Progressive Conservatives decry B-20, push for study to examine effects
The Progressive Conservatives’ Deputy Shadow Minister for Finance has proposed creating a subcommittee to study B-20’s impact in a bid to have it overturned.
According to MP Tom Kmiec, the Liberal Party acted callously by subjecting Canadians to the mortgage stress test.
“The new stress test is going to block up to 60,000 Canadians from being able to buy a home,” Kmiec told MortgageBrokerNews.ca. “About 100,000 Canadians will probably fail the stress test and won’t be approved to borrow from a federally-regulated lender and that will push them to the unregulated lenders. We know from a CIBC Capital Market report that 47% of all mortgages need to be refinanced in 2018. In the year they knew there would be so many people refinancing, they still imposed the stress test. That was irresponsible and unfair.”
This is the second time Kmiec has proposed studying the mortgage rules after the first motion was voted down, however, he’s willing to play hardball this time.
“I will not approve travel of the committee until such time as we approve a study on mortgages,” said Kmiec. “I’m being reasonable—I’m willing to make amendments to my motion, I want to be collaborative, and that’s why I’m suggesting we make a subcommittee. I think it’s very reasonable. A home, whether it’s a townhouse, a condo or a detached house, is the most important financial decision a Canadian will make, and likely the biggest financial asset they’ll ever purchase. Therefore, it’s totally reasonable to look at this and I’m going to keep pressing.”
Kmiec says that his constituency in Calgary Shepard is replete with homeowners unable to requalify and who are stuck with lenders pushing 100 basis point increases. None of their stories surprise him, though.
“It’s important for the committee to look at the stress test because a report of theirs from a few years ago said the government should help first-time homebuyers and not introduce one-size-fits-all policy.
“If the problem is with indebtedness of Canadians, why are they making it more difficult for them to keep the homes that they’re in, especially for high-ratio mortgages, which also face the stress test. Those people put down more than 20% on their homes, but now the government is making it more expensive for them to carry their mortgages. That’s not just unjust and unfair—that’s bad policy making.”
Mortgage Outlet’s Principal Broker Shawn Stillman doesn’t believe Kmiec will be successful in imploring the Liberals to study the mortgage rules simply because it’s Politics 101.
“It’s unlikely he’ll be successful because government doesn’t like giving any credence to the opposition,” said Stillman. “They could have the best answer but they’ll never say ‘You’re right.’ If they believed it was an issue, they’d say ‘no’ to his suggestion and bring up their own motion a few weeks later.”
Also unlikely, he added.
“I truly believe the Liberal government doesn’t believe it’s an issue. They don’t see any real downside, although I think the Liberal loss in Ontario definitely shows there’s a downside.” By Neil Sharma.
Roundup of the latest mortgage and housing news.
From Mortgage Professionals Canada.
- Mortgage borrowing slides to lowest since 2014 (CBC)
- Canadian mortgage borrowing drops to lowest level since 2014 (BNN)
- Ontario home prices expected to rise moderately, declines unlikely to persist: CMHC (CBC)
- Are new mortgage rules starting to curb Canadians appetite for debt? This report says yes (BuzzBuzzNews
Now’s the perfect time of year for a free mortgage check-up. With spring on its way and interest rates on the rise, it makes sense for us to revisit your mortgage and ensure it still meets your needs. Perhaps you’ve been thinking about refinancing to consolidate debt, purchasing a rental or vacation property, or you simply want to take a vacation. Whatever your needs, we can evaluate your situation and help you determine what’s right for you.
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