26 Jul

Residential Market Update

Latest News

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

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Industry & Market Highlights 

First Monthly Canadian Home Sales Gain This Year In June

National home sales rose by 4.1% in June compared to May, the first such rise this year. Even so, June’s sales activity remains well below the monthly pace of the past five years (see chart). The sales gains were led by the Greater Toronto Area (GTA) as 60% of all local housing markets reported increased existing home sales.

According to the Toronto Real Estate Board, sales were up 17.6% in the GTA on a seasonally adjusted basis between May and June.

In contrast, sales in British Columbia continued to moderate. The Real Estate Board of Greater Vancouver reported a 14.4% decline in home sales last month compared to the month before. June’s sales for the GVA were 28.7% below the 10-year June sales average. On a year-over-year (y/y) basis, sales declined a whopping 37.7%.

National home sales activity declined almost 11% y/y. Annual sales hit a five-year low and stood nearly 7% below the 10-year average for June. Activity came in below year-ago levels in about two-thirds of all local markets, led overwhelmingly by those in the Lower Mainland of British Columbia.

“This year’s new stress-test on mortgage applicants has been weighing on homes sales activity; however, the increase in June suggests its impact may be starting to lift,” said CREA President Barb Sukkau. “The extent to which the stress-test continues to sideline home buyers varies by housing market and price range.”

B.C. was hit with a double whammy as the province raised the foreign purchase tax as well. Also, mortgage rates have risen increasing the burden of the new stress tests.

Looking ahead, home sales and price gains will likely be dampened by higher interest rates as the Bank of Canada just hiked the benchmark rate once more last week. The prime rate rose from 3.45% to 3.70% in the wake of the rate hike, while the posted 5-year fixed mortgage rate–the critical stress-test yield–remained steady at 5.34%. Nevertheless, more upward pressure on mortgage rates is likely over the next couple of years as economic activity bumps up against capacity limits and inflation edges upward. The Bank made it very clear that further interest rate hikes are on the way but reiterated that it will be taking a gradual approach to future increases, guided by incoming economic data and a recognition that the economy is more sensitive to interest rate movements now than it was in the past.

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New Listings

The number of newly listed homes fell in June by 1.8% and also remained below levels for the month in recent years. New listings declined in a number of large urban markets including those in B.C.’s Lower Mainland, Calgary Edmonton, Ottawa and Montreal.

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.

Home Prices

On a national basis, the Aggregate Composite MLS Home Price Index (HPI) rose only 0.9% y/y in June 2018, marking the 14th consecutive month of decelerating y/y gains. It was also the smallest annual increase since September 2009.

Decelerating y/y home price gains have reflected mainly trends at play in Greater Golden Horseshoe (GGH) housing markets tracked by the index. Home prices in the region have begun to stabilize and trend higher on a month-over-month basis in recent months.

Condo apartment units again posted the most substantial y/y price gains in June (+11.3%), followed by townhouse/row units (+4.9%); However, price gains for these homes have decelerated this year. By contrast, one-storey and two-storey single-family home prices were again down in June (-1.8% and -4.1% y/y respectively).

Benchmark home prices in June were up from year-ago levels in 8 of the 15 markets tracked by the index (see Table below).

Home price growth is moderating in the Lower Mainland of British Columbia (Greater Vancouver Area: +9.5% y/y; Fraser Valley: (+18.4%), Victoria (+10.6%) and elsewhere on Vancouver Island (+16.5%).

Within the GGH region, price gains have slowed considerably on a y/y basis but remain above year-ago levels in Guelph (+3.5%). By contrast, home prices in the GTA, Oakville-Milton and Barrie were down from where they stood one year earlier (GTA: -4.8%; Oakville-Milton: -2.9%; Barrie and District: -6.5%). The declines reflect 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 (Calgary: -1.0%; Edmonton: -1.5%), while prices declines in Regina and Saskatoon were comparatively more substantial (-6.1% and -2.9%, respectively).

Benchmark home prices rose by 7.9% y/y in Ottawa (led by a 9.1% increase in two-storey single-family home prices), by 6.4% in Greater Montreal (driven by a 7.4% increase in townhouse/row unit prices) and by 6% in Greater Moncton (led by a 6.5% increase in one-storey single-family home prices).

The actual (not seasonally adjusted) national average price for homes sold in June 2018 was just under $496,000, down 1.3% from one year earlier. While this marked the fifth month in a row in which the national average price was down on a y/y basis, it was the smallest decline among them.

The national average price is heavily skewed by sales in the Greater Vancouver and GTA, two of Canada’s most active and expensive markets. Excluding these two markets from calculations cuts almost $107,000 from the national average price, trimming it to just over $389,000.

Bottom Line

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. The housing markets in the GGH appear to have bottomed, and supply constraints may well stem the decline in home prices in coming months. The slowdown in housing markets in the Lower Mainland of B.C. accelerated last month as the sector continues to reverberate from provincial actions to dampen activity, as well as the broader regulatory changes and higher interest rates.

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. Additional rate hikes by the Bank of Canada are coming, although the Bank will remain cautious particularly in light of continued trade tensions with the United States.

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By Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres

CREA releases June sales figures

The Canadian Real Estate Association says the number of homes sold in June was down 10.7 per cent from a year ago.

The result was a five-year low for the month of June.

However, sales volume was up 4.1 per cent when compared with May.

The association says it was the first substantive month-over-month increase this year.

The national average price for a home sold in June was just under $496,000, down 1.3 per cent from a year ago.

Excluding the Greater Vancouver and Greater Toronto markets, the average price was just over $389,000.  By The Canadian Press. 

Ontario markets outside Toronto see accelerated home price growth

While the Toronto residential market has seen the median cost of its housing shrink in Q2 2018, price growth accelerated in other major Ontario locales such as Kitchener, Waterloo, Cambridge, according to the latest Royal LePage House Price Survey and Market Survey Forecast.

The average price of a standard 2-storey home increased by 8.9% annually across the region (up to $515,733) in the second quarter of the year. Meanwhile, the median price of a bungalow grew by 6.2% year-over-year (up to $443,572), and the average price of a condominium rose by 5.1% in the same time frame (up to $287,080).

However, Royal LePage Grand Valley Realty broker and owner Keith Church stressed that “while prices are up across all housing categories year-over-year, the rate of appreciation has slowed compared to last quarter’s double-digit year-over-year gains. We are beginning to see a shift towards a balanced market where sales and prices are more stable.”

Church added that the region’s economic growth is pulling buyers from the Greater Toronto Area. Royal LePage is also predicting a healthy influx of first-time buyers and retirees looking to downsize into new condominiums.

The aggregate price of a home in the Kitchener/Waterloo/Cambridge area increased by 8.2% year-over-year in Q2 2018 (up to $485,946). Housing costs in the region are expected to continue increasing at a steady rate in the next quarter, the report noted.

On the national level, price appreciation slowed to a relative crawl in Q2 2018, a development influenced mainly by what was characterized as “softness” in the GTA, where many markets have suffered year-over-year declines in home prices. By Ephraim Vecina.

CMHC’s new rules

Canada Mortgage and Housing Corporation is making a couple moves that will send ripples through the mortgage market.  One could give lenders access to more confidential financial information about borrowers.  The other could ease frustrations for a group of borrowers that has consistently had problems securing loans.

According to documents obtained by Reuters, through a freedom of information request, the federal housing agency wants the Canada Revenue Agency to take a “more direct and formal role” in verifying income statements made on mortgage applications.  Right now the CRA does not verify income claims for lenders, even with the permission of the borrower/taxpayer.

A two-year plan drafted by CMHC shows the agency is concerned about a systemic risk posed by mortgage fraud.  The agency has said there is no evidence of widespread fraud in Canada, but it also says its information is limited.

The CMHC plan says paperless transactions, pressures to close deals quickly, rising prices and new regulations can “create strong incentives for individuals or mortgage professionals to engage in … fraud.”  A spokesperson also says CMHC is developing data-driven systems to screen for commission fraud, where a lender or a broker may have encouraged a borrower to exaggerate income claims.  The documents reveal the agency intends to start publishing statistics on mortgage fraud.

At the same time CMHC says it wants to make it easier for the self-employed to qualify for a mortgage.  The agency says it is giving lenders more guidance and flexibility to help self-employed borrowers.  The effort focuses on those who have been running their business – or have been in the same line of work – for less than 24 months.  The new policy is set to take effect October 1st.  By First National Financial

CMHC makes announcement regarding self-employed borrowers

Canada Mortgage and Housing Corp. is making changes intended to make it easier for the self-employed to qualify for a mortgage.

The national housing agency says it’s giving lenders more guidance and flexibility to help self-employed borrowers.

Self-employed Canadians may have a harder time qualifying for a mortgage as their incomes may vary or be less predictable.

CMHC is providing examples of factors that can be used to support the lender’s decision to lend to borrowers who have been operating their business for less than 24 months, or in the same line of work for less than 24 months.

It is also providing a broader range of documentation options to increase flexibility for satisfying income and employment requirements.

The changes, which apply to both transactional and portfolio insurance, will take effect Oct. 1.

CMHC chief commercial officer Romy Bowers said self-employed Canadians represent a significant part of the workforce.

“These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates,” Bowers said in as statement.  By Canadian Press. 

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Economic Highlights

 

Jasson Ellis looks at the latest in government bond yields

Greetings mortgage market participants,

Forgive me gentle readers.  It’s been a month since my last post and it feels like at least twice that long.

In my defense, I’ve been occupied by some ‘deep thoughts’ that have kept me distracted.  For instance, I’ve been thinking that maybe to understand mankind we have to look at the word itself: “Mankind”.  Basically, it’s made up of two separate words, mank and ind.  What do these words mean?  It’s a mystery, and that’s why mankind is too.

I’ve also been thinking that if dogs ever take over the world, and they choose a king, I hope they don’t just go by size, because I bet there are Chihuahuas out there with some good ideas.

Economic Data

Today’s data featured two top tier Canadian reports, Retail Sales and Consumer Price Index (“CPI”).

Month over month retail sales in May came in at +2.0% and +1.4% ex-autos, exceeding expectations of +1.0% and +0.5% respectively.  Headline CPI for June came in a little hot at 2.5% year over year vs. 2.3% expected and 2.2% last month  ‘Core’ CPI came in as expected a 1.9%, right around the BoC 2.0% target.

Rates

Rates have jumped about 4 basis points higher on today’s data but Government bond yields in Canada continue to be relatively range bound.  5 year GoC’s are around 2.06% and have traded between 2.00% and 2.10% the last five weeks.  10 year GoC’s are around 2.15% and have traded between 2.10% and 2.20% over the same horizon.  Yes…you read that right.  There are less than 10 basis points between the 5 and 10 year benchmarks.  In fact, there are only 20 basis points between the 2 year (1.95%) and the 30 year (2.15%) bond.  It’s a flat curve all right.  Flattest it’s been in a decade.  I don’t want to alarm you, but your first year Economics text book will tell you that a flat yield curve is an indication that investors and traders are worried about the macro-economic outlook.  A less pessimistic argument is that it’s only natural when a central bank is raising short-term interest rates.  Whatever the reason, if you’re getting a “glass half empty” feeling, just add vodka and stir.

Speaking of central banks, following the July 11th rate hike, the next BoC meeting is September 5th.  The implied probability of another then hike is a modest 10%.  No doubt lingering uncertainty with respect to NAFTA, auto tariffs and broader trade drama are creating headwinds.  Despite the small pop in rates this morning, the market won’t lean too heavily on the modestly stronger than expected retail sales and CPI data today.

Securitization news

On Wednesday, RBC priced a new offering of CMBS in the form Real Estate Asset Liquidity Trust, better known as REAL-T.  It’s the second Canadian CMBS transaction of 2018 and the sixth issuance of REAL-T since its post liquidity crisis return to the market in 2014.

The simple senior/subordinate sequential pass through structure featured a 3.5 year A-1 note and a 7.5 year A-2 note.  Both rated ‘AAA’ by DBRS and Fitch with 13.25% credit support from subordinate notes.  The A-1 priced at GoC +105 and the longer A-2 priced at GoC+155.  An attractive spread for a ‘AAA’ note considering the current delinquency rate on all outstanding Canadian CMBS issuance since 1998 is a microscopic 0.08%.  For context, the last REAL-T deal was issued in October 2017 and the A-1/A-2 notes were priced at +125/+175 or 20bps wider than this week’s deal.

The roughly $350 million pool was made up of 70 loans across 140 properties with loan to value < 60% and a weighted average remaining term of 6.67 years.

No new ‘syndicated’ NHA MBS deals to mention but the indicative spread for a new 5 year single family residential pool is around +48, virtually unchanged since January.  That’s impressive considering Bank Deposit notes have widened since January from about +65 to +90.  The outperformance by MBS can be partially explained by reduced issuance compared to last year and the special utility of MBS for Federally Regulated Financial Institutions (“FRFIs”) as Tier 1 High Quality Liquid Assets (“HQLA”).

Finally, CMHC’s call for allocation requests came out yesterday for next month’s 10 year CMB issue.  It will be the first opening (of three) for the new December 2028 maturity date.  Yes…it’s 124 months for the price of 120!  Send in your deals!

Heading into the weekend

Take it easy this weekend and remember, it’s always a good idea to carry two sacks of something when you walk around.  That way, if anybody asks “Hey, can you give me a hand?”, you can say, “Sorry, got these sacks”.

Sometimes I wish I were a nicer person…but then I laugh and continue my day.  By Jason Ellis, Senior Vice President and Managing Director, Capital Markets.

United States

·       Economic data was a mixed bag this week: retail sales were a bright spot, but housing starts unexpectedly plunged in June.

·       Trade developments continued to make headlines, with Donald Trump announcing he was prepared to extend duties on $500bn of imports from China – roughly the value of all China’s imports into the U.S.

·       In his testimony to Congress, Fed Chair Powell offered an upbeat view of the U.S. economy, and noted that the risks posed by trade protectionism would not push them off course on further rate hikes.

 

Canada

·       It was a good week for Canadian data releases, with positive surprises in retail, manufacturing, and housing, affirming last week’s upbeat tone set by the Bank of Canada.

·       Existing home sales were particularly positive, and, taken together with last week’s housing starts, support the view that the housing market is gradually stabilizing following the implementation of B-20 guidelines.

·       The U.S. announced that it will probe tariffs on uranium imports, increasing already-heightened global trade uncertainty risks. By TD Economics.  Read the full report Here.

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Mortgage Interest Rates

No change to Prime lending rate currently at 3.7%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.34%.  Fixed rates are holding steady, no change in fixed rates.  Deep discounts are are available for variable rates making adjustable variable rate mortgages very attractive for the right borrowers.

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Terms Posted

Rates

Payment

  Per $100k

Our Rates Payment

  Per $100k

Savings
6 Months 3.14% $480.46 3.10% $478.39 $2.07
1 Year 3.04% $475.30 2.99% $472.73 $2.57
2 Years 3.44% $496.11 3.24% $485.65 $10.46
3 Years 3.59% $504.03 3.39% $493.48 $10.55
4 Years 3.89% $520.07 3.54% $501.38 $18.69
5 Years 5.59% $615.64 3.29% $488.25 $127.39
7 Years 5.80% $627.97 3.94% $522.77 $105.19
10 Years 6.10% $645.76 3.99% $525.48 $120.28
Variable 2.70% $457.99 2.66% $455.97 $2.01
Prime Rate 3.70%
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

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  • We are Canada’s largest and fastest-growing mortgage brokerage!
  • We have more than 2,600 Mortgage Professionals from more than 350 locations across the country!
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Other Industry News & Insights

How Do Interest Rates Affect the Stock Market?

The investment community and the financial media tend to obsess over interest rates—the cost someone pays for the use of someone else’s money— and with good reason. When the Federal Open Market Committee (FOMC) sets the target for the federal funds rate at which banks borrow from and lend to each other, it has a ripple effect across the entire U.S. economy, not to mention the U.S. stock market. And, while it usually takes at least 12 months for any increase or decrease in interest rates to be felt in a widespread economic way, the market’s response to a change (or news of a potential change) is often more immediate.

Understanding the relationship between interest rates and the stock markets can help investors understand how changes might affect their investments and how to make better financial decisions.

 

The Interest Rate That Impacts Stocks

The interest rate that moves markets is the federal funds rate. Also known as the overnight rate, this is the rate depository institutions are charged for borrowing money from Federal Reserve banks.

The federal funds rate is used by the Federal Reserve (the Fed) to attempt to control inflation. Basically, by increasing the federal funds rate, the Fed attempts to shrink the supply of money available for purchasing or doing things, by making money more expensive to obtain. Conversely, when it decreases the federal funds rate, the Fed is increasing the money supply and, by making it cheaper to borrow, encouraging spending. Other countries’ central banks do the same thing for the same reason.

Why is this number, what one bank pays another, so significant? Because the prime interest rate—the interest rate commercial banks charge their most credit-worthy customers—is largely based on the federal funds rate. It also forms the basis for mortgage loan rates, credit card annual percentage rates (APRs) and a host of other consumer and business loan rates.

What Happens When Interest Rates Rise?

When the Fed increases the federal funds rate, it does not directly affect the stock market itself. The only truly direct effect is it becomes more expensive for banks to borrow money from the Fed. But, as noted above, increases in the federal funds rate have a ripple effect.

Because it costs them more to borrow money, financial institutions often increase the rates they charge their customers to borrow money. Individuals are affected through increases to credit card and mortgage interest rates, especially if these loans carry a variable interest rate. This has the effect of decreasing the amount of money consumers can spend. After all, people still have to pay the bills, and when those bills become more expensive, households are left with less disposable income. This means people will spend less discretionary money, which will affect businesses’ revenues and profits.

But businesses are affected in a more direct way as well because they also borrow money from banks to run and expand their operations. When the banks make borrowing more expensive, companies might not borrow as much and will pay higher rates of interest on their loans. Less business spending can slow the growth of a company; it might curtail expansion plans or new ventures, or even induce cutbacks. There might be a decrease in earnings as well, which, for a public company, usually means the stock price takes a hit.

Interest Rates and the Stock Market

So now we see how those ripples can rock the stock market. If a company is seen as cutting back on its growth or is less profitable—either through higher debt expenses or less revenue—the estimated amount of future cash flows will drop. All else being equal, this will lower the price of the company’s stock. (For related reading, see: Taking Stock of Discounted Cash Flow.)

If enough companies experience declines in their stock prices, the whole market, or the key indexes (e.g., Dow Jones Industrial Average, S&P 500) many people equate with the market, will go down. With a lowered expectation in the growth and future cash flows of the company, investors will not get as much growth from stock price appreciation, making stock ownership less desirable. Furthermore, investing in equities can be viewed as too risky compared to other investments.

However, some sectors do benefit from interest rate hikes. One sector that tends to benefit most is the financial industry. Banks, brokerages, mortgage companies and insurance companies’ earnings often increase as interest rates move higher, because they can charge more for lending.

Interest Rates and the Bond Market

Interest rates also affect bond prices and the return on CDs, T-bonds and T-bills. There is an inverse relationship between bond prices and interest rates, meaning as interest rates rise, bond prices fall, and vice versa. The longer the maturity of the bond, the more it will fluctuate in relation to interest rates. (For related reading, see: How Bond Market Pricing Works.)

When the Fed raises the federal funds rate, newly offered government securities, such Treasury bills and bonds, are often viewed as the safest investments and will usually experience a corresponding increase in interest rates. In other words, the “risk-free” rate of return goes up, making these investments more desirable. As the risk-free rate goes up, the total return required for investing in stocks also increases. Therefore, if the required risk premium decreases while the potential return remains the same or dips lower, investors might feel stocks have become too risky and will put their money elsewhere.

One way governments and businesses raise money is through the sale of bonds. As interest rates move up, the cost of borrowing becomes more expensive. This means demand for lower-yield bonds will drop, causing their price to drop. As interest rates fall, it becomes easier to borrow money, causing many companies to issue new bonds to finance new ventures. This will cause the demand for higher-yielding bonds to increase, forcing bond prices higher. Issuers of callable bonds may choose to refinance by calling their existing bonds so they can lock in a lower interest rate.

For income-oriented investors, reducing the federal funds rate means a decreased opportunity to make money from interest. Newly issued treasuries and annuities won’t pay as much. A decrease in interest rates will prompt investors to move money from the bond market to the equity market, which then starts to rise with the influx of new capital.

What Happens When Interest Rates Fall?

When the economy is slowing, the Federal Reserve cuts the federal funds rate to stimulate financial activity. A decrease in interest rates by the Fed has the opposite effect of a rate hike. Investors and economists alike view lower interest rates as catalysts for growth—a benefit to personal and corporate borrowing, which in turn leads to greater profits and a robust economy. Consumers will spend more, with the lower interest rates making them feel they can finally afford to buy that new house or send the kids to a private school. Businesses will enjoy the ability to finance operations, acquisitions and expansions at a cheaper rate, thereby increasing their future earnings potential, which, in turn, leads to higher stock prices.

Particular winners of lower federal funds rates are dividend-paying sectors such as utilities and real estate investment trusts (REITs). Additionally, large companies with stable cash flows and strong balance sheets benefit from cheaper debt financing. 

Impact of Interest Rates on Stocks

Nothing has to actually happen to consumers or companies for the stock market to react to interest-rate changes. Rising or falling interest rates also affect investors’ psychology, and the markets are nothing if not psychological. When the Fed announces a hike, both businesses and consumers will cut back on spending, which will cause earnings to fall and stock prices to drop, everyone thinks, and the market tumbles in anticipation. On the other hand, when the Fed announces a cut, the assumption is consumers and businesses will increase spending and investment, causing stock prices to rise.

However, if expectations differ significantly from the Fed’s actions, these generalized, conventional reactions may not apply. For example, let’s say the word on the street is the Fed is going to cut interest rates by 50 basis points at its next meeting, but the Fed announces a drop of only 25 basis points. The news may actually cause stocks to decline because assumptions of a 50-basis-points cut had already been priced into the market. (For related reading, see: 8 Pshychological Traps Investors Should Avoid.)

The business cycle, and where the economy is in it, can also affect the market’s reaction. At the onset of a weakening economy, the modest boost provided by lower rates is not enough to offset the loss of economic activity, and stocks continue to decline. Conversely, towards the end of a boom cycle, when the Fed is moving in to raise rates—a nod to improved corporate profits—certain sectors often continue to do well, such as technology stocks, growth stocks and entertainment/recreational company stocks.

The Bottom Line

Although the relationship between interest rates and the stock market is fairly indirect, the two tend to move in opposite directions: as a general rule of thumb, when the Fed cuts interest rates, it causes the stock market to go up; when the Fed raises interest rates, it causes the stock market as a whole to go down. But there is no guarantee how the market will react to any given interest rate change the Fed chooses to make. By Mary Hall.

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

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.

 

Adriaan Driessen

Mortgage Broker 

Dominion Lending Forest City Funding 10671

Cell:     519.777.9374

Fax:      519.518.1081

riebro@me.com

www.iMortgageBroker.ca

415 Wharncliffe Road South

London, ON, N6J 2M3

Lori Richards Kovac

Mortgage Agent & Administrator

Dominion Lending Forest City Funding 10671

Cell:     519.852.7116

Fax:      519.518.1081

loriakovac@icloud.com

415 Wharncliffe Road South

London, ON, N6J 2M3

Adriaan Driessen

Sales Representative & Senior Partner

PC275 Realty Brokerage

Cell:     519.777.9374

Fax:      519.518.1081

adriaan@pc275.com

www.PC275.com

415 Wharncliffe Road South

London, ON, N6J 2M3

24 Jul

FIRST TIME HOME BUYERS –  Mortgage Financing Qualifying Frustrations and Solutions for Home Ownership

Mortgage Tips

Posted by: Adriaan Driessen

FIRST TIME HOME BUYERS –  Mortgage Financing Qualifying Frustrations and Solutions for Home Ownership. 
Are you a first time home buyer or repeat buyer feeling frustrated in your price point qualification due to the new mortgage lending guidelines that created an affordability issue for most borrowers?
The general consensus in the industry is that first time home buyers are getting very discouraged due to the tight lending rules and the increasing affordability gap together with rapidly increasing home prices in peripheral markets outside the GTA that are experiencing increased demand, short supply, sellers markets and rapidly increase home values.
There will also be a cost of living, but the benefit of ownership and building your equity for long time financial success and net worth growth, far outweighs continued renting pared with saving instead.   The sooner you get your foot in the door in the real estate market, the sooner you’ll start realizing that benefit – even if it means purchasing a smaller home, a condo instead of the freehold property, or a property in another more affordable market that may require commuting.
A recent article by Neil Sharma indicates that According to a report by Altus Group, the preponderant reason for the languid housing market this year has been the absence of first-time buyers—but they’ll be back soon and the market will resultantly recover. “With all the policy changes we’ve had and additional stress testing, they have knocked many first-time buyers out of the market for a while, but part of what they’re doing is saving money. They’ll be back,” said Patricia Arsenault, vice president of research and consulting services at Altus Group. “Particularly among younger renters; they’re inclined to buy homes. Because of their ability at the moment, they’re saving longer and tapping resources from parents to help them out, but they’ll be back in the short-term. There’s nothing out there that says they don’t want to own homes anymore.”  
Arsenault added that, by autumn, housing sales will markedly improve. “People are saving for down payments,” she said. “Savings rates are up in Canada and that money is being used for better down payments.” The Altus Group Housing Report furthermore elucidates how instrumental first-time homebuyers are to the health of the Canadian real estate market. They account for somewhere around half of all housing sales, but, unlike years past, they have been forced to the sidelines in 2018. Given the housing market’s interconnectedness, fewer first-time buyers occlude other buyers from moving up the housing ladder. “The important role that first-time buyers play is that if I’m a repeat buyer trying to move up to something more expensive, I need somebody to buy my house,” said Arsenault. “If first-time buyers aren’t there, there’s nobody to buy my house, so they make the world go around, if you want to put it that way.”
The good news is that there are solutions if your current pre-qualification falls short of your needs and goals.
Connect with an experience mortgage broker to review these options with you:
1. Gifted funds for 20% Down Conventional Mortgage.
There are select A lenders that will still qualify borrowers under traditional non B20 guidelines, which will place you at a higher price point for qualifying.  Contact an experience mortgage broker for access to those lenders.
2. Strong co-signer.  
With a strong Co-Signer to help you qualify for the mortgage financing you could qualify at a much higher price point.  This option will be a 4-5 year plan during which you’ll fully a program created by your broker to help you qualify by yourself at renewal.  At maturity we will refinance and remove the co-singer/s off mortgage and title and original the best mortgage in your name only.  Title will at closing be registered tenancy in common at 99% in your name and 1% for the co-signer to minimize future tax implication and maximize land transfer tax rebate benefits for first time buyers. 
3.  Alternative Lender Combination Mortgage Up To 95% LTV.
With alternative lenders the interest rate and cost of ownership will be higher.  This will be a combination 1st mortgage up to 80% loan to value, and 2nd mortgage up to 95% if you qualify.  With this mortgage solution you will follow a guideline and goal to qualify you for an A lender lower rate mortgage once you have grown your equity position qualify to refinance at 80% loan to value with and A lender mortgage.  It will take estimated 3-5 years depending on your property and original LTV. 
4.  Rent to Own.
Another options that you may consider is Rent to Own.  This could allow you to get into your desired home now instead of waiting years.  During the term you will build equity in your home while making monthly rent payments, and at the same time you will follow the rent to own program guideline in order to qualify for the mortgage once the rent to own term is complete and you can exercise your option to purchase from the investor and take ownership and title of your home.  Consult with your mortgage broker to see if you would qualify for a Rent to Own Program and time find out more about it.
5.  Vendor Take Back Mortgage.
A vendor take back mortgage as part of the agreement of purchase and sale could allow you to purchase with as little down as the buyer and seller agrees to, with interest rate and terms as negotiated with the vendor.  Depending your your original down payment amount and mortgage loan to value, this option will be a 3-5 year plan during which you’ll follow your mortgage brokers guideline to help you qualify for an institutional mortgage at maturity to pay out the sellers mortgage.  
6.  Joint Venture / Co-Ownership.
Purhcase with another like minded person that you trust, and that shares in your goals.  Consult with your broker for the important ins and outs and need to know details about such a venture and qualification options under this program.  You will also get independent legal advise and create a joint venture / co-ownership agreement prior to entering into this type of ownership.
7. Prepare to Qualify for an A Mortgage 2 year Plan.
If not of the above options suit your preference nor works out for your needs, then follow the custom home ownership plan your mortgage broker creates for you to help you get to the place where you qualifying for your desired home.  This normally includes plans to help you increase your income, fully establish your credit and save up for the future home purchase down payment and closing cost.  The timeline will depend on your personal circumstances and needs.
Contact us today if you have any questions or need assistance. 
We are always at your service and ready to assist you with your mortgage financing needs!
 
Adriaan Driessen
Mortgage Broker 
Dominion Lending Forest City Funding 10671
Cell:     519.777.9374
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Lori Richards Kovac
Mortgage Agent & Administrator
Dominion Lending Forest City Funding 10671
Cell:     519.852.7116
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
Adriaan Driessen
Sales Representative & Senior Partner
PC275 Realty Brokerage
Cell:     519.777.9374
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
24 Jul

FIRST TIME HOME BUYERS – Mortgage Financing Qualifying Frustrations and Solutions for Home Ownership.

General

Posted by: Adriaan Driessen

Are you a first time home buyer or repeat buyer feeling frustrated in your price point qualification due to the new mortgage lending guidelines that created an affordability issue for most borrowers?
The general consensus in the industry is that first time home buyers are getting very discouraged due to the tight lending rules and the increasing affordability gap together with rapidly increasing home prices in peripheral markets outside the GTA that are experiencing increased demand, short supply, sellers markets and rapidly increase home values.
There will also be a cost of living, but the benefit of ownership and building your equity for long time financial success and net worth growth, far outweighs continued renting pared with saving instead.   The sooner you get your foot in the door in the real estate market, the sooner you’ll start realizing that benefit – even if it means purchasing a smaller home, a condo instead of the freehold property, or a property in another more affordable market that may require commuting.
A recent article by Neil Sharma indicates that According to a report by Altus Group, the preponderant reason for the languid housing market this year has been the absence of first-time buyers—but they’ll be back soon and the market will resultantly recover. “With all the policy changes we’ve had and additional stress testing, they have knocked many first-time buyers out of the market for a while, but part of what they’re doing is saving money. They’ll be back,” said Patricia Arsenault, vice president of research and consulting services at Altus Group. “Particularly among younger renters; they’re inclined to buy homes. Because of their ability at the moment, they’re saving longer and tapping resources from parents to help them out, but they’ll be back in the short-term. There’s nothing out there that says they don’t want to own homes anymore.”  
Arsenault added that, by autumn, housing sales will markedly improve. “People are saving for down payments,” she said. “Savings rates are up in Canada and that money is being used for better down payments.” The Altus Group Housing Report furthermore elucidates how instrumental first-time homebuyers are to the health of the Canadian real estate market. They account for somewhere around half of all housing sales, but, unlike years past, they have been forced to the sidelines in 2018. Given the housing market’s interconnectedness, fewer first-time buyers occlude other buyers from moving up the housing ladder. “The important role that first-time buyers play is that if I’m a repeat buyer trying to move up to something more expensive, I need somebody to buy my house,” said Arsenault. “If first-time buyers aren’t there, there’s nobody to buy my house, so they make the world go around, if you want to put it that way.”
The good news is that there are solutions if your current pre-qualification falls short of your needs and goals.
Connect with an experience mortgage broker to review these options with you:
1. Gifted funds for 20% Down Conventional Mortgage.
There are select A lenders that will still qualify borrowers under traditional non B20 guidelines, which will place you at a higher price point for qualifying.  Contact an experience mortgage broker for access to those lenders.
2. Strong co-signer.  
With a strong Co-Signer to help you qualify for the mortgage financing you could qualify at a much higher price point.  This option will be a 4-5 year plan during which you’ll fully a program created by your broker to help you qualify by yourself at renewal.  At maturity we will refinance and remove the co-singer/s off mortgage and title and original the best mortgage in your name only.  Title will at closing be registered tenancy in common at 99% in your name and 1% for the co-signer to minimize future tax implication and maximize land transfer tax rebate benefits for first time buyers. 
3.  Alternative Lender Combination Mortgage Up To 95% LTV.
With alternative lenders the interest rate and cost of ownership will be higher.  This will be a combination 1st mortgage up to 80% loan to value, and 2nd mortgage up to 95% if you qualify.  With this mortgage solution you will follow a guideline and goal to qualify you for an A lender lower rate mortgage once you have grown your equity position qualify to refinance at 80% loan to value with and A lender mortgage.  It will take estimated 3-5 years depending on your property and original LTV. 
4.  Rent to Own.
Another options that you may consider is Rent to Own.  This could allow you to get into your desired home now instead of waiting years.  During the term you will build equity in your home while making monthly rent payments, and at the same time you will follow the rent to own program guideline in order to qualify for the mortgage once the rent to own term is complete and you can exercise your option to purchase from the investor and take ownership and title of your home.  Consult with your mortgage broker to see if you would qualify for a Rent to Own Program and time find out more about it.
5.  Vendor Take Back Mortgage.
A vendor take back mortgage as part of the agreement of purchase and sale could allow you to purchase with as little down as the buyer and seller agrees to, with interest rate and terms as negotiated with the vendor.  Depending your your original down payment amount and mortgage loan to value, this option will be a 3-5 year plan during which you’ll follow your mortgage brokers guideline to help you qualify for an institutional mortgage at maturity to pay out the sellers mortgage.  
6.  Joint Venture / Co-Ownership.
Purhcase with another like minded person that you trust, and that shares in your goals.  Consult with your broker for the important ins and outs and need to know details about such a venture and qualification options under this program.  You will also get independent legal advise and create a joint venture / co-ownership agreement prior to entering into this type of ownership.
7. Prepare to Qualify for an A Mortgage 2 year Plan.
If not of the above options suit your preference nor works out for your needs, then follow the custom home ownership plan your mortgage broker creates for you to help you get to the place where you qualifying for your desired home.  This normally includes plans to help you increase your income, fully establish your credit and save up for the future home purchase down payment and closing cost.  The timeline will depend on your personal circumstances and needs.
Contact us today if you have any questions or need assistance. 
We are always at your service and ready to assist you with your mortgage financing needs!
19 Jul

Residential Market Update

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

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Industry & Market Highlights 

Residential Market Commentary – Predictability, risk, and rising rates

With interest rates now well and truly on the rise in Canada the perennial question is being asked more often and more earnestly.  What is best, a fixed rate or a variable rate mortgage?

A new survey by one of the country’s big banks suggests attitudes toward this question may be changing, but actions have not caught up.

The online poll of about 1,500 registered respondents was taken during the run-up to the last Bank of Canada rate increase, on July 11th.  It suggests that 72% of Canadians believe interest rates will continue to rise over the next 12 months.  At the same time only about half of the respondents (54%) say they would pick a fixed rate mortgage if they were signing the papers right now.  This appears to be a marked departure from conventional wisdom, in that 77% of respondents actually do have a fix rate mortgage.

A significant majority of those polled (83%) indicated they prefer “predictability and stability over risk” when it come to their finances.

From the point of view of a mortgage broker the survey reveals an opportunity.  It suggests that, of the people who would not take out a fixed rate mortgage, a full 26% do not know what kind of mortgage they would chose.  This is a sign that debt-burdened Canadians are looking for answers about what their best financial options will be. By First National Financial.

Poloz Opens The Door For More Rate Hikes

As expected, the Bank of Canada hiked its key overnight rate this morning by 25 basis points to 1.5%. What wasn’t expected was the hawkish tone of the press release which brushed aside the threat of greater protectionism, instead emphasizing the need for higher interest rates to keep inflation near its target. In today’s Monetary Policy Report (MPR), the Bank maintained its forecast for growth of the global economy. The U.S. economy, however, has proven stronger than expected, “reinforcing market expectations of higher policy rates and pushing up the U.S. dollar. Meanwhile, oil prices have risen. Yet, the Canadian dollar is lower, reflecting broad-based U.S. dollar strength and concerns about trade actions.”

Canada’s economy continues to operate close to full capacity. “Household spending is being dampened by higher interest rates and tighter mortgage lending guidelines.”  The ratio of household debt to disposable income is edging down as household credit growth continues to slow (chart below).

Consumer spending growth has been slowing since mid-2017, led by a pullback in interest-sensitive components such as vehicle purchases, furniture, appliances and dwelling maintenance. With the slowdown in housing purchases, housing-related spending has also slowed.

The sensitivity of consumption and housing to interest rates is estimated to be larger than in past cycles, given the elevated ratio of household debt to disposable income. The impact of higher interest rates likely differs across categories of borrowers, with highly indebted households the most affected.

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The Bank said that “Recent data suggest housing markets are beginning to stabilize following a weak start to 2018.”  The July MPR report estimates that housing will contribute a mere 0.1 percentage points to growth this year, with no contribution in 2019 and a slightly negative impact in 2020 (see Table below). The MPR elaborated that residential investment is slowing, reflecting the effects of higher interest rates and tighter mortgage rules. Resale activity contracted when the revised measures went into effect but is anticipated to improve over the next few quarters. Data on resale activity and housing starts suggest that the housing market is beginning to stabilize. The growth of new construction spending is expected to slow over the projection horizon. The new mortgage measures may cause households to purchase less-expensive residences because typical homebuyers are now more constrained in how much they can borrow.

Meanwhile, exports are buoyed by strong global demand and higher commodity prices. “Business investment is growing in response to solid demand growth and capacity pressures, although trade tensions are weighing on investment in some sectors. Overall, the Bank still expects average growth of close to 2% over 2018-2020.” This is somewhat above the Bank’s estimate of noninflationary growth at full capacity, the so-called ‘potential’ growth rate.

Inflation remains near 2%, consistent with an economy close to capacity. The Bank estimates that underlying wage growth is running at about 2.3%, slower than would be expected at full employment. The actual growth rate in wages has recently been boosted by increases in the minimum wage rate in some provinces.

These economic projections take into account the estimated impact of tariffs on steel and aluminium recently imposed by the U.S., as well as the countermeasures enacted by Canada. “Although there will be difficult adjustments for some industries and their workers, the effect of these measures on Canadian growth and inflation is expected to be modest.”

The Bank wrapped up its press release with the following statement: “Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data. In particular, the Bank is monitoring the economy’s adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.”

Bottom Line: This rate hike signals that the Bank of Canada is determined to bring its benchmark overnight rate back to more normal levels and that the economy is strong enough to withstand further rate increases. The Bank believes that stronger-than-expected business investment, higher oil prices and a weaker Canadian dollar offset the adverse effect of greater trade uncertainty. Exports have surprised on the upside because of strong global demand.

The mix of growth in Canada has shifted from housing and consumption to exports and business investment–the desired result of the many tightening moves introduced by the government, the central bank and the regulators to slow the rise in household debt.  The Bank believes that this shift in the composition of growth will result in a more sustainable expansion.

Markets expect the Bank to gradually hike the benchmark rate until it reaches 2% or 2-1/4% by the end of 2019–implying another 2 or 3 rate hikes by the end of next year. Governor Poloz said today at the press conference that the Bank’s assessment of the neutral rate for the benchmark is 2-1/2% to 3%, but it is uncertain how quickly we will get there.

The Governing Council of the Bank is scheduled to meet again on September 5. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on October 24, 2018.

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Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres

30-year high housing starts could signal return to prosperous market

Canadian housing starts surged in June to one of the highest levels over the past decade, driven by new condominium developments in Toronto that reached a 30-year high for the month.

Housing starts jumped 30 percent to an annualized 248,138 units, Canada Mortgage & Housing Corp. said Tuesday. Multiple-unit urban starts were up 46 percent, with a 231 percent increase in Toronto for that segment of the market.

The June numbers reveal a resiliency that continues to surprise policy makers and analysts, particularly since sales in some of the country’s priciest real estate markets have been cooling. Economists forecast annualized housing starts of 210,000 units in June, from 193,902 in May. Demand for condos seems to be high given low levels of inventory, the Ottawa-based housing agency said.

“The national inventory of newly completed and unabsorbed multi-unit dwellings has remained below its 10-year historical average so far in 2018, indicating that demand for this type of unit has absorbed increased supply,” Bob Dugan, CMHC’s chief economist said in a statement.

Montreal, Canada’s second largest city, also posted strong gains, with a 68 percent jump in annualized multiple-unit construction. Vancouver recorded declines last month.

In a separate report, Statistics Canada reported more evidence the market remains firm amid higher interest rates and stricter mortgage rules, with building permits for new Canadian homes reaching the second-high value on record in May. By Bloomberg News.

Teranet-National Bank HPI confirms what we thought

Home prices across Canada have shown some gains but a measure of price movement shows stabilization rather than real increases.

The Teranet-National Bank Home Price Index was up 0.9% in June compared to the previous month and is 2.87% above June 2017, however that was the smallest annual rise since 2013.

“June’s rise in the index, impressive at first sight, was in fact weak for

this time of the year. Indeed, if the Index were purged from seasonal patterns, it would have been about flat over the last three months,” the report says.

The HPI tracks home prices against a base level of 100 in June 2005 and currently sits at 223.82, meaning a rise of more than 123% over the past 13 years.

The hottest, coolest markets

The HPI surveys 11 markets and 10 of them showed price increases in June compared to May.

Ottawa-Gatineau (2.0%), Hamilton (1.8%), Edmonton (1.5%), Victoria (1.3%), Toronto (1.2%) and Halifax (1.0%) posted the largest increases, although the Toronto gain was the smallest for June in 10 years and the Vancouver rise was the fourth smallest for June since 2001.

The condo segment is far outpacing gains for other home types in Toronto and Vancouver on an annualized basis.

“Condo prices have risen at a fast clip since the beginning of the year in Toronto and Vancouver (after seasonal adjustment, 7.8% and 16.3% annualized respectively), while prices for other types of dwellings held their ground. The resiliency of prices for the latter category of dwellings

is indeed reassuring in view of higher interest rates and stricter mortgage qualification rules (B20) that dampen demand for the most expensive categories of dwellings,” the report says. By Steve Randall.

 

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Economic Highlights

Bank of Canada raises overnight rate target to 1 ½ per cent

The Bank of Canada increased its target for the overnight rate to 1 ½ per cent last week. The Bank Rate is correspondingly 1 ¾ per cent and the deposit rate is 1 ¼ per cent.

Monetary Policy Report – July 2018

Real GDP in Canada is expected to grow by 2.0 per cent in 2018, 2.2 per cent in 2019 and 1.9 per cent in 2020.

The Press Release and the Report are now available on the Bank of Canada’s website.

By The Bank of Canada.

Review of the BoC meeting

To all the loyal readers out there, it would have come as no surprise that the Bank of Canada rose interest rates by 25 bps this past Wednesday. What did come as a surprise, is that Marketing is offering my team ice cream if I wrote a commentary this morning. Well I can’t be bought, but I’m writing this anyways, for you, the faithful commentary readers.

Bank of Canada Meeting and MPR

Market participants weren’t thrown for a loop this Wednesday when the Bank of Canada raised rates to 1.5%. Going into the meeting there was a 90%+ probability that the BoC would hike interest rates so as the 10:00 am (EST) meeting came and went, bond yields were not drastically affected. Taking a quick look at the yield curve over the past week, as you would expect the front end was the most reactive as 3 month and 6 month T-bills are trading 14bps and 5bps wider respectively. On the benchmark bond yields we constantly quote, both the 5-year and 10-year Government of Canada bonds are about 1 bp wider on the week. This speaks to the flatness of the Canadian yield curve, where the 5-10 spread is only 8 basis points. A year ago, basically to the day, that spread was 38 basis points. You might find yourself asking, “What’s the implication of the flat yield curve, does it signal a recession?” Maybe. Maybe not. I don’t have a crystal ball. Speaking as a lender, it means that 5-year commercial rates are a great deal and 10-year rates are an even better deal, as long as it’s with First National.

There are always a lot of inquiries on what happens to bond yields right after the Bank of Canada hikes interest rates. Since the market was so confident in the hike, it is safe to say that bonds yields were correctly priced and the hike was “priced in” previous to the announcement. Hence, as mentioned longer term rates were not drastically changed this week. Why? Efficient markets and all that. It is worth mentioning that the prime rates have increased in lock-step with the BoC rate, where the prime rate raised from 3.45% to 3.7%. This will of course affect your variable mortgage rates.

The Bank of Canada gave a fairly mixed look from their statement. The BoC implied that additional hikes would be gradual and data-driven, with ‘data-driven’ meaning they will need to hard economic data to support further rate hikes. This has been their mantra for a long-time now. Softer metrics like labour slack can go against their strong economy theme but harder CPI and GDP metrics are more supportive of  hikes. One new paragraph that sparked interest from the statement was that the BoC will be assessing the responses of businesses and consumers on the US trade tariffs. Poloz further reiterated this in the question period as he said trade tensions are “the biggest issue on the table”. The Governor also spoke about how monetary policy is ill-suited to combat protectionism (tariffs) and can be more inelastic than the market expects in regards to data. Finally, in an interview this Friday in regards to the unknown positive or negative effects on exports, Poloz said there were “monkeys in murk”. I consulted UrbanDictionary and came up short.

Suffice to say after all that, the market is 50/50 on another hike in the back half of 2018. Crazy to think we are already more than halfway through 2018, but that just means we are that much closer to the Leafs Stanley Cup parade in 2019. The market is predicting a 1.2% chance of a hike in September, 54% in October and 48% in December. I’m predicting a 100% chance of pints this weekend.

On second thought, I could also go for some ice cream right about now. By Andrew Masliwec, First National Financial

Cautionary notes and the rising cost of borrowing

As we experience another Bank of Canada rate increase, there are a couple of new reports that are issuing cautions about the rising cost of borrowing.

Credit tracking firm Equifax has just released its review of the first quarter of 2018.  It shows overall consumer debt climbed to nearly $1.83 trillion, up nearly $100 million compared to Q1 2017.  Loans and mortgages make up most of that debt and mortgage loans increased almost 6% yr/yr.

Equifax is maintaining a generally positive outlook when it comes to delinquency rates, reporting that the national rate dropped to 1.08% in Q1, down from 1.15% a year earlier, but it sees two potential areas for problems.  It notes that the number of consumers who are paying off their credit card debt in full every month has slipped.  As well the delinquency rate among people aged 65 and older, while still sustainable, is not dropping as fast as other age groups – a troubling sign that their debt may be increasing.

The second cautionary note comes from the latest housing affordability report.  It shows an easing in affordability that came at the end of last year has now been wiped out.  The national affordability index climbed to 48.4% in Q1 of 2018, an increase 0.4 percentage points, following a 0.3 percent point drop in Q4 2017.

The report cites rising interest rates as the chief cause of the increase, but it also points to the on-going affordability crises in Vancouver and Toronto.  By First National Financial.

Canadian Data Release: Led by the GTA, existing home sales sprang to life in June

·       Existing home sales rose by 4.1% in June, marking the second consecutive month of gains after an upwardly revised May print (0.6%; was -0.1%).

·       The pickup in sales was broad-based. More than 60% of local markets reported increased activity, led by the Greater Toronto Area (GTA) where sales surged 16.6% on the month. Sales also rose in Calgary (+6.1%) and Winnipeg (+8.6).  Meanwhile, activity in Greater Vancouver continued to moderate, and sales were also lower in Edmonton (-0.9%), Regina (-0.4%), Ottawa (-1.2%).

·       Higher sales were met by a decline in inventory. New listings slipped by 1.9% in June. As a result, the national sales-to-listings ratio rose to 54.3% from 51.2% in May, moving the market a step closer to sellers’ territory (defined as readings above 60%). Listings declined across all provinces.

·       The average home prices rose for the third straight month in June (+1.7%), but still remains 1.4% below its year ago level. A better measure of price growth, the quality adjusted MLS home price index, was up 0.9% from its year ago level, only slightly lower than 1% y/y gain seen last month, suggesting the market is stabilizing. Declines are starting to ease in the GTA, with prices down 4.8% y/y – better than the 5.4% decline in May. Prices were below their year ago levels in most other major cities, with exception of Ottawa and Montreal, where home prices continue to rise at a robust pace of 7.9% y/y and 6.5% y/y, respectively.

Key Implications

·       This was a goldilocks report. Sales rose for the second month in a row with broad-based gains across the country while home prices continued to stabilize. A decline in inventory further tightened the market conditions. Taken together, these changes support the notion that housing market is stabilizing after significant volatility in the first half of the year related to the implementation of B-20 rules.

·       For the second quarter overall, sales are down 3.1% relative to their first quarter average, with lower activity expected to weigh on economic growth in Q2. However, the extent of the drag should be materially lower than in the first quarter, when sales dropped by a whopping 13.3%.

·       All in all, the effect on the housing market activity from the implementation of B-20 rules appears to be easing. Historically, the impact of policy changes is swift but short-lived, and it seems that housing market is once again finding its footing. We expect that resale activity hit its trough in Q2 and will begin to gradually recover thereafter. As a result, residential investment should start contributing positively to GDP growth in Q3 and Q4 of this year. The latest Bank of Canada Senior Loan Officer Survey also indicated easing credit conditions for mortgages amid increased companion among lenders. The easing of credit conditions should further facilitate normalization of housing market activity.  By Ksenia Bushmeneva, Economist ,TD Economics.

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Mortgage Interest Rates

Prime lending rate increased to at 3.7%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.34%.  Fixed rates are holding steady for now, no change in fixed rates.  Deeper discounts are available for variable rates making adjustable variable rate mortgages still very attractive.

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Terms Posted

Rates

Payment

  Per $100k

Our Rates Payment

  Per $100k

Savings
6 Months 3.14% $480.46 3.10% $478.39 $2.07
1 Year 3.04% $475.30 2.99% $472.73 $2.57
2 Years 3.44% $496.11 3.24% $485.65 $10.46
3 Years 3.59% $504.03 3.39% $493.48 $10.55
4 Years 3.89% $520.07 3.54% $501.38 $18.69
5 Years 5.59% $615.64 3.29% $488.25 $127.39
7 Years 5.80% $627.97 3.94% $522.77 $105.19
10 Years 6.10% $645.76 3.99% $525.48 $120.28
Variable 2.70% $457.99 2.41% $443.50 $14.49
Prime Rate 3.45%
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

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Other Industry News & Insights

Trend of progressively higher interest rates not over – analyst

Latest economic indicators – including data on employment, inflation, housing starts, and economic growth – are pointing at the possibility that the trend toward progressively higher interest rates is not yet ending, according to a recent analysis.

In a new piece for CBC News, long-time markets observer Don Pittis noted that those who are expecting the ongoing Canada-U.S. trade war to lower borrowing costs might be hoping in vain.

“Except for the nasty impact on those of us with large debts, rising interest rates are a good sign for the North American economy. They are one more signal that nearly a decade of low interest rates have done their job, pulling the economy out of recession and into sustained growth,” Pittis stated.

Taking into account the possibility of even higher rates should be something that both sellers and buyers should take to heart, he added.

“For anyone with a memory of mortgage rates that stretches back a decade or more, last week’s rise in the Bank of Canada key lending rate to 1.5% seems quite moderate,” Pittis wrote in his analysis. “But for those who bought into the Canadian real estate market way back when you could get a mortgage for less than 2% — just one year ago — renewing could turn out to be painful.”

“The Canadian economy is also cranking out jobs and Canadian inflation numbers are out later this week. Since rising interest payments count toward inflation while rising (or falling) house prices do not, a moderation in real estate values will offer no relief on consumer price statistics.”

Read more: 7 in 10 Canadians expect interest rate hikes over next 12 months

Moreover, “even if worse tariffs do kick in and begin to do long-term economic damage, they could start by creating a new wave of rising prices, forcing the bank to increase, not decrease, interest rates,” Pittis said.

The Bank of Canada has already strongly hinted that it will hike interest rates to stabilize the Canadian dollar, in the event that tariffs lead to new inflation.

“They could hinge on just how big of an inflation bulge happens, how important the tariffs are to the inflation process,” Poloz was quoted as saying. “If the economy is operating at capacity, it can cause a shift up in inflation expectations and that is something we would vigorously prevent.” By Ephraim Vecina.

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

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.

 

Adriaan Driessen

Mortgage Broker 

Dominion Lending Forest City Funding 10671

Cell:     519.777.9374

Fax:      519.518.1081

riebro@me.com

www.iMortgageBroker.ca

415 Wharncliffe Road South

London, ON, N6J 2M3

Adriaan Driessen

Sales Representative & Partner

PC275 Realty Brokerage

Cell:     519.777.9374

Fax:      519.518.1081

adriaan@pc275.com

www.PC275.com

415 Wharncliffe Road South

London, ON, N6J 2M3

11 Jul

Residential Market Update

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

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Industry & Market Highlights 

Bank of Canada Raises Rates

The Bank of Canada raised it’s overnight rate by 0.25% from 1.25% to 1.50%. This target overnight rate is what major financial institutions charge for one day loans, and is used to set Prime lending rate for consumers.  The overnight lending rate as been at 1.25% since the last raise in January.  In response to this, we can expect to see financial institutions to raise their prime rates in conjunction with the Bank of Canada. Prime rate will increase to 3.7%. This increase will affect all consumers with a variable-rate mortgage and will also have an impact on the bond market, with an expectation to see fixed rates rising in response.

Home Sales Strong in June, Despite Inventory Challenge

London and St Thomas Association of REALTORS® (LSTAR) announced 1,080 homes* were sold in June, down 14.6% over the same time last year, which saw a record-setting month for June with 1,264 homes sold since the Association began tracking sales data in 1978.

“The home sales in June continue the strong momentum we saw in May, setting the stage for a very robust season for resale homes this summer,” said Jeff Nethercott, 2018 LSTAR President. “Sales activity remains above the 10-year average, as the marketplace continues to manage the lowest inventory levels since 2009. Average home prices are making slight gains all across the region.”

By geographic area, London East made the biggest gains, with the average June sales price at $295,541, up 11.7% from June 2017 and up 34.7% compared to June 2016. London North also saw an increase of 11.6% from June 2017 with an average sales price of $479,237. That’s up 39.9% compared to June 2016. Meanwhile, the average sales price in London South was $372,881, up 9.2 percent from June 2017 and up 36.6% from June 2016.

Overall, the average June sales price in London and St. Thomas was $370,247, up 10.5% from June 2017 and up 32.7% from June 2016. Going further back, it’s a 72.0% increase compared to the average sales price 10 years ago.

“As the average sales price trends upward, inventory continues to decrease,” Nethercott said. “In June, there were 1,779 active listings, down 4.3% from this time last year and down 40.0% from June 2016. The sales-to-new listings ratio was 72.0%, which the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers (a ratio between 40% and 60% is generally consistent with a balanced market). So for those considering to sell their home, now would be an optimal time to get in touch with your local REALTOR® who can help you navigate through the process.”

St. Thomas saw a total of 99 homes sold in June, down 9.2% from the same period last year. For inventory, there were 76 active listings, down 32.7% from last June and down 53.1% from June 2016. The average home sales price in St. Thomas was $294,471, up 5.5% from June 2017 and up 25.7% from June 2016.  

*These statistics are prepared for LSTAR by the Canadian Real Estate Association (CREA) and represent a data snapshot taken on July 1, 2018, based on processed home sales activity between June 1 and 30, 2018.

Consumer confidence, or a lack thereof

The battle lines have now been clearly drawn in our burgeoning trade fight with the United States and one of the first casualties appears to be consumer confidence.

Two key indicators of consumer confidence, released just prior to Canada imposing retaliatory tariffs on the U.S., show sharp drops.

The Conference Board of Canada’s monthly measure is based on four, forward-looking questions put to a random sample of households.  Its June report registered a 4.5 point drop in consumer sentiment.  Optimism was down in the responses to all four questions and sentiment sagged in every area of the country except Manitoba and Saskatchewan.

The Nanos-Bloomberg confidence poll for the week ending June 22 fell to 55.3 points, down from 57.1 the previous week.  That is its lowest level since 2016 and it is the biggest drop in since weekly polling started in 2013.

Nanos-Bloomberg saw sentiment deteriorate for all four of its polling questions, with economic expectations taking the hardest hit.  Just 14.7% of respondents felt the economy would get stronger over the next six months.  About 38% felt things will get worse.

The pollsters say the heated rhetoric coming from the president of the United States is largely to blame, but rising interest rates and slowing housing markets are also contributing to the consumer funk.  By First National Financial.

RBC Sounds Alarm For Affordability in Canada

An RBC report says housing affordability in Canada worsened in the first quarter, ending a one-quarter reprieve, the first in two and a half years.

The proportion of median pre-tax household income needed for mortgage payments, property taxes and utilities rose 0.4 percentage points from the fourth quarter to 48.4 per cent.

The move reversed a 0.3 percentage point drop in the fourth quarter.

Mortgage rates increased in the previous two quarters, but a drop in home prices mainly in the Greater Toronto Area, trimmed ownership costs modestly.

The report added that an expected one percentage point increase in the Bank of Canada’s overnight rate to 2.25 per cent by the first half of 2019 is poised to worsen housing affordability.

Home ownership costs in the Greater Vancouver Area reached a record high of 87.8 per cent in the first quarter, rising 1.5 percentage points in the quarter to what is considered a crisis level. Victoria was also high at 62.7 per cent.

The Greater Toronto Area saw affordability improve slightly to 74.2 per cent as a dip in home prices counteracted higher interest rates.

Affordability eroded modestly in most other Canadian markets as higher interest rates outpaced stable housing prices.

Saskatoon, Ottawa, Halifax and St. John’s, N.L., saw the largest deteriorations in affordability in more than a year, but housing costs remained low at between 27 and 36.6 per cent.

The report says stress may be building in the Greater Montreal Area, which saw costs reach their highest point since 2011 at 43.7 per cent.  By The Canadian Press. 

Chinese inquired about US$1.45B worth of Canadian properties last year: Juwai

A website for buyers of overseas properties says Chinese nationals expressed interest in about US$1.45 billion worth of Canadian properties last year, with interest in Toronto and Vancouver slipping following the introduction of foreign buyers taxes.

Juwai.com says consideration of properties in Canada’s largest city dropped by 25 per cent in 2017 after nearly doubling between 2015 and 2016.

Vancouver inquiries fell 18 per cent last year after growing by 9.3 per cent the previous year.

Metro Vancouver has had a 15 per cent tax on foreign home purchasers since 2016. The new provincial government hiked the levy to 20 per cent and imposed it in the Victoria and Nanaimo areas, as well as the Fraser Valley and central Okanagan.

A 15 per cent tax was imposed in the Greater Golden Horseshoe area _ stretching from the Niagara Region to Peterborough _ on buyers who are not citizens, permanent residents or Canadian corporations. In the first month after the tax was imposed in late April, foreign buyers made up 4.7 per cent of home sales in the region, according to Statistics Canada.

With no tax in place, Montreal was the hot destination, growing by 84.5 per cent in 2017 and 43.3 per cent a year earlier.

A separate report says no additional foreign buyers taxes are expected to be imposed in Canada and Australia this year, with New Zealand being the only major investment destination considering one.

Juwai says Chinese were unfairly blamed for property price increases, even though data suggested it was due to other factors such as historically low interest rates.

More than half of Chinese buyers considering Canada were motivated to invest for their own use, nearly 26 per cent for investment and 17 per cent for education.  By The Canadian Press. 

Toronto home sales, prices edge higher

Home sales in the Toronto housing market showed some improvement in June along with the average selling price.

Toronto Real Estate Board members sold 8,082 homes through the MLS in June; 2.4% more than in June 2017 and a 17.6% jump from May 2018.

The market continues to be volatile following policy changes including the B-20 mortgage guidelines which tightened lending conditions for borrowers.

“Home ownership has proven to be a positive long-term investment. After some adjustment to the Fair Housing Plan, the new Office of The Superintendent of Financial Institutions (OSFI) stress test requirement and generally higher borrowing costs, home buyers are starting to move back into the market, with sales trending up from last year’s lows. Market conditions appear to be tightening, with sales accounting for a greater share of listings, as new listings have dropped compared to last year,” said new TREB president Garry Bhaura.

Average selling price rises

There was a 2% year-over-year rise in average selling price to $807,871 which means a 3.4% rise month-over-month following preliminary seasonal adjustment.

The HPI was flat month-over-month and down 4.8% year-over-year. TREB says that the difference between HPI and average selling price is likely to be due, in part, to a different mix of homes sold on a year-over-year basis. June 2018 saw a larger share of low-rise homes sold.

“The expectation is to see improvement in sales over the next year. Over the same period, however, it is likely that issues surrounding the supply of listings will persist. This suggests that competition between buyers could increase, exerting increased upward pressure on home prices. With a new provincial government in place and municipal elections on the horizon, housing supply should be top-of-mind for policy makers,” said Jason Mercer, TREB’s Director of Market Analysis and Service Channels.  By Steve Randall. 

 

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Economic Highlights

 

Find out here what will happen with interest rates this week

There is a sense you could hear a pin drop in most offices around the country this week. This past week started off with the Canada Day Holiday, which is one of the best holidays, followed by the American July 4th holiday, in which everyone in the Great White North was glued to their TV’s watching Joey Chestnut devour 74 hot dogs. A world record. Surprisingly, his favourite condiment is water. I am more of ketchup and mustard guy myself. Needless to say, when marketing came knocking for commentary, I said, of course I’ll write it. It’s because I care. A lot.

Interest Rates

It’s been two weeks since the last commentary so it would be good to recap the major benchmark bond yields. The 5 year Government of Canada benchmark bond is currently yielding 2.06% which is only about 1 bp tighter from its yield of a week ago. The 10 year is yielding 2.13% and was about 2.16% about a week ago. For context, a year ago the 5 year was yielding 1.47% and the 10 year was yielding 1.88%, while there have been 3 overnight rate hikes totaling 0.75% by the Bank of Canada in the interim. Clearly, there is nothing game breaking in the moves in the interest rates in the last week, although it is worth reiterating that 5 and 10 year yields are not perfectly correlated to increases in the overnight rate. The last year had an increase of 0.75% in the short-term overnight rate, while the 5 year only increased +0.59% and the 10 year +0.26%. That’s worth keeping in mind if you are currently looking at borrowing money over GoC’s or CMB’s.

Bank of Canada Meeting Next Week

I’ve never taken a journalism course, but I do have twitter so I know how important it is not to bury a lead. So I won’t. Most market participants are pricing in and anticipating for, an interest rate hike by the Bank Of Canada of 0.25% next Wednesday.  Currently, the market (using overnight interest rate swaps) has the probability at 87.5% for a hike next week, which seems all but certain.  Mid-last week however there was still some uncertainty on what the Bank would do but some economic data came out that cleared the air.

Stephen Poloz, the Bank of Canada Governor, gave a speech last Wednesday on the topic, “Let me be clear: From Transparency to Trust and Understanding”. For something titled let me be clear, the market took it as anything but and everyone was notably frustrated about it. His speech gave rationale on why heavy-handed forward guidance (by the BoC) could dampen the information in financial markets if data surprises occur, although the title of the speech seemed like a bit of a misnomer.

What was clear came out last Friday in GDP numbers and the 2nd quarter Business Outlook Survey (BOS), which both moved the interest rate hike to a near certainty. We had GDP beat Month-over-Month consensus growth by 0.1%, which kept the year-over-year GDP growth number in line with the BoC’s estimates of 2.5%.  The Q2 Business Outlook Survey further cemented that the economy is doing well enough in the BoC’s eyes to warrant further interest rate increases. Firms surveyed were reporting robust sales outlooks which was supported by both foreign and domestic demand, which was shocking to me until I read that this survey was conducted before the May 31st U.S steel tariffs.  Also notably in the report, input prices are expected to increase while inflation expectations are also expected to increase.  This all pushed the BOS Index to near-record levels, which shows strong business optimism.

Finally, this morning brought the last major piece of economic data before the rate hike next Wednesday. Employment numbers were released which I saw summed up as ‘fine’. They weren’t the best, but they aren’t that bad either. Kind of like England’s current World Cup campaign – they may just get the job done next week.  Net change in employment grew by 31.8K compared to the 20.0K surveyed. On the flipside, unemployment was 0.2% higher than expected at 6% vs 5.8%. How that happens is there was a surge in the labour force participants which buoyed the unemployment rate higher. Initial reaction to the job numbers looked to be shrugged off and there was nothing in the numbers to change the course next week.

All this being said, I am not a mind reader so if the Bank of Canada doesn’t raise interest rates next week and you have a large basket of interest rate derivatives pricing in a hike, why are you reading this and you can send your complaints to:

Bank of Canada

234 Wellington Street

Ottawa, Ontario, Canada

K1A 0G9

By Andrew Masliwec, Analyst, First National FinancialCapital Markets.

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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.

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Terms Posted

Rates

Payment

  Per $100k

Our Rates Payment

  Per $100k

Savings
6 Months 3.14% $480.46 3.10% $478.39 $2.07
1 Year 3.04% $475.30 2.99% $472.73 $2.57
2 Years 3.44% $496.11 3.24% $485.65 $10.46
3 Years 3.59% $504.03 3.39% $493.48 $10.55
4 Years 3.89% $520.07 3.54% $501.38 $18.69
5 Years 5.59% $615.64 3.29% $488.25 $127.39
7 Years 5.80% $627.97 3.94% $522.77 $105.19
10 Years 6.10% $645.76 3.99% $525.48 $120.28
Variable 2.70% $457.99 2.41% $443.50 $14.49
Prime Rate 3.45%
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

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Other Industry News & Insights

Homebuyers overestimate impact of foreign investors

Homeowners in Vancouver and Toronto believe that foreign investors are driving up home prices but that isn’t backed up by official figures.

A new Housing Market Insight from the CMHC shows that 68% of survey respondents in Vancouver and 48% in Toronto think foreign investors have a lot of influence on home prices in their cities.

However, official Statistics Canada data shows that total non-resident ownership is just 4.8% of homes in Vancouver and 3.4% in Toronto.

Vancouverites are more likely to believe that investors have more influence on home prices than supply restraints and demand-side factors.

Buyers are also spending more than planned in Canada’s two hottest housing markets; 48% of respondents in both cities said they had exceeded their budgets, twice as many as those who did so in Montreal.

“The survey allows us to better understand how home buying is influenced by attitudes and perceptions, giving rise to sustaining local narratives. As we can see, psychological drivers can be at odds with economic fundamental drivers,” said Guillaume Neault, Senior Manager, Analytics, Canada Mortgage and Housing Corporation. By Steve Randall.

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

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.

 

Adriaan Driessen

Mortgage Broker 

Dominion Lending Forest City Funding 10671

Cell:     519.777.9374

Fax:      519.518.1081

riebro@me.com

www.iMortgageBroker.ca

415 Wharncliffe Road South

London, ON, N6J 2M3

Adriaan Driessen

Sales Representative & Partner

PC275 Realty Brokerage

Cell:     519.777.9374

Fax:      519.518.1081

adriaan@pc275.com

www.PC275.com

415 Wharncliffe Road South

London, ON, N6J 2M3