10 May

Residential Market Update

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

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Industry & Market Highlights 

Demand Affordable Home Ownership

Tell Your MPP (www.tellyourmpp.ca) offers consumers the opportunity to send a message directly to their local candidate about the importance of accessible and affordable housing and the need for a strong and stable housing market in the province. In addition, consumers can learn about the government rule changes, their impact on homebuyers, and value of homeownership.

A letter writing tool has been created to help consumers get in touch with their local candidate. The messaging is clear and direct, asking candidates to commit to implementing policies that improve housing supply and to support proposals that provide assistance to those aspiring to enter the market.

Let your voice by HEARD – Tell your MPP Here.

This week, the Bank of Canada benchmark rate moved to 5.34% from 5.14%.

The Benchmark rate for qualifying mortgages will be moving up to 5.34% and it will take effect on Monday May 14th.  This will have another negative impact on borrowers borrowing capacity for mortgage qualification, and reduce the qualified purchase price point for buyers.

The slew of bank moves was preceded by a rise in government bond yields. The yield on the Government of Canada benchmark five-year bond was 2.16 per cent on Tuesday, compared to 1.01 per cent a year earlier. Fixed-rate mortgages tend to move with government bond yields of a similar term, reflecting the change in borrowing costs.

The higher rates come as an estimated 47 per cent of all existing mortgages will need to be refinanced in 2018, up from the 25 to 35 per cent range in a typical year, according to a recent CIBC Capital Markets report.

The increase is an unintended consequence of various rounds of regulatory changes in the past few years aimed at reducing risk coupled with rising house prices that made it harder for homebuyers to qualify.

Borrowers who find the bar too high for the home they want can make some adjustments in order to make a purchase, she said. Those options include purchasing a smaller home and taking on less mortgage, or purchasing where prices are lower, added Brookes, who is founder of Mortgages of Canada.

The jump in the mortgage qualifying rate comes after Canada’s largest lenders raised their benchmark posted five-year fixed mortgage rates in recent weeks as the cost of borrowing rises.

Change of Space – NEW OSFI Mortgage Rules Updated

In October 2017, the Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of its Guideline B-20. The revised Guideline, which took effect January 1, 2018, applies to all federally regulated financial institutions.

Overview of Changes effective January 1, 2018:

 

A new minimum qualifying rate (stress test) for uninsured mortgages will be set

The minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the BoC or the contractual mortgage rate +2%.

Lenders will be required to enhance their LTV measurement and limits to ensure risk responsiveness

Federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve.

Restrictions will be placed on certain lending arrangements that are designed, or appear designed to circumvent LTV limits

A federally regulated financial institution is prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.

See the attached update Brochure for more information.

Demand from Toronto Triggers Record Sales in London

By examining transactional data from the London and St. Thomas Association of Realtors (LSTAR), this report addresses the following questions:

  • How has demand from the Greater Toronto Area (GTA) influenced London’s resale market?
  • Did a high level of repeat sales contribute to the strong sales activity recorded in London in 2017?

Homebuyers from the GTA purchased an increasing number of high-priced single-detached homes in the London census metropolitan area (CMA) in 2017. These buyers contributed significantly to the record level of MLS® sales and rapid price growth recorded for the first half of that year. In addition, as sales activity and price growth increased, repeat sales in London’s resale market became more pronounced. This is because a higher proportion of homes were being purchased and sold in less than a year.

Highlights

  • A higher level of demand spilled over from the GTA to the London CMA in the first quarter of 2017. This was especially true for homes in the higher price categories. GTA buyers accounted for 9% of all transactions and 20% of transactions for homes priced over $450,000. This was a substantial increase from the general trend, as GTA buyers accounted for only 3% of transactions between 2015 and 2016.
  • Purchase activity by GTA buyers was concentrated in the City of London, especially in North and South London. It was quite limited in other areas of the London CMA.
  • Overall, strong GTA demand and GTA buyers’ higher propensity to purchase expensive homes contributed to record MLS® sales and rapid price acceleration.

A high level of repeat sales was also a contributing factor to strong sales activity in 2017. Many homes were purchased at a low price in less expensive areas in 2016 and resold for large gross profits (average of 22%, or $49,027) in under a year.

Read the full Housing Market Insight Report for London Ontario Here.

Residential Market Commentary – Is stabilization occurring in Canada’s hottest markets?

April figures suggest Canada’s biggest and hottest real estate markets may be starting to show signs of something that resembles stabilization … or not.

In the Greater Toronto Area, April’s average price across all home types was a little less than $805,000.  While that is down 12% from a year earlier it is just 0.2% below the average price in March.  Sales increased by about 8% in April over March, but were down 32% compared to a year ago.  Using the March/April comparison the Toronto Real Estate Board feels that the sales trend has “flattened out”.

By that standard Greater Vancouver also saw some “stabilization”, In April prices climbed an average of just 0.7% over March.  However, year-over-year, April’s average was up more than 14%.  Vancouver sales increased a moderate 2.5% m/m, but were down by more than 27% y/y.

Real estate boards in both Toronto and Vancouver cite the tougher federal mortgage rules as a key factor for the numbers.  But both jurisdictions are also dealing with the fallout from provincial legislation designed to cool markets.  Vancouver is, in fact, facing a second round of regulation, including an increase to its foreign buyers’ tax and its expansion to other parts of British Columbia.

Given that Vancouver seemed to shake-off the first round of regulation, it remains to be seen how effective the second round will be.  It also remains to be seen whether buyers and sellers in Toronto have really calmed down, or if they are just waiting for the uncertainty created by government intervention to go away.  By First National Financial LLP.

LSTAR’s News Release April 2018 – April home sales strong, as spring season heats up  

London, ON – The London and St. Thomas Association of REALTORS® (LSTAR) announced 983 homes* were sold in April, down 19.6% over April 2017, which set a record for the best April results since LSTAR began tracking sales data in 1978.

“While home sales are down compared to the record breaking total in 2017, they remain at par with the 10-year average,” said Jeff Nethercott, 2018 LSTAR President. “However, home prices continue to rise across the region as we continue to see a much lower level of homes available for sale than the last few years.”

The average April sales price in the region was $367,433 up 5.0% over April 2017 and up 33.6% over April 2016. By geographic area, London South was $375,031 up 0.9% from last April. In London North, average home sales price was $454,847 up 7.3% compared to the previous year, while in London East, it was $306,469 an increase of 14.1% from April 2017. In St. Thomas, it was $285,316 up 7.7% over last April.

“For the last few months, the marketplace has been challenged with low inventory, and that trend continued in April,” Nethercott said. “In April, there were 1,401 active listings, down 13.9% from this time last year and down 50.6% from April 2016. The sales-to-new listings ratio was 70.9%, which the Canadian Real Estate Association (CREA) says represents conditions in the marketplace that favour sellers. As the spring season ramps up, this may be an opportune time to get in touch with your local REALTOR® if you’re considering selling your home.”

St. Thomas saw a total of 72 homes sold in April, down 23.4% from the same period last year. When looking at inventory, there were 56 active listings, down 38.5% from last April and down 68.5% from April 2016.

The following table is based on data taken from the CREA National MLS® Report for March 2018 (the latest CREA statistics available). It provides a snapshot of how average home prices in London and St. Thomas compare to other major Ontario and Canadian centres.

City Average Sale
Vancouver $1,001,646
Toronto $752,730
Fraser Valley $736,179
Victoria $684,061
Hamilton $539,033
Kitchener-Waterloo $484,371
Calgary $465,607
Ottawa $406,902
Niagara $400,317
Edmonton $374,159
London St. Thomas $356,183
Windsor-Essex $271,579
CANADA $471,501

According to a research report[1], one job is created for every three real estate transactions and approximately $53,000 in ancillary spending is generated every time a home changes hands in Ontario. “Real estate plays a huge role in growing the economy both regionally and beyond, with April generating potentially more than $52 million,” Nethercott said. “The impact was also made to employment, helping to create approximately 327 jobs in April, further providing a boost to southwestern Ontario’s economy.”

The London and St. Thomas Association of REALTORS® (LSTAR) exists to provide its REALTOR® Members with the support and tools they need to succeed in their profession. LSTAR is one of Canada’s 15 largest real estate associations, representing over 1,700 REALTORS® working in Middlesex and Elgin Counties, a trading area of 500,000 residents. LSTAR adheres to a Quality of Life philosophy, supporting growth that fosters economic vitality, provides housing opportunities, respects the environment and builds good communities and safe neighbourhoods and is a proud participant in the REALTORS Care Foundation’s Every REALTOR™ Campaign.

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

Statistical Package for April 2018 – Click on the following link to see the new Statistical Package of LSTAR for the month of April:

Visit LSTAR’s new interactive Statistical Dashboard to find out even more information about the real estate markets located in LSTAR’s jurisdiction. In order to see the Dashboard, please wait until the page is completely loaded.

CREA’s Statistical Reports for London and St. Thomas

Canadian Housing Starts Trend Stable in April

In April, the national trend in housing starts remained stable at historically elevated levels, with lower starts of single-detached dwellings offsetting higher starts of multi-unit dwellings. Notably, the national inventory of newly completed and unabsorbed multi-unit dwellings has been stable over the same period, indicating that demand for this type of unit has absorbed increased supply.

The trend in housing starts was 225,696 units in April 2018, compared to 226,942 units in March 2018, according to Canada Mortgage and Housing Corporation (CMHC). This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.

Monthly Highlights

Vancouver

Housing starts in the Vancouver Census Metropolitan Area (CMA) continued their strong trend throughout April. Year-to-date starts were up for both single and multi-family units as builders continue to maintain a high level of under construction inventory in response to high demand in the apartment and condominium markets. The City of Vancouver and the North Shore have seen the strongest activity so far in 2018.

Kelowna

Housing starts activity in the Kelowna CMA picked up significantly in April, driven in large part by the multi-unit segment. The recovery in housing starts activity, almost rivalling the record starts seen in April 2017, was the result of some large apartment rental and condo projects getting underway. Multi-unit housing demand, both rental and ownership, remains strong in the Kelowna CMA, while vacancy rates and homes listed for sale remain low.

Saskatoon

The pace of total housing starts slowed further in April after construction in both single-detached and multi-family sectors trended lower from the previous month. Year-to-date housing starts in Saskatoon were down by 36%, compared to the same period of 2017.

London

In April, starts in the London CMA trended higher for the first time in five months. Rental apartment starts proved to be the most notable engine of growth this month, followed by single-detached and row starts. Although starts have moved off their recent peak, they remain in the vicinity of decade highs. Strong spillover demand from a tight resale market has kept new construction robust.

Toronto

The total housing starts trend in the Toronto CMA remained virtually unchanged in April. High house prices continued to deter buyers from purchasing single, semi-detached and townhome pre-construction units, and this lower demand has resulted in fewer starts for these types of units. Conversely, condominium apartments’ relative affordability continues to fuel their demand. As a result, the first quarter of 2018 saw the most apartment starts recorded in a quarter in over 40 years.

Kingston

Housing starts in Kingston trended higher in April, as more single-detached and multi-unit housing starts, including rental apartments, got underway. In fact, builders have started more rental projects for the third month in a row in anticipation of stronger rental demand from students and an aging population. Kingston’s vacancy rate at 0.7% in fall 2017 was the lowest among 16 Ontario CMAs.

Montréal

Housing starts increased sharply in the Montréal CMA in April, thanks to the start of construction on a number of large condominium projects and rental properties. From January to April, a 20-year record number of condominiums and rental units were started. The strength of the job market, which is supporting housing demand, combined with both the small number of condominiums for sale and the area’s low rental apartment vacancy rate are likely encouraging developers to build many new units.

New Brunswick

While housing starts in the province increased in April compared to the same month last year, New Brunswick has seen its slowest first four months in 20 years. Year-to-date, total housing starts were 41% lower compared to the first four months of 2017 due to a decline in multiples housing starts.

PEI

A low vacancy rate paired with continued in-migration to the Charlottetown area is driving demand for multiple units so far in 2018. The volatile multiple segment was up considerably on the inclusion of recent new project construction activity.

Full Report by CMHC Here.

 

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Economic Highlights

 

Canadian Data Release: Housing starts slow in April but remain healthy

·       Canadian housing starts dipped to 214k (annualized) units in April, down 4.9% from March’s slightly upwardly revised pace of 225k. The pace disappointed expectations for a milder pullback, to 220k, but the rate of homebuilding in Canada remains strong. The underlying trend, defined as the six month moving average, edged slightly lower to 226k.

·       Single-detached starts decreased by 9.5% to 69k units, while multifamily starts dropped by 2.6% to 145k units during the month.

·       The bulk of April’s decline was concentrated in B.C. (-8k to 41k), Newfoundland and Labrador (-5k to 1k) and Ontario (-5k to 70k). Starts were also lower in Manitoba and New Brunswick. On the flip side, relatively strong gains were observed in Quebec (+4k to 57k) and Alberta (+3k to 30k).

·       Starts fell for the second straight month in Toronto (-12k to 27k units), with declines in both the single-detached and multi-family sector. Starts also declined in Vancouver (-9k to 23k units). Conversely, starts were higher in Montreal (+13k to 33k units).

Key Implications

·       The pace of starts eased but remained solid in April, supported by continued population and income growth. Overall, we expect near-term starts to remain elevated – something telegraphed by permit issuance data.

·       Homebuilding is proceeding at firm pace across most of the country, and is particularly strong in B.C. and Quebec. The Prairie provinces remain as the key exception, with homebuilding under pressure from oversupplied markets in Alberta and Saskatchewan, with a decline anticipated in Manitoba after an outsized gain last year.

·       Looking ahead, we expect the pace of starts to pull-back closer to the 200k mark in the second-half of 2018, and dip below that level towards the fundamentally-supported pace next year as higher interest rates and regulatory changes weigh on demand. By Rishi Sondhi, Economist.

United States

·        Investors were kept busy this week with plenty of top-tier data, both internationally and domestically, alongside a Fed meeting mid-week. International PMIs suggested some slowing in global economies, largely related to trade tensions.

·        U.S. PMIs also pulled-back, but other data was far more constructive. Consumer spending accelerated to 0.4% in March, setting the second quarter on a solid growth path, which should come in near 3%.

·        Firming inflation was the main story this week, with the PCE deflator (and core measure) accelerating to 2.0% and 1.9%, respectively. The Fed has taken notice of this, indicating in the statement a more confident view of the inflation outlook. This should enable the Fed to raise rates at least twice more times this year, with three hikes likely during 2019.

 Canada

·        Economic data released this week was a mixed bag. On the plus side, GDP growth topped expectations in February. However, merchandise trade data for March confirmed that net trade is likely to be a drag on Q1 growth.

·        Home sales in April dropped in Toronto, while bouncing higher in Vancouver, though quality adjusted prices declined in both markets. Looking ahead, it will likely be some time before a sustained improvement emerges in either market.

·        In a mid-week speech, Governor Poloz continued to flag elevated debt as a key risk to growth, though remained optimistic on the broader economic outlook. With growth advancing largely as expected, we continue to believe the next rate hike will come in July.

By TD Economics.  Read the full report Here.

Gradual Rate Hikes Signalled

The Bank of Canada will likely raise rates twice this year–probably in the summer and fall. As always, central bank policy will remain data dependent and will adjust with any significant changes in the economic backdrop. It is widely expected that the NAFTA negotiations will be satisfactorily completed in the near future, but that still remains a wildcard.

Increased U.S. protectionist fervour is a significant negative for the global economy. Today, 1,100 U.S. economists signed a letter to President Trump warning him of the dangers of tariffs, reminding him that the 1930 Smoot-Hawley tariffs led to a sustained economic depression. Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres.

Canada Mortgage and Housing Corp. says the annual pace of housing starts in April slowed compared with March.

The seasonally adjusted annual rate of new home construction, which is seen as a measure of the health of the housing market, fell to 214,379 units in April compared with 225,459 in March.

The move came as the pace of starts in urban areas fell 4.7 per cent in April to 198,090.

The rate of multiple urban starts, which includes apartments, townhouses and condominiums, fell 2.7 per cent to 141,032, while the rate of single-detached urban starts dropped 9.3 per cent to 57,058.

Rural starts were estimated at a seasonally adjusted annual rate of 16,289.

The six-month moving average of the monthly seasonally adjusted annual rates edged down to 225,696 in April compared with 226,942 in March.

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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 now 5.34%.  Fixed rates moved upward again with about 20 basis points due to the continuing rise in government bond yields, upward pressure on fixed rates continue.  Deeper discounts are are available for variable rates making adjustable variable rate mortgages more attractive again.

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Other Industry News & Insights

Millennials are the driving force of the real estate market

Canada’s millennials are focused on homebuying and their intentions are driving the real estate market.

A new report from mortgage insurer Genworth Canada reveals that 59% of millennials are already homeowners, with 30% having bought a home in the past two years (including first-time buyers and repeat buyers).

That means more than three times as many Canadian millennials bought a home in the last two years as older Canadians (9%).

Among non-homeowners 30% say they intend to buy in the next two years.

Millennial finances appear strong

The National Financial Fitness and Homeownership Study was conducted in association with the Canadian Association of Credit Counselling Services (CACCS) from February 8 – March 27, 2018; and asked several questions about financial well-being and intentions.

Among those who said their finances are in good shape are 68% of first-time buyers; 58% of first-time intenders; 59% of repeat buyers; and 62% of repeat intenders.

“It is encouraging to see the high level of financial confidence coming from first-time homebuyers and homeowners. As a company that is committed to providing financial literacy education to aid those looking to achieve homeownership, these results demonstrate that this segment of Canadians are doing the necessary homework to support their financial future,” said Stuart Levings, President and CEO of Genworth Canada.

Total Home-

owner

Non Home-

owner

First-Time

Buyers

First-Time

Intenders

Repeat

Buyers

Repeat

Intenders

Intend

DP<20%

Intend

DP 20%+

Great/good financial shape 53% 60% 38% 68% 58% 59% 62% 59% 69%
I am in great financial shape – I have set clear financial goals that I

am well on my way to achieving

14% 17% 7% 19% 14% 17% 16% 17% 15%
I am in pretty good shape- I have a general notion of what I want to achieve with my finances, and things are more or less going in the

right direction

39% 43% 30% 50% 44% 43% 46% 42% 54%
I am neither in great shape nor poor shape – I try to save when I can

but I don’t seem to be getting ahead

30% 28% 34% 25% 34% 30% 23% 29% 22%
My financial fitness is not very good – I know that I haven’t been

able to achieve the financial goals that I should have by now

10% 8% 14% 3% 4% 6% 10% 9% 5%
My financial fitness is very poor – I feel like I am always falling

behind and/or that I don’t know where to turn for help

6% 3% 11% 3% 2% 2% 4% 1% 2%
Very poor/not very good 16% 11% 25% 6% 6% 8% 14% 10% 7%
Don’t know/not sure 2% 1% 3% 0% 3% 2% 1% 2% 2%

DP= Down payment

This week Genworth Canada has a series of educational webinars in celebration of their annual Homeownership Education Week event where industry professionals can learn more about this and other topics. By Genworth Financial.

Toronto Home Sales Lowest Since Last Recession

Toronto home sales are off to the worst start in nine years, as tougher rules for mortgage qualifications and rising interest rates continue to push buyers out of the market.

Sales fell for four straight months on a seasonally adjusted basis, with the fewest transactions to start a year since the 2009 recession, according to data Thursday from the Toronto Real Estate Board. April itself was one of the weakest months in the past 15 years for sales in Canada’s biggest city.

Prices, however, continued to stabilize. The benchmark, which is weighted to account for differences in home type, climbed 0.7 percent from last month to C$766,300 ($595,700). The condo apartment segment helped boost prices, jumping 10 percent to C$495,600 from a year earlier. In contrast, detached home prices tumbled 10 percent from April 2017 to C$927,800.

Similarly, Vancouver benchmark prices rose 14 percent in April from a year ago, while sales fell 27 percent to a 17-year low for the month, according to the Real Estate Board of Greater Vancouver.

Canada’s once-hot housing market has been correcting in recent months, adjusting to a series of tighter regulations aimed at taming prices and debt levels. Sales have cooled particularly for ’s pricier detached homes, as new mortgage guidelines that came into effect on Jan. 1 make it harder for buyers to qualify for loans. The slowdown has put the market on edge as it enters its traditionally busy spring selling season.

Toronto sales were down almost a third in April from a year earlier to 7,792 units, the fewest for the month since 2003.

“Market conditions should support moderate increases in home prices as we move through the second half of the year, particularly for condominium apartments and higher density low-rise home types,” Jason Mercer, TREB’s Director of Market Analysis said in a statement.

The high-end of Toronto’s housing market continued to weaken after last year’s boom. Sales of detached homes worth C$2 million or more accounted for 5.5 percent of the segment’s total, down from 10 percent a year earlier.

New listings fell 25 percent from April 2017 to 16,273. Average home prices in the Toronto region fell 12 percent over that period to C$804,584.  By Natalie Wong and Erik Hertzberg. Bloomberg.

Now’s the perfect time of year for a free mortgage check-up. With spring in full swing and with 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 2M3k

17 Apr

Residential Market Update – April 16, 2018

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL MARKET UPDATE


Industry & Market Highlights

Canada’s Housing Market Continues Soft Landing
Data released today by the Canadian Real Estate Association (CREA) show a small uptick in home sales nationally in March, their first monthly increase in three months. This comes on the heels of a more than 19% decline in the previous two months as the tighter mortgage stress-testing rules at federally regulated lenders have reportedly impacted one in three potential buyers. The uptick in March sales suggests that the housing market is beginning to move beyond the payback period for activity pulled forward at the end of last year ahead of the new rules introduced on January 1, 2018.
The outlook for the housing market is likely to be uneven as the new market-cooling measures announced in the BC budget are poised to lengthen the adjustment process in that province. Indeed, home sales in Vancouver are still declining as resales dropped 8.6% in March from the prior month while benchmark prices again edged up 1.1%. Vancouver has not seen so few homes change hands since 2013. The February BC budget introduced a new speculation tax as well as an expanded foreign buyers tax, and a tax hike on home sales and school taxes for properties worth more than $3 million.
For the country as a whole, existing home sales inched up 1.3% from February to March. Nevertheless, national sales activity in the first quarter slid to its lowest quarterly level since the first quarter of 2014.
March sales were up from the previous month in over half of all local housing markets, led by Ottawa and Montreal. Monthly sales gains were offset by declines in B.C.’s Lower Mainland, the Okanagan Region, Chilliwack, Calgary and Edmonton.
Actual (not seasonally adjusted) activity was down 22.7% from record activity logged for March last year and marked a four-year low for the month. It also stood 7% below the 10-year average for the month. Activity came in below year-ago levels in more than 80% of all local markets, including every major urban centre except Montreal and Ottawa. The vast majority of year-over-year declines were well into double digits.
“Government policy changes have made home buyers and sellers increasingly uncertain about the outlook for home prices,” said CREA President Andrew Peck. “The extent to which these changes have impacted housing market sentiment varies by region,” he added.
“Recent changes to mortgage regulations are fueling demand for lower-priced homes while shrinking the pool of qualified buyers for higher-priced homes,” said Gregory Klump, CREA’s Chief Economist. “Given their limited supply, the shift of demand into lower price segments is causing those sale prices to climb. As a result, ‘affordably priced’ homes are becoming less affordable while mortgage financing for higher priced homes remains out of reach of many aspiring move-up homebuyers.”
New Listings
The number of newly listed homes rose 3.3% nationally in March. However, new listings have not yet recovered from the 21.1% plunge recorded between December 2017 and January 2018–the most substantial month-over-month decline on record according to the CREA. With sales up by less than new listings in March, the national sales-to-new listings ratio eased to 53% in March. The long-term average for the measure is 53.4%.
Based on a comparison of the sales-to-new listings ratio with its long-term average, more than 60% of all local markets were in balanced market territory in March 2018. There were 5.3 months of inventory on a national basis at the end of March 2018 – unchanged from February, when it reached the highest level in two-and-a-half years. The long-term average for the measure is 5.2 months.

Home Prices
On a national basis, the Aggregate Composite MLS Home Price Index (HPI) rose 4.6% y/y in March posting the 11th consecutive deceleration in y/y gains. This continued the trend that began last April when the province of Ontario announced its new housing measures that included a 15% tax on nonresident foreign homebuyers. The slowing y/y home price growth mainly reflects the trend for the Greater Golden Horseshoe. Prices in that region have stabilized or begun to show tentative signs of moving higher in recent months; however, year-over-year comparisons are likely to continue to deteriorate further due to rapid price gains posted one year ago.
Nationally, apartment condo units continued to show the highest y/y price gains in March (+17.8%), followed by townhouse/row units (+9.4%), one-storey single family homes (+1.3%). Two-storey single-family homes prices were down from a year ago (-2.0%), continuing the trend of the past year. Despite having stabilized over the second half of last year, y/y declines for single-family home prices may persist over the first half of 2018.
In the GTA, the Composite MLS HPI rose 3.2% y/y, which was driven by an 18.8% y/y rise in condo apartment prices and 7.5% growth in townhouse prices. Single-family detached home prices were down slightly compared to February 2017.
Benchmark home prices in March were up from year-ago levels in 9 out of the 14 markets tracked by the MLS® HPI (see the table below). Composite benchmark home prices in the Lower Mainland of British Columbia continued to trend higher after having dipped briefly during the second half of 2016 (GVA: +16.1% y/y; Fraser Valley: +24.4% y/y). Apartment and townhouse/row units have been driving this regional trend in recent months while single-family home prices in the GVA have held steady. In the Fraser Valley, single-family home prices have also begun to rise.
Benchmark home prices continued to rise by about 15% y/y in Victoria and by roughly 20% elsewhere on Vancouver Island.
Within the Greater Golden Horseshoe region of Ontario, price gains have slowed considerably on a y/y basis but remain above year-ago levels in Guelph (+7.5%). Meanwhile, home prices in the GTA and Oakville-Milton were down in March compared to one year earlier (GTA: -1.5% y/y; Oakville-Milton: -7.1% y/y). These declines primarily reflect price trends one year ago and mask evidence that home prices in the region have begun trending higher.
Calgary and Edmonton benchmark home prices were little changed on a y/y basis (Calgary: +0.3% y/y; Edmonton: -0.5% y/y). Prices in Regina and Saskatoon remained down from year-ago levels (-4.6% y/y and -3.4% y/y, respectively).
Benchmark home prices rose by 7.7% y/y in Ottawa (led by an 8.6% increase in two-storey single-family home prices). Prices shot up by 6.2% in Greater Montreal (driven by a 7.4% increase in two-storey single-family home prices) and by 4.9% in Greater Moncton (led by a 6.3% increase in one-storey single-family home prices).
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. 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 will continue to be cautious.
Only 20% of investors expect the Bank of Canada to hike interest rates when they meet again on Wednesday. However, Governor Poloz will likely return to the rate-hike path in the second half of this year as inflation and growth are beginning to move higher. On a year-over-year basis, all measures of inflation have risen to the 2% range, and inflation will likely climb above the Bank’s 2% target pace in coming months, while growth should also return to an above-2% pace after a recent slowdown.
The Bank has maintained a cautious stance for months as inflation averaged only 1.6% last year, and the economy decelerated more than expected in the second half, amid signs that indebted households had begun slowing consumer spending. The economy grew at an annualized pace of 1.7% in the fourth quarter, versus economist expectations for 2% growth. Third-quarter gross domestic product growth was also revised lower.
After leading the Group of Seven in growth last year, the Canadian economy has lost momentum reflecting the slowdown in housing and longstanding productivity underperformance. The U.S. economy recorded growth rates of 3.2% in the third quarter and 2.5% in the last three months of 2017. Canada hasn’t trailed the U.S. in growth to this extent since early 2015, and the gap could well widen with this year’s U.S. tax cut favouring corporations.
But the environment is changing as inflation is likely to average 2.3% in the second quarter and 2.4% in the third as oil prices continue to rise. Nevertheless, most economists expect only two rate hikes this year–in July and October. That, of course, can change with incoming data surprises.

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

Residential Mortgage Commentary – The latest report from the CREA and the numbers for March
The latest report from the Canadian Real Estate Association certainly grabbed a lot of attention, especially the headline that said March sales plunged nearly 23% compared to a year ago. But, as always, the details provide a better picture of what is really happening.

A deeper look at the CREA numbers show sales for March 2018 were 7% below the 10-year average. This is a four-year low, but it is a long way from the 22.7% drop compared to the dizzying, record-setting highs of a year ago. Compared to February, March sales edged up 1.3%.

New listings improved by 3.3% in March. That put the sales-to-new-listings ratio at 53%, a little below the long-term average of 53.4%, but still well within the parameters of a balanced market.

The other eye-catching number in CREA’s March report shows the national average price of a home tumbled more than 10% compared to a year ago. The overall, average price for a home of all types dropped to $491,000. Despite apparent price declines that number was still skewed by Vancouver and Toronto. With those two markets removed from the equation the national average price is $383,000 – a mere 2% decline from March of 2017.

CREA’s own MLS home price index shows gains are continuing to slow, but still registered a moderate 4.6% year-over-year increase in March. The report also shows unsold housing inventory has hit a two and-a-half year high at 5.3 months, which is in line with the long-term average of 5.2 months. By First National Financial.

Canadian Housing Starts
In March, the national trend in housing starts was stable for the fifth consecutive month, as diverging trends for multi-unit and single-detached dwellings continue to offset each other. Over this period, multi-unit starts have trended higher in most major urban centres while single-detached starts have trended lower.
The trend in housing starts was 226,842 units in March 2018, compared to 225,804 units in February 2018. This trend measure is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts.
See the full CMHC report on Housing Start Data Here.


Economic Highlights

What are the latest real estate statistics and the results of the Business Outlook Survey?
Before I get into the latest breaking mortgage and fixed income news, it’s worth mentioning that both the NBA and NHL playoffs are starting this week. This year, only two Canadian teams made the Eastern Conference playoffs: the Toronto Raptors and the Toronto Maple Leafs. Since we’ve talked about the correlation between playoff success and GDP growth in the past, I am sure everyone in this great nation is cheering for Toronto teams to have championship seasons!
Rates
A little refresher on what happened to major rates since last week. The 5 year Government of Canada closed 2.00% even last Friday and is currently at 2.11% or 11bps higher. The 10 year had a similar move, closing at 2.14% last week and is about 2.25% as of writing. It is worth highlighting the 5-10 spread which has narrowed substantially from a year ago. In April 2017, the difference between 5 and 10 year GoC yields was 45bps and has been decreasing steadily to today, at around 14bps. A recent 10 year deal for CCL Industries, unsecured and rated BAA2/BBB, was priced at +165 over the 10 year, which exemplifies some tightness in the sector. The key takeaway is, 10 year borrowing rates do seem narrow compared to the 5 year, so it could be worth taking a look at longer term borrowing opportunities with your local First National commercial expert.
Business Outlook Survey and Rate Hikes
Next week, April the 18th, the Bank of Canada is scheduled to make another rate hike decision. The market was pricing no move in the overnight rate, while highly anticipating this Monday’s Business Outlook Survey (BOS) to see if it would move the needle at all. Basically, no, the needle was not moved. Currently, the probability of a rate hike next week sits at around 21% which was virtually unchanged by the BOS.
The Business Outlook Survey, which polls businesses around Canada, supported that the economy is solid, albeit not spectacular. The overall sentiment of the survey had businesses feeling positive about the economy. The majority of firms said sales grew over the last 12 months with many thinking about expansion. Capacity issues or the inability to meet demand, eased since the last survey from 56% to 47%, which is more akin to an economy working at full capacity. Another area of movement seen by business respondents was their inflation expectations. About 56% of respondents saw inflation at 2% or higher over the next two years, whereas the last report had only 38% of our job-creators seeing inflation above 2%. Major factors cited by the firms were increasing labour costs (minimum wage hikes) and higher commodity prices. The survey which occurred before the recent US and China trade tiff, also had 30% of respondents feeling they could be hurt by United States Policy going forward. Overall, the report reinforced that the economy is doing well and the Bank of Canada can use that in any which way they please.
Real Estate Statistics
In other news, this week had a plethora of real estate numbers come out. CREA home sales numbers came out today, with unit sales up 1.3% month over month nationally. GTA unit sales rose 2.1% month over month after two large previous declines of 24.9% and 7.9%. You could say this could be due to the implementation of B20 rules largely being baked in, but I won’t go there.
Housing starts also came out earlier this week. Interestingly, to probably 1,500 people nationally, the data released by Statscan was delayed by a day. Is that a big deal? I don’t know. Maybe we’ll send this out on Monday one day and see if someone notices. The March housing starts came in at 225,200, which was above consensus of 216,800, but below February’s revised 231,000. Overall, the decline was led by Toronto where multiples fell from 35k to 28.5k. Teranet data that came out also had the Home Price Index number decline 6.6% nationally, year over year.
In some mortgage news, The Canada Bankers Association released arrears stats Tuesday that showed only 0.24% of mortgages were in arrears. If that sounds low, it’s because it is and actually matches the lowest reading for arrears data since 2006. About 11,600 mortgages were in arrears for three or more months, out of 4.8 million mortgages.
Finally, working for Jason, I would be remiss if I didn’t mention that it’s Friday the 13th. No, that’s not in reference to Jason Voorhees of 90’s teen horror fame. It’s the traditional day where motorcyclist enthusiasts head down to Port Dover and celebrate all things motorcycle. Unfortunately, the weather doesn’t look ideal this year which is always a risk with a rolling celebratory date. However, if you are more of a fair weather rider and prefer: comfort, lack of speed and European aesthetics, national Vespa day is annually June 23rd. Sign me up. By Andrew Masliwec, Analyst, Capital Markets, First National Financial.


Mortgage Interest Rates
No change to Prime lending rate currently at 3.45%. Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.14%. Many lenders have started moving fixed rates upward with about 15 basis points, upward pressure on fixed rates continue. Deeper discounts are are available for variable rates making adjustable variable rate mortgages more attractive again.

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

9 Apr

WEEKLY RESIDENTIAL  MARKET UPDATE 

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 
Industry & Market Highlights 
Housing Affordability Increase First Time in 2 Years
There was an improvement in Canada’s housing affordability measure at the end of 2017.
It was the first time in two years that RBC Economics Research’s Housing Trends and Affordability Report has shown a decrease in its aggregate measure, albeit just 0.2 percentage points nationally to 48.3%.
As the measure is shown as the share of household income that would be required to carry the costs of owning a home at market price, a decrease indicates improving affordability.
Toronto saw a larger decrease in the measure, down 2.3 percentage points to 75.1%, but it is unlikely to have a meaningful effect.
“We expect the relief to Toronto ownership costs that ensued from the introduction of Ontario’s Fair Housing Plan to be short-lived,” said Craig Wright, Senior Vice-President and Chief Economist at RBC. “Our view is that Toronto prices will bottom out sometime this spring. Then we expect further interest rate hikes through the remainder of this year, which has the potential to stress housing affordability markedly in Canada.”
The report shows that affordability worsened in BC with Vancouver and Victoria both seeing higher prices in the last quarter of 2017, with the aggregate affordability measure rising 1.8 and 0.5 percentage points respectively.
“Unfortunately, Vancouver homebuyers are being challenged by the worst affordability levels ever recorded in Canada,” said Wright. “The costs of owning a home at today’s prices would have represented an astounding 85.2% of a typical household’s income in the fourth quarter. In this context, it wasn’t a surprise to see the BC government announced further housing policy initiatives to cool the market in its 2018 budget.”
Affordability also weakened in Montreal for the ninth time in the past ten quarters, denting its reputation as an affordable market.
The picture has changed little for housing markets in the Prairies and Atlantic Canada. Home ownership costs have remained largely stable though, a small increase in mortgage rates contributed to a slight deterioration in affordability within these regions in the fourth quarter. By by Steve Randall.
What is Influencing Interest Rates
April is Mathematics and Statistics awareness month.  Here’s a statistic.  The probability of Treasury Guy getting beat up by the commercial underwriters went up by 67% after mentioning Math and Statistics awareness month.
Raw Interest Rate Data
2yr GoC Yield:    1.82% (6 month high of 1.88%; 6 month low of 1.40%)
5yr GoC Yield:    2.03% (6 month high of 2.16%; 6 month low of 1.60%)
10yr GoC Yield:  2.18% (6 month high of 2.38%; 6 month low of 1.84%)
Stuff influencing Interest Rates
Last week, PM Justin Trudeau suggested that NAFTA talks have picked up momentum.  “We are having a very productive moment” he said.  Optimism that a NAFTA deal is within reach hasn’t filtered into expectations for a Bank of Canada interest rate hike yet.  Markets are currently placing only a 20%-25% chance of a hike at the central bank policy meeting on April 18th.  That’s down from as high as 55-60% six weeks ago.  Today’s net change in employment data came in a little stronger than expected at +32,300 vs. +20.000 Not enough to materially move rates or change BoC rate hike expectations though.   Hourly earnings ticked up 3.1% year over year and the jobless rate remained at 5.8%, which is a 40+ year low.
Down south, the change in non-farm payrolls came in on the softer side of expectations at +103,000 vs. +185,000.  Hourly earnings increased at 2.7% from a year earlier, matching projection, and the jobless rate remained unchanged at 4.1%.
New Issues and Credit Spreads
Ontario and Quebec both came to the market this week with 10yr bonds and Ontario was taught a tough lesson.  Quebec priced its issue 8bps tighter.  Ontario issued at GoC +73.5 bps and Quebec issued at GoC +65.5.  Vive le Quebec moins cher!  The provinces are rated the same but investors have traditionally demanded a little extra when lending to Quebec due to its higher debt load relative to the size of its economy.  Investors have also cited an intense dislike for the Montreal Canadiens.  Of course, Ontario’s planned budget deficits for the next six years may be a contributing factor too.  In either case, those spreads are about 15 bps wider than either province could issue at back in January.
Canada Mortgage Bond spreads have also been drifting wider since January.  CMB’s have gone from +26 to +32 but have outperformed 5 year senior deposit notes which have gone from +65 to +80 over the same time.
Closing thoughts
This ‘national walk to work day’ nonsense has me thinking.  I might try out this new fad called jogging this weekend.  I believe it’s jogging…or yogging; it might be a soft ‘j’.  I’m not sure but apparently you just run for an extended period of time.  It’s supposed to be wild.
Whatever you’re doing, remember, when it comes to the weekend, the question isn’t “what are you going to do,” the question is “what aren’t you going to do?” By Jason Ellis, Senior Vice President and Managing Director, Capital Markets, First National Financial.
LSTAR Market Statistics
The London and St Thomas Association of REALTORS® (LSTAR) announced 769 homes* were sold in March, down 37.9% over March 2017, which set a record for best March results since LSTAR began tracking sales data in 1978.
“The marketplace is still being challenged with low levels of housing inventory, which continues to impact sales across the region,” said Jeff Nethercott, 2018 LSTAR President. “Looking at inventory, there were 1,192 Active Listings, down 20.4% from this time last year and down 55.3% from March 2016. Similar to February, the March inventory is the lowest level for the month in the last 10 years.”
Average home sales price across London and St. Thomas continues to rise, despite the low inventory. The average March sales price in the region was $364,112 up 8.6% over March 2017. By geographic area, London South was $360,587 up 3.1% from last March. In London North, average home sales price was $438,827 up 7.1% compared to the previous year, while in London East, it was $291,161 an increase of 8.4% from March 2017. In St. Thomas, it was $295,980 up 18.5% over last March.
“Another interesting statistic that paints a picture of the marketplace is the sales-to-new listings ratio,” Nethercott said. “According to the Canadian Real Estate Association (CREA), a ratio between 40% and 60% is generally consistent with a balanced housing market. In March, London and St. Thomas had a sales-to-new listings ratio of 75.1%, which CREA says represents conditions in the marketplace that favour sellers. It reinforces the trends LSTAR Members have been experiencing, with low supply and high demand, and also managing multiple offer situations and out-of-town interest in our region.”
St. Thomas saw a total of 73 homes sold in March, down 29.1% from the same period last year. When looking at inventory, there were 42 active listings, down 51.2% from last March.
The following chart is based on data taken from the CREA National MLS® Report for February 2018 (the latest CREA statistics available). It provides a snapshot of how average home prices in London and St. Thomas compare to other major Ontario and Canadian centres.
 
According to a research report1, one job is created for every three real estate transactions and approximately $53,000 in ancillary spending is generated every time a home changes hands in Ontario. “Real estate makes a tremendous contribution to growing the regional economy and beyond, generating potentially more than $40 million right here in London and St. Thomas,” Nethercott said. “This broad impact also helped create approximately 256 jobs in March, further boosting the robust economic engine of southwestern Ontario.”  By London & St. Thomas Association of Realtors.  Click here to see the original News Release.
Economic Highlights
Market Commentary – Replace “If” with “When”
As we begin the second quarter of 2018 there can be no doubt left, we are in a rising interest rate environment.  Despite caution on the part of the Bank of Canada the improving economy in the United States and a more hawkish tone from the U.S. Federal Reserve have changed the discussion from “if rates rise”, to “when will rates rise and by how much”.
Interest rate increases in the U.S. have been pushing up the yields on government bonds there and in Canada, leading to hikes in fixed-rate mortgage costs.  The U.S. influence takes some pressure off the Bank of Canada to raise its policy rate.  It is worth noting that rising interest rates are not being handed to savers to the same extent that they are being passed on to borrowers.
A key factor in this will be inflation.  Both the American and Canadian economies are running near capacity and employment is strong; the two main drivers of inflation.  Canada just posted an annual inflation rate of 2.2%, topping the central bank’s 2% target, while U.S. inflation is running at 2.8%, also above target.
With the latest round of interest rate announcements behind us (the Fed bumped up a quarter point and the BoC was unchanged) analysts expect two, or maybe three more increases in the U.S. and two, or perhaps even just one, in Canada.  By First National Financial.
United States
·        Trade developments captured headlines this week. The U.S. disclosure of detailed plans regarding the tariffs on $50bn worth of Chinese imports led Beijing to retaliate with planned tariffs on $50bn of U.S. exports. The hardened Chinese stance led President Trump to threaten additional tariffs on $100bn worth of Chinese goods.
·        While the announced tariffs are likely to merely shave off about 0.2pp from annualized GDP growth in the U.S. over the next two years, the potential for the conflict to escalate to a full-scale trade war is much more concerning.
·        Economic data came in healthy with the ISMs holding near recent highs while auto sales came in slightly better than expected in March. Payrolls disappointed despite a healthy ADP print, but wage growth accelerated on the month.
Canada
·        It was a good week for the Canadian dollar despite the pullback in oil prices. The loonie was lifted by improved prospects of a North American trade deal, with a preliminary agreement on NAFTA 2.0 potentially as early as next weekend, when leaders gather for the Summit of the Americas in Peru.
·        Economic data was mixed. The trade deficit widened, with the weakness in net exports a drag on Q1 growth.
·        On the other hand, the Canadian economy added an impressive 32.3 thousand jobs. The jobless rate held steady at 5.8%, with wage growth accelerating to 3.3% y/y. Wages were up a solid 3.1% y/y for permanent employees.
By TD Economics.  Read the full report Here.
Mortgage Interest Rates
No change to Prime lending rate currently at 3.45%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.14%.  No change in fixed rates.  Deeper discounts are becoming available for variable rates making adjustable variable rate mortgages more attractive again.
Other Industry News & Insights
Consumer Psychology Shift
The chief executive of Royal Bank says the housing market slowdown is a welcome shift in consumer psychology toward more caution.
David McKay told shareholders at the company’s annual meeting Friday that the bank is seeing a more balanced pricing trend after tighter conditions last year.
The Vancouver and Toronto region real estate boards, representing the country’s hottest markets, reported double-digit annual sales declines in March earlier this week.
B.C. and Ontario have introduced a series of measures to cool the housing market, including taxes on non-residents.
Further cooling pressure came from the federal level, including a financial stress test for buyers implemented Jan. 1 for federally-regulated lenders.
Both variable and fixed-rate mortgage rates have also risen as a result of moves by the Bank of Canada and fluctuations in the bond markets. By The Canadian Press, MortgageBrokerNews.ca
Social Media Impacts on Consumers
Banks are at risk of being pushed to the sidelines in the age of social media and big data, Royal Bank of Canada’s chief executive David McKay said Friday.
Customers are increasingly leaving a digital trail of their financial plans on social media or search histories, such as buying a house, allowing technology giants to not only capitalize on that information, but potentially get into banking themselves, McKay said.
“As these technology players realize their digital dividend there is a risk that our visibility with clients will diminish in the networked economies _ or ecosystems _ of the future,” he told shareholders at RBC’s annual meeting on Friday.
Technology continues to reshape the financial services landscape as more consumers do their banking online or via smartphone rather than in physical branches. McKay said Friday that mobile is now RBC’s number one digital channel, with 3.4 million active users, up 19 per cent over the last year.
In turn, Canada’s biggest banks have been investing heavily in technological innovation to stay ahead of the curve. During the last fiscal year, RBC spent more than $3-billion on technology, including on digital initiatives, cybersecurity and artificial intelligence.
And while smaller financial technology companies are both partnering with and competing with traditional banks, larger tech companies and their deep pockets present a more formidable threat.
Last month, for example, it emerged that Amazon was in talks with two large U.S. banks to start offering a chequing-like product to the e-commerce titan’s customers, according to the Wall Street Journal.
McKay said there is a risk that these companies in search, e-commerce or social may be the first to deduce what customers’ needs are and direct them to financial institutions willing to pay for that information, but also get into banking themselves.
“We think about somebody getting between you and your customer with that information, and start influencing the customer to choose other providers.”
He added that RBC, Canada’s largest bank, has identified a number of digital “ecosystems” where its clients live and work within which the bank believes it can play an “integral role in the future.”
McKay pointed to RBC’s recently released Drive app, which allows users to store car-related information, track trips and book service appointments.
“We’re preparing ourselves for a world where others can see what you are trying to do before we see it,” he told reporters. “So we have a number of strategies to make sure that we stay connected to our customers. So we understand what’s going on and we can be relevant.”
RBC is also investing heavily in artificial intelligence, and now has more than 200 data scientists working across the bank.
While data allows RBC and other companies to develop more relevant products and refine its approach to customers, it is important to balance this with transparency, McKay said.
The recent revelations that the Facebook data of millions of users was improperly shared with political consultancy Cambridge Analytica, among other things, has prompted a “healthy dialogue” about how personal information should be handled.
He said regulations may be needed to set the boundaries, but hoped that would not be necessary.
“We’re poised for a societal discussion on how we’re going to use personal information… The way I think that we have acted in the past, globally, as government, industries, whatever it happens to be, may not be sufficient to meet societal norms going forward.’’ by Armina Ligaya. Canadian Press.
Roundup of the latest mortgage and housing news.
From Mortgage Professionals Canada.
Open Access
Subscription May Be Required
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
415 Wharncliffe Road South
London, ON, N6J 2M3
Adriaan Driessen
Sales Representative & Partner
PC275 Realty Brokerage
Cell:     519.777.9374
Fax:      519.518.1081
415 Wharncliffe Road South
London, ON, N6J 2M3
3 Apr

Residential Market Update

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

 

Industry & Market Highlights 

A Look At Rates, Inflation, Securitization News and More

Data released by Statistics Canada morning showed the annual pace of inflation accelerated to 2.2% compared to 1.7% the previous month.  Core inflation excluding volatile elements like gasoline prices climbed to 2.1% compared to 1.9% last month.

As you would imagine, inflation is a central piece of the information that influences the Bank of Canada’s interest rate decisions and, with both readings above the bank’s 2.0% target, another hike could come even sooner than previously expected.  Bond yields climbed 4-5 basis points on the news.

After leaving the target overnight rate unchanged at 1.25% back on March 7th, the implied probability of a 25 basis point hike at the April 18th meeting is about 40%.  Trade concerns with the US may yet weigh on that decision.

The Fed

Speaking of central banks, the Federal Open Market Committee (aka the Fed or FOMC) met on Wednesday and raised its benchmark target rate by 25 basis points for the sixth time since it began raising rates from near zero levels in December 2015.  The increase was widely expected and puts the new benchmark funds range at 1.50%-1.75%.  Along with the increase was another upgrade in the Fed’s economic forecast and the suggestion that the future path of rate hikes could accelerate.

Securitization

MCAP announced its highly anticipated Residential Mortgage Backed Security (“RMBS”) this week.  In case you’re unclear on the difference, an RMBS is composed of low ratio (<80% LTV) uninsured mortgages where NHA MBS are made up of Insured mortgages.

The $247 million Pass-Through deal features a $233 million AAA tranche supported by 6% credit enhancement through subordinated notes.  Indicated spread is in the GoC+100 range which is great value for the investor.  The prime collateral (not to be confused with ‘alternative’ or ‘alt-a’ mortgages) was carefully curated, and those willing to do the work to understand the asset, should be well rewarded.  While it might seem counterintuitive as a competitor, I’m definitely rooting for MCAP on this one.  The development of an RMBS market in Canada would be a good thing.

Two of the main actors that the Bank of Canada likes to watch took centre stage last week.  Both inflation and U.S. monetary policy played lead roles, but our central bank continues to wait in the wings.

Headline inflation in Canada jumped to an annual rate of 2.2% in February.  That is up sharply from the 1.7% annual rate recorded in January and it puts inflation above the central bank’s target rate of 2.0%.  Even core inflation crept above 2.0%.  Statistics Canada uses the average of three different measures of inflation, to strip-out the influence of volatile components like energy and food, to determine its core number.

In the United States the Federal Reserve moved forward with its tightening policy, raising its trend setting rate by a quarter percentage point.  The U.S. Fed rate is now running between 1.50% and 1.75%.  The Fed is also projecting U.S. inflation will finally climb above 2.0%.  Most market watchers are predicting three more Fed hikes this year.  In addition, China has raised a key, short term, interest rate and the Bank of England has made it clear it intends to raise rates as soon as possible.  (Although the BoE held its rate steady at 0.5% at its Thursday setting.)

Either one of these events – rising domestic inflation or increasing U.S. interest rates – would normally be a cue for the Bank of Canada to boost its benchmark, overnight rate.  But these are not normal times and the BoC is not likely to rise to the bait, just yet.

Canada’s February inflation numbers largely reflect the strong economic pace at the end of last year.  The Bank has already made three rate increases, to head off inflationary pressures brought on by that growth.  Since then the economy has slowed, easing those underlying inflationary pressures.

The increase in the U.S. Fed rate comes amid a lot of uncertainty for Canada, chiefly: the fate of the NAFTA renegotiations and high household debt.  That debt is a key concern for the Bank.

One consequence of the strengthening American economy and the tightening monetary policy is an increase in bond rates.  This has led to interest rate increases here, without any action by the Bank of Canada.    U.S. government bonds serve as the benchmark for bond prices around the world – particularly in Canada.  The increases there have seen the yield on Government of Canada five-year bonds increase by more than half a percentage point in recent months.  That has essentially added a quarter-point to market interest rates here in Canada, affecting mortgages and other borrowing costs.

The BoC is very mindful of these externally driven increases.  Given that Canadian households, on average, are carrying $1.70 in debt for every dollar of disposable income, the Bank is being very cautious about raising rates too far, too fast to avoid pushing those households over the fiscal cliff.  By Jason Ellis, Senior Vice President and Managing Director, Capital Markets, First National Financial.

Consumer Banking and Investing Complaints Soar in 2017.

Consumer complaints against Canada’s banking and investment industry took a jump last year.  The annual report from the Ombudsman for Banking Services and Investments shows banking related complaints hit a five year high in 2017.

OBSI saw a 28% increase in the number of dissatisfied banking customers it heard from.  Overall, for both banking and investment, the body opened a total of 721 cases, a 13% increase over 2016.  Of those cases, 370 were banking related and involved credit cards, mortgages and personal accounts.

Of interest to brokers, there were 67 mortgage complaints, accounting for 18% of the total of all banking related cases – a reduction from 24% in 2016 and 27% in 2015.  Key problems included pre-payment penalties and incorrect or incomplete information.

The industry funded ombudsman closed 349 of the 370 banking related cases it opened.  Customers received monetary compensation in 79 – or less than a quarter – of those cases (23%).  Nine of the complaints were settled with non-monetary compensation.

Overall, the total pay-out to banking customers was $165,000 while investment complainants received a total of $2,427,000.  Two of the country’s biggest banks are not included in the OBSI annual report.  They have opted-out of the group and use a private, third-party, dispute resolution firm. By First National Financial.

Canadian Data Release: Existing home sales fall to a five-year low as anxious buyers remain on sidelines

·       Canadian existing home sales fell for the second consecutive month, down 6.5% m/m in February – or about half of the January slump. Sales are now 16.9% below last year’s level and near levels last seen in early-2013.

·       The decline was widespread with four out of five national markets below last year’s levels. On a month-over-month basis, declines were seen in three-quarters of markets with just two provinces, P.E.I. (+2.98%) and N.B. (+0.79%) seeing gains. B.C. led the declines, down 12.7%, with the GVA down 15.8% and Fraser Valley down 16.3%. Calgary (-8.6%), the GTA (-8.2%) and several GGH markets including Hamilton (-12.1%) and Oakville (-8.8%)  were also down sharply on the month.

·       On the other hand, new listings rose robustly, up 8.1% on the month. All provinces by Sask (-4.0%) and Alta. (-2.0%) saw gains, with the Atlantic Region (+17%), Ontario (12.4%) and B.C. (11.0%) experiencing gains of double-digits.

·       With sales and listings moving in opposite directions, the ratio of sales to new listings plummeted to 55% from 63.7% in the previous month. The current ratio suggests that the national market is by-and-large balanced with all but three provinces in the 40% to 60% range typically considered balanced-territory. Both P.E.I. (65.8%) and B.C. (61.9%) pulled back, down 27.6pp and 16.9pp, respectively, but they remain the tightest markets in Canada. On the other hand, Newfoundland & Labrador (32.4%) and Sask. (42.4%) round out the bottom of the table.

·       The average home price fell for the second month straight, down 2.8% in February, to an 18-month low. Six provinces exhibited gains, but this was offset by the declines in P.E.I. (-6.8%), B.C. (-1.9%), N.B. (-1.4%) and Ontario (-0.7%). Moreover, the decline in activity amongst the priciest markets acted to drag down the price given the compositional change.

·       On a year-over-year basis, the quality adjusted MLS home price index decelerated from 7.7% to 6.9% as acceleration in GVA (up 0.3pp to 16.9%), Fraser Valley (up 1.7pp to 24.1%), Vancouver Island (up 1.1pp to +20.7%) and Montreal (up 1.0pp to 6.2%) was offset by cool-off in GTA (down 2.0pp to 3.2%), Oakville (down 0.7pp to -1.9%), and Guelph (down 1.6pp to 9.3%).

Key Implications

·        While the give-back related to the pull-forward in activity experienced late last year, as buyers rushed to close deals prior to the updated B20 rules, appears to have been largely complete in January, the softness in sales nonetheless persisted this month. We believe that much of it has to do with lingering uncertainty, with additional regulations introduced in the B.C. budget adding further tensions, along with B20 impacts and rising rates.

·       Despite a less-than-stellar headline, there were some modestly encouraging details in the report. While sales did drop, the pace of decline eased considerably relative to January. New listings also perked up a little during the month, suggesting rising confidence on the part of sellers after recent B20-related volatility.

·       All in, we expect policy-related turbulence and higher rates to negatively impact sales in the near-term, before some stabilization in activity begins to take hold mid-year. We look for prices to drop, on average, this year, though balanced-market conditions across much of the country should mitigate the magnitude of the decline. We expect conditions to improve next year, with price growth returning to the market alongside a rise in transaction activity.

By TD Economics.  Read the full report Here.

 

 

Economic Highlights

 

Last week: Bank of Canada, what will they do next?

The major news last week, which you all know by now, is that the Bank of Canada decided to keep their overnight interest rate unchanged earlier in March. If you are keeping track, that’s an 0-for-2 on interest rate increases this year by the BoC. If you were wondering, that’s a surprisingly worse record than my March Madness bracket, which is currently 10-for-16.  Overall, the BoC decision to keep the interest rate level at 1.25% was interpreted as ‘small dovish’, meaning they are kind-of-sort-of-maybe being cautious with hikes going forward. The statement released had many plagiarized lines from their previous statements, so you would have to split hairs to find any sharp leanings one way or the other on their stance. Luckily, bank economists thrive on hair splitting.

In brief, the statement largely re-iterated their data dependent tone which means any further action taken by the BoC will be driven by hard stats on wages, growth and inflation.  Of the few changes to the statement, housing got a shout out as the BoC stated ‘time’ will be needed to judge the impact of new housing measures.   The Bank of Canada also noted their growing uncertainty on Canadian and global economic outlooks due to trade policies.

Trade policy was the topic du jour last week as the hypothetical trade war targeting Canada/Mexico was called off by the USA. The aluminum and steel tariffs which dominated the news wires a couple weeks ago also came with exemptions for Canada and Mexico, as the countries strived to get NAFTA worked out. The markets reacted favourably as the Loonie gained off the 8-month lows seen earlier last week. However, the CAD is still the worst performing major currency this year.

It’s worth mentioning that last week also had employment numbers for Canada. As the BoC is increasingly seen as being ‘data dependent’, the report was not much of a needle mover. Last Friday’s February job’s data was a rebound from the -88k loss in January, but still came in under expectations of 21,000 new jobs vs 15,400 actual.  The unemployment rate came in at 5.8%, which is a historical low.  All of this begs the question, “When will the next interest rate hike come?” Well, firing up the CANADA-OIS Model, the market is predicting a 30% chance of increase in April and only 47% chance in May. Yawn.

This week: BIS and CMB’s

The major news this week was probably missed by most as its ‘March Break’ for many and information seeking is at an all-time low on the beach. Thankfully, for all the beach goers and office dwellers alike, this week was relatively soft on the economic news front.

A report came out on Monday which swept across many a sleepy trade floor. The BIS or Bank for International Settlements, noted that Canada was among the three countries to be flagged for signs of a potential banking crisis. This was raised before I’m pretty sure, but the report highlighted our high aggregate credit-to-GDP and total debt-service ratios.  It’s also worth noting that the Bank of Canada disagrees with some aspects of the flag-raising, as they have us in the amber and not red category, which is nice.

More importantly for all the commercial mortgage people out there, the new 5 year CMB was priced this Wednesday.  The new 2.35% June 2023 was priced at 32.5 Bps over the GoC 5 year. Pricing was wider by 0.5bps compared to last December’s 5 year auction. However, the new bond was tighter by 12.5bps compared to last year’s March 5 year auction (+45 bps).  Let us know if you can figure out why. The auction size was only $5 billion which is lower than the last four auctions which were all $5.25 Billion. The program is now running $500 Million below pace, which can suggest higher issuance going forward. Overall, demand for the 5 year CMB was strong, which is a good thing if you’re in the business issuing mortgages.

Finally, Saturday brings us one of the most celebrated holidays of the year: St. Patrick’s Day.  The day where everyone wears green and can trace back their lineage to Ireland. I suggest you read up on the holiday, there is a storied history and many interesting facts I didn’t know that I was planning on mentioning. However, as I was writing this up I read something that awoke a moment of self-realization and enlightenment, something I assumed you achieved only after years of study in the Himalayas. A Romanian court just rejected a man’s claim that he is alive and that, legally, he is dead. Are we all in a simulation? Is this real life? I’ll need another pint of Guinness.  By First National Financial Analyst, Andrew Masliwec, Capital 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 5.14%.  No change in fixed rates.  Deeper discounts are becoming available for variable rates making adjustable variable rate mortgages more attractive again.

 

Other Industry News & Insights

Canadian Consumer Debt Reaches New High

Canadian households’ credit market debt reached a record high in the second quarter of 2017. This is debt from mortgages, lines of credit, home equity lines of credit, car loans, credit cards, and other consumer credit.

In CMHC’s national Mortgage and Consumer Credit Trends report for the second quarter of 2017, we continue to follow key credit market indicators. Highlights from the report show that, for the second quarter of 2017:

•consumers’ average monthly obligations increased for all major credit products relative to the second quarter of 2016. In particular, average non-mortgage obligations reached their highest level compared to the same quarter in all previous years since 2013.

•the average credit card balance per consumer increased to $2,910. This was a 1.1% increase from a year earlier. Also, this indicator has been trending up since the second quarter of 2014.

There were more encouraging findings, as well:

•The share of mortgage loans of which payment was in arrears for 90 or more days was at its lowest in 5 years.

•The average mortgage arrears rate decreased in all age groups in the second quarter of 2017 compared to the same period in 2015 and 2016.

•The share of outstanding mortgage loans held by consumers with a very good or excellent credit score reached its highest point since this data became available in 2012.

Overall, the data shows that consumers have a lot of confidence in using credit to make large purchases. However, this dependence on credit, coupled with a declining household savings rate, is worrying. These factors, together, mean that households have a lower capacity to manage their debts.

By CMHC.  Read the full Consumer Trend Report here.

 

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

7 Mar

Residential Mortgage Update – March 7, 2018

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

Industry & Market Highlights 

Reasons to Keep and Eye on Toronto & Vancouver

Market watchers often find themselves being subjected to mortgage and real estate news that focuses on the exceptional circumstances in Toronto and Vancouver.

However, the attention that is focused on these frenzied markets would seem to be of little concern to the agents, brokers and buyers who are not directly involved in them. Even the Canadian Real Estate Association makes a point of saying – in all of its releases – that “all markets are local” and the best advice is to work with a local expert (i.e. one of its members).  As true as that may be, there are good reasons to keep an eye on Toronto and Vancouver.

Toronto is Canada’s financial capital and the country’s top technology hub.  The Greater Golden Horseshoe area, around the west end of Lake Ontario, accounts for a fifth of the national economy.  Vancouver is a top destination for property investors from around the world and a key landing point for Chinese capital.

Prices in Toronto have risen by 43% in the past three years.  Vancouver has seen a whopping 63% increase.  If the people who work in these centers, keeping key economic sectors running, cannot find or afford places to live it presents a broader, national economic problem.  The head of Canada Mortgage and Housing Corporation, Evan Siddal, has said that his main, long-term, concern about the housing market is the supply of housing in Toronto and Vancouver.

As we know, governments at all three levels have been fighting to rein-in these galloping markets, in some cases with national consequences.  By First National Financial.

Bank of Canada Concerned About Trade Risks

The Bank of Canada held rates steady today, as expected, highlighting “trade policy developments” as an “important and growing source of uncertainty for the global and Canadian outlooks.”

As the seventh round of NAFTA negotiations commenced in Mexico City, President Trump dropped a bombshell late last week, threatening to impose a 25% tariff on imported steel and a 10% tariff on imported aluminum for national security reasons. The news reverberated around the world, causing U.S. trading partners in Europe to announce potential retaliatory actions quickly. The European Union raised the stakes for Trump by aiming levies on the GOP heartland, saying it would slap tariffs on products like Harley-Davidsons, Kentucky bourbon and Levi, bluejeans if President Trump goes ahead with his plan. Paul Ryan, Speaker of the House, is the Republican Representative from Wisconsin, headquarters of Harley-Davidsons. He immediately urged the President to stand down or ‘to be more surgical’ on tariffs. Hardliners such as Secretary of Commerce Wilbur Ross argued that any retribution would be trivial.

Well-known Republican economic advisors to the president warned that the tariff plan would do more harm than good, having adverse effects on consumers and many companies that use imported metals in the production of their products. The number of jobs lost in the auto sector and construction, for example, could be far more significant than the positive impact on the comparatively few jobs in the steel industry mainly in Pennsylvania. Prices of many products would rise including infrastructure costs, energy and food products.

Canada is ground zero in this maelstrom as the number-one exporter of steel and aluminum to the U.S., supplying $7.2 billion of aluminum and $4.3 billion of steel to the United States last year. Trump has often accused China of forcing U.S. steel and aluminum companies to fold by inundating the market with cheaper materials, but Trump thus far has refused to exclude Canada from the tariff proposal, holding Canada hostage to a favourable NAFTA deal.

Canada and the rest of the world are hoping that reasonable voices are going to prevail, but the resignation of Gary Cohen, White House Economic Adviser and formerly President of Goldman Sachs, is a victory for the protectionists (and immigration hawks). A registered Democrat, Cohn was regarded as one the few political moderates close to the president. His absence will amplify voices like Commerce Secretary Wilbur Ross and trade adviser Peter Navarro who back the president’s impulses to buck convention and pick trade fights on a global stage.

Housing Another Factor Postponing Rate Hikes

Even before the escalating trade tensions, the Bank of Canada was concerned about the impact of rising mortgage rates and new mortgage guidelines on housing, a significant contributor to the 3% growth in the economy last year. “Strong housing data in late 2017, and softer data at the beginning of this year, indicate some pulling forward of demand,” according to the Bank of Canada press release. The central bank is monitoring the economy’s sensitivity to higher interest rates, pointing out that “household credit growth has decelerated for three consecutive months.”

Inflation has edged upward to close to the 2% target. Wage growth has firmed, but even with the hike in minimum wages, the rise in compensation remains smaller than usual at full-employment.

The Bank of Canada commented once again that the economic outlook is expected to warrant higher interest rates over time, but some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential with inflation on target. The next scheduled Bank of Canada policy announcement is April 18 when the full economic outlook will be updated in the quarterly Monetary Policy Report.

To be sure, if the Trump administration goes ahead with the tariffs, the Bank will keep rates steady in April as well. Investors have pared bets on rate hikes after weaker-than-expected fourth-quarter growth, turmoil in global equity markets and the sharp decline in the Canadian dollar. Traders are not pricing in another rate hike until July according to Bloomberg News calculation on overnight index swaps. A month ago, expectations pointed to at least one increase by May. By the Bank of Canada’s measure, interest rates are still about two percentage points below what it would consider “neutral” for the economy.  Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres.

 

Economic Highlights

 

United States

·        Markets sold off sharply this week, following a somewhat hawkish assessment of the U.S. economy from the Fed’s new chair Jerome Powell and the announcement of steep tariffs on steel and alumimium imports by Donald Trump.

·        Despite the market reaction to Powell’s comments, there was not much in the data this week to indicate that the economy is overheating. Both headline and core PCE inflation remained unchanged in January, coming in at 1.7% y/y and 1.5% y/y, respectively. Real consumer spending fell by 0.1% on the month. Vehicle sales also weakened in February.

·        Both consumption and GDP will start the year on a softer footing but weakness is expected to be short-lived. Tax cuts and tightening labor market will support consumer spending and above-trend growth over the remainder of 2018.

Canada

·        The marquee event this week was the 2018-19 federal budget, which despite an array of new spending measures, contained little in the way of policies intended to address Canada’s newly disadvantaged tax position versus the U.S.

·        Real GDP hit 1.7% (annualized) in the fourth quarter, below the Bank of Canada’s forecast. The monthly figure edged modestly higher in December, up 0.1%, signaling diminished momentum to end the year and a soft hand-off into 2018.

·        A softer-than-expected GDP print coupled with a maintenance-type budget provides the Bank room to be patient on the rate hike front, but data-dependency remains in place.

By TD Economics.  Read the full report Here.

 

Mortgage Interest Rates

No change to Prime lending rate currently at 3.45%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.14%.  5 year fixed rates increased slightly.  Deeper discounts are becoming available for variable rates making adjustable variable rate mortgages more attractive again.

Mortgage Update - Mortgage Broker London

Mortgage Update – Mortgage Broker London

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

Open Access

RBC chief warns foreigners using Canadian real estate as piggy banks (BNN)

7 stats that explain why the GTA housing market was heating up in February (Buzz Buzz News)

Ontario’s growth plan could be hurting the GTA housing market — here’s how one expert wants to fix it (Buzz Buzz News)

BlackRock Says Market Being Too Aggressive in Pricing Canadian Hikes (Bloomberg)

Consumer Confidence Takes a Hit With Canada’s Economy Gearing Down (Bloomberg)

‘Don’t do it’: Four things to know before buying real estate with bitcoin (BNN)

Ottawa could be heading into a seller’s market (CBC)

Toronto Home Sales Remain Depressed as Prices Begin Stabilizing (Bloomberg)

Toronto home sales plunge 35% in February as new rules rattle buyers (BNN)

Toronto-area home prices saw year-over-year drop in February, as number of sales plunged (Toronto Star)

This province’s housing market is starting to take off (Hint: it’s not Ontario) (BuzzBuzz News)

Will the federal budget help with the GTA’s serious rental shortage? This expert doesn’t think so (BuzzBuzzNews)

Tumbling Toronto home sales signal a return to normal market, say analysts (Toronto Star)

Governments bent on cooling home prices could get more than they bargain for (Vancouver Sun)

One-on-one with Bill Morneau after the budget: Part 1 (BNN)

Commercial property deals in Canada set record at $43 billion (Toronto Star)

Laurentian Bank mortgage probe continues, price tag expands (CBC)

Massive Toronto Project to Lure Amazon Envisions 50,000 Workers (Bloomberg)

3 charts that show that the Canadian housing market isn’t as cool as it might seem (BuzzBuzzNews)

Should Canadians be concerned about mortgage fraud? This credit rating agency thinks so (BuzzBuzzNews)

Subscription May Be Required

‘Risky business’: The Bank of Canada will be patient today, but the loonie may not be (Globe and Mail)

Foreign buyers using Canadian homes as piggy banks, RBC CEO warns (Financial Post)

Greater Montreal home sales grow 5% from February 2017, as active listings drop (Financial Post)

Toronto-area home prices, sales volume in February down from 2017 record highs (Financial Post)

Forward looking markets aren’t buying bullish takes on the Canadian economy (Financial Post)

Toronto home prices climb on heels of tougher mortgage rules (Globe and Mail)

‘Market is being too aggressive’: Bank of Canada will hike rates only once in 2018, BlackRock says (Financial Post)

RioCan transforming some retail shopping centres into mixed-use communities with rental, condo units (Financial Post)

Toronto home sales plummet 35% from a year ago as new mortgage rules bite (Financial Post)

Greater Montreal home sales rise 5 per cent from a year ago (Globe and Mail)

Toronto housing market takes a February nosedive (The Globe and Mail)

CIBC’s new rules for foreign clients could squeeze Vancouver market (The Globe and Mail)

It’s time to kill the federal Home Buyers’ Plan (The Globe and Mail)

Budget proposes allowing credit unions to use ‘generic bank terms’ (The Globe and Mail)

Laurentian Bank says progress being made on problematic mortgages (Financial Post)

Bank of Canada likely to take cautious path with two more rate hikes this year (Financial Post)

Federal budget 2018: Seven changes that could affect your finances (The Globe and Mail)

Federal budget 2018: New measures enhance financial security – for some (The Globe and Mail)

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.

2 Mar

PRE-APPROVAL & QUALIFYING FOR MORE

General

Posted by: Adriaan Driessen

If you are looking to purchase a property and are having frustrations in qualifying, there is a good chance part of the reason lies behind the Trudeau lead Liberal Government’s implemented new mortgage lending rule changes.

The Office of the Superintendent of Financial Institutions (OSFI) has implemented 3 new mortgage rule changes starting January 1, 2018 under the B20 lending guidelines:

Non insured mortgage consumers (buyers with a 20% or greater down payment) must now qualify using a new minimum qualifying rate. The minimum rate will be the greater of the five-year benchmark rate published by the Bank of Canada or the lender contractual mortgage rate +2.0%.

For a high ratio insured mortgage, buyers with a less than 20% down payment) must now qualify using the Bank of Canada Benchmark qualifying rate, currently at 5.14%.

The First set of rule changes affected first time home buyers the most, since most first time home buyers will have less then 20% downpayment available.

The latest set of rule changes impact repeat homebuyers and higher income customers purchasing average and higher priced executive properties most – since those are also the clients that you can expect to have a 20% or more downpayment already.

When it comes to qualifying for a mortgage: A borrowers income, credit score, downpayment amount, and debts/liabilities are they main factors parts used to determine what your maximum price point is, and how much you qualifying for a mortgage.

Any of the following and combination of the following can increase the maximum mortgage loan amount and purchase price:

  • Increasing your income.
  • Having a clean, strong and thick credit history with a minimum beacon score of 680.
  • Having no outstanding debts/liabilities in the form of loans, credit cards, unsecured lines of credit, secured home equity lines of credit and leases.
  • Increasing your downpayment amount with owned or immediate family gifted funds, not borrowed funds.
  • Purhcase a multi unit owner occupied rental property.
  • Obtain a strong family member co-signer.
  • Consider a pooled mortgage.

If you have been pre-approved somewhere, and already maxed out your pre-qualification purchase limit with your income, debts and downpayment options as noted before, and your are still short of where you need to be to get into your dream home – contact an experienced mortgage broker.

An experienced Mortgage Broker is still able to get you approved using the old non OSFI-B20 guidelines of the mortgage contract rate to get you qualified for more using select Credit Union lenders.

Here are some other questions you need to ask yourself and auto upon:

Have you been pre-approved and are not totally satisfied with the service and results received?

Have you been pre-approved and are not 100% certain you are getting the best deals and lowest rates?

Take a quick minute to connect with your iMortgageBroker at Dominion Lending Centres.  A second opinion could benefit you immensely!

Our goal is to assist you with approval at a higher price point if needed, and we also strive to provide you with service excellence, better deals and lower rates to ensure your best interest is protected.

28 Feb

Residential Market Update – February 28, 2018

General

Posted by: Adriaan Driessen

WEEKLY RESIDENTIAL  MARKET UPDATE 

Industry & Market Highlights 

The Activist Budget—There Is No Problem This Government Cannot Fix

Patting himself on the back, the Finance Minister opened his speech by reminding us that “a little over two years ago…Canadians had the opportunity to stay the course. They could stick with a Government that favoured cuts and a set of failed policies that produced stubborn unemployment and the worst decade of economic growth since the depths of the Great Depression.” This, of course, was Stephen Harper’s Conservative Government. Never mind that the global financial crisis caused the recession, not the “failed policies” of the previous government. Throughout the budget documents, the message is that austerity was “needless” or “excessive.” Instead, Canadians chose, “a more confident and more ambitious approach…that gave Canadians the tools they needed to succeed. Starting with raising taxes on the wealthiest, so we could lower them for the middle class.”

The Liberals have forgotten their promise to run deficits no larger than $10 billion and to balance the budget by 2019. Instead, they now see sound fiscal management as a declining debt-to-GDP ratio—never mind that double-digit deficits remain as far as the eye can see—to a stunning $12.3 billion deficit at the end of the forecast horizon in fiscal year (FY) 2022-23.

The deficit figures have indeed improved—down more than $2.0 billion in FYs 2017 and 2018–thanks to the stronger-than-expected economy and rapidly reduced unemployment last year. But, initiatives in today’s federal budget add $6.3 billion to the current year’s (ending March 31, 2018) budget deficit, $5.4 billion to next year’s federal red ink and an additional $2.0-to-$3.0 billion annually over the forecast horizon ending in FY 2022-23 (see Table below).

Fortunately, Canada has by far the lowest debt-to-GDP ratios in the G7, reflective of the austerity programs of the past, beginning in the mid-1990s and continuing until the financial crisis in 2008-09 when counter-cyclical global fiscal policy was essential to assure financial stability and rebounding economic activity by late-2009. While the U.S. and much of the rest of the developed world suffered the longest and deepest recession since the Great Depression, Canada’s was the shortest and mildest recession in the postwar period—contrary to the impression left by the Finance Minister in his opening remarks.

Thanks to this backdrop, the debt-to-GDP ratio in Canada will continue to decline despite continued fiscal stimulus. The ratio is forecast to gradually edge downward from 30.4% this year to 28.4% in 2022-23, assuming the economy continues to grow. Clearly, all bets are off if we hit a pothole, such as the end of NAFTA or a recurrence of plunging oil prices.

Budget 2018 proposes to:

• Put more money in the pockets of those who need it the most, by improving access to the Canada Child Benefit and introducing the Canada Workers Benefit, a stronger and more accessible benefit that will replace the Working Income Tax Benefit.

• Make significant progress towards equality of opportunity, by taking leadership to address the gender wage gap, supporting equal parenting, tackling gender-based violence and sexual harassment, and introducing a new entrepreneurship strategy for women.

• Support the next generation of researchers, by providing historic funding to increase opportunities for young researchers and provide them the equipment they need, while strengthening support for entrepreneurs to innovate, scale up and reach global markets.

• Advance reconciliation with Indigenous Peoples, by helping to close the gap between the quality of life of Indigenous and non-Indigenous people, providing greater support to keep First Nations children safe and supported within their communities, accelerating progress on clean drinking water, housing, and employment, and supporting recognition of rights and self determination.

• Protect the environment for future generations, by making historic investments to preserve our natural heritage, ensuring a price is put on carbon pollution across Canada, and extending support for clean energy projects.

• Uphold Canada’s shared values and support the health and wellness of Canadians, by partnering with provinces and territories to address the opioid crisis, taking action to advance national pharmacare, and bolstering support for Canada’s official languages.

This list summarizes 367 pages of more than 100 relatively small government initiatives impacting everything from Workers Benefits payments to low-income families, improving access to the Canada Child Benefit to supporting opportunities for women, pay equity for federal workers, strengthening trade, improving worker skills, and cracking down on tax evasion—all of this among the roughly 25 government actions described in Chapter 1 under the heading of Growth. The details of changes in the rules regarding the holding of passive investments inside private corporations as well as closing tax loopholes fall under this Growth rubric.

Chapter 2, called Progress, includes more than 35 initiatives under the headings of Investing in Canadian scientists and researchers, Stronger and more collaborative Federal science, and Innovation and Skills Plan—a more client-focussed Federal partner for business.

Chapter 3, Reconciliation, largely deals with Indigenous Peoples, including roughly 20 actions.

And finally, Chapter 4, called Advancement, covers the environment under Canada’s Natural Legacy, Canada and the World, Upholding Shared Values, and Security and Access to Justice. I lost count here at over 40 initiatives.

And, that’s not all! A bonus section called Equality, goes into detail regarding Canada’s commitment to gender budgeting, which includes $6.7 million over five years for “Statistics Canada to create a new Centre for Gender, Diversity and Inclusion Statistics, a Centre that will act as a Gender Budget Accounting data hub to support future, evidenced-based policy development and decision-making”.

I kid you not. At my rough count, I have been to 34 budget lock-ups, but I can’t remember ever seeing anything like this for sheer magnitude of the number of relatively tiny initiatives, nor can I ever remember leaving a lock-up with such a screaming headache.

Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres

Federal Budget Housing Market Overview

Mortgage Professionals Canada was invited by the Minister of Finance’s office to the attend today’s budget lock-up in Ottawa. As a result of our advocacy efforts, we are pleased that the government has not introduced any new changes to mortgage rules.

However, we are disappointed that the government has not committed to increasing the supply of new homes in Toronto and Vancouver and remain concerned about the economic impact the existing changes are having on the marketplace.

The government did announce support to build more rental units and clarified the rules around taxation for passive investments. More information on the specifics of those measures are outlined below.

Support for Rental Units

The government proposes to increase the amount of loans provided by the Rental Construction Financing Initiative from $2.5 billion to $3.75 billion over the next three years. In total, this measure alone is expected to spur the construction of more than 14,000 new rental units across Canada.

Passive Investments in a Corporation

The government proposes two new measures to passive investment savings in a corporation, which replace the previous announcement made in the summer.

First, Budget 2018 proposes to introduce an additional eligibility mechanism for the small business tax deduction, based on a corporation’s passive investment income.

Under the proposal, if a corporation and its associated corporations earn more than $50,000 of passive investment income in a given year, the amount of income eligible for the small business tax rate would be gradually reduced.

The small business deduction limit would be reduced by $5 for every $1 of investment income above the $50,000 threshold (equivalent to $1 million in passive investment assets at a 5-per-cent return), such that the business limit would be reduced to zero at $150,000 of investment income (equivalent to $3 million in passive investment assets at a 5-per-cent return).

Existing savings will not be subject to any additional tax upon withdrawal and capital gains, realized from the sale of active investments or investment income incidental to the business, will not be considered passive investments under this proposal.

Second, Budget 2018 proposes that corporations no longer be eligible to obtain refunds of taxes paid on investment income while distributing dividends from income taxed at the general corporate rate. Refunds will continue to be available when investment income is paid out.

The two measures will apply to taxation years after 2018.

We will continue to advocate for common-sense changes to the existing mortgage rules to improve choice and competition for Canadian consumers.  By Mortgage Professionals Canada.

New CMHC study sheds light on rising house prices

In June 2016, CMHC launched a study to better understand the causes of rapidly rising home prices in major metropolitan centers across Canada. The report represents one of the most thorough examinations of house price patterns ever completed in Canada and is the result of advanced, data-driven analyses and engagement with stakeholders and government partners.

Why undertake this kind of study in the first place?

Housing affordability challenges exist in many centres throughout Canada. Rapidly rising house prices in high priced markets have benefited existing homeowners, but have also created challenges for first-time buyers. However, this is not just an issue for first-time homebuyers. Rapidly rising house prices also tend to drive rents higher and increase the cost of rental assistance and non-market housing solutions.

What were the study’s findings?

In conducting this study, it was important to look at both supply and demand. Very briefly, we found that:

•Strong economic and population growth, together with low mortgage rates, have been important drivers of house price growth in Canada

•The increase in average house prices in Vancouver and Toronto is also attributable to rising income inequality in these centres — price increases have tended to be greater for more expensive single-detached housing, rather than for condominium apartments

•Supply response to rising house prices has been weaker in Toronto and Vancouver, than in other Canadian metropolitan areas

What are the next steps?

The report represents an important step towards stimulating discussion across all levels of government, housing advocates, industry, academia, and the general public — with the full recognition that this is the beginning of a process of improving the functioning of Canadian housing market.

Read the full report by CMHC Here.

Canadians Have $230 Billion In Home Equity Loans – Raising Red Flags In Ottawa

Canadians are borrowing money against their homes in record amounts – a situation that is raising red flags among politicians and policy setters in Ottawa.

Balances on Home Equity Lines of Credit (HELOCs) rose 7.2% in December 2017 from a year earlier, the fastest annual growth rate since 2012, and hitting a record amount of $230 billion, according to data released by the Office of the Superintendent of Financial Institutions (OSFI).

All other types of consumer debt such as personal loans, credit cards, car loans and overdraft limits climbed just 3.2% over the same period, less than half the pace of HELOC growth, the same data showed.

Canadians can tap HELOCs for up to 65% of the value of their homes, and the funds are most commonly used for renovations, investing and consolidating other forms of debt, according to a June 2017 report by the Financial Consumer Agency of Canada.

“Houses are becoming piggy banks,” said Paul Gulberg, a Bloomberg Intelligence analyst following the release of the data from OSFI. “It’s either greed based or need based,” he added.

The growth in the use of HELOCs raises red flags for policy makers in Ottawa. It’s a type of borrowing that may contribute to increased household vulnerabilities because it typically doesn’t require the principal to be repaid on a fixed schedule, the Bank of Canada said in its most recent financial system review. About 40% of HELOC borrowers don’t regularly pay down the principal on the debt. Of total loans secured to individuals for non-business purposes, those secured by residential property represent about 46%, the OSFI data shows.

Compared to other loan types, such as car loans and credit cards, rates on HELOCs are typically cheaper, making them more attractive to consumers. They also tend to be more sensitive to fluctuations in borrowing costs, because they’re usually tied to prime interest rates.

“It’s a rising risk factor because it’s something that re-prices more rapidly than a typical mortgage pool,” said Mr. Gulberg, adding the risk is rising “in conjunction with the fact that it’s fuelling overall consumer credit, which is considered to be an issue.”

Canadians have about three million HELOC accounts and the average outstanding balance on them is $70,000, which makes borrowers vulnerable to rising interest rates and a housing market correction.

By Joel Baglole.

 

Economic Highlights

 

U.S. Highlights

A holiday-shortened trading week light in economic data left markets to focus on communications from the Federal Reserve.

U.S. existing home sales slumped in January, beleaguered by low inventories and deteriorating affordability.

The FOMC minutes revealed a Fed busy revising up economic projections, suggesting that further gradual policy firming is warranted.

 

Canadian Highlights

The December 2017 data continued to disappoint, with declines in retail and wholesale trade joining earlier softness in trade and manufacturing.

Real GDP in 2017 as a whole likely saw a robust 2.9% expansion, with a respectable 2.0% pace of growth expected for Q4. The December softness and weaker housing market activity in January suggest a further deceleration is likely, leaving 2018 to start-off on a softer note.

Noise can mask the trend, which can hardly be defined by a few months’ data. Prudence in the face of domestic and external risks suggests that the Bank of Canada is likely to stand pat until mid-year, when it is better able to assess the underlying Canadian growth trend.

By TD Economics.  Read the full report Here.

 

Mortgage Interest Rates

No change to Prime lending rate currently at 3.45%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.14%.  Slight increase in fixed rates.  Deeper discounts are becoming available for variable rates making adjustable variable rate mortgages more attractive again.

Mortgage Update - Mortgage Broker London

Mortgage Update – Mortgage Broker London

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

Open Access

Tighter tax rules for small businesses and passive income in Liberal budget (BNN)

Federal budget’s simpler plan to tax passive income likely to calm small business outcry (National Post)

National Bank first-quarter profit rises 11%, beating estimates (BNN)

How is the Fair Housing Plan affecting the Ontario housing market in 2018? Experts weigh in (BuzzBuzzNews)

These BC real estate boards think new property taxes will have little impact on housing markets (BuzzBuzzNews)

More evidence of fraud in Canadian mortgages, warns ratings agency S&P (CBC)

Scotiabank Looks Abroad for Earnings as Profit Beats Estimates (Bloomberg)

How much is a lack of supply driving up GTA home prices? More than you think, according to this expert (BuzzBuzzNews) 

Toronto new-home sales down 48% from January 2017 (Toronto Star)

Royal Bank’s Mortgage Juggernaut Shows Little Sign of Slowing (Bloomberg)

Expansion of foreign buyers tax to Okanagan, Vancouver Island questioned (Vancouver Sun)

B.C. housing taxes could put recent buyers underwater on mortgages (Vancouver Sun)

The Canadian housing market hasn’t been this affordable in 3 years (BuzzBuzzNews)

RBC tops first-quarter profit expectations, raises dividend (BNN)

Subscription May Be Required  

Small businesses with large passive investment income to be taxed more (Globe and Mail)

Laurentian Bank continues to review problem mortgages (Globe and Mail)

Ontario regulator probes cryptocurrency use in real estate (Globe and Mail)

Evidence of mortgage fraud in Canada raises red flag at credit rating giant (Financial Post)

RBC boosts dividend as earnings beat market expectations (Globe and Mail)

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.

16 Feb

Residential Market Update – February 16, 2018

General

Posted by: Adriaan Driessen

Industry & Market Highlights

New CMHC study sheds light on rising house prices

In June 2016, CMHC launched a study to better understand the causes of rapidly rising home prices in major metropolitan centers across Canada. The report represents one of the most thorough examinations of house price patterns ever completed in Canada and is the result of advanced, data-driven analyses and engagement with stakeholders and government partners.

Why undertake this kind of study in the first place?

Housing affordability challenges exist in many centres throughout Canada. Rapidly rising house prices in high priced markets have benefited existing homeowners, but have also created challenges for first-time buyers. However, this is not just an issue for first-time homebuyers. Rapidly rising house prices also tend to drive rents higher and increase the cost of rental assistance and non-market housing solutions.

What were the study’s findings?

In conducting this study, it was important to look at both supply and demand. Very briefly, we found that:

  • Strong economic and population growth, together with low mortgage rates, have been important drivers of house price growth in Canada
  • The increase in average house prices in Vancouver and Toronto is also attributable to rising income inequality in these centres — price increases have tended to be greater for more expensive single-detached housing, rather than for condominium apartments
  • Supply response to rising house prices has been weaker in Toronto and Vancouver, than in other Canadian metropolitan areas

What are the next steps?

The report represents an important step towards stimulating discussion across all levels of government, housing advocates, industry, academia, and the general public — with the full recognition that this is the beginning of a process of improving the functioning of Canadian housing market.

In Summary: Markets are, generally, behaving in accordance with fundamental economic rules like supply and demand (point 1).  However supply in the two hottest markets is not keeping up (point 3).  Point 2 speaks to the tendency of major urban centres to attract high wage jobs.

Toronto appears to be a contradiction though.  Prices there rose by 40% between 2010 and 2016.  CMHC says only about 40% of that increase can be attributed to economic fundamentals.  On the other hand Vancouver saw a 48% increase in prices, but three-quarters of that can be explained by fundamental factors such as increased population, higher wages and low mortgage rates. By First National Financial.

Read the Full Report Here.

Toronto homeowners facing nearly 3% property tax hike

Toronto homeowners are in for a nearly three per cent property tax hike, as city council approved the 2018 budget on Monday.

Councillors voted 31 to 11 in favour of the budget, which included the 2.1 per cent property tax hike.

However, residents will have to pay an extra 0.5 per cent for the city’s build fund, which supports transit and housing projects, as well as an increase of 0.31 per cent as part of the city’s business climate and reassessment impact strategy. This brings the total residential property tax hike to 2.9 per cent.

For example, a homeowner whose home is assessed by the city at $624,418 will have to pay an extra $82 in municipal property taxes for a total of $2,907 for 2018.

Since taking office Mayor John Tory has been steadfast in his refusal to raise property taxes above the rate of inflation every year, which is what city council has done again this year.

However, some councillors are critical of the mayor and his unwillingness to hike taxes a little more.

“This is an election budget, it’s a band-aid budget, but more important, it’s an unsustainable budget,” Coun. Sarah Doucette said.

Coun. Mike Layton also believes the rate needs to be higher, in order to pay for what the city needs.

“We’ve decided to build this straw house, to build the unsustainable house, to go halfway on some of these measures to investigating in a really strong city,” Layton said.

There were some motions brought forth for the property tax hike to be greater, but they were voted down.

Aside from property taxes, the city will also be making a record high investment in transit this year, with $1.98 billion in the budget allocated for the TTC — that makes TTC funding about one-fifth of the city’s operating budget this year.

Budget details

Toronto city council approved a 2018 tax supported operating budget of $11.12 billion and a 10-year capital budget and plan of $25.98 billion. Some of the details, provided by the city, are below. Click here for more information on the budget.

The 2018 operating budget includes funding for new and enhanced services including:

  • Additional 1,515 childcare subsidies, and support for the new Child and Family Centres Program
  • 700 winter respite shelter beds
  • Operation of three new permanent shelter sites
  • Implementing TTC’s recommended two-hour time-based transfer policy on Presto
  • $3 million to relieve overcrowding on TTC bus routes
  • $1.3 million to implement congestion-fighting measures such as Traffic Enforcement Officers

Some of the new investments in the 10-year capital plan include:

  • $279 million in interim capital funding to address the TCHC state-of-good-repair backlog and current revitalization projects to avoid permanent closure of its units
  • $485.8 million for the George Street Revitalization project
  • $178.6 million to acquire and construct nine shelter sites and renovate two leased sites over a three-year period that will add 1,000 new permanent shelter beds
  • $6.4 million for a feasibility study of the Rail Deck Park, $3 million for the design and development phase of determining future uses of Old City Hall and $3.5 million to complete design work for the new Etobicoke Community Centre
  • $46.7 million for critical state-of-good-repair projects such as the St. Lawrence Centre Roof project, Toronto Strong Neighbourhoods Strategy project and the Multi-Branch Renovation project of the Toronto Public Library
  • $2 million to address critical waterfront rehabilitation due to high lake-effect flooding

City council also approved a 2018-2027 tax supported capital budget and plan of $26 billion, 72 per cent of which will be allocated to transit and transportation projects such buying buses and streetcars, expanding the subway, and fixing the Gardiner Expressway.  By Toronto CityNews.

Real Estate Investment Trends to Watch Out for 2018

The latest wide-ranging market outlook released by Morguard Corporation painted a confident picture of the Canadian real estate investment segment’s robust activity this year, a trend fuelled by a healthy demand for quality assets.

“Investors remain enthusiastic about the Canadian commercial real estate market after a record volume of transactions in 2017,” Morguard director of research Keith Reading said during the release of the 2018 Canadian Economic Outlook and Market Fundamentals Research Report.

“There is a high supply of capital ready to be invested and Canadian commercial real estate is a proven performer. We are predicting another very busy and competitive market environment across the country in the coming year.”

The downtown areas of Vancouver and Toronto are projected to remain the most desired investment destinations in 2018. Suburban Toronto, Ottawa, and Montreal are also predicted to enjoy strong activity levels. And even Alberta, which had previously pulled down nationwide averages, is showing signs of renewed life.

“Intense bidding for a limited pool of downtown properties will force investors to look elsewhere for opportunity,” Reading stated. “Class A properties in suburban markets, particularly those near transit nodes, will be in high demand. Edmonton and Calgary will also see increased activity as investors look for high-quality assets in a recovering market and economy.”

“Long term, market-dominant retail centres should be able to alleviate immediate pressure on vacancy by providing prime space to new, high-growth traditional retailers and service retailers,” Reading added. “The fact remains that Canada is a country of shoppers, and recent positive economic and employment trends should drive healthy spending growth for the foreseeable future.”  By Ephraim Vecina. The full report can be accessed here.

CHMC Says Policy Should Tackle Supply, Not Demand

The Canada Mortgage and Housing Corporation has published a new report on housing affordability in Canada’s biggest cities but admits it doesn’t have all the answers.

The agency found that escalating house prices are mainly driven by strong economic and population growth, and low mortgage rates; with Toronto and Vancouver lagging on the supply side.

While the two hottest markets showed large and persistent price increases during the analysis period of 2010-2016, Montreal saw only modest growth and the oil-dependent Calgary and Edmonton markets gained slightly.

Vancouver led the gains over the 6 year period with a 48% rise in house prices with population and disposable income rises, and low mortgage rates, accounting for almost 75% of that rise.

House prices increased by 40% in Toronto over the same time period with 40% of the rise being explained by conventional economic factors.

These price increases have tended to be for single-family homes rather than condo apartments. Supply of condos has been proportionately greater than for single-family homes.

“Large Canadian centres like Toronto and Vancouver are increasingly behaving like world-class cities,” said Aled ab Iorwerth, CMHC’s deputy chief economist. “Their strong local economies and historically low interest rates make them attractive to both people and industry which drives up demand for housing. When you have weak supply responses, as you do in these markets, prices have nowhere to go but up.

Although investor demand for condos has increased the rental supply, CMHC says that they tend to be more expensive than purpose-built rentals.

The report also highlights that measures to address the supply challenges are “more likely to have positive impacts than measures focused on the demand side.”

“While it is true that the supply response in Toronto and Vancouver has been significantly weaker than in other Canadian metropolitan areas, we do not fully know why this is the case,” said Evan Siddall, CMHC’s president and CEO. There continues to be data gaps and we need to work more closely with jurisdictions at all levels to fully understand what is happening.” By Steve Randall.

Is This The Crash? Gold, Silver & Bitcoin Update from Mike Maloney

Is this the beginning of a major crash? Join Mike Maloney for his latest update where he analyzes the stock market, gold & silver, and bitcoin.  Watch the video here.

Are you a GoldSilver Insider? Mike released an earlier, Insider-only version of this video that reviews his latest investment moves and changes in his personal holdings. If you’re not an Insider, here are the details of this exclusive program.

The articles Mike references in this video:

 

Jobs Decline In January Following Blockbuster Year

Mortgage Update - Mortgage Broker London

Canada shed 88,000 jobs in January, the most significant drop in nine years, driven by a record 137,000 plunge in part-time work. Full-time employment was up 49,000 while the unemployment rate increased a tick to 5.9%–only slightly above the lowest jobless rate since 1976. January’s sharp decline brings to an end a stunning 17-month streak of gains. While the top-line loss of 88,000 jobs is striking, it still only retraced about 60% of the 146,000 jump in the past two months.

The disappointing employment report will no doubt keep the Bank of Canada on the sidelines for a while, but it follows the most robust job market in 15 years. More than 400,000 net new jobs were created in 2017. Expectations are now that the Bank will hike interest rates cautiously, taking a pass at the March meeting.

Average hourly wages jumped 3.3% year-over-year, the strongest gain since March 2016. This was boosted by the rise in the minimum wage to $14.00 an hour in Ontario at the start of this year. Ontario now has the highest minimum wage in the country.

The largest employment losses were in Ontario and Quebec. There were also decreases in New Brunswick and Manitoba. Declines were spread across some industries including educational services; finance, insurance, real estate rental and leasing; professional, scientific and technical services; construction; and healthcare and social assistance. Employment increased in business, building, and other support services.

Canada’s economy has still seen employment increase by 288,700 jobs over the past 12 months — 146,000 of which came in November and December. Full-time employment is up 558,900 over the past 18 months, which is unprecedented.

 

Mortgage Update - Mortgage Broker London

Mortgage Update - Mortgage Broker London

Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres

Ontario Ministry of Financing Updates to Land Transfer Tax

Land Transfer Tax -New tax statements about the Non-Resident Speculation Tax (NRST), solicitor obligations, and transferee recordkeeping requirements are required for the registration of Instruments requiring land transfer tax statements or land transfer tax affidavit. Ministry of Finance forms and Teraview, Ontario’s electronic land registration system, have been updated.

Also, a new form is available for NRST refund or rebate applications.

The above changes are outlined on the following webpages:

Land Transfer Tax

Non-Resident Speculation Tax

A Guide for Real Estate Practitioners – Land Transfer Tax and the Electronic Registration of Conveyances of Land in Ontario

Refunds and Rebates of Land Transfer Tax

 

Mortgage Update - Mortgage Broker London

Economic Highlights

Canadian Data Release: Existing home sales slump in January as B20 rules bite

  • Canadian existing home sales slumped 14.5% m/m in January, ending a five month streak of increases and erasing all the gains seen during this time.
  • Only five of the twenty-six main markets experienced increases, with the group consisting of: Newfoundland & Labrador, Saguenay, Gatineau, Sudbury and Regina. On the other hand, fifteen markets experienced double digit percent declines. Ottawa (-32.6%), GTA (-26.6%) and Hamilton (-31.7%) led the pull-back with sharp declines also seen across the rest of the Greater Golden Horseshoe (GGH). Most B.C. markets also experienced significant decreases with Victoria (-17.1%), Fraser Valley (-14.8%) and GVA (-10.5%). Alberta and Manitoba markets also dipped lower, with Calgary (-15.3%), Edmonton (-14.9%) and Winnipeg (-10.8%) all down in double digits. Remaining Canadian markets were moderately lower.
  • New listings were not to be outdone, slumping an even greater 21.6% nationally. Ontario and B.C. markets led the pullback with London (-44.8%), GTA (-39.3%), Fraser Valley (-38.8%) and GVA (-33.0%) topping the list. Only four markets experienced an uptick in listings – mostly markets that have also experienced an increase in sales.
  • The outsized decline in listings led to a tightening of market conditions, with the sales to listings ratio up 5.3 points to 63.6% nationally. Most acute tightening was experienced in several GGH markets. The ratio surged in Kitchener-Waterloo (up 32.3 to 102.8%) and London (up 23.2 to 94.6%), with the GTA also up a healthy 9.7pp to 45.7%. Fraser Valley (up 26.3 to 93.6%) and GVA (up 19 to 75.7%) also tightened up sharply.
  • The average home price declined 2.4% m/m, buckling the five month trend. It was a mixed bag across markets, half the provinces experiencing declines led by N.S. (-3.9%) while P.E.I. (+9.8%) and N.B. (+6.1%) lead the gains. Prices ticked down by 1.6% in Ontario and B.C. with values 4.2% lower in the GVA, while GTA prices were slightly softer, down 0.9%.
  • The price decline was entirely due to the change in composition of properties sold, with GTA and GVA sales accounting for just 23.4% of national sales – down from 25.8% in the previous month. After seasonal adjustment, the national HPI rose 0.5%, with gains of 1.1% and 0.4% for GVA and GTA. On a year-over-year basis the national index decelerated from 9.2% to 7.7%. The trend was mirrored by the GTA HPI, which slowed to 5.3% from 7.3%, while the GVA HPI accelerated from 16% to 16.8%.

Key Implications

  • This morning’s report was a highly anticipated oneas it gave us a glimpse of how the implementation of updated B20 rules impacted the Canadian housing market and how the market is faring in light of higher interest rates.
  • On the whole, the numbers confirmed our expectations that B20 rules would pull-forward activity into late-2017, with sales slumping in January on the give-back. The pull-forward was further corroborated by the dynamics of new listings, which also increased ahead of the new rules, before properties being pulled-off. While it is too early to precisely estimate how much of the rise in late-2017 is related to the pull-forward, the report suggests that this dynamic accounted for much of it.
  • The notion that pull-forward was central to the rise in late-2017 is further confirmed by the regional dynamics. The give-back was most apparent in Ontario and (to a lesser extent) B.C. – the two markets most affected by the B20 rules owing to their high prices and relatively large share of federally-regulated lending (particularly in Ontario).
  • We expect some near-term volatility to persist in the market, as the fallout from the new rules and rising rates is absorbed by buyers and sellers, before some stabilization by mid-year. Thereafter we expect activity to remain weighed down byrising interest rates, but with markets largely in balanced territory prices should remain well supported. For our detailed forecast please click here.

By Michael Dolega, TD Economics Senior Economist

United States

  • Major U.S. stock indices entered correction territory on Thursday but remain elevated relative to where they were a year ago. The sell-off was spurred by fears of higher interest rates, as the 10-year government bond yield hit a four-year high.
  • The $300 billion increase in the spending cap over two years, laid out in the federal budget deal, could add to inflationary pressures at a time when the economy is already operating at close to full capacity, pressuring yields up further.
  • Next week, investors will turn their attention to hard data, with advanced January retail sales providing an indication of whether or not first quarter growth will be affected by the residual seasonality.

Canada

  • It was a sea of red in Canadian financial markets this week, with the S&P TSX, oil prices and the Canadian dollar all losing ground.
  • Canada’s trade deficit widened in December, suggesting that net trade will be a drag on growth in the fourth quarter.
  • Employment started the year off on a soft note, shedding 88k jobs in January. Losses were concentrated in part-time positions. The unemployment rate ticked up a point to 5.9%.
  • Housing starts topped 200k units for an 8th straight month in January, despite some unfavourable weather conditions

 

Mortgage Update - Mortgage Broker London

Mortgage Interest Rates

No change to Prime lending rate currently at 3.45%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 5.14%.  No change in fixed rates.  No change in adjustable variable rates.

 

Mortgage Update - Mortgage Broker London

Other Industry News & Insights

Roundup of the latest mortgage and housing news.

From Mortgage Professionals Canada.

Open Access

Subscription May Be Required

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.

24 Jan

Residential Market Update – January 23, 2018

General

Posted by: Adriaan Driessen

Weekly Residential Market Update
Market Commentary
See attached below the latest updated change of space brochure and affordability chart for your clients and customers.
Bank of Canada Raises Rates Cautiously
As was widely expected, the Bank of Canada announced another quarter-point interest rate increase last Wednesday, saying that more hikes are ahead. According to Governor Stephen Poloz, the “big cloud” over the Canadian economy is the uncertainty associated with NAFTA and he cautioned that it would be some time before interest rates return to normal levels as some monetary stimulus remains warranted.
The Bank of Canada increased the target overnight interest rate to 1.25%, its highest level since the global financial crisis marking the third rate hike since July. The move comes in the wake of unexpected labour market tightening and strong business confidence and investment. The Canadian economy is bumping up against capacity constraints as the jobless rate has fallen to its lowest level in more than 40 years.
Inflation is just shy of the 2.0% target level and wage rates are rising, albeit at a relatively moderate pace.
Exports have been weaker than
expected. NAFTA uncertainty is “weighing increasingly” on Canada’s economic outlook as cross-border shifts in auto production are already beginning.
Consumption and housing will slow due to higher interest rates and new mortgage guidelines. According to today’s Monetary Policy Report (MPR), “growth of household credit has slowed somewhat since the first half of 2017, even though some households may have pulled forward borrowing in anticipation of the new B-20 guidelines related to mortgage underwriting from the Office of the Superintendent of Financial Institutions (OSFI). This slowing is consistent with higher borrowing costs due to the two policy rate increases in 2017.” Home sales increased considerably in the fourth quarter in advance of the tightening OSFI mortgage rules implemented beginning this year.
The MPR goes on to comment that “residential investment is now expected to be roughly flat over the two-year projection horizon. The rate of new household formation is anticipated to support a solid level of housing activity, particularly in the Greater Toronto Area, where the supply of new housing units has not kept pace with demand. However, interest rate increases, as well as macroprudential and other housing policy measures, are expected to weigh on growth in residential investment, since some prospective homebuyers may take on smaller mortgages or delay purchases.”
With higher interest rates, debt-service costs will rise, thus dampening consumption growth, particularly of durable goods, which have been a significant driver of spending in recent quarters. “Elevated levels of household debt are likely to amplify the impact of higher interest rates on consumption, since increased debt-service costs are more likely to constrain some borrowers, forcing them to moderate their expenditures.”
While global oil price benchmarks have risen in the past quarter or so, Canadian oil prices have been flat. Transportation constraints facing Canadian oil producers have held down the price of Western Canada Select oil, leaving it just below October levels. Canadian oil producers have trouble getting oil to the U.S. market, and with no East-West pipelines, they cannot export oil to markets outside of the U.S. This has been a long-standing negative for the Canadian economy.
Markets have been expecting three rate hikes this year, taking the overnight rate to 1.75% by yearend. This level is considerably below the Bank of Canada’s estimate of the so-called neutral overnight rate, which is defined as “the rate consistent with output at its potential level (approximately 1.6%) and inflation equal to the 2.0% target.” For Canada, the neutral benchmark policy rate is estimated to be between 2 .5% and 3 .5%. The need for continued monetary accommodation at full capacity suggests policymakers aren’t anticipating a return to neutral anytime soon.
The Bank’s revised forecasts for inflation and real GDP growth are in the following table. The numbers in parentheses are from the projection in the October Monetary Policy Report. Today’s MPR forecasts that inflation will edge upward while economic growth slows from the rapid 2017 pace (3.0%) to levels more consistent with long-term potential (1.7% to 1.8%).
The Bank of Canada’s future actions will continue to be data dependent. The next policy announcement is on March 7.
Dr. Sherry Cooper.  Chief Economist, Dominion Lending Centres
Bank of Canada Governor States Debt Levels Make Canada Sensitive to More Rate Hikes
Bank of Canada Governor Stephen Poloz says record high household debt has made the economy far more sensitive to the effects of interest rate hikes than in the past.
The central bank increased its overnight lending rate to 1.25 per cent on Wednesday – the highest level it’s been since 2009 – following rate hikes in July and September.
“We know in our hearts and in our models that the economy will be more sensitive to higher interest rates today than it was 10 years ago,” said Poloz, in an interview with BNN’s Amanda Lang.
“It’s about 50 per cent more sensitive at these levels of debt, we think, than it was before,” he said.
Historically lower interest rates have fueled an almost-insatiable appetite for debt amongst Canadian consumers. According to Statistics Canada, the credit market debt-to-disposable income ratio reached 171.1 per cent in the third quarter of 2017, meaning for every dollar of household disposable income, there is $1.71 worth of debt.
Poloz says the central bank is very much aware of the impact rate hikes could have on the economy and debt-burdened Canadians.
“It’s a force acting on the economy that would prevent us from getting interest rates all the way back to what people consider to be neutral,” said Poloz.
“So yes, a heavily indebted household is a concern. We can do the arithmetic, we have the micro-data, we know,” he said. “So, we’re watching for those signs and people need to be thinking about how will they deal with a higher interest rate at renewal.”
Poloz says that’s why the bank’s monetary policy must remain accommodative, “in order to keep this thing where it is.”
The central bank governor also said high household debt was a key factor in deciding to toughen the mortgage process so that homebuyers would be in a better position to absorb an increase in interest rates.
Even so, the central bank has faced calls to curb Canadians’ appetite for debt.
“When it comes to consumer debt, you know what? We tell people to pay down their debt, we tell them to stop borrowing; but they keep doing it,” said Gareth Watson, director of Richardson GMP’s investment management group, in an interview with BNN Wednesday morning prior to the central bank’s rate decision.
“And they’re going to keep doing it, ’cause if you keep offering them free money – or I should say cheaper money – they’re going to take it.”
Poloz says he doesn’t think Canadians are under any illusions when it comes to debt, and believes as long as people properly prepare themselves for the eventuality of hig
her borrowing costs, then the impact should be somewhat minimal.
“I don’t think Canadians misunderstand debt. And I rarely meet anybody that’s surprised by hearing me say ‘you know interest rates are really low.’ They know.”
He also said people should think about what a 100 or 150 basis point increase in interest rates could mean for their finances.
“If you think about it and prepare for it, then I think it will be okay.”
By Derrick McElheron, BNN.
Interest Rates Prediction 
The Bank of Canada’s decision to raise its benchmark rate to 1.25% earlier this week will make renewals a significantly more daunting prospect for mortgage holders, observers warned.
This combination of higher payments and the spectre of even more hikes for the rest of 2018 is but the latest in the apparent gradual demise of the low-rate regime that has long characterized the Canadian market: Even before the BoC decision, 5 of the largest Canadian banks have already hiked 5-year fixed rates 15 basis points to 5.14% last week.
“With the recent rise in rates, we’re now at the point where the average consumer is seeing monthly payments rise at their first renewal, something we haven’t seen on a sustained basis since the early 90s,” North Cove Advisors president Ben Rabidoux said, as quoted by Maclean’s.
Even back in July, the BoC already cautioned that even just a 1-point increase would prove to be a major burden to highly indebted borrowers. For instance, a borrower with a $360,000 mortgage and a gross income of $63,000 would need to pay an additional $180 monthly, representing around 3.5% of income.
Mortgage Professionals Canada chief economist Will Dunning noted that fortunately for those who are planning to renew this year, they are not expected to suffer steep increases in mortgage rates.
“Most renewals will be at similar or slightly higher rates than in 2013,” Dunning stated, noting that about 70% of mortgages in Canada are fixed rate, with most of those coming in 5-year terms. This is because the average rates between 2013 and 2018 so far (3.23% and 3.4%-3.6%, respectively) are not that far from each other.
However, a complicating factor that borrowers should take into account is that rates on credit cards, car loans, and home equity lines of credit could also increase in response.
“The bigger impact will be next year, rather than this year,” TD chief economist Beata Caranci said, adding that the difference between 2014-2019 rates will likely be greater than that in the 2013-2018 period, especially if the BoC tightens further.
Those who will enjoy increased incomes and home equity this year would be able to weather the worst of this, Caranci explained. “The more principle you’ve already paid down in the last five years, the more room you have to negotiate,” she said. “So it should be manageable.” By Ephraim Vecina.
LSTAR Statistics for 2017
A historic year for real estate in 2017
Home sales exceed 11,000 for the first time  
London, ON – The London and St. Thomas Association of REALTORS® (LSTAR) announced 2017 marked a historic year for residential real estate, with home sales surpassing 11,000 for the first time since LSTAR began tracking data in 1978. In 2017, a total of 11,203 homes were sold, up 8.0% from 2016.
“Residential sales across the region in 2017 is definitely one for the record books,” said Jim Smith, 2017 LSTAR President. “Looking back, we saw it all last year. London and St. Thomas achieved so many ‘firsts,’ from six consecutive months of record sales to robust out-of-town interest. The real estate activity very much echoed the positive momentum most of the country experienced throughout the year.”
In 2017, the average sales price across London and St. Thomas was $330,037 up 18.0% from 2016. By geographic area, London South was $340,793, up 21.7% from 2016. In London North, average home sales price was $407,801, up 18.1% compared to the previous year, while in London East, it was $258,734, an increase of 16.9%.  In St. Thomas, it was $261,481, up 15.2% over 2016.
“In 2018, it will be interesting to see what impact the new mortgage qualification tests will have on the housing market, here in our backyard and across Canada,” Smith said. “This is just one of the reasons why getting in touch with a REALTOR® is so helpful in selling or purchasing a home. REALTORS® are the professional source in guiding you through these changing times.”
St. Thomas saw a total of 901 homes sold in 2017, up 6.8% from 2016. In 2017, there were a total of 14,301 home listings, down 1.2% from 2016. The trend of high demand with low supply continued in 2017, with inventory (called Active Listings) down 35.6% from the previous year.
“It was a wonderful year serving as President of our real estate association,” Smith said. “As we move ahead in 2018, I firmly believe home sales will continue to be strong in our marketplace.”
The following table is based on data taken from the CREA National MLS® Report for November 2017 (the latest CREA statistics available). It provides a snapshot of how average home prices in London and St. Thomas compare to other major Ontario and Canadian centres.
City
Average Sale
Vancouver
$1,081,876
Toronto
$779,693
Fraser Valley
$741,172
Victoria
$684,843
Hamilton
$545,690
Calgary
$450,700
Kitchener-Waterloo
$445,855
Niagara
$389,016
Ottawa
$385,058
Edmonton
$372,911
London St. Thomas
$332,607
Windsor-Essex
$265,565
CANADA
$513,433
   
Canadian Market Face Test of Might
Canada’s real estate market will hit a slow patch in 2018 as tighter mortgage stress tests apply pressure and the impact could be exacerbated if an expected interest rate hike drives buyers to put off their home purchases, economists said earlier this week.
Observers added that further hikes from the Bank of Canada could heap stress onto buyers already combating stricter regulations that were introduced by the Office of the Superintendent of Financial Institutions on January 1 for uninsured mortgages, and elevated 5-year fixed mortgage rates that were pushed up by the CIBC, RBC, and TD banks last week.
“This is the most significant test the market has seen in recent years,” CIBC chief deputy chief economist Benjamin Tal said, as quoted by The Canadian Press.
Tal is expecting a market slowdown to be seen as early as the first quarter as people who were hoping to scoop up homes weigh whether renting or living with family for a bit longer will pay off later in the year, when the country has grown accustomed to the new conditions.
“The big question though is to what extent investors will stop buying,” Tal stated. “That will carry a big effect, but it’s still the biggest unknown.”
The Canadian Real Estate Association slashed its sales forecast for 2018 to predict a 5.3% drop in national sales to 486,600 units this year, shaving about 8,500 units from its previous estimate due to the impact of the stricter mortgage stress tests.
Earlier this week, the association released a report revealing that national home sales rose 4.5% on a month-over-month basis in December, and that the average national home price reached just over $496,500, up 5.7% from one year earlier.
CREA noted that the bounce likely stemmed from buyers scrambling to nab homes before being forced to submit to the uninsured mortgage regulations, which requires would-be homebuyers with a more than 20% down payment to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada.
“It will be interesting to see if the monthly sales activity continues to rise despite tighter mortgage regulations,” CREA chief economist Gregory Klump said in the report.
The association also shared that the number of homes on the market increased by 3.3% in December from the month before and December home sales were up 4.1% on a year-over-year basis.
The improvements signal that the country is “fully recovering from the slump last summer” when there was a drop in sales before a set of policies introduced by the Ontario government in April produced the desired market slowdown in Toronto during the second and third quarters following a hot first quarter.
“The new OFSI measures and a shift to a rising-state environment should prevent speculative froth from building again, and contain price growth to a reasonable pace for the remainder of the cycle,” BMO Capital Markets senior economist Robert Kavcic predicted in a note. by Ephraim Vecina.
Change of Space for 2018
This week, the Bank of Canada benchmark rate moved to 5.14 from 4.99%. Please ensure you remove previous versions of the “Change of Space” New OSFI Mortgage Rules” from your website, Autopilot, etc. as those documents are showing the older benchmark rate.
In October, the Office of the Superintendent of Financial Institutions Canada (OSFI) published the final version of its Guideline B-20. The revised Guideline, which took effect January 1, 2018, applies to all federally regulated financial institutions.
Overview of Changes effective January 1, 2018:

 

A new minimum qualifying rate (stress test) for uninsured mortgages will be set
The minimum qualifying rate for uninsured mortgages will be the greater of the five-year benchmark rate published by the BoC or the contractual mortgage rate +2%.
Lenders will be required to enhance their LTV measurement and limits to ensure risk responsiveness
Federally regulated financial institutions must establish and adhere to appropriate LTV ratio limits that are reflective of risk and updated as housing markets and the economic environment evolve.
Restrictions will be placed on certain lending arrangements that are designed, or appear designed to circumvent LTV limits
A federally regulated financial institution is prohibited from arranging with another lender: a mortgage, or a combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum LTV ratio or other limits in its residential mortgage underwriting policy, or any requirements established by law.
Economic Highlights
Data Release: Poloz bumps up borrowing costs, but caution still the word
• The Bank of Canada increased its key monetary policy interest rate by 25bps this morning, to 1.25%.
• The decision was accompanied by the latest Monetary Policy Report (MPR), which provided a fresh view of the Bank’s economic outlook. The Bank estimates that growth in 2017 averaged 3.0%, while their outlook for this year has been upgraded slightly, to 2.3%, from 2.1% in October. Growth of 1.6% is projected for 2019, embodying a modest improvement from October’s 1.5% forecast.
• The pace of potential growth remained a key concern for the Bank. It is possible that strong demand may be motivating increased inputs of capital and labour, and the Bank will closely monitor developments on this front. In practical terms, although strong business investment has led the Bank to upgrade the level of potential in 2017, the output gap is judged to be in the -0.25% to +0.75% range, suggesting that economic slack has been effectively absorbed. The Bank acknowledged that labour market slack is being absorbed more quickly than previously anticipated. However, wage data and other measures suggest that, in contrast to an overall lack of spare capacity in the economy, some slack may still remain in labour markets.
• The diminishing slack has made itself felt in core inflation measures. While temporary factors such as energy price swings will generate near-term noise, inflation is expected to trend close to the midpoint of the Bank’s 1% to 3% band over the forecast horizon.
• As always, the MPR assessed the key risks to the economic outlook. Weaker exports are the top risk in light of NAFTA uncertainty and recent imposition of tariffs by the United States. Faster potential output, stronger U.S. growth and more robust consumer spending (paired with rising household debt) were also seen as risks. A “pronounced” drop in home prices in key overheated Canadian markets rounded out the list of concerns.
Key Implications
• In light of an impressive run of labour market data and their latest Business Outlook Survey painting a positive picture, the Bank of Canada was widely expected to hike rates today, and Governor Poloz and company did not disappoint. It has become increasingly clear that emergency level interest rates are no longer warranted. But, while rates look likely to continue to rise, the key question remains “at what pace?”  
• Today’s statement and MPR provided some further indication of the answer. Emergency level rates may not be needed, but that doesn’t mean that the Bank is in a rush to continue hiking. NAFTA uncertainty hangs over the outlook, with the Bank explicitly downgrading the outlook for business investment and trade to account for the impact of negotiations. What’s more, despite the positive run of labour market data, wage growth remains weaker than the Bank had expected. Most explicit was the statement that while the outlook will likely “warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed”.  
• As such, it remains our base-case view that a gradual pace of tightening is most likely, with the next hike penciled in for July. Data dependency of course means that this is not a lock. Developments in Poloz’s list of areas to watch, including interest rate sensitivity, labour market developments, and inflation dynamics could easily bring the next hike forward, or push it back.
United States
·         Not even a looming government shutdown could dampen market optimism this week. More evidence of strong momentum in the economy saw equities gain ground, while Treasuries and the U.S. Dollar continued to fall.
·         It remained a coin toss at time of writing whether Congress will reach a funding deal to avert a government shutdown at midnight. If government shuts down, many non-essential services won’t operate, and employees will not be paid.
·         For markets, shutdowns have been modest negatives in the past. However, markets rallied in the last three. All told the U.S. economy has very solid momentum heading into 2018. A closure would be a slight hit to growth, but not derail the U.S. expansion.
Canada
·         As expected, the Bank of Canada this week raised its key interest rate by 25 basis points, putting the overnight policy rate at 1.25%. However, the decision was accompanied by a dovish tone, justified by the downside risks to the outlook.
·         It appears that homebuyers pulled forward purchases into last fall, ahead of the B-20 guidelines that took hold at the start of this year. We anticipate that existing home sales will be dampened by the new guidelines, particularly as the qualifying mortgage rate rises further above 5%.
·         All told, the key message from this week’s interest rate decision is that interest rates are headed higher. However, downside risks warrant a gradual pace of increase.

Rates
The Bank of Canada increased the target overnight interest another quarter of a percent to 1.25%; this is the third rate hike since July 2017, and more increases are expected over the coming months. 
Accordingly, many lenders have increased their prime lending rates 25 bps to 3.45%.    Bank of Canada, Bench Mark Rate Increased to 5.14%.  
Most lenders have now increased their fixed rates also on average 15 basis point.
 

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Change Of Space January 2018

19 Jan

Residential Market Update – January 17, 2018

General

Posted by: Adriaan Driessen

Market Commentary
CREA Stats
Home sales ended 2017 with a rise in sales ahead of the mortgage stress test which came in at the start of the New Year.
The Canadian Real Estate Association says that there was a 4.5% increase in nationwide home sales in December compared with November, marking their fifth consecutive monthly rise.
Activity increased in almost 60% of local markets with the GTA, Edmonton, Calgary, the Fraser Valley, Vancouver Island, Hamilton-Burlington and Winnipeg leading the gains.
Actual (not seasonally adjusted) activity was up 4.1% year-over-year. Annual gains were strongest in the Lower Mainland of British Columbia, Vancouver Island, Calgary, Edmonton, Ottawa and Montreal. The GTA saw a decline.
“National home sales in December were likely boosted by seasonal adjustment factors and a potential pull-forward of demand before new mortgage regulations came into effect this year,” said Gregory Klump, CREA’s Chief Economist. “It will be interesting to see if monthly sales activity continues to rise despite tighter mortgage regulations that took effect on January 1st.”
New supply of homes in the GTA pushed new listings nationwide up 3.3% but inventory remained subdued at 4.5 months of supply.
CREA’s aggregate home price index was up 9.1 year-over-year in December, the smallest increase since February 2016 and the 8th consecutive slowdown of price increases. 
Bank of Canada Rate Increase Announced
The Bank of Canada today increased its target for the overnight rate to 1 1/4 per cent. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent.
Growth in the Canadian economy is projected to slow from 3 per cent in 2017 to 2.2 per cent this year and 1.6 per cent in 2019.
The Press Release and the Report are now available on the Bank of Canada’s website
Is There Another Rate Increase on the Horizon?
The Bank of Canada will make its first interest rate announcement of 2018 this week and the majority prediction is that there will be an increase.
The December employment numbers seem to have been the final switch that needed to be flipped to green-light an increase.  The creation of nearly 80,000 jobs and a 5.7% unemployment rate – the lowest since comparable records have been kept starting in 1976 – were enough to tamp-down growing uncertainty about the fate of the NAFTA renegotiations.
The bond market certainly sees the jobs picture as bright and yields on Government of Canada five-year notes jumped, triggering a round of increases in five-year fixed mortgage rates at the big banks.
Along with employment, the long-term view is focused on inflation.  At 2.1%, it is pretty much where the Bank of Canada wants it.  There are expectations that wage growth will put some upward pressure on inflation but bigger economic factors like debt, a growing number of retirees and technological efficiencies will likely temper rising prices.
If the expected rate increase comes on Wednesday most analysts anticipate a fairly long hold before the next hike.  The BoC remains very concerned about high levels of household debt and it remains to be seen how the new mortgage stress test will affect the housing market.  Economists who had been predicting three rate hikes this year are dialing that back to just a pair of increases.  By First National Financial. 
Households Struggle as Lender Hike Rates
If the Bank of Canada decides to increase interest rates this week it will pile further pressure on millions of already-struggling households, while some lenders are already making changes to rates.
A survey from insolvency firm MNP reveals that almost half of respondents are within $200 of being unable to meet their monthly financial obligations.
The report shows that a third of households are already unable to meet their monthly costs with a similar share concerned about their levels of debt, 38% regretting taking on so much debt, and 55% not expecting to have a debt-free retirement.
Four in ten Canadians are concerned that they would be in financial trouble if interest rates rise much more; a third could be facing insolvency.
The Financial Post reports that RBC, TD and CIBC have all increased mortgage rates with 5-year fixed rate loans now above 5%.
Many economists are expecting BoC Governor Stephen Poloz to announce the first interest rate rise of 2018 on Wednesday. 
December Homes Sales Surged In Advance of New Mortgage Rules

The January 1 implementation of the new OSFI B-20 regulations requires that uninsured mortgage borrowers be stress-tested at a mortgage rate 200 basis points above the contract rate at federally regulated financial institutions. It is no surprise that home sales rose in advance of the new ruling in November and December. Even so, activity remains below peak levels earlier in 2017 and prices continued to fall in the Greater Toronto Area (GTA) and in Oakville-Milton, Ontario for the eighth consecutive month. Prices also fell last month in Calgary, Regina, and Saskatoon–cities that have suffered the effects of the plunge in oil and other commodity prices beginning in mid-2014.
Mortgage Rates Are Rising
Ever since the release of exceptionally strong yearend employment data for Canada on January 5th, there has been a widespread expectation that the Bank of Canada would hike the target overnight interest rate by 25 basis points this Wednesday, taking it to 1.25 percent. Indeed, market rates have already risen in response to this expectation. The Royal Bank was the first to hike its posted 5-year fixed mortgage rate to 5.14 percent last Thursday, up from 4.99 percent. Other banks quickly followed suit.
It used to be that a hike in the posted rate was of little consequence because borrowers’ contract rates were typically much lower. However, government regulations put in place in October 2016 now force borrowers with less than a 20 percent down payment to qualify at the posted rate. And the new OSFI regulations effective this year now require even those with more than a 20 percent down payment to qualify at a rate 200 basis points above the contract mortgage rate at federally regulated financial institutions.
It has been four years since the posted five-year fixed mortgage rate exceeded 5 percent. And it has been nearly a decade since homebuyers had to qualify at contract mortgage rates that high–when government stress-testing rules didn’t exist. A decade ago, house prices in Canada’s major cities were substantially lower. Indeed, as the table below shows, house prices in the Greater Vancouver Region, Fraser Valley and the Lower Mainland of British Columbia have increased by nearly 80 percent in just the past five years. In the GTA, home prices are up over 60 percent over the same period. These price gains dwarf income increases by an enormous margin. So clearly, housing affordability has plummeted and the combination of tightening regulations and rising interest rates will no doubt dampen housing activity.
This is one factor that could weaken the case for a Bank of Canada rate hike this week. Another is the potential failure of NAFTA negotiations–a threat to three-quarters of Canada’s exports. Additionally, inflation remains low and wage gains–though rising–are still quite moderate.
Hence the case for a Bank of Canada rate hike this week is not incontestable.
U.S. market interest rates have risen significantly this year, and many bond traders are now forecasting the end of the secular bull market in bonds as the U.S. economy approaches full-employment and fiscal stimulus (the recent tax cuts) will boost the federal budget deficit.
December Home Sales Rise
The Canadian Real Estate Association (CREA) reported today that national home sales jumped 4.5% from November to December–their fifth consecutive monthly increase. Activity in December was up in close to 60% of all local markets, led by the GTA, Edmonton, Calgary, the Fraser Valley, Vancouver Island, Hamilton-Burlington and Winnipeg.
While activity remained below year-ago levels in the GTA, the decline there was more than offset by some sizeable y-o-y gains in the Lower Mainland of British Columbia, Vancouver Island, Calgary, Edmonton, Ottawa and Montreal.
New Listings Shot Up
Many sellers decided to list their properties ahead of the mortgage rule changes. The number of newly listed homes rose 3.3% in December. As in November, the national increase was overwhelmingly due to rising new supply in the GTA. New listings and sales have both trended higher since August. As a result, the national sales-to-new listings ratio has remained in the mid-to-high 50% range since then.
A national sales-to-new listings ratio of between 40% and 60% is consistent with a balanced national housing market, with readings below and above this range indicating buyers’ and sellers’ markets respectively. That said, the balanced range can vary among local markets.
Considering the degree and duration that the current market balance is above or below its long-term average is a more sophisticated way of gauging whether local housing market conditions favour buyers or sellers. Market balance measures that are within one standard deviation of the long-term average are generally consistent with balanced market conditions. Based on a comparison of the sales-to-new listings ratio with its long-term average, more than two-thirds of all local markets were in balanced-market territory in December 2017.
The number of months of inventory is another important measure of the balance between housing supply and demand. It represents how long it would take to liquidate current inventories at the current rate of sales activity.
There were 4.5 months of inventory on a national basis at the end of December 2017. The measure has been moving steadily lower in tandem with the monthly rise in sales that began last summer.
The number of months of inventory in the Greater Golden Horseshoe region (2.1 months) was up sharply from the all-time low reached in March 2017 (0.9 months). Even so, the December reading stood a full month below the regions’ long-term average (3.1 months) and reached a seven-month low.
Price Pressures Eased
The Aggregate Composite MLS® Home Price Index (HPI) rose by 9.1% year-over-year (y-o-y) in December 2017 marking a further deceleration in y-o-y gains that began in the spring of last year and the smallest increase since February 2016. The slowdown in price gains mainly reflects softening price trends in the Greater Golden Horseshoe housing markets tracked by the index, particularly for single-family homes. On an aggregate basis, only single-family price increases slowed on a y-o-y basis. By comparison, y-o-y price gains picked up for townhouse/row and apartment units.
Apartment units again posted the most substantial y-o-y price gains in December (+20.5%), followed by townhouse/row units (+13%), one-storey single family homes (+5.5%), and two-storey single family homes (+4.5%).

By Dr. Sherry Cooper. Chief Economist, Dominion Lending Centres
What Happens to Stocks When the Bull Market Ends
You undoubtedly know that 2017 was a record-setting year for the broad stock markets. And while gold was up last year despite numerous headwinds, most mainstream investors aren’t paying much attention to gold since they keep seeing so much green in their stock portfolios.
Even I was taken back by some of the data from the bull market in stocks…
  • The Dow hit a record high 71 times last year. On average, a new high was hit more frequently than once a week.
  • For the first time ever in its almost 90-year history, the S&P 500 rose every month in 2017. And historically there have only been four years with gains in 11 months of the year.
  • The S&P’s largest pullback in 2017 was 2.8%, the smallest since 1995.
  • To start 2018, the S&P 500 has risen in each of the five trading sessions, hitting a new record high every day. The last time the index opened the year with at least five straight record highs was 1964.
This all begs the question: is the bull market about to come to an end?  
• And as Mike pointed out in his 2018 predictions, the CAPE (Cyclically Adjusted Price-Earnings) ratio has now matched its 1999 level, the second highest reading in over 100 years of data. The CAPE now has a higher reading only in 1929.
This all begs the question: is the bull market about to come to an end? This is exactly the kind of frothy behavior a market sees near its apex, so it’s definitely a prudent question to ask. If last year ends up being the top of this bull market, what does history say could happen to stocks this year?
We dug up the data for all bull markets in the S&P since the year 1900, and then examined what happened in the very first year after each of those bull markets ended. In other words, what did the first year of the bear market look like after the last full year of the bull market? This could be useful data, if 2017 ends up being the peak of the bull market.
Here’s what history shows.
First Year Performance of Bear Market After Bull Market Ends

While the declines for the first year of the bear market varied greatly, you can see that on average, the S&P lost 16% the year immediately following the last year of the bull market. Also notice that in only four cases was the decline measured in single digits—all others were double digit losses.
Mike Maloney believes this is the year overvalued stocks begin their descent. If he’s right, the decline could be higher than the historical average, since this is the second longest bull market in history. 
And what is gold likely to do in that environment? We’ve shown before that gold has acted as a buffer—and gained ground—in most of the biggest stock market crashes. 
The bottom line for us is that we think a major shift is coming, not just in overpriced stock and bond and real estate markets, but in the currencies that have been abused by many central bankers the world over. Once the process gets underway, the mainstream will turn back to mankind’s oldest form of money in mass, and our patience and forethought will pay off. By Jeff Clark, Senior Precious Metals Analyst, GoldSilver.
Economic Highlights
Are the good times really over for good?
Recently, for the first time since 2012 we have seen the 5-year bond market climb back up over 2.0%. Based on amazing employment numbers and the likelihood that the Bank of Canada will raise rates on January 17, the bond market has continued a climb out of the basement and maybe running full steam uphill in response to a better economy.
Let’s look at the last 10-years of bonds and how they correlated to the 5-yr. fixed mortgage rate because it is still the choice of most Canadians as it is a stable place to build your home budgets around. In 2007 the 5-year bond was at 4.13% and the 5-year benchmark rate 6.65%. Follow the melt down that started to happen in 2008 the bond slowly but surely began to sink and by 2012 the 5-yr. bond was at 1.25% and the bench mark 5 yr. rate was at 5.29%. But wait we weren’t done; in 2015 the bond sunk all the way to .65% but the bench mark rate was still at 4.74%, if you took that rate at the branch you really paid too much as we were almost at 2.25% for standard feature 5 year fixed at that time.
So now turn the corner and we see that the bond is on its way back up. We come into 2018 with it having climbed all the way back to 2% almost an 8-year high and of course Governor Poloz has already had the bench mark at 4.99 so I don’t think it will be long before we see the bench mark reset again. Will it be long before the new qualifying numbers are 6% again, still some factors to watch, NAFTA, employment, world markets, price of tea in China, price of oil in Alberta. By Len Lane.

Rates
Increase to prime lending rate currently at 3.45%.  Bank of Canada Benchmark Qualifying rate for mortgage approval is at 4.99% but expected to increase again soon.  15 Basis point (0.15%) increase in fixed rates.  25 Basis point (0.25%) increase in variable rates.  

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